Orphanides: the Eurozone crisis is political


Money quote:

European Institutions also face the risk of political capture by the governments of specific member states that could misuse the crisis for local political gain.


79 replies on “Orphanides: the Eurozone crisis is political”

NB: Orphanides attended the match – he was a member of the ECB Governing Council until May 2012.

It can only be described as remarkable that such a senior banking representative has only now discovered that what drives the EU is politics.

The comparisons with the US are pointless for this very reason. The level of political integration of the two regions is totally different and there can have been no expectation that this would change with the introduction of the euro.



“It can only be described as remarkable that such a senior banking representative has only now discovered that what drives the EU is politics.”

I read most of that paper last night and my reading was that the EU or EZ was thoroughly steamrolled by German national interests. The EU in effect was worst than irrelevant in the crisis; every EU institution was co-opted in pursuit of the German national interest. Even France, not knowing its ar$e from its elbow under Sarkozy, was co-opted by Germany.
Small countries were discarded like tissue paper, with very small countries (Cyprus) being made an example of, as a cat would torment a mouse before killing it.
The EZ/EU, and EZ institutions particularly, have lost their credibility. They now serve one master and her national interest, nothing else.

Some seemed to think that by joining the Euro other member states would gain some control over the Bundesbank’s etc decision-making… Not the way it turned out…

I think most of that endless string of false and misleading claims have already be debunked in


Just 2 things in addition

1. Orphanides tries to give the impression that some imaginary rescue plan only failed because of some lonley German veto for internal reasons.

The exact opposite is true. Cyprus was completely alone in the Eurogroup vote, with only tax haven Luxembourg abstaining.

2. He mentions some FATF corruption assessment (“Cyprus had a considerably better compliance record than both Germany ….”), which I remember turned out for Cyprus to be simply some Merval or similarly called questionaire, banking people had to fill out. They would have to be brain dead to check off “I do money laundering every day and it is a lot of fun” : -)

The Euro is organized to protect the majority of good people from people like Orphanides.

I find his attempts to try to whitewash his own massive failure as central bank governor by construing some story with german internal politcs as pretty shameless, but rather typical for this generation of MIT economists.

@ JR

The point that I am making is one that I continually make and may now probably seem rather tedious i.e. that the EU is a political undertaking which no country is coerced to join and, indeed, can now choose to leave. This is especially true of the creation of the euro, only more so. Recriminations about the behaviour of one state or another may be satisfying to those indulging in them and get a wide audience but the serve no more purpose than would be the case with regard to the outcome of elections or government decisions domestically. No one country can dictate events even if one – Germany – is providing the anchor for the single currency.

It is a continuing puzzle to me why this reality is accepted at a national level in lreland but not at an international one (especially given the behaviour of states vis-a-vis one another before the EU came into existence which was not exactly kid glove).

Rather than continuous postmortems about what has gone wrong, it would be better IMHO to concentrate on the steps being taken to try and put matters right.

“Rather than continuous postmortems about what has gone wrong, it would be better IMHO to concentrate on the steps being taken to try and put matters right.”

Agreed, but in fact fantastically difficult to “put matters right” within a democratic context for a country in Ireland’s situation without devaluation or persistent mass unemployment and emigration.

“Obvious” “centrist” technocratic solutions like 1. water charges 2. increasing taxes on average earners who have very little tax on their income 3. rationalizing rural schools and hospitals 4. more aggressive “active labour market” requirements as part of unemployment benefits 5. property taxes (even at low levels currently charged) 6. privatisation / competition for more public service provision 7. increased competition in food retail systems 8. near zero-ing out or Ireland’s overseas aid budget 9. changing the staff mix in public health provision etc. all have enormous disadvantages electorally, even in the half-hearted format they have currently been attempted, and are contributing to the battering of the government and electoral rise of Sinn Fein.

Central bankers never have to fear being on a breadline and any reader who would not know what Orphanides’ previous job was in Cyprus and his role in the amen corner in Frankfurt, would just regard this as a paper from another academic.

“Before joining the euro area on 1 January 2008, Cyprus had a stable currency and its public finances were in good order,” he says but in May 2007 3 months after the outbreak of the subprime crisis in the US,
Orphanides became governor of the Bank of Cyprus.

He heaps blame on Demetris Christofias, the communist who was elected president in 2008 after membership of the euro was a fait accompli.

So after the outbreak of the credit crunch in Aug 2007, he could have pushed for a delay in joining the euro.

Orphanides is careful not to burn any bridges with the ECB and Trichet earns just a footnote while the criticism of the Deauville agreement is simply disingenuous.

Merkel and Sarkozy were responding to political pressure in reaction to the ECB policy of paying bank bondholders, (which Orphanides endorsed) by suggesting future bail-ins.

For a man who has airbrushed out his own direct role in Cyprus and Frankfurt, to imply Merkel was motivated by pushing down bund yields, is pathetic.

On central bankers as Pontius Pilates, Jaime Caruana, general manager of the Bank for International Settlements was governor of the Bank of Spain in 2000-2006 and in 2004 he gave into pressure to relax the requirement on the main banks to make special ‘rainy day’ provisions during the good times – – Charlie McCreevy, the European Commission’s financial services commissioner, also pushed for a relaxation of the rules.

Caruana decamped to Washington DC in 2006 to take a job at the IMF where Rodrigo Rato, a former Spanish finance minister, was managing director. He then moved onto Basel in 2009 and his IMF job as financial counsellor and director of the Monetary and Capital Markets Department was given to José Viñals, a former Bank of Spain colleague.

So two leading executives of the boomtime Bank of Spain have been lecturing on prudence since the bust but like the sinning preacher while the credibility should be tarnished, the warnings of pestilence maybe merited!

@Joseph Ryan

DOCM’s “point” is a corker, the line of reasoning between “The EU is a political project” and “No one should be surprised that Germany is able to completely dominate the economic and monetary policy making process in the EU.” would be an interesting one to see fleshed out. Why, in the EU, does the result of political bargaining usually turn out to be “German politics”?

It seems to be that the institutional framework in which European politics takes place is amenable to German domination and since Germany also enjoys the power to restrict changes in that framework we should not imagine that this will change.

Germany is in control of the EU and can stay there.

The European Commission is a growing alternate centre of power but the only way it can gain more responsibility is if it is clear that the power can only be exercised in Germany’s best interests (what ever those interests currently are). Hence the cancer of ordoliberalism and monetarism that riddles the EC and ECB and the new range of legal strictures that make non German mandated economic policy not just frowned upon but illegal.

This begs a question. Since everyone agrees that Germany has gained a stranglehold over the economic and monetary policy making apparatus of the EU why do we think these policies will not always be set to best serve Germany’s interests, even if Germany’s interests are in direct opposition to a much larger proportion of the EU than it constitutes?

When the next crisis arrives and Germany ensures that the solution chosen is the one that prioritizes German national interests over every other countries what do we do? At that point even more political power may have been delegated to the EU and the options for resistance at the national level may be even fewer.

The EU has a German problem that it may not be possible to fix and we need to talk about it in the open. With Orphanides and Philippe Legrain some of the former establishment in Europe are breaking ranks but this is not enough. The fight over the direction of the future direction of the EU has to become public while the project can still be saved.

@ otto

I was speaking of the international i.e. EU context rather than the national but it is, of course, the nexus between the two that is the crux of the problem. Fixing one will not fix the other but some mutual support steps can be agreed. Indeed, it seems to me that it is something on these lines is in the works e.g. qualifying investment being excluded from the deficit rules.

As far as Germany is concerned, the problem is, and has been for some time, the skewing of the economy towards the export sector and a failure to maintain the level of domestic investment. There is little evidence of a political willingness to address the issue because of the triangular alliance between organised labour, employers and government. Indeed, the number of politicians that cannot see beyond the end of their nose is the unifying feature of all EU states.


In the US, one simply gets on the federally funded inter-state highway system. Having failed to maintain an appropriate level of investment, is Germany now proposing to behave like Switzerland and get “foreigners” i.e. other EU citizens to pay for it?

I cite this simply as an example of what a true federation requires and not to single out Germany in particular. If the politicians of Europe wish the euro to be a success, they must tackle the barriers to economic integration in this and many other areas which they have the legal competences to do but not the political will.


Article 50.1 TEU: “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements”.

Article 3.4 TEU: “The Union shall establish and economic and monetary Union whose currency is the euro”.


The full list of members [ to Advisory Group to Banking Inquiry] is:

Pat Casey, Principal Officer (Department of Finance)

Paul Gorecki, Adjunct Professor of Economics, Trinity College Dublin (Research Affiliate ESRI)

Megan Greene, Maverick Intelligence

Cathal Guiomard, Economist, former Aviation Commissioner for Ireland.

Conor McCabe, Research fellow, UCD School of Social Justice

Colm McCarthy, Economist

Séamus McCarthy, Comptroller and Auditor General

Rafique Mottiar, Consultant Economist (Central Bank)

John Shaw, Assistant Secretary (Department of the Taoiseach)


@Advisory Group

[ii] OrdoLiberal Fundmentalism of the ECBundesbanke

[iii] Intellectual failure of Hibernian academia/social scientific research community to monitor and mind its Citizenry

[iv] Bankers and their boards

[v] all of the above


“No one country can dictate events even if one – Germany – is providing the anchor for the single currency…”

Somehow I think the article succeeded in making the point that one or two countries certainly can dictate events and dictate them to their own advantage. That is not withstanding the reasonable observation made by MH above “For a man who has airbrushed out his own direct role in Cyprus and Frankfurt, to imply Merkel was motivated by pushing down bund yields, is pathetic.”

The EZ and the EU has lost a lot of credibility in this continuing crisis, principally because the institutions lined up with the wealthier creditor classes led by Germany. Until the EU and EZ change policy it will continue to lose credibility and possibly even its existence.
How to fix things?

Other countries appear to tried QE with good results, what is stopping the EZ? A century-old ghost, when others live a present nightmare existence?

The tool-kit always includes ‘reform measures’ but rarely increased taxes. Why is that? Taxes in the US in the 1950s were very progressive and the US economy was very successful during that period. Whose interests are served by keeping higher taxes and wealth taxes off the agenda? Who is keeping these taxes off the agenda?

Where is the evidence that reducing a fruit pickers wages in Greece or Portugal, will help Portugal to sell cars or other products to Germany?

The world of persuading the poor and working poor in western society, to work harder for less, to the better benefit of their betters, is coming to an end. The sooner the better.

On reflection, I should have written:

The world of persuading the poor and working poor in western society, to work harder for less, to the better benefit of their mostly idle betters, is coming to an end.

Every country has a veto, Malta can do as much damage as Germany. That is at the root of the dysfunction.

A scheme whereby a vote representing 70% of EZ GDP would be sufficient to overrule the dissenting 30% would make a lot of sense. One country one vote with a bare majority required would not last long.

There is no doubt but Cyprus, Malta, Luxembourg were royally shafted to protect Frankfurt, Paris and non EZ, London and Geneva. There is also no doubt that politics in Germany and France affected attitudes to the PIIGS and nascent banking havens.
The present set up is headed for a cliff. It is likely it will be rejigged to make it functional and less prone to hijacking by one or two self interested members.

Our boy wonder should be beating the bushes to find members who are interested in reforms that will serve the needs of all EZ members in the long term.

Kissing parts of Angela’s anatomy that were not designed to be kissed is fine in Ireland. In many countries it would not pass muster.

Of course it’s political. That’s why the market can’t price it properly. When the value of something depends on a midnight meeting it’s impossible to model.

@ JR

I would have no argument with you on most of the points that you list. They are, however, with the exception of QE, largely matters for decision at a national level (cf. Otto’s list above for more actions that are needed). My view is that not alone is it not possible to palm off the political responsibility for them to another country or countries, it is ultimately counter-productive to even attempt to do so even if the reasoning of the political parties indulging in it is easily comprehended.

QE is expressly forbidden by the treaties to which all EU countries have freely signed up.

@ Mickey Hickey

Every country has a veto? Anything but! With the exception of clearly defined topics – notably taxation – decisions are taken either by qualified majority (i.e. votes linked to population size) or simple majority, in most legislative instances in co-decision with the European Parliament (i.e. acting with the Council – made up of national ministers – as legislature).

@ All



@ Mickey Hickey

FYI regarding the ECB decision-making process.


New rules will apply once Lithuania joins. The Economist had its usual eurosceptic take on the changes. In fact, Germany appears willing to work the new system despite misgivings expressed in the usual domestic political quarters.


@ MH

The spirit of Deauville – avoiding a situation where the taxpayer is first in line for bailouts – is far from dead. It could hardly be. It responds to a deep political need. The lack of enthusiasm of voters for bailing out their own banks is exceeded only by their unwillingness to bail out those of other countries. Admittedly, the topic was restructuring of sovereign debt in Deauville but the principle is the same.



just a short thank you for the very informative links.

More on the other threads is all I can muster tonight.


“QE is expressly forbidden by the treaties to which all EU countries have freely signed up.”

We apologise to customers if their initial choice is not available and we endeavour to replace it with a similar alternative. Refunds will not be provided.

Deflation is not part of the ECB’s mandate and it’s a long way from 2%. The ECB will grab the nettle and push on that string when the Germans smell the coffee. Resistance is futile.
The treaties can always be changed, you know.

Seafoid ,
With rates @ zero , budgets to be tightened in response to the demands of les Boche & no QE and deflation looming there is only one tool left open to the EUSSR & that is to recalc the index to 2%.


treaties can be changed, pressure can be built, sometimes raw force prevails.

But in this case I do tell you

“From my cold dead hands”

That won’t be necessary. What might be necessary is to invoke DOCM Article 50 and invite the Germans to leave the Euro,and the EU!and join up with another theocracy like Iran. Crazy Jens and the Mullahs should get on famously.

@ Francis


“Jens Weidmann, the president of the Bundesbank and the ECB governing “council’s arch hawk, said he could support the purchase of government debt by the central bank under certain conditions should the bloc’s fledgling recovery falter.”

@ All


The views of Professor John Fitzgerald with regard to the ideal budgetary path to be followed. Some “political capture” of at least one EU institution, the Commission, by a specific government, the Irish in this instance, might be required. Joking aside, the point he makes that there can hardly, almost by definition, be a standardised approach to such a disparate group of economies as is constituted by the EU, seems entirely valid to someone unversed in the technical aspects.



One wonders, however, if the contrast drawn between Spain and Ireland in terms of the reaction of the markets is entirely correct as the former has also seen the cost of borrowing fall dramaticaly.

@Michael Hennigan

Your website seems a lot slower getting today’s industrial production figures up.

Are you having technical problems?

@Michael Hennigan

I look forward to the analysis when it appears.

I agree that their effect on GNP for Q2 will be considerably less than for GDP.

However, their effect on GDP may well be explosive.

This is subject to two caveats:

(a) that the June figure is roughly of the same magnitude as the April + May figures.

(b) that the April + May figures are not revised beyond recognition.

Neither of these is guaranteed, so I’m not counting chickens yet.

But, if we assume for the sake of argument that both occur, the effect on GDP in Q2 will be explosive. We’d be talking about peak-Celtic Tiger y-o-y growth rates, in the region of 8 per cent. GNP would be less, but still very high. The 35% y-o-y increase in manufacturing output in April+May must be a world record for a developed country. It never reached even close to that level during the Celtic Tiger. Its the economic equivalent of Germany 7 Brazil 0 after 80 minutes. As I say, there are two caveats and nothing is certain. But, it may well be that in late September, when the GDP/GNP figures for Q2 are published, it will be apparent to all that the Celtic Tiger is back. My big regret is that this didn’t happen in time to affect the outcome of Scotland’s freedom referendum.

@ JtO

This site has been invigorated by your return and I look forward to your posts. But … if you’ve been paying attention to Michael Hennigan at all or if, like me, you’ve worked in two US MNC’s in Ireland, you’ll know that industrial production in Ireland is largely the consequence of decisions made in the US on what ‘output’ is to be produced, where it is to be shipped to from Ireland, and at what price it is being sold at into international supply chains. That small caveat aside, the figures are good and they support real jobs.


It would be nice if you turned out to be right. But if you are, it will have little to do with good economic management under either this or previous governments.

The news will generate a mixed response in the other countries of the EU and notably those in the EA cf.


There is another story in the IT that there is €40 billion sitting in deposit accounts of Irish households at Irish banks (earning an average 0.25%!). A measure of the lack of financial sophistication of the population, its conservatism and the “plain vanilla” nature of the bust?


It’ll be the equivalent of a 7-0 win, only with most goals scored from outside the stadium by various profiting shifting NMCs.


You are, of course, correct in what you say. Nice to know there is someone on this site who has worked in the real world. I have worked for US company for almost 20 years. I’d add the following points.

(1) Decisions on production in multi-national companies in Ireland may indeed may be largely made by management outside Ireland, but they don’t do so on a whim. They respond to competitive pressures like anywhere else in business. If costs rise in Ireland relative to other countries, they’ll move production from Ireland to those countries. For example, Dell and some others in 2008-10. However, if costs fall in Ireland relative to other countries, they’ll move production back to Ireland. That’s what’s been happening this past couple of years, but seems to have accelerated sharply this year, especially since March. So, Ireland is now reaping the benefits of the improved competitiveness, work flexibility, increased productivity, lack of social unrest, lack of industrial action etc etc that have been its hallmarks in the now-well-and-truly-ended recession. Given the amount of unrest, strikes etc in many European countries (even the relatively stable the UK was on strike on Thursday), Ireland is now a dream location for US multi-nationals. The people have come through a severe recession and a severe dose of austerity and, instead of burning the place down or having a general strike every week, like they’ve done in some countries, and which the leftists pleaded with them to do in Ireland, they’ve just got on with things. The only time revolution has appeared likely since the onset of the recession was when Garth Brooks was banned by some po-faced bureaucrat. American multi-national managers will love that.

(2) Its a myth that multi-national companies don’t create wealth in the Irish economy. Very crudely (no space on this site for more than very crude models), businesses benefit the economy in 4 ways (maybe more, I can’t think of them all at this time of the morning, especially on July 12th): (a) wages paid to employees (b) money paid to local companies for supply of goods and services (c) corporation tax paid to government (d) profits accruing to owners and shareholders of the company. In the case of indigenous companies, (a), (b), (c) and (d) go to the Irish economy – in the case of the multi-national companies, (a), (b) and (c) go to the Irish economy, but I agree (d) doesn’t and largely explains the difference between GDP and GNP. However, in the case of multi-nationals, (a), (b) and (c) are still very hefty and even (d) brings benefit, since, when it is increasing, redundancies and plant closures are hugely reduced (although never eliminated). I note that figures (from Dept of Social Welfare website) for redundancies in Ireland in Jan-Jun 2014 are 90 per cent down on 2009 and below even peak Celtic Tiger levels when they were very very low.

(c) The CSO figures show high growth in the output of Irish-owned industry as well since March. Its not just multi-nationals. Output in Irish-owned industry in Mar-May was almost 20 per cent up y-o-y (over 40 per cent for multi-nationals) compared with Mar-May 2013. Something dramatic happened Irish manufacturing output from March on. It was signalled first in the PMI surveys for March, April and May. Now it is confirmed by spectacular CSO figures (for both multi-nationals and domestic industry). If is confirmed and continues, the Celtic Tiger is back. Its 1997 all over again. The doomists will be routed. My only qualification is that 3 months is not long enough to know for sure if its a long-term trend or partly down to short-term volatility. Only time will tell. I can’t predict the future. If I could, I’d have bet on Germany to beat Brazil 7-1.

Off now to watch an Orange parade from home area (although a nationalist). Rural area, so it will be harmonious and peaceful, regardless of what happens in Belfast. The Orange ladies might even give me a slice of Asher cake. That’s assuming it hasn’t been banned by Owen Keegan. If ever there was a man whose grim countenance tells us that his main pleasure in life is stopping others enjoying themselves, its him. He’s even now trying to get GAA members booted off the Dail committee investigating the debacle. What a plonker.


The news will generate a mixed response in the other countries of the EU and notably those in the EA cf.


I totally agree totally with you. Very perceptive.

The Irish economy was already growing by 4.1 per cent in Q1. If the manufacturing trend I outlined in previous post continues (still not known for sure) it could be anything up to 8 per cent in later quarters of 2014. Going to Frau Merkel and pleading for her to give you lots of dosh on the grounds that the economy is screwed/banjaxed/destroyed, and that all hope is gone, becomes a bit difficult, as well downright laughable, when the economy is growing at a potential 8 per cent (if the Mar-May manufacturing trend continues) or even the actual 4.1 per cent of Q1. Do people think she’s an eejit? There’s more chance of her agreeing to a request from the Argentinian Pope for her to order Germany to lose tomorrow. As for other countries, is it seriously to be believed that the Netherlands, whose GDP has fallen since Q4 2009 and is still in recession, is going to agree to lots of financial aid to Ireland, whose economy (GNP) has grown by 13 per cent since Q4 2009 and which is now in mid-2014 poised uncertainly somewhere between high growth (4.1 GDP increase in Q1) and super-high Celtic Tiger-type growth for later quarters, which the manufacturing output figures portend?

Some (like the often-sensible Tull the other day) may say it is scuppering Enda’s grand plan for getting lots of lolly from the Germans to point this out on this site. This assumes that Frau Merkel gets her information on the Irish economy from reading posts on this site. But, I am sure she has other sources of information and will be fully-informed from those on how well the Irish economy is performing when Enda next comes looking for dosh. Enda should stop humiliating Ireland by constantly begging for debt relief which isn’t coming, which isn’t legally obliged to com, and which isn’t needed. Anyway, as Seamus Coffey pointed out a few years ago, most of the debt is internal within Ireland. The repayments don’t mostly flow abroad. They flow mostly to Irish investors. Show me the debit item in Ireland’s balance-of-payments figures where billions are flowing in debt repayments from Ireland to Germany. It doesn’t exist. Ireland’s balance-of-payments is in huge surplus, which it couldn’t be if the Germans were screwing us for mega-debt-repayments like some people say. You can certainly argue about the merits of how the banks and bondholders were saved on the grounds of equity within Ireland. Arguments on both sides. But, little to do with Germany. Enda should drop the poor-mouth act and instead start trumpeting to the world how well the Irish economy is performing, which after all he can claim a lot of credit and votes for. As for the antics in the EU parliament of the drug-snorter from Roscommon, its a total national embarrassment. Time to drop the poor-mouth act all round. I suspect its only been continued with because it keeps the mistakes of the later years of the FF government in the headlines. I don’t believe that the FG/Lab government has the slightest expectation of getting special treatment and lots of cash from Germany, especially now that the economy is doing so well. But, if continuing to make a song-and-dance about results in lots of 2009-pictures of Brian Cowen’s face in the papers, it brings electoral benefit to FG/Lab.


1. Production data on a month to month basis tends to be volatile as it’s hard to capture work-in-progress values.

2. These revisions in terms of size are very big and suggest that the CSO has a problem in capturing reliable data; with a change in the base from 2005 to 2010, the annual production rise jumps from 11.9% in April to 32.9% in May while the turnover index jumps from 1.1% to 18.9%.

Rises/falls in pharma production had a marginal impact on employment in the past decade.

3. So previous years data was understated like the employment data with Census 2011 showing that estimates of migrants had been undercounted by 103,000 since 2006.

When the revision disappears from the production data, the annual change may not be significant.

4. The employment numbers will remain the most important metric as by the year’s end there will be fake Irish companies employing more than 600,000 – more than treble FDI exporting firm employment – and unless the CSO estimates the impact on GNP of the tax inversions, the headline figure will not be reliable.

5. Targets in last October’s Budget were based on 34,000 additional jobs in Q2 – then the annual numbers jumped to 61,000 by December and fell to 43,000 by March 2014 – that included a rise in ‘Agriculture, forestry and fishing’ by 14,000 down from 29,000 in Dec – this results from undercounting in earlier years and the rise may well disappear in the household survey that will be published in August.

6. Including jobs scheme, the number of paid employees in Q1 2014 was below the level of the bailout quarter Q4 2010.


7. In June there were 475,000 (Live Register + Jobs schemes) or 22% of the workforce in receipt of employment related welfare in June.

8. Self employment without employees is back to 2007 levels. We don’t know how much of this is voluntary.


Your comment that the low point of the recession was Q4 2009, is very nearly reflected in the experience of a company with which I am familiar selling domestically, where the nadir was Feb 2010. Since then the experience has pretty much reflective of the economy, with a sustained improvement from last Sept. The improvement of April/ May has been extraordinary, continuing somewhat into June.
The improvement in this case is coming indirectly from FDI and from NAMA belatedly finishing sites that is should have started finishing a few years ago. The reason for the FDI knock-on effect is that when buildings are purchased, the purchasers usually then invest a further considerable amount in refurbishing the building for rent/lease.
The fact that NAMA often sold the buildings at fire-sale prices did them no credit to say the least, but the subsequent capital expenditure by the purchasers may have taken some sting out of NAMAs fire-sale policy.

[The improvement may have reflected itself more through increased hours of work than through employment. The CSO may not be fully capturing the increased working hours data]

re: ESM

With regard to ESM, Ireland is not going to get any relief and this has been obvious for some time. So why do we pay into ESM? To my knowledge we have a possible (in extremis) contingent liability of 11 billion to the ESM. That is not small change. Do you think we should pay it for somebody’s else banks, seeing that Ireland’s banks are supposedly now barred. Or are we are paying into ESM to cover the re-privatised Irish banks for the next time they bust the system!!!! Isn’t that a refreshing thought.
But lets consider another point.
The point at which a banking loan goes sour.
Under the Bundestag view apparently, ‘past liabilities’ will not be eligible under ESM.
So a loan issued by an Irish bank in 2005, where both loan and bank went sour in 2010 is completely ineligible.
Now lets take a loan issued by a European bank in 2005, where that loan goes sour in 2015, putting that bank in trouble in 2015.
Why should that loan, or that bank, be any more eligible than the Irish bank? In both cases the liability was incurred in 2005. Or is it a question of when the bank fessed up to the dud loans that is now going to form the criteria for sticking their hands in the ESM pot.

You appear to quite critical of the ESRI in not predicting the crisis, but John Fitzgerald has certainly been forecasting and improvement and the need for further housing for at least a year at this stage. If people had listened to him, housing supply in Dublin could have been increased and the appalling homelessness situation averted. [Credit where credit is due to John Fitzgerald].
Instead we have a 2005/2006 house price inflation in Dublin, that is one of the biggest risks to the economy and FDI, that we are so dependent on.

@ JR

On the ESM, you have to consider the “liability cascade” that Berlin insisted upon which applies to all EU banks, German banks included. The ESM agreement is essentially built on one common political denominator, that of putting the taxpayer last in the firing line. What euro area politician, or country, can object to that, or fail to participate?

The question may be posed earlier than anticipated and before the new banking union arrangements – including ESM involvement – are effective.


I agree with your comment on Professor Fitzgerald.


The “liability cascade” may work on paper but that its. It is just another curve ball.

Just consider it for a moment even. Firstly shareholders get wiped, covered bondholders then claim their collateralised assets which in most cases of may leave little left; then unsecured bondholders and depositors over €100,000 pony up. Under 100,000 are supposedly insured though God knows who the insurer is, then the gov steps in, if the govt is solvent. Only after that, to my knowledge does the ESM fund that the county has paid into kick in.
Such a system will ensure that there no bondholders, and at the first sign of danger, no depositors left.
The very idea of any rational State contributing to such a thoroughly useless insurance policy is bonkers. The State may as well save their own contributions into a solvency fund. Next time the S$it hits the fan, capital controls should immediately be introduced. The idea that big time depositors that flee the scene of devastation at the first sight of trouble, and leave the minnows to pick up the tab, is a typical piece of EU pandering to the wealthy sector, again.

But, even if one accepts ESM as a fait accompli, the question still arises, when did the bank go broke?
If the ESM were to be truly a new insurance policy, then it would only take into account any banks loans issued after Jan 2015, or whenever the ESM system comes into effect. Any other system will leave the ESM open to the accusation, that it funded banks that were sitting on hidden losses for years, and refused to funds banks that fessed up or were forced to fess up.

PS: There is as yet not a scintilla of legislation to my knowledge separating small depositors for large depositors, so what the legal basis for this over 100000/ under 100000 is , I have no idea.

As for the private family owned Portugal bank, whose owners survived a communist dictator with sufficient funds to ‘buy’ back the bank, the sooner this comes to a head the better.
Nobody should be in any doubt as to who benefits from the lack of movement in preparing EZ wide bank resolution legislation. The large depositors (sometimes interbank) are free to get out the gap every time.
The small savers are the suckers that will prop up the large salaries of the owners and executives and compensate them for their losses, every time.

@ JR

You may well be right! However, I simply posed the question as to the how any euro area country could fail to participate. Ní neart go cur le chéile!

@Michael Hennigan

I agree with you on need for caution regarding monthly figures, as they are often volatile and revised. That’s why I put in caveats.

However, there is some hard evidence to back up the CSO figures.

For example, what Joseph says about a company he is associated with.

Plus, yesterday Dublin Port announced an 8 per cent increase in throughput in the first half of 2014. These are real physical goods, not just CSO measurements of paper transactions.

@Joseph Ryan

I am delighted the company you are associated with is doing so well now and hope it continues. If I am not mistake, you are on the left. Fair enough. In my view, people on the traditional left should unite with business people and such like to stop middle-class nimbyists preventing legitimate economic activity. Although most of those attending Garth Brooks concerts would be from the country, many of those benefitting economically would be working-class Dubliners. Hundreds of working-class Dubliners would have got a mini-bonanza from the concerts and now they are being deprived of it. The idea that plummy-accented middle-class Conor Cruise O’Brien-soundalikes Dublin 4 liberals have any interest in the working-class is baloney, despite their continued pretence that they do so. In fact, they despise them. Glad to ss SF coming to realise that.

I agree with what you say about house-building. There should be an enquiry to see why it was ever allowed to fall to such low levels (one third the per capita rate of Northen Ireland). I seem to recall some economists saying a few years ago that there were 300,000 empty newly-built houses and that we wouldn’t need to build any new houses for 20 years. Such claptrap. Typical wild exaggeration we have become used to in Ireland in recent years. Must rush, am late.


The usual scam. Credit squeeze for the little fish. Loads of QE lolly for the sharks.

‘In fact, we count less than one thousand non-financial corporations in our sample that have issued bonds. This is a fairly exclusive circle. Not every firm is fit for the capital market

The Euro crisis is indeed political.

In order to sustain the current financier-friendly programme, victory of compliant political parties has to be secured in the various national jurisdictions.

The local elections were a bit of a wakener upper. The incoming cabinet will not nearly as cosy as the last, because the electoral noose is dangling. As Enda puts it, not enough people are feeling his uplift. The dissatisfied would include all the Dubs stuck in rural towns with negative equity and a ridiculous commute, all the people whose ‘new’ temporary part-time jobs barely cover the basics.

The UK has engineered a boom by printing merrily, and we are enjoying the spinoff. Property in the latter is fully commodified and traded globally as a financial asset, to the obvious detriment of the many folk who live, or wish to live there. I have read, however, that house price rises in NI are at the bottom of the UK league. Osborne’s credit beer doesn’t really reach the provinces. Dublin has sovereignty of course, but it has been thoroughly corroded by corrupt politics over the years.

Lets face it. The recovery broth is a bit on the thin side. It has to be augmented with various proposals for relief, such as those announced the other day, but that’s marginal stuff. Fiscal easing receives the blessing of the ‘independent’ ESRI, while illicit economic activities are to be counted in GDP, so as to provide a fig leaf for ‘flexibility’.

The hope is that this will be enough to bring in the necessary majority and keep the folk in line. I would say there are a few smirks in Brussels over the Garth Brooks saga.

@ JtO

You’ve made my day again. You’ve a brilliant way with words and barbed invective while arguing very effectively at the same time. I’m a convert. I particularly loved your description of Owen Keegan. Some years ago I took an Urban Economics course as part of a Master’s degree so you must remember the type of circles he moves in – endless conferences (many international) on ‘urban spaces’, ‘living cities’, ‘the public realm’, ‘transport infrastructure’ (never use the words ‘buses’ or ‘trains’), etc. It’s true that many of the people in Dublin who will lose out from the banning of the concerts will be Moore Street traders, taxi drivers, bar and restaurant workers and so on.


NO. The single ‘most pressing issue facing the economy’ remains …

… odious financial system debt – @~ 2 Billion in interest of the 8 Billion total interest on odious-financial-system/genuine- sovereign debt of 150% GNP.

To expect Hibernia to shoulder 40% of cost of EZ banking crisis is NUTS ….

Wonder what could be done with 2 Billion to boost social and economic activity? Why not cease paying this segment of interest until a pragmatic deal is done …. bit of hardball.

As Thomas Pynchon puts it: ‘If you get them asking the wrong questions they do not need to worry about the answers.’

Wrong question me dearie – but nice try. Spin another ordoliberal one.

a sampler of a few comments:

First just getting back to the thread topic for a very short moment : – )

The losses in Cyprus mounted, because there were gigantic stacks of money, much of this coming from the Russian “businessmen” (LOL), and some clever low level manager in one of their banks deposited that safely in greek government bonds, total brain damage from a risk management view.

That happened well into the watch of Orphanides as the central bank governor. Cyprus is a little island (some 800 k inhabitants), with the first kind of university founded only around 1960. Orphanides was probably the only one with at least a PhD from a somewhat respectable institution, MIT.

So it was first his responsibility. But now of course he has to blame somebody else for his failure.

The correct name for that joke corruption review is Moneyval. Please take a look for yourself:


Please be aware, that the responsibility for Euro bank supervision by the ECB will just start after the now ongoing AQR Asset quality review

As far as I recall this retroactive bank recapitalisation was agreed on only as an emergency backstop, if something really ugly pops up in the AQR, and that would be more likely in Portugal or Greece.

In the German press this is a non-issue, and this “Senior figure” mentioned is the junior clown Carsten Schneider, remember, the guy who wanted to write Irish corporate tax rates into the German coalition treaty, just crazy.

Searching for his name in all the majors German news sites (bild, spiegel, sueddeutsche, zeit, faz) doesnt turn up anything with respect to bank recapitalisation. It seems he too, like Habermas has to go abroad, to get at least his name mentioned, when at home nobody wants to print his nonsense anymore.


I read the DIW piece and I am disappointed. The numbers for how much infrastructure investment is allegedly needed seem to come out of pretty thin air, with some wild extrapolations from more than a dozen years ago, (they claim that we already underinvested in the mid-2000s). At the end there is a table with the various, wildly diverging sets of phantasy numbers of various institutions.

And this investment in education sounds pretty much like the social democratic trick form the 1970ties, to declare higher teacher pay an investment, in order to fulfil our stability rules at that time.

I think that most “old” european countries have filled up their countryside with enough roads, etc, and now it mostly just maintenance, which has of course to come out of the regular budget.

Individual projects should be judged by their own merit.

On the road tax thing, I csame across this nice reference

which explains pretty much, that it is the bavarians who want it, because they are mad, that they have to pay it everywhere in the south and east

I find Elia pointing out “buses and trains” very refreshing : – )
Together with JtO more sanity coming here, and maybe less ideology.

@Prudent Hans

Tutorial XXIV

What did Karl Otto Apel do with Kant’s categorical imperative?

Read the Conversation between your pal Benedict & Habermas.

What did Heisenberg really say to Bohr in Copenhagen.


Mother: What did you bring her Hans?

Prudent Hans: Nothing Mother!

(with thanks to The Grimms)

@ francis

Your views on Schneider may strike a chord here. Of course, no less a person than the former president of France tried to make the same linkage (between further bailout assistance and changes to Ireland’s corporation tax) some years ago.

As to the DIW figures, they may or may not be correct. I am in no position to judge. But the overall figures show German levels of domestic investment as lagging behind. The issue with regard to Germany-wide tolling of roads is not the proposal itself but the inherent discrimination in the proposal to exclude nationals from its impact. The negative reaction, especially from Merkel – citing EU competition laws – is very welcome from a general European point of view.


Merkel made a speech in Bruges some years ago where she extolled a approach which became known for a while as the “Union method” which largely dismissed the role of the Commission in favour of inter-governmental cooperation. She has evidently learned a lot since, especially that organisation’s role as an essential element in the institutional balance of the EU. No doubt, the circus with regard to Juncker and the “Spitzenkandidaten” (and the position of principle taken by the UK whose continued membership of the EU is, and must remain, a vital German foreign policy objective) further influenced her. But it is the recent agreement reached with the Commission with regard to the new direction in Germany’s energy policy which confirms me in the view that the traditional German commitment to the existing EU institutional balance has been restored.

On the structural reform aspect and Draghi’s recent speech discussed on the other thread, he was exaggerating when he described the Single Market as a success. It is far from complete, especially in relation to energy. The FT had a great article on the topic a few days ago.


@ francis

Keeping the UK in the EU is, of course, also a vital Irish foreign policy interest. Our views are, however, unlikely to weigh very heavily in the broader scheme of things.

On Cyprus and investor bail-ins, as they are known, the FT is inviting Portugal – and the rest of the Euro Area – to stand firm!


As in the Irish case, the problem is that nobody knows where the bodies are buried (or how many there are).

Stand firm!

When the financial system goes into hardball and uses 100% of its bought influence to influence the state of affairs to its own liking.

@Prudent Hans (aka francis)

Your despicable reference to a US Secretary State merits the return of the second Fig Leaf; You are now in the Dobbel_Fig_Leaf Club.

p.s. The Sec isn’t bothered; the US has been down this road before. Even Atlas didn’t shrug.


I think the German position on the UK is summed up pretty accurately here:


We would like to keep them in, share quite a number of concerns with respect to Brusseles, but there will be no special treatment, no Veto rights for London. But life would go on without them too.

We still remember, how they tried to obstruct the Schengen treaty, the ESM.

I am not a supporter of the road tax, which can of course be made compatible with EU law, just by doing it like the Austrians.

Therefore, from all countries, critic like your tyrolian link is pretty hypocritical.

And the CSU has every reason to keep the issue cooking. It is in the coalition treaty, it is the perfect wedge issue.


86% is probably a little higher than real, but it is perfect to marginalize the social democrats in Bavaria. Either they go with the Germany view, than they are not Bavarians, or they side with the local views, and get in trouble with the national party.

The same goes for the new power transmission lines. The Green party wants lots of them, and Greenpeace agitated the people against them as dangerous and anyways only transporting dirty coal electricity.

When you saw the green mob shouting down the agency presenting the plans, you understand why Seehofer is now turning the green mob against the green party, by siding the opposition to the lines.

The Greenies begin to understand, that they will now get a solid dose of their own dishonest populist medicine, and called Seehofer already a “cowardly populist” : – )

Works perfect as identity politics.

NIMBYism is very alive in Germany too.


Warming up for the football finale,
And maybe to spin and explain this a little further.
You sit in Ireland, and say, road tax, never heard of it, and “just for foreigners”, what a stupid idea from those Germans. Haven’t seen such a thing in the UK either.

In the US, everybody pays road toll for certain turnpikes, parkways, and bridges, Tappan Zee Bridge, over the Hudson, one trip 4.75$ for a minimum size car, not to be sneezed at, if you have to do this daily.

If you do as a northern German Fishhead one vacation a year to the south, 200 Euro for the gasoline, 35 for the road tax, you just notice it.

If you live in Munich, and want to do 2 vacations to the Gardasee for 2 weeks each, you pay 2 x 2 x 33 = 132 Euro road tax in Austria and Italy
(take Munich and Brescia for simplicity in http://www.viamichelin.co.uk/ and that is nearly as much as car tax for the whole year in Germany, and the Bavarians are mad about it, since many years. And they see that their autobahns around Munich are filled up with about 50 % foreign cars, who pay nothing.

Do you understand this better now?

Taxing 30% more out of car owners is not the problem, for keeping up the streets,

it is a question of international justice

for them. Insurance, and gasoline tax is much more.

Some folks feel like maybe adopting the anglo-american Way of Life, like torching the places they don’t like (http://www.kennardphillipps.com/category/photomontage/page/3/ : – ) maybe starting with an Italian toll booth ?

this is not just a victory of 11 men, but of a whole system.

one nation, indivisible

Modell Deutschland is back

Looks David McWillaims agrees with JTO on this fiasco:

What David says:

“This is a huge global industry and we could be getting a little bit of it. Giving in to a few Nimby agitators is not the way to go. We have a giant stadium: use the bloody thing. Seen from outside the country, it looks pathetic, ungenerous and small-minded. Seen from the economic perspective and from the perspective of positioning the country in a huge global industry, it looks like madness.”

‘Mad’ is the operative word for Owen Keegan. Time to get rid of him.

Haven’t been there recently, but I gather he destroyed the commercial heart of Dun Laoighre (or Kingstown, as he no doubt calls it) when manager there.

And despite all his guff about ‘proper planning’, road deaths in Dublin have shot up since he took over (they fell 80 per cent in the 15 years prior to his taking charge).


Congratulations. Completely deserved. I hope you celebrated well last night.


soccer champions of world

one nation, indivisible

Modell Deutschland is back


rugby champions of Europe

one nation, indivisible

Celtic Tiger is back

@Ernie, seafoid,

when I look at the glowing reports on German football, and not just the final 11, in the Guardian, even the Telegraph, and many other European news outlets, and the comments there in,
I realize that you 2 are just a tiny number of misogynists, who want to misunderstand, always.

The reviews show, that normal people all over the world know and understand, that this win is not just the 11, but the ultimate sign of the recovery of a whole social system. Ten years ago, we were the sick men of Europe, old fashioned finance, with the machine grease underneath our finger nails. We learned from others, like the Dutch, how to built better football school (systems) like Ajax Amsterdam. We did what was necessary to right our ship.

part 3

Beautiful, and successful football, deeply embedded in the social fabric, profitable, the clubs not owned by some foreign tycoon.

All cogs and wheels are precisely working together, Adidas, Mercedes Benz, even Commerzbank styling their turnaround with the national team, and realistic credibility commercials

Germany, Volkswagen, Winterkorn are not shy to learn from others, and respect their qualities and achievements http://www.youtube.com/watch?v=YpPNVSQmR5c, that there is no room for national hubris

part 4 (part 1 I did on the IGEES thread, trying to figure things out with posting)

Chancellor Schröder has come from a dirt poor background, Angela Merkel is a pastor’s daughter, and Super-Mario Götze is the son of a technology professor

Universal health care, worker councils (like Volkswagen announced 11th July for US Chattanooga, before giving the new SUV project on the 14th http://www.bloomberg.com/news/2014-07-14/volkswagen-to-build-suv-in-tennessee-to-confront-toyota.html

All this is “Modell Deutschland”.

Einigkeit und Recht und Freiheit,

union, liberty and justice for all

The worst thing about Germans is they really believe their own bullshit. Then they start inflicting it on everyone else.

You can always rely on the Germans for a good slogan. Vorsprung Durc Tecknik was the one that comes to mind. Although there was another one about the benefits of work and freedom although I cannot remember the exact words.
Hopefully, the Germans will settle for world domination in football this time.

@ Francis
Misogynists? Is Germany a woman ? Are you?
Btw I bet Commerzbank is top of a lot of shortsellers’ targets if TSHTF again.


Congratulations on the win. They looked like winners all the way through.
Less dependent on a supposedly ‘super manager’, one that will make donkeys win derbys, than other teams, (Netherlands included), and more dependent on skill, youth and system. [I missed most of the final, going to see the Munster hurling final instead. Gach aon araibh, mar a oiltear é, as I learned a long time ago.]

I would also agree that the training/ coaching system was probably very relevant to the win. Despite evidence to the contrary, Kilkenny hurling also introduced a very successful development system back in the 1999/2000. That also paid off.

These lessons go completley over the head of Irish politicians or the Irish political system. Only last week the Minister for Finance conceded a 26 million tax give-away to Irish farmers, if the sell the milk ‘quota’ they are not using! It was 26 million of a thoughtless tax give-away to farmers, from a government that was saving €20 million two months ago by taking medical cards from people with Downs Syndrome and other serious illnesses.

Indeed, a few weeks ago on June 30th, the same minister reached into all private pensions funds for .75% of their value at June 30th. Perhaps we should all be happy to feather the farmers nests.

The euro crisis is indeed political.
In Ireland, so also is the decision of whose nest to foul and whose nest to feather.

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