Ireland—Lessons from Its Recovery from the Bank-Sovereign Loop

Papers by Schoenmaker, Fatas and Eichengreen now online at conference page here.

Reminder: live webfeed available during the event.



6 replies on “Ireland—Lessons from Its Recovery from the Bank-Sovereign Loop”

No mention in any of the papers of Ireland’s unique and extraordinary property lease law, the most anti-tenant lease law in the world ,as acknowledged by the Law Reform Commission in 2003:

The Law Reform Commission March 2003–Consultation Paper on Business Tenancies ref (LRC CP 2003);
In Chapter 2– General Conclusions page 15 subset 2.05: The Commission finds the following important conclusion:

“The Commission’s preliminary conclusion is that the current state of commercial leasing law and practice in Ireland is so out-of-line with that in the rest of Europe and other jurisdictions with which Ireland has substantial trading links(such as the USA), that serious consideration must be given to a radical overhaul”

Comments on Fatás + Eichengreen papers:

“The debt surprise in 2008 was directly linked to a single event: the global financial crisis.”

Nope! But keep saying that Big Lie and eventually it is believed – “Long live Final Victory!” The so-called Global Financial crisis is at least 40 years in the making. And the different responses to specific ‘surprises’ in the 1970s, 1980s, 1990s, and 2000s were not curative, but pro-cyclical. The potential disaster (which eventually arrived in 2008) was simply and deliberately, made larger and larger. Please read your history Antoino. Its all there, hiding in plain sight. And very unpleasant reading it is.

“And this is indeed one of the important lessons from our empirical analysis: fiscal sustainability depends heavily on our assumptions about potential growth.”

Pity this ‘lesson’ failed to be incorporated into the cognitive frameworks of those with power and authority, such that it became characteristic of their future behaviours. The various econometric models being deployed are simply unfit for purpose. And even the purpose is unfit for human use.

“Excessive optimism leads to unsustainable behaviour … ”

Dear God, we all know this. So you ensure that the checks and balances needed to guard against ‘unsustainable behaviour’ are Fail Safe – not systematically diluted and then abandoned.

“[and] excessive pessimism can lead to lower growth, especially during a crisis.”

This is complete rubbish. But again, its another Big Lie. Economic growth is an ‘organic’, energy and credit consuming process. If the supply of either is constrained, aggregate economic activity will slow (or stagnate, or regress). Its easy to blame sentiment. You do not have to adduce any reasons or explain a defect in a physical, causal process.

“And looking at the evidence it seems that we are, at best, guessing potential GDP growth rates, revising its history as new developments happen and relying too much on short term forecasts of GDP growth”

Guessing, guessing! Sweet divine. The utter arrogance of so-called intellectuals seems to acknowledge no boundaries of propriety or decency. “Have a care! You’re messing with folks’ lives and livelihoods here”. What did Mm. L opine about debt then? I’d classify her comments as being in the cognitive dissonance arena.

“Banks were led by a new generation of officers possessing little practical experience with risk management.”

Eh! You mean that they were functionally incompetent to discharge their duties of office. That’s nice, that is. Dr Veblen had a few entertaing comments on this sort of behaviour.

“Capture is a classic problem for regulation.”

It sure is. So what was done? Just release the prisoners and scrap the handcuffs – and scrap the legislative protections as well. No wonder K Street is hysterical with laughter and the 1% are accumulating exponentially.

I’ll pose this question: Either our leaders, and great women and men are clueless about the nature and extent of this current economic regression and choose to be so. Or they are well informed, but are choosing to be deliberately untruthful. Which is more probable, which less likely? Some are definitely in the former category, and some are undoubtedly in the latter. But whom?

Having ploughed through the coverage, the only comment of any significance that I can find is that by the Governor of the CB.

“This matter must be kept in perspective,” he said. “Most of the bonds outstanding from the Irish banks at that time were not in practice bailable because they were either Government guaranteed or asset-covered bonds. The corridor discussions related to a figure of about €16 billion of unguaranteed bonds, of which the two gone-concern banks [Anglo Irish Bank and Irish Nationwide] accounted at stage for less than a third.

“This is still a lot of money of course, but would not have resulted in any relatively large or noticeable alleviation of the belt-tightening, bearing in mind that each year from 2008 saw an additional fiscal consolidation effort to reach an annual figure of around €30 billion by 2014.

“In the end, the sums injected by the Government into these two banks have been financed at very low interest cost following the liquidation of Irish Bank Resolution Corporation and the exchange of the promissory notes for long-term bonds. Nevertheless, the pressure that was brought to bear on the Government in this episode continues to rankle in Ireland.”

This is what another participant had to say some time ago with regard to the famous promissory notes.

To quote the Second Secretary at the DOF responsible, via the Irish Times, “the €35 billion put into Irish Bank Resolution Corporation (formerly Anglo Irish) “is not coming back” although this is in a “manageable space” given Ireland’s long-term deal on repaying the Anglo Irish Bank promissory notes.”

Will the political class in Ireland come out of their foxholes and admit that this “space” is probably the maximum of solidarity that can be expected of the EU?


If the ECB is about to embark on QE why should the remaining PN portfolio be unwound. It should be let run to infinity. Seeing as QE is also coming, what about doing something similar with the trackers.

As last week’s Swissy event shows, ze Germans are getting an enormous subsidy from a cheap currency. What would a 20% appreciation do to demand for BMWs.

Our MOF speculated yesterday that the form of QE tolerated by Ze Germans was too small and to restrictive. What is left unsaid is what will happen then. Will the warm water countries have the cojones to invite the Germans to leave the EU? Arguably they should never have been allowed in anyway.


In case you missed it, Dan O’Brien put the underlying situation with regard to the promissory notes rather well.

“To see why consider the context in which they were issued in 2010. Then the government needed tens of billions of euro to shore up Anglo Irish Bank and Irish Nationwide. But there was no prospect that the State could borrow such sums in the normal manner – by selling bonds to investors. Instead of selling bonds and using the cash raised to pay off the bondholders, it simply gave bonds to the rotten banks (calling them promissory notes).

This manoeuvre allowed the nationalised banks to use the notes as collateral to borrow from the central bank system. One does not have to be an ultra-orthodox Teutonic central banker to see that this is back-door financing of one branch of government by another.

If the ECB was to delete some of Ireland’s debts at the click of a button, as some people advocate, it would not be long before other governments started issuing promissory notes and looking to Frankfurt for some monetising magic. Having the ECB make an exception for Ireland may seem appealing, but it could never be justified by a central bank serious about preserving the currency.”

The ECB is a serious body. To my knowledge, no other notes of the kind issued by the Irish government – now long-term bonds under the deal agreed – exist.

The following article by Fintan O’Toole is another illustration of a fundemental misreading of the inter-governmental relations that are decisive in this, and other areas.

By the way, I omitted to mention the other concessions with regard to the actual bailout funded by the other countries of the EZ (and the UK and Sweden), an omission which FOT corrects, even if he also denies any credit to the Irish government (which, in logic, he would also have deny to the Portuguese and Spanish governments).

@ Tull

the chermans are taking the p insisting on no risk sharing in QE while taking the lovely piggy discount for their exports.

the CHF will prolly go under parity unless 1 is the new SNB cap.
A new DM could appreciate by a good bit more than 20% if the EZ remains in the managed depression state.

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