Irish virtue, Irish (or should that be FG?) interests

Thanks for this – deserves to be analysed by all – particularly the neo-liberal pro austerity commenters….

“Is a less deflationary and less creditor-friendly Eurozone not in Ireland’s long term interests, assuming that we remain a member of the single currency?”

This nails it.

We now have the governments of Ireland, Spain and Portugal actively campaigning against the interests of their own citizenry in order to save their own political skins. Is there a precedent for such brazen actions in the history of democracy? I doubt it.

What an absolute disgrace!

Austerity is very neo-liberal. This ‘neo-liberl’ label is used for anything lefties dislike. It is used in the same fashion as ‘racism’ to brand just about any opinion not approved by lefties.

Noonan point is well made. Mody was chief of mission from 2010. In 2009 and 2011 Ireland sought to burn both senior and junior Bondholders in some of the banks. We are told the IMF was supportive of this but the ECB was against. Just how supportive was Mody at the time? Was he only going throught the motions and is he seeking to distance himself from the issue now?

Kevin

1. You say they’ve done more reform, but everything I’ve heard is that they didn’t reform their tax system. And what reforms were completed Syriza promised to undo. Are you concerned about any of that?

2. Be interested in your comments on these charts from the Economist today.

http://www.economist.com/blogs/freeexchange/2015/02/greece-ireland-and-portugal

3. Being selfish, isn’t it the case that our government has to put Irish interests first, and putting as much distance between us and Greece is in our interests. I can entertain romantic dreams of the revolution as much as anyone, but it looks a lot like Syriza simply made promises on which they cannot deliver and the WW2 references, (which I’ve employed in columns before, but that’s just “journalism”) are hardly conducive to deal-making.

4. And anyway, if we did support Greece, would that really cut any ice? Morally, there’s a case that we should, but practically speaking, who listens to us? All we can do is play the hand we’ve been dealt as best we can so when the next phase of the crisis comes ground, people don’t put Ireland and Greece in the same sentence. We’re Northern Europeans. That may count for a lot in 6 months.

@peter stapleton: The Greeks never asked the Irish to take on the debt. The extend and pretend wheeze was to bail out core Eurozone banks. It was instigated by the ECB and Merkel. And were you asked when the debt was handed to you the first time?

Peter,
Well said. That point about Greek debt service costs should be made over and over again.
Post the election, Tsipiras announce spending and tax measures that amounted to about 8bn. That plus the shortfall in revenue due to tax dodging in the run up to the election is going to push the Greek deficit towards if not over 5% of GDP. Who is expected to fund that?

Audio of Varofakis press conference:
[An excellent performance on radio, imho.]

https://clyp.it/awmo4pai

What is the point that Varoufakis is making concerning reported Greek GDP growth in 2014, not being real growth, but growth only as a result of price reductions?
Does it mean that Greek GDP actually fell at current price levels, but is adjusted up to account for the fall in the price level?

Kevin,
Sarah is absolutely correct about Mody. At the very least he deserves some of the blame for not winning the bond burning argument just as he may deserve some credit for a more lenient programme in Ireland.
He cannot transfer all the blame to the govt. MN has a point and he is right to call Mody.

The conclusions of the OECD Jobs Study Reassessment 2006 was that it was possible to make a positive difference through structural and institutional reform. And, as I argue in my comment to the blog below there seems to have been general structural improvements in labour markets across developed countries. GDP growth has been job rich (usually described as productivity poor).

http://coppolacomment.blogspot.co.uk/2015/02/reforms-bloody-reforms.html#comment-form

My comment was about Greece as that has been the focus of attention. However, the Irish economy has done even better in terms of labour market outcomes in the most recent period.

The %age point change in the Irish employment rate (15-64) over the year to Q3 2014 was according to Eurostat was 1.1 %age points – the same as Greece and above the EU average – and fully 3.2 % points over 2 years. And although there is still more to do as at 62.2% the rate is still substantially below the 70.0% in 2007 it is already back to levels last seen in 1999

Bill Wells

@ Sarah
It is fair to blame an (any) Irish Government for not even trying, in any meaningful way.

So classic creditor /debtor clash. Many here and on other Irish forums (and the Irish govt it seems) assume that it is better to be aligned with the “strong” creditors. However, if this goes to mush,, it will be the creditors that take the most significant hit in “real terms”, as is always the case with insolvencies. More to lose. Not saying that the Irish should just openly jump in with the Greeks. Yes, the situation has a strong moral element suggesting that the other PIIGS should be more supportive of Greece. However, it has “again” moved beyond the pure or simple moral imperative to a more “survivalist” equilibrium….hard to blame anyone for “keeping heads down”. This is a dangerous situation indeed.

If the proverbial hits the fan, don’t expect the Germans, Dutch, Finns, etc to be too concerned re good old Eire….it’s not in their DNA (I have worked with them for 25+ years, in finance).

Colm – good post. However, this of course is just politics favoring the creditors….for now. Many are assuming that the creditors are “firmly in control”, but that’s a load of croc. Unfortunately, the creditors will have little “physical” to grab in this virtual international (fiat money) economy. Solidarity will go AWOL if there is Greece default. The issue then is how quickly things “progress”……As in all cr /dr messes, it becomes an issue of “least loss” for individual creditors….solidarity can only be relied upon if enough creditors’ interests are similarly aligned……Who knows. However, it has also been impossible to gauge timing in recent years but my question for Tull, BEB and co. – is the overall global picture really better or worse economically? Here in NYC, senior finance execs are “undecided” but with “downside bias”. Very worried. While for instance corporate earnings have been beating forecasts (easy game), that’s been driven by cost reductions, not growth (bar some bright lights in technology and some limited others). “growth” is still largely absent…and is awaited. With QE ending, the “hidden sores” are already emerging and the negative consequences are beginning to accelerate. Much discussion here but that elusive “growth” is still o/s. As a result, there is increasing “economic nationalism” here also. In some respect, Ireland has been a beneficiary of that, on balance, up ’til now. However that can change in a blink…..Sentiment is fundamentally changing, despite that being denied by Irish officials here recently (at a small dinner, with Min. Noonan in attendance I might add). These Irish govt officials are not as in touch as they think they are……There is huge worry here too about the domestic and international consequences re the Fed raising rates mid-2015…..Despite that, now more likely )for largely ideological reasons it seems) given recent employment gains (although the quality of those gains is dismal versus the employments lost).

I always watch the vulture funds. In the case of Ireland, they have already substantially extracted their profits….

Delicate times for sure but anyone talking it up for Ireland (too positively or negatively) is not getting it IMHO.

@Sarah Carey

I think Stephen Collins may be posting under your name. I’ll respond to his post, please take no offence.

1. You say they’ve done more reform, but everything I’ve heard is that they didn’t reform their tax system.

Does it not seem to be a little churlish to criticize Syria for failing to complete reforms to the Greek tax system in the 21 (rather busy) days since they won the election?

Now New Democracy (the previous incumbents, an EPP bloc party like Fine Gael and the CDU) did not have a good record on tax reform and that suited their constituency just fine. However Syriza is considerably to the left and has a much firmer political interest in a working taxation system. If anyone can do it it is them.

2. Be interested in your comments on these charts from the Economist today.

They would say that, wouldn’t they (I can not face reading the Economist, the panic over Syriza is too much)

3. Being selfish, isn’t it the case that our government has to put Irish interests first, and putting as much distance between us and Greece is in our interests.

The position that the current government have taken on Greece is self serving, unforgivably cynical and not in the national interest. It is also an act of shameful political cowardice and cruelty.

I simply do not understand how anyone could think that Greece gaining debt relief and breaking the German/ECB chokehold on Eurozone economic and monetary policy would not be in Ireland’s interest. It might even be our primary international interest.

I would also add that complicity and cowardice might not have the rewards that Noonan expects, whoever comes out best from the attack on Greece.

4. And anyway, if we did support Greece, would that really cut any ice? Morally, there’s a case that we should,

I stopped reading after “Morally, there’s a case that we should” and I think perhaps that is where you should have stopped writing, Stephen.

No, I lie, I continued reading.

We can pretend to be part of the Deutsche bloc (Northern European is a misleading misnomer in many, many ways. Worth a post.) as much as we like but that will not make our economic or political interests aligned with theirs. As long as that is the case what we need is an EU where policy is not set by the creditor states to our detriment. Without confrontation with Germany and their devotees that is not going to happen.

As an aside, and not directed at the real Sarah Carey, one very useful thing about the arrival of Syriza is how it has caused a massive reveal of right wing fealty with many journos who have done their best to present a face of reason (so many TINAs, so many “difficult reforms”) blurting out how Syriza’s impudence and blatant leftism just can not be allowed to stand.

I have never seen such a unified outpouring of sneering, anger and (whisper it) fear from the right wing press and politicians as has happened since Syriza took power. I quite enjoy it.

I should add….

In a US context, it will be very interesting to see the unfolding of the overall economic impact of the oil prices reductions of recent months. 20-30k jobs gone already. Texas economy slammed and not heading in a good direction. The fracking employment, which represents so much of the US employments gains in the last couple of years…..under real pressure right now (before you ask, I have family in senior oil positions in Texas, while one of my friends growing up in Cork is in a senior position with one of the fracking majors out west).

How things can change……The welcome reduction for consumers in filling their cars and trucks with gas is not fully loading into economic performance. Simply relieving the burning of savings for many (most?).

The relatively drastic reduction of petro dollars in global circulation will have severe negative consequences yet.

There appears to be a lot of discussion, and confusion, about ‘an extension’ and ‘a bridging loan’ with different people saying different things.

My understanding is that Greece is looking for a bridging loan whilst in general, but not necessarily unanimously, the EuroGroup is looking for (or claiming the only possibility is) an extension.

I think this is because ‘an extension’ means the current deal stays on the table unless otherwise negotiated and although various parties say this can then happen (eg Noonan), the Greek government is faced with buying a pig in a poke where, when they go to, for example, reduce their fiscal surplus their creditors say ‘no’ and then where are they?

The counter-claim is that the Greek government has simply not put enough enough detail into its ‘bridging’ proposal for it to be a subject of discussion. This though the Greeks have been pretty clear as to their programme for government and the sourcing of the funds required, which are modest compared to the total debts so far. There also seems to be a claim from Eurogroup and Commission that there is in any case simply is not enough time to negotiate a ‘new’ bridging arrangement.

If that’s about right and just looking at this current round of discussions I do actually think there is a potential deal on the table for this week which sets out some kind of ‘transitional’ (or whatever mutually agreeable term can be used) phase in which certain the Syriza led coalition gets enough space to start on certain key policies (for which they were elected) whilst staying in some kind of agreed framework.

But the above implies a certain goodwill and that the ultimate goal, or most pressing concern, of the Eurozone is the well-being of all its citizens and at the moment that is not clearly the case.

Krugman has a strongly negative view of events.

http://krugman.blogs.nytimes.com/

Also worth looking down to his ‘Greece’s Excess Burden’ post on Feb., 14th to see the gap between what the Troika predicted would be the path of GDP and what actually happened. Also worth repeating that Greece has actually undertaken massive austerity measures and, according to the OECD chart linked to by Kevin, is number one in the eurozone for reform measures.

Greek Finance Minister Yanis Varoufakis though looked to play down the situation as a temporary setback: “I have no doubt that within the next 48 hours Europe is going to come together and we shall find the phrasing that is necessary.”

So, its just a matter of ‘phrasing’. That says a lot. While I am not in any way expert on diplomacy, this is beginning to resemble the Stormont peace talks in 1998, which were always predicted to be on the point of collapse, right up until the moment when agreement was reached. A lot of the ridiculous demands by Tsipras and Varoufakis are just bluff for the benefit of their marxist supporters and should not be taken Syriazly.

If they do reach agreement, let’s hope its one that has Syriaz supporters in Ireland screaming: “sellout”, “traitor”, “betrayal” blah, blah, blah. Nothing like a good split among leftists to brig ten one’s day.

@garo

You might be interested in Hans-Werner Sinn’s take on the provision of ELA to the Grrek banks in today’s Financial Times. He points out that the ECB’s reprieve for the Greek banks is putting EZ taxpayers at risk and providing credit ‘to enable wealthy Greeks to whisk their money to safety’.

See http://www.ft.com/intl/cms/s/0/607c4bd4-b5e9-11e4-a577-00144feab7de.html#axzz3RR5zuRn9

@BEB
It becomes political economy when the models fail 🙂

@ All

Greece fell through the floor after the last bailout.Samaras was the leader of their equivalent of FG, which failed just like Pasok, their equivalent of FF, did.
Ireland is still running on one political engine but there is a lot of plamas holding it up.

Ireland could be in Greece’s shoes in a few years if things don’t pan out with the US divergence theory and the latest UK bubble blows up.

When politics fails

@Sarah Carey

This is going to sound quite harsh.

Your initial post reads like and apologia for craven subservience to other nations and short sightedness. Your post does not consider what is right for Europe, or what is right for Ireland in the long term.

It repeats the spin about the Greeks not carrying out reforms in the face of evidence for the OECD and others linked by KO’R. Even the rejected Eurogroup statement acknowledged the efforts of the Greeks. This is much like the previous spin in our media from ignorant commentators to the effect that Greece was seeking an immediate write down of nominal debt. How can we have reasoned debate when one side provides evidence and the other side responds with “Well I’ve heard x, y, z” with nothing to back it up?

The fact of the matter is that the reason FG is spinning against Greece is that FG is concerned about its own political future. I have no doubt that FG and other consider that extremists should not be rewarded or else political stability in all EU democracies will be threatened. However, that logic requires us to ignore democratic decisions and to brand as extremists people who rail against illogical, failed and deeply damaging policies.

There is a deal to be done founded on logic and good sense and reform of Greeek tax collection which FG and others should be able to stand over. The EU, including Ireland, needs to take control of the drafting process and to set out a deal. Greece should be given a decision to make other than “kneel before me or be sent to the gallows”.

Even if Ireland cannot achieve progress it may well get future credit for having spoken in favour of the correct option when things go wring in the future. At least in a few years time we, like Ashoka Mody, will be able to say that we did what was right and that we are credible. Surely the economically sensible and morally correct position is the safest position no matter who holds power in the capitals of Europe in years to come?

—-

On an aside, the point that we only have a small voice is an abhorrent justification for irresponsible behaviour. The logic is I am doing wrong but sure my wrongdoing is so small it does not matter. It is a kind of de minimus for political responsibility. It is the kind of logic relied upon by people who won’t recycle and who urinate in the swimming pools. It is no justification whatsoever.

Krugman: “I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work.”

Ouch.

You can only be bullied if you let yourself be bullied. How credible was the threat to withdraw ELA in 2010? And, the main question: where in the ECB founding documents does it say that it’s within their remit to issue threats to sovereign governments?

We all owe Greece a debt of gratitude for, finally, being the ones to stand up to the bullies.

According to that IMF data base (back to 1980) Greece has never run a budget surplus in that 34 year period, with the annual deficit averaging 7.7% of GDP.The implication is that the electorate were happy to pass the bill to future generations of Greeks. Some would blame the electorate for their recklessness while others appear happy to blame the creditors for funding the deficits.

http://blogs.channel4.com/paul-mason-blog/leak-counterleak-achieve-greek-deal/3329

The draft Greece would have signed.

The Eurogroup however insist on unconditional surrender.

The Greeks have definitely won yesterdays skirmish, and the Gustav line is starting to break.
http://www.bloomberg.com/news/articles/2015-02-16/greek-government-official-says-no-accord-possible-at-eurogroup

“Amid all the frustration, Italian Finance Minister Pier Carlo Padoan said Greece leaving the euro zone remains “out of the question,” in comments to reporters Monday night.

“I am not worried,” Padoan said. “I am convinced that we will ultimately reach a common ground and a common decision.”

@ Ernie

“where in the ECB founding documents does it say that it’s within their remit to issue threats to sovereign governments?”

They don’t issue threats to sovereigns. They issue threats to National Central Banks who are being forced to use extraordinary liquidity facilities, using low rate or non standard collateral, and in ever increasing quantities. Much like a credit card company would “threaten” you if u maxed out and didn’t look like being able to repay. That NCB then asks their government to do something to end the situation which is putting them at the mercy of the ECB. That’s the process.

Zhou,

It is not just FG that is “spinning” against Greece. For some reason, every other EZ govt is on the same side. This level of unity is probably unprecedented. Even Cyprus has gone rogue, albeit wobbly. It is not obvious yet what the QPQ for this level of unity is. One could speculate that someone has assembled a coalition which is agreeable to kicking the Greeks out and that some of the less obvious allies have been promised something in return.

Reading some of the blogs, it appears the Greeks have offended pretty much everybody on every issue from Bosnia to Turkey to operations of the EU funds, corruption, EU directives & relations with the Troika. They have arrived a situation where they have no friends.

@Tull

I don’t know that they have offended everybody, or if, as JtO posits, there is a lot of posturing going on and a deal will be reached.

The Greeks are certainly not perfect. It would appear that they have come to the table with mixed messages and without a proper package of reforms to offer in exchange for official creditor support. They have also underestimated the value of having the Commission pull countries together, and have not realised the difficulty of getting approval for support from countries and politicians who have their own problems, worries and political concerns.

Depending on the accuracy of reports and translations, it appears some of the Syriza rhetoric in Greece has been unhelpful (although Germany should remember that they did go to war in Greece, killed a lot of people and got a write off of their debt to help them achieve economic recovery from an impossible position in recognition, inter alia, of the mistakes made after the first world war and the political consequences for Europe of those mistakes).

On the other hand, the Greek Government has held its nerve despite having come in cold and having had a gun put to its head immediately. Unfortunately, Greece is negotiating with multiple countries who cannot deliver coherent policies and who cannot be led. The Irish Government would do well to see what it can do to help Greece in the EU apart from shooting Greece’s legs off (to mix a metaphor slightly) to teach Greece again a lesson that Greece has already learned.

The real French finance minister!

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_17/02/2015_547361

This is probably the best the Greeks can expect. While they make up their minds, the market situation in relation to the Greek banking system will continue to deteriorate.

What electorates across Europe are witnessing is how swimmingly it goes when debt is taken as simply a token of possible intent and not an intrinsic building block of the financial system. Other participants in the system not alone are unwilling to accept this but are now reacting to an existential threat to their own well being. Contradictory blather from Varoufakis can no linger hide this fact. But it can probably be accepted without major political damage to Syriza only when the bulk of the Greek electorate also wake up to it. Which may be too late.

Look at your chart again, the huge deficit in 2009, and the improvements starting in 2010. Hmm, what exactly happened in 2010? Right, the Troika came to the rescue! Without them, the Greeks would have been broke and would have had to balance their budget from one day to another!

The Greeks have taken their medicine, and it’s killing them. Unfortunately, no one cares, especially the quacks who prescribed the medicine. Will the Greeks decide that they must revive their economy, and do so by leaving the euro? If so, I assume they’ll eventually pay some portion of their debt in drachma? Or will they stagger on in the oh-so-vibrant EZ, resigning themselves to eternal stagnation?

The Greek military budget is 10 billion euros (Ireland’s is 900 million euros). Much of the military hardware Greece buys comes from France and Germany. It’s just like the banking debts – the core creditor states have acted disgracefully to Greece for selfish reasons and have helped create the completely dysfunctional State we now see. France and Germany are the true parents of Syriza.

The only solution at this stage is to cut the cord and let Greece leave. Go with a hard default, get them out of the eurozone for their own sake, and they can finally start to reform their State from within.

It’s important to note the institutional context that the IMF Ireland staff was working in during late 2010. This is not to say that it’s all about bureaucratic processology. But: consider this IMF press release —

http://www.imf.org/external/np/sec/pr/2010/pr10400.htm

Note the name of the managing director. Note that the position of Director of the European Department was effectively vacant when Ireland’s bailout was being negotiated. That’s the person who might have stood up to the Austerions in the key meetings. Finally, Mr Borges was less than one year in the job, made a a gaffe (i.e. told the truth) about the need for bond market purchases, went back to Portugal, and died of the same affliction as Brian Lenihan a couple of years ago.

There are several ways we could have made a better case for ourselves. But the organization that was most inclined to agree with us was handicapped.

@ Shay

the move on Greek govt backed collateral was in fact an attempt by the ECB to stay out of the politics of this, not get involved.

From a fidicuiary responsibility point of view, they could not knowingly keep on extending increasing amounts of liquidity via non-standard collateral to the Greeks with a growing possibility of default via Grexit looming in the background.

Likewise, they did not want to have to put a hard stop on any increased usage of normal liquidity either.

So they went for the middle ground – increased liquidity, but via a less risky (in theory) route, ie ELA on the Greek CB’s balance sheet, and letting people know how this situation would work before the negotiations reached a critical juncture. They have tried to help the Greeks out by extending the size of ELA available, so that there is more than enough headroom to cover outflows (current usage 52bn vs 65bn limit). The ECB decision is not the one that will cause a Grexit, other dates and decisions will cause that well before any theoretical limit on Greek ELA limit is reached.

As long as there is the potential for a deal, they will meet whatever liquidity requirements are needed, within reason. They are saying to both sides what the ‘rules’ are, and that they will not be used as the pressure point in all of this, ie deal decision first, then ECB acts – not the other way around as happened with Cyprus.

Re: Agreement

Krugman today is quoted.

I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work.

There is one aspect to all of it, which perhaps politicians have not grasped. There is a scene, I can recall, in a recent movie Lincoln, which had the potential to be a lot more. But still, if one does listens closely, it sounds something like this.

We are stepped out, upon the world stage now. With the faith of human dignity in our hands. And you, you gentlemen. You dodge about, like petty, Tammany hall huxsters.

It is like one of those moments, now in Europe.

What they learned a long time ago, however, in America, and it probably goes back all of four centuries, is this. The United States of America, is not a country, or a democracy, or even a place. It is instead, a collection of them.

What they decided to do, was to create, what they called, a house of representatives. A house of representatives. That is, men who would represent, their state in some general assembly, a long ways, away. That is probably where the Tammany hall, fellows, came into it. But so be it.

What we do not find in America however, are members of state legislature houses, who have been elected to manage, it’s department of finance, sitting, in a house of representatives. Rather, we find representatives, who are elected, on narrow two year terms, sitting in a chamber far away. We then see, state legislators, men and women who legislate on behalf of the state, sitting inside chambers nearby.

But these two processes, are never confused.

It may be possible, for a state assembly member, to become elected, and become a representative member. But never both, at the same time.

As much and all, as American media, tries to claim, that it’s country, cannot get anything done. It’s country, is not governed by the distant chamber, but instead, is governed by a local one. And as much as reporters today, might like to criticize the distant one, the fact remains, that four centuries ago, someone across on the other side of the Atlantic ocean, figured out, that they needed such a system.

Here on this side, of an Atlantic ocean, four centuries hence, we cannot. BOH.

@Dan McL @10.57am
“Some would blame the electorate for their recklessness while others appear happy to blame the creditors for funding the deficits.”
As you know, a banker gets fired if, having assessed the credit risk in depth and with expertise, the loan goes bad and the lending is deemed to have been ill-judged. There are internal layers (boards, cr committees, credit dept, limits, etc) to check (and check again) that the latter doesn’t happen or at least that there is minimal risk of that happening, all things considered. So, yes, the creditors have significant “blame’ in all this. Simple as that.
It would certainly appear though that many creditors adopt versions of old fashioned slavery as a modern debt resolution mechanism. That is what we are witnessing here. Not much else. Relying on legalities as opposed to recognition of the substance of the Greek (and other) situation i.e. that there is insolvency, is very convenient, but crosses the moral threshold when it adopts debtor prison as the solution for its “culprits”. Load of hogwash. If this was simply a commercial banking matter, it would be write off and move on. The fact that it underpins the politics of the creditors indeed demonstrates how insidious the debate is.

Re: European negotiation process

What we do observe in America, in it’s house of representatives, are full-time members, who can concentrate on the objectives of the union, full time.

They owe some sense of mission, to their home state, and a lot, to the state of their ‘union’.

They do not, fly back and forth, on whistle stop trips, like our state-level, finance ministers do, . . . carrying with them, on their backs, an overwhelming burden of state-level, and party political prejudice.

The American house of represntative members, do not go to a distant chamber, in order to gain some political victory, as state-level finance ministers do, in Brussels, . . . to score some victory, that can only be interpreted and de-coded, by some expert in state-level politics, at home in small islands, such as Ireland.

What is the state of, our union, in Europe, one may ask?

What is state, indeed?

When one thinks about it – it does speak for itself.

The audacity on the part of it’s architects, that any sensible union of nations, can be operated where the main concern, is not the union, itself.

But instead, the ‘main concern’ rotates around, with political election campaign cycles, of local states.

It is not the the ‘main concern’ of elected, politicians back home either.

No.

It is rather, the ‘main concern’, as expressed, and written down, by very un-elected, domestic, state-level campaign leaders, managers, and dare I say it, nefarious public-relations consultant executives.

What a truly horrible mess, that in Europe, we elevated the infamous Tammany hall huxster, to a position of overwhelming authority?

And yet, that is where in Europe, we have ended.

That does not happen in America (or at least, it didn’t until recently).

And for good reason. BOH.

Bloomberg noting from the ECB’s weekly balance sheet that ELA lending has gone up by over €57bn in last few weeks and presuming it is all to Greece.

Does the SSM have a role here?. After all, the four main Greek banks are now supervised from Frankfurt and only banks deemed solvent can get ELA , in theory anyway.

@Tull
My understanding is that part of the Greek proposal involves a quasi debt for equity element….Return based on economic performance. Sensible…modern.

You obviously have not accepted that Greece is actually in primary surplus….so your ref to “their constant deficit ad infinitum” is more applicable to Ireland than Greece at this point in time.

@ Tull/Paul W

“If this was simply a commercial banking matter, it would be write off and move on”.

The idea that banks just write off loans, no questions asked, without legal or financial redress, is ever so slightly naïve. Creditors very often take an equity stake in the underlying borrowing entity. Or liquidate it. Not sure these are viable options. Unfortunately, for all the genuine hardship Greece is going through, it is not a poor country by poor country standards. Its still wealthy and capable of repaying much of its debt, the only question is how, how much and whether the political will is there to take tough decisions to retain its best asset – that of Eurozone membership.

Creditors could alternatively chase Greece through the courts for the next decade, ala Argentina. Not sure that’s the best option though either.

@ Zhou

The phrase “humanitarian crisis” that’s being used at the moment was not coined by the creditors. Compared to genuine humanitarian crises, Greece’s problems are modest.

@BEB
If there’s something to recover, the creditors should be working to achieve that. They have legal means to do so, as you say. However, it is not naïve to say simply that legal recourse has its limits. Obvious. It is clear that the state of Greece is at that point….has been for some time. Windowdressing from crs’ roundtripping increasingly large loan balances is no solution. The state is insolvent i.e. without support, incapable of servicing its debt obligations as they fall due. The local social conditions /”wrongs” underpinning that situation is another matter altogether. Moral high grounding has nothing to do with it. I therefore don’t agree with you when you say that Greece (the state) is a “wealthy country”, in the context of the legal construct of its debt vis a vis its solvency (again, its capacity to service its debt obligations without significant external support). When you narrowly argue the legal construct, which is always constructed to pre-warn and then protect the creditor first, you are on thin ground in the face of insolvency.

As for your apparent very benign view of banking, I do not meet many bankers who share your views…..most of us know well that “might is not right” and that we participated as employees in a corrupted, self-serving system….which is now significantly broken, much to the detriment of many, including bankers (and now ex bankers).

The basic point is that debt slavery is not a good debt resolution mechanism in the face of insolvency. That doesn’t need your (pointless) qualifications.

BTW how many debt restructurings have you ever been involved in…?

It is certainly true that the second bailout did reduce the private sectors holdings of Greek debt but at a price. In April 2012 private sector holders of Greek bonds (the ECB and national central banks were not involved) received €29.7bn in EFSF bonds and €62.4bn in new longer term Greek bonds in exchange for €199.2bn existing Greek bonds.
Consequently the nominal value of Greek debt outstanding fell by €107bn. Estimates on the average haircut differ ( depending on what discount rate you use to derive the Present value) but is generally put at 55%-60% which given the scale of the operations makes it the biggest writedown in history.
The Greek government used €25bn of fresh official debt to compensate the Greek banks and in December of that year used another €11.3bn to buy back €31.9bn of the newly issued bonds i.e. for around 35 cents in the euro

@Dan

Regarding solvency, should the point be reached where there is an evident difference of views between the Greek central bank and members of the ECB GC, about specific bank solvency or suitability of collateral presented for ELA, then ELA issuance can (at least in principle) be blocked by 2/3rds majority vote.

Presumably, as you approach the point where there is real speculation about whether there might be a blocking majority on the GC – or whether there might be one in a week, or a month etc, then people will become increasingly aware of uncertainty over what currency they could actually withdraw from the banks.

If taken far enough, there is the theoretical possibility of a central bank governor allowing ELA despite instructions from the ECB to stop doing so. At that point you might be being paid in “Euros”, or withdrawing funds from a bank account in Greece in something called “Euros”, but who is going to accept payment with those “Euros” or “Euro” credits? That question, along with Target2 access going down is arguably the start of a de facto Greek parallel currency in a Euroized Greece.

If, or as, that scenario starts to appear more likely so do bank runs, capital flight, and precautionary capital controls.

There is a discussion relating to the Irish context half-way down this old thread:

http://www.irisheconomy.ie/index.php/2011/09/20/tasc-on-promissory-notes/

With regard to the politics it is surely true that politicians generally prioritise very, very highly the justification of positions they have taken – especially when they are opposed in an electoral process by other politicians who claim that they would have acted differently.

It is also true though that the new Greek government has a mandate which the FG/Lab coalition never sought nor received. Both parties campaigned on a ticket of zero risk to state or bank funding if they were elected. The campaigning was visible to foreign analysts and as a result a bargaining position was not established.

Why is it that so many of the academic economists on the public payroll are so Syriazly (nice one JtO) left wing?

ELA, ELA, ELA!

http://www.telegraph.co.uk/finance/economics/11417315/How-the-ECB-could-finally-pull-the-trigger-on-a-Grexit.html

@ The Second

They will be among the first in the tumbrils!

Re FG the gaeilge has it

Ni uasal agus iseal ach thuas seal agus thios seal.

Swings and roundabouts and when Ireland needs help in the future it may not be forthcoming. The spin against greece is stunning.

EZ inflation is negative. Debt has won a pyrrhic victory.
They would be better off with 4% yields but they can’t stop and Draghi is their man. The ECB can’t generate 2% inflation which is the only way of keeping smacht on debt. Now the war is lost and debt will suck the life out of Europe. And inflation will be the only way to stop it which will kill debt. Read a disused shed in wexford.

There is no balance in this crisis, it is economic nihilism.

@aiman
You’re getting the picture alright…..The creditors has much to lose in not doing a reasonable & sustainable deal.

On top of that, the real risk is severe EZ /EU fracture. It is not academic as we have seen with Lehman.

@Tull
I can at least say that I have run Euro 5-6bn of credit portfolios, with international exposure in up to 40 jurisdictions. Never lost any meaningful amount (would have been fired if I did). Very difficult workouts such as Enron, Turkey, Argentina, etc. come to mind. So, no, you are not in a position to teach me about sucking eggs.

Hi there Second: Now what do all those Syriazly right-wing, neo-liberal, ideological, right-wingers mean when they use the term “left-wing”?

What information does either “right” or “left” actually convey? Now, being of a nautical mind maybe I should use “starboard- wingers” and “port-wingers” instead. See what I mean?

Paul W,
Am impressed. Don’t meet many FM who never lost money on a position.
Seafoid,
We were on side of Angels here. Greece has no friends owing to its mendicant ways. Country has been in default more than 50% of its existence. Not a proper sovereign, never was and never will be. Did my first trade in GGBs over 15 years ago @ 10% yield. Never buy them at a widows and orphans yield.

@Aiman

“Were the Greek debt to national lenders to be, let’s say, halved, where do posters think the ensuing €175m budget cuts in Ireland might best be made? Libraries? A&E Depts? Step-down care? Primary schools? Maybe even 3rd Level?”

Ireland has already paid over 1 billion into the ESM, which is one of the sources for Greek funds. And we are fully committed to pay the ESM up to 11 billion. [Spanish banks got the biggest amount of funding from the ESM, up to 40 billion, but I think some or all of this may now have been paid back].

See ESM annual report 2013. See Note 15 (page 85 approx) to see member contributions.
http://www.esm.europa.eu/

In a contribution that did not receive much attention, Regling, the head of the ESM which is sitting on a lot of unused money, is clearly hoping for a deal with Greece and commented;

“An exit from the eurozone would be “the most expensive solution both for Greece and for the euro area,” said Klaus Regling, the head of the European Stability Mechanism, in a transcript of an interview with German broadcaster Phoenix. “That’s why we try to prevent precisely this.”

http://www.wsj.com/articles/greek-exit-from-eurozone-would-be-worst-option-says-bailout-fund-chief-1423999998

@Paul w
Good point about oil. I think markets are far too complacent. Oil seems to be more about demand deficiency than anything else.
Non farm wage increases are also well below where market optimism says they should be. And revenues are stagnant. Not a great trio really.

@tull

What’s it like at the bottom of that smoking crater?

@ Ernie

“Name these allegedly left-wing economists”

Given the blog’s DNA I supposed that it was dominated by this species. Of course, I may be entirely wrong, possibly most posters are inner city unemployed.

@Sarah

K-dude was on Newsnight with Evan Davis earlier (the subject of this thread was touched on very briefly).

@ Tull
Believe me, there have been scary moments. I should add that the timeframe was 20 yrs in total with my having direct board accountability for approx. 10 yrs of that. Board would cut one’s balls off without blinking if one gave them the opportunity. In that context, most bankers /ex bankers understand the score – it’s political now, without much else.

Which brings me to another point – those tasked with negotiating debt ? (whatever) for Ireland. Mostly accountants /bean counters of one sort or another (long history of accountants and bean counters in Ireland), or academics such as Mr. McHale (sorry John, but you’re the best example I can think of), who have never ever done this stuff in the trenches. Also, with little personal to lose (certainly not their jobs…but maybe some DoF or similar organizational “reputation’ damage). Hence my posts of some years ago re the Fiscal Compact /Treaty….cringeville when confronted by the non-experienced (albeit academically intelligent) who dominated that debate in “the best interests of Ireland”. Not-so-expert experts, which has been a fundamental part of Ireland’s problem in approach…..Fyi, they have been re-showing that pat on Enda’s head here again this week on Bloomberg. Cringe.

On the other hand, I have witnessed and experienced how the Germans and Dutch do things re debt. Scary in a completely different way. More religion than economics at the end of the day.

Sarah – “hang on you [Greeks] got a deal’ is just not what has happened/not what is happening. The Greeks with their “fiscal waterboarding” is far more accurate…. What part of “insolvency” is not understood? Creditors sending money around in circles, with burdens to be borne “ad infinitem” by future generations is not how credit should work in capitalist societies. Another fundamental problem in Ireland is the “shame” associated with insolvency…..it’s in the genes, so few Irish recognize or accept the malaise that exists, even those with impossible burdens…but particularly the official apparatus of Irish society. We all suffer from it. The result is not an Irish capitalist society, but rather a predominantly “welfare” society…..with even those doing well benefitting (net) from or ultimately dependent on the EU and other Irish begging bowls (eg tax base erosion for others). Understandable given the country’s and people’s history. Sad though in many (most) other ways.

Anyway…..

@Gavin

Eurogroup wants veto over things it and the various electorates would consider counter-productive. They also want Greece to stick to the existing programme partly so that they can demonstrate to their electorates that Greece can be trusted to stick to its agreements – including another programme. They don’t want to commit more funds if they think the policies enacted make the eventual return of those funds even more unlikely. Extension.

Greek government want to take control of what measures will or will not be taken as per their pitch to their electorate. Really it is the next programme or arrangement that is more important, but if they can ditch the programme now and still get the funds released it puts them in a much stronger negotiating position for future negotiations. Bridging loan.

The percentage play is to expect negotiations over the next few days to find a neutral position which gives the Greek government some concessions while allowing broad adherence to the current programme to be enforced by the Eurogroup – ie can-kicking of the power struggle.

There is though, the question of implications for other programmes along with off the record expectations that sooner or later further write-downs (at least on an NPV basis) will be necessary anyway. Those could ease the pressure on some core countries to be accommodative.

I just might draft a budget involving a makey-uppy deficit of, let’s say, €20bn. Then I could run as an independent, resurrecting Oliver J. Flanagan’s “Monetary Reform Party” minus, naturally, the anti-Semitism.

Any technical problems with our Euro-area co-colleagues could be easily overcome with a shamrock-shrouded box of Maguire & Patterson matches.

“Burn the bondholders” is so 2010.

Let’s try some alliterative “Light the Latvians” instead.

The argument that a more positive Irish attitude to Greece would risk being costly is ridiculous.

With a view to the longer term, Ireland needs to expand its horizons and improve on its poor indigenous exporting record beyond the English speaking countries.

It’s not an easy task as the effort to diversify FDI shows – Europe has been the biggest recipient of Chinese outward FDI in the past 5 years with Portugal in fourth placing receiving an estimated $6.7 billion while Ireland isn’t on the radar.

It took Ireland about a quarter century to reduce significant tax evasion and on economic policy, recall one of the world’s biggest housing busts!

The myth that poor European countries can aspire to become as rich as the leading countries in a few decades should be recognized as nonsense while the the economic prospects of France and Italy will remain the main challenges if growth remains low in the long term.

Italy’s debt servicing costs have fallen by half from 12% of GDP in the early 1990s but Japan shows that near zero rates are no panacea.

Greece had a very low household debt to income ratio in 2000 and it added 30% since 2007 to 75% as incomes plunged but that contrasts with Ireland’s current level of about 175%.

In 2010 Jean-Claude Trichet used to answer question’s about Greece leaving the euro with an expression of astonishment while claiming that it was “inconceivable.”

It’s time for an orderly mechanism for a country to depart.

MH
Not only should there be a mechanism for a member to depart but there should also be a similar mechanism to eject.

Re: Different hats

I blame the way the post was authored for that, by the way. It sure as hell wasn’t written with an economist’s hat on.

Yesterday, this particular mind, began looking at the entire question about Greece, and the Eurozone, putting on what can be described as an economic hat. And what this particular mind, has observed in the last single day, are the very many people, who do the same.

However, for some reason in the middle of yesterday, and it was quite late, it also made sense to try on the political hat and find out, what light it could shed, on this subject.

Indeed, imagine if traders, in New York after New Orleans had been flooded, stood there and debated about the price impact, that it would have, upon New Orelans debt.

And imagine indeed, if traders in New York, had done so openly.

We here in Europe, endeavor to calculate the yield, from Greece like it was an open season, mathematics festival.

We do so openly, and without any shame, and many of us, without having ever even stepped foot in Athens.

The fact that I have observed, or learned, at least since yesterday, is that the political system in north America, . . . and what one state-level minister for finance, interviewed at the meeting of twenty-eight, state-level ministers for finance, . . . described as ‘the European democracy’, whatever on earth, that actually means, . . . other than being a nice ‘sound bite’.

The fact that I have learned, since yesterday, is that the political system in north America produces one response, to a large scale humanitarian disaster, and for some reason unknown, the one that exists amongst the member states, in Europe produces quite another.

Imagine if some trader, in Wall Street in New York, had described debt paper issued by New Orelans, using phrases such as windows and orphans prices.

And imagine what newspaper columnists, in America, having discovered that, would have written then.

Imagine the idea too, that because a financial professional, bought, or sold, Greek debt paper, a decade and half ago, that it confers upon that individual, the status of a veteran, who has some sort of wisdom in all of this?

And what is astonishing, is that here in Europe, in the gigantic void, that has been created, or left, from lack of true and genuine political representation, or any chamber, albeit it ‘far away’, instead of nearby.

What is astonishing, is that here in Europe, the political commentary, simply picks up the ball, that has been created by a community of financial bond traders, none of whom are very old, and known of whom seem to have read that much of political history, . . . and our political commentators, here in Europe, run with the ball, as it was presented to them, by it’s economic, and financial minds.

Indeed, imagine if that had happened, after New Orleans.

We don’t have the money. They must leave the union. New Orleans, must create it’s own currency.

Imagine that.

And imagine for just one minute, what our European project has become.

Because, it has become really hard to fathom, at all. BOH.

@ JtO

Your best yet! I would go further, the gentlemen you cite and I suspect many on this blog convince themselves that they are ideologically driven. In fact it good old fashioned resentment that society would give greater rewards to anybody whom they consider their intellectual inferiors.

@Tull

“Not only should there be a mechanism for a member to depart but there should also be a similar mechanism to eject.”

Do you believe such a mechanism should be derived through the democratic process or would a process derived by unelected bureaucrats be suffice for the purpose?

Look, just so we’re clear, I fully agree that Greece should be helped remain in the Eurozone, and flexibility should be granted on current program, debt maturities, overall debt burden etc. But anyone who either asks for or expects an ‘easy’ deal (in relative terms) for Greece is living on a different planet.

Any deal that the Eurozone offers or is willing to accept has to be tough, optically as well as financially, and has to be granted, politically, on the Eurozone’s terms, not the Greeks. Syriza’s repetitive and pointless mentioning’s of their “democratic mandate” only works in terms of what they can suggest, not what the Eurozone can offer or is willing to accept.

Given the current real-politick within the EZ and the unfortunate history of Greece not adhering too well to previous promises or debts (something Varoufakis himself admitted was a ‘credibility problem’), anything less than a cast iron set of promises from Greece will be unsalable back in domestic political environments.

The whole Greek political management of their side of the process has been shambolic, their whole “you have more to lose than us, our exit will cause contagion, the Troika is terrorising us” of last week created enemies rather than friends, when they mistook genuine sympathy at their plight for an expectation of a free ride.

More than anything, they have completely and totally misjudged the mood in the rest of Europe. Europe wants to finally get out of this crisis/prolonged recession, and they (we) are yet again faced with having to “save” Greece from itself, and the political and economic ramifications that come with any deal. More than anything, that is why many within the EZ are willing to let Greece leave the EZ, simply so they don’t have to deal with it any more. That might be harsh, but its also reality.

Both Mody and Chopra support Greece. I would listen to them before taking advice from anyone trading bonds, frankly.
Markets meanwhile soar on rumours of a deal. Markets can’t price political dysfunction. Pat Spillane has more credibility.

For interest’s sake.

“Greek Finance Min presentations at Eurogroup, 11~15 Feb 2015”

http://www.scribd.com/doc/256125514/Greek-Finance-Min-presentations-at-Eurogroup-11-15-Feb-2015

@Mr. Bond,

Thank you. You’ve described the current reality perfectly.

Zsolt Darvas of the Brueghel Institute runs some numbers on options for helping the Greeks:

http://www.bruegel.org/nc/blog/detail/article/1568-the-maths-behind-an-amended-greek-plan/

The conclusion seems to be that to reduce Greece’s primary surplus to 1.5% or even just to 3% will require many more billions of euro of new loans from the EZ for years to come. (Assuming Greece continues making payments on its IMF/ECB and remaining privately held debts). Schauble and Varoufakis will learn to love each other by the end of it all!

@JTO

“But, their concern for the Greeks is just that, posturing. It is shallow. When did they ever exhibit any similar concern for the Serbians, Bulgarians, Romanians, Latvians, Lithuanians, even Poles, all of which have far lower living standards than the Greeks?”

There is plenty of concern for low or unequal living standards in the countries you mention, but there is one distinct difference with Greece.

Greek GDP fell by 25%, consequent to an imposed Troika programme, that forecast a fall of 5%. Unemployment rose to 26%, when the Troika forecast that the imposed programme would result in 15% unemployment.

Krugman predicts that the imposition of of the >4% primary surplus, that the Troika programme calls for, will cause Greek GDP to fall a further 8%.
That would be a 34% fall in total, if the Troika get their way.

Yet, the new Greek government, elected to get rid of a failed Troika programme, is being faced with the ultimatum of ‘unconditional surrender’ or you are out.

Ironically, a Grexit now suits the political agenda in the Eurozone. The reason is simple, the turmoil from the outcome which will inevitably result in a further slide to recession, can be blamed on Greece, rather than on the failed Troika doctrine of the past 7 years.

Grexit is the Eurozone cover for austerity failure.

I’ve just had an email very nicely telling me I’m on the wrong side of history. I’m getting a bit cheesed off now. I’ve asked questions and put the other side of argument because rather than blindly accept what the great and good here say I want the popular argument tested. I do the same thing with the government reps when I talk to them. When people get all shrill and angry when I put fair points to them I start to get suspicious. I’ve got skin in this game too. I’m a freelance worker with an unemployed husband. getting lectures on the immorality of austerity (from the safely tenured ) isn’t the way to convince me. It’s very easy outside government to say what must be done but yes my sympathy does lie with those who are accountable. Saying it’s all for FG is reductionist. The fact remains that those who predicted doom have been disappointed and therefore I’m obligated to listen seriously to the government and not simply dismiss the strategy out of hand. (Hope this cones out right – am on a phone…)

@ Joseph

“Greek GDP fell by 25%, consequent to an imposed Troika programme, that forecast a fall of 5%. Unemployment rose to 26%, when the Troika forecast that the imposed programme would result in 15% unemployment.”

This is only really a relevant issue if you consider pre-crisis Greek GDP levels as real and sustainable (ie did they really grow by 140%, in real terms, between 1996 and 2008? Ireland, with a massive productivity miracle, massive real inward investment and a credit bubble on top, only grew by 99% in the same period). I would suggest they were nowhere near being so.

@BEB, Tull

Any deal for the Greeks will of course be tough but surely not along the lines of the completely unsustainable nonsense that the current program represents. It was the current program too which brought the socialists to power. Ironic. So who actually ’caused’ /forced this crisis……

The conservative last crew were at the root of Greece’s ‘credibility issue’. The socialists have at least agreed to address the various monopolies, tax dodging, etc. They should at least get their chance. I’m no socialist but the costs and damage that a Grexit is likely to cause is not something to be accepted glibly.

Putting aside sentiment, a realistic and sustainable deal needs to be done. The creditors have fully participated in the present situation and will also be hit in resolving the situation for now. They too will know better about how they should lend to Greece in the future….If as you say Tull it will happen again, then they are great fools. However, the creditors enjoyed the financial upside when it lasted…..now they will (and should) participate in the downside they have co-created. Caveat emptor for investors and creditors. When did downside risk disappear or become the sole responsibility of borrowers? Rubbish. The creditors (even poor ones) cannot say they didn’t know what they were doing…..although in my story above about the Canadian FI blinking, that’s exactly what their N. European counterpart pleaded in court!

@The Second

Would those “leftist economists on this blog” include those targeted by this?:

http://trinitynews.ie/economics-teaching-in-trinity-needs-to-get-with-the-times/

Whatever the Greeks are supposed to submit for consideration, it has been delayed until tomorrow.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_18/02/2015_547410

The wires are obviously buzzing. The desire of 70% of the Greek electorate to keep their euros may be fulfilled; as long as they keep them in Greek banks. And place their country in the same effective economic quarantine as Cyprus.

The WSJ says the style of their MOF irks his colleagues. I would think that it is his near total lack of substance that irks them most.

http://www.wsj.com/articles/greek-minister-yanis-varoufakiss-style-irks-his-eurozone-peers-1424208945

Hi Sarah.
Just coming to the thread now.
I saw you asked a question about or debt to GDP falling a couple of days ago.

We were up to 125% debt to GDP and are now back down to 115% according to official figures.

The vast majority of the reason for this was down to government using Cash in hand to pay down IBRC debt. Other small things also helped such as adding the economics of sin to the GDP figures and a little game in the dept of finance called lets move everything that we can off balance sheet.
However the fundamentals are as follows. We added 7-8 billion in debt last year because we spent more than we took in from taxes and our interest payments for debt were 8 billion. The GDP did grow last year but not enough to keep up so without the accounts trickery our Debt to GDP increased.

The thing keeping us and the rest of the Periphery in the game is the willingness of the Gov bond buyers to buy at unbelievably low rates that ignore the level of risk they are taking. This is a political move too by the elites that are the main players in the market in order to prevent default.

FG trying to distance itself by scolding the Greeks is not just a simple matter of tuppence halfpenny looking down on tuppence, its clearly a political move. If the Greeks were to get any further concessions it makes the FG policy of best boy in class look silly and reasonable people might start to look at alternatives. Michael Noonan isn’t just trying to help Ireland, his first loyalty will always be in defending elites of every nationality. The exact same thing is happening in Spain Portugal and Italy and other euro countries where the ruling parties are dead against any Greek concessions, in direct contrast to their citizens who agree with Wolfgang Munhcu’s calls for debt write downs and public investment.

Dont underestimate what Varoufakis and Tsipras are trying to do. They are challenging the authority of all of Europes elites and that is why a hard line is being taken. The body language is very telling. Wheather its Noonan or Dijssenbloem or Schauble. They don’t think Syriza deserve to be in the same room as them.

@DOCM

So Varoufakis has a “total lack of substance,” eh? As opposed to whom, now? Dijsselbloem? Schäuble? Noonan?

Never mind that their “substance” boils down to having been and continuing to be “substantially” wrong.

The claim that Varoufakis lacks substance is about as credible as claims that Obama is a moron and overmatched in the job voiced by those who supported George W. Bush. When this kind of hysteria is voiced, one has to ask who is giving the marching orders and what are they panicking about.

Hi skeptic01: “I think the difficulty Sarah alludes is that Ireland implemented austerity, and yet it does grow.”

Grow? Yes, but in what manner? See the fundamentals listed below. How are they doing? Austerity is more correctly know as ‘downsizing’. So, we have less folk employed; folk have reduced incomes; we have increased revenue takings; welfare services are curtailed. So what in Jove’s name is ‘growth’? ??? Extra vehicles on the M50? I love it!

@ Sarah: “The fact remains that those who predicted doom have been disappointed and therefore I’m obligated to listen seriously to the government and not simply dismiss the strategy out of hand.”

Bit ‘wild’? But continue with those ‘searching questions’.

I might be one of the aforementioned – but I predicted nowt other than; since the economic fundamentals (proportion of working age in employment; residential property prices; incomes; credit and energy) were not in good shape and since all are fundamental – in somewhat varying proportions to that nice, annual, compounding percentage “steady state” we so desire, then that aforementioned state was unlikely to rise up and be restored: dead cat bounces excepted.

Chanting “growth”, in whatever tempo, does not guarantee its literal existence. One can ‘wish it’; one can ‘believe it’ – but that’s simply known as “wishbeling” thinking. Common as the common cold it is.

@Ernie

This is just aping a similar ‘revolt’ by the scions of the elite at LSE. I remember doing something similar myself back in the day at Trinners. Kept me out of the pub for an afternoon.

@ BWS

The Irish state is no longer dependent on support from official bail-out lenders, its debt levels have stabilized, it has regained access to private markets, employment is growing again, the drain on the state to support the unemployed is slowly falling, the government deficit is now low and manageable, we have probably seen the end of contractionary budgets…
In terms of “successful” IMF-style bail-outs, that’s about as good as it gets. It is true that the Troika has not fixed all of our problems relating to demographics, property prices, energy sustainability etc. Maybe we should bring them back for another go round?

Re: Getting the sequence correct

One thing, in this, which interested readers, scholars and brains in international finance, may choose to consider, is something that I will mention.

It is something that I will mention it, for the basic reason, that it has not been mentioned anywhere else above, as far as I can ascertain.

There has always been this question, which arises, when it comes to a subject of sovereign states (which may be considered to be legitimate ones, or not considered legitimate, as has been asked about the state of Greece overhead).

It is this question, of what does one want, what does one need, to get right, first.

A professor, who has spent a good deal of time, in universities in Great Britain I believe, but who originally grew up in India, is Amartya Sen. He is someone, who from my understanding of things, had observed over many years, as the United Nations (because the continent of Africa, doesn’t have anything like a European Union, or a United States), discussed the affairs of many failed states, in Africa.

The professor, often observed, something like a statement: we need to get the economics right first, and then we’ll worry about establishing some kind of political system.

In fact, the logical way that the human brain works (and it is demonstrated in numerous instances above, as argument by a great many educated and logical contributors to the Irish economy), is that it thinks, it can be done in that order.

Fix the finance.

Then fix, the politics.

However, at some point in his career, Amartya Sen got an idea, to challenge the conventional wisdom (a term, which McWilliams in today’s daily newspaper in Ireland, attributed I think to Galbraith).

Professor Sen, asked the question, if whether we should help to get the political system to work first, and then try to solve the economic riddle.

In fact, this is not so much a new idea, so much as it is, a quite old one. Researchers have observed, that before the British empire, in it’s heyday, decided to colonize any place (presumably, to extract some economic benefit, for the same empire), that the British empire, also operated by a similar sequence. They would first encourage the religious missionary orders and so on, to venture into distant lands first, and establish a basic level of order, and political regularity to the place.

Then of course, having developing that level of order, the empire would proceed to develop the place, from an economic point of view. That may now seem, like a strange example to take, and one that relates to a different time in history.

However, we can also observe, that in a place known as Greece today, the sequence, which I refer to, is still important to observe. This is a major part of the reason, why I attempted to the articulate some of the arguments, which I did overhead and share them with the reader.

When we host any discussions, about Greece, it’s future and the Eurozone, here in Ireland, I would finally submit, that part of a condition for any such debate, is that all it’s participants, ought to consider the points raised by Amartya Sen, in his thesis, . . . which the professor Sen based, on an experienced observation, that across a great number of attempts made, to improve, some situation, in some developing African nation, . . . and in one’s where there may have been a lot of goat’s manure around, . . that those same attempts, would fail consistently, and fail badly.

The thesis, which professor Sen, developed for his novel, Development as Freedom, was one in which he questions, directly, that most logical of assumptions, which the human brain always tends to make. And it is an assumption, which I have observed, has been repeated numerously above, in relation to the situation of Greece, and it’s place in Europe. BOH.

@ Tull

You forgot one point:
* if these conditions do not come to pass, the Greeks will vote a neo-Nazi party into government and it will be the fault of the Germans that this happened.

The ECB gets out of the line of fire.

http://www.cnbc.com/id/102435241#.

USA to ultimately bail out Greece after they exit the euro?

http://www.marketwatch.com/story/why-the-us-will-have-to-bail-out-greece-2015-02-18?link=mw_home_kiosk

@ skeptic01: Thanks. I would place our situation as – “We are no longer falling.” And this may be as good as it gets.

Standard, long-term, rate-of-growth is considered to be 3%. However, ‘recovery’ from a downturn (where rate-of-growth was below 3%) requires 4% or greater for between 3 and 5 years – in a row. If our current rate-of-growth is less than 3%, then we are bouncing along the bottom.

The ratio of median home price to median income (by region) is still too high. How will this be ‘gapped-down’?

@Tull
Add ‘austerity kills citizens, jobs and economic growth’
Add ‘ Schauble and Djesselbloem are austerity fanatics’
Add ‘ireland’s pols and senior bureaucrats are protecting themselves’

More to come..

Re: Greek exit

BrianH wrote,

USA to ultimately bail out Greece after they exit the euro?

Matthew Lynn’s marketwatch, article.

This is probably that mile-high, weatherman’s perspective, which we might be paying a lot more attention to.

Good to see, there are capable brains out there, who do put all of the pieces together.

We should remind ourselves, by the way, of what John Fitzgerald, a contributor to this blog on occasion, said to a parliamentary banking inquiry in Ireland quite recently.

One of the failings, as he defined it, of the Irish central bank, during the last decade, was that it did not have a model.

It could look at one dimension yes, and analyze that somewhat. But what the Irish central bank, did not do (and in fact, at one stage, it even had Allied Irish Bank’s upper management spooked, enough to talk to Mr. Fitzgerald about it), was to look at a number of factors, in terms of a model, with several moving parts.

Matthew Lynn’s article, is the first really decent analysis on Greece, and on Europe, that I have read so far. Much appreciated. BOH.

Guardian publish article adapted from 2013 lecture:

‘Yanis Varoufakis: How I became an erratic Marxist’

“In 2008, capitalism had its second global spasm. The financial crisis set off a chain reaction that pushed Europe into a downward spiral that continues to this day. Europe’s present situation is not merely a threat for workers, for the dispossessed, for the bankers, for social classes or, indeed, nations. No, Europe’s current posture poses a threat to civilisation as we know it.”

http://www.theguardian.com/news/2015/feb/18/yanis-varoufakis-how-i-became-an-erratic-marxist

Yaroufakis worries about a bloodbath:

“To me, the answer is clear. Europe’s crisis is far less likely to give birth to a better alternative to capitalism than it is to unleash dangerously regressive forces that have the capacity to cause a humanitarian bloodbath, while extinguishing the hope for any progressive moves for generations to come.”

Rudy Rummel is a social scientist who collects stats on bloodbaths and why they happen. Unfortunately for Yaroufakis the number 1 factor for mass-killings is… Marxism!

http://www.distributedrepublic.net/archives/2005/05/01/the-red-plague/index1.html?page=1

@ Brian Woods
“This am, listening to the Radio (RTE), the newsreader intoned – in solemn tones, about the Leftist Gov of Greece.”

I heard “far leftist Gov of greece” when listening to Morning Ireland and had the same thoughts as you.

@ Tull
Look at what they are actually demanding of Greece.
A 4% surplus every year for the next 10 years at least.
Has that ever happened anywhere before?
Any economic historians out there?
In the context of the last few years in Greece, wages down 25%, Suicide doubled, GDP down 25% Unemployment 25-30%, Youth unemployment over 50%. No health care if out of work.

Now compare that with your hyperbolic points above about how unreasonable people are being for asking for a Greek write down.

Wow.
Either this is a very odd piece of game theory or that does indeed look like complete capitulation by the new Greek Gov.

I havent read all the comments yet but so far (half way through) I think people are getting a little carried away in their responses to Sarah Carey. From what I can see (and she can correct me if wrong) she’s not saying how it ought to be but how it is. (from her perspective) It’s an analysis, not a statement of personal prefernces.

– Or rather, the former statistic “structury primary balance” is adjusted versus the economic cycle.

@Sarah Carey

The fiscal compact is indeed a real problem, as flagged at the time by Kevin O’Rourke and Varoufakis. Varoufakis said that FG and Ireland were blackmailed into it, and I think that is how everybody felt. For my own part, I voted NO.

This reference to “debt write-down” seems to be an oft-repeated canard. Where has the new Greek government asked for or proposed a debt write down? They want new terms and conditions. Ireland is all for new terms and conditions a la the promissory notes. Why is there still talk of a debt write down from Noonan’s people?

@Sarah Carey

Apologies! I misread your post. I note that Noonan’s people were agreeing that no debt write down has been asked for. I am glad that they recognise that the debate is not about debt write down.

@ Sarah,

I’ll look forward to your Saturday programme, since there should be a lot more clarity as to how the ‘Greek challenge’ is likely to play out by then. I would have thought a discussion between two economists, say one from the ‘liberal’ persuasion and another coming from the social democratic perspective, and two political figures from similarly competing points of view might make for a more fruitful discussion? But your current line-up should make for some lively exchanges!

As for the FC; I opposed it because I thought it was too restrictive. So I voted against it and tried to persuade others to do likewise. But I’m not sure I fully understand the point your interviewee was getting at? First off, I thought the FC has largely been overtaken by events in the meantime and is politically redundant at this stage? Second, I always get a sinking feeling – especially a few months out from an election – when political advisers start waxing lyrical about ‘stimulus’ or hiring extra nurses etc., especially when they were to the fore in campaigning for including the FC terms in our constitution in the first place.

As for you being on “the wrong side of history”; that’s just a turn of phrase and I’m sure no personal offence was meant by it. It’s also a patently ridiculous phrase, since I’m sure every tinpot tyrant who got his (usually) mitts on the levers of power anywhere in human society was convinced he was on the “right side of history”, even long after the statues had been pulled down in the village square. However, for reasons argued on a previous thread, I think the EU is facing into a political crisis to compound the EZ economic crisis. That’s irrespective of whatever reasonable fudge may yet be agreed to deal with the problems of Greece.

Even total capitulation is not enough for Germany. Where have I seen this movie before?

And why, exactly, is _Germany_ the party refusing?

Demanding unconditional surrender is now the way of the New Europe, except when dealing with Putin.

http://www.theguardian.com/business/blog/live/2015/feb/19/greece-to-seek-bailout-extension-after-33bn-lifeline#block-54e5a8fbe4b02d0175e075a8

@BEB

Did they blink – or did they know this would Germany’s response to their proposal? Are they dividing and conquering….Maybe not. But maybe Rock Star’s second album could surpass his first in critical and selling terms.

Re: What now for the rock star?

I hope all the shouting was worth it. What now for the Rock Star?

Well, you did ask.

China, I guess.

It could chomp that quarter of a trillion, that Greece has right now, and whilst cleaning their teeth, with a wooden tooth pick ask, got any more?

Put a nice bright red one, up there beside the blue and white. Why not.

Game, set and match.

How about that, bond traders?

How about that?

Your boy Wolfgang, can wag his finger all he likes.

The question, that I have for you is as follows.

Does it really take a Chinese flag, flying over the crucible of European democracy, no less, to make you finally see, how small your bond markets are, in the greater scheme?

And because I know you will also ask.

The reason that China, hasn’t gone and done that already, is probably, because it is hoping that people here, will finally become mature, and put their hands in their own pockets. Because in fairness, it would be less embarrassing, for everyone, not least of which, for Wolfgang.

We own this, we broke it. We can fix it. Let’s move on, and if if the bond yielding, calculators can’t deal with it, then let’s invent a new one. BOH.

I believe Greece is being reasonable in its attempts to renegotiate this failed programme, Germany is being unreasonable in insisting that failed policies continue, and Ireland is acting against our own interests. But here’s the rub: how, as a voter, do I make my views known? And to whom? The EZ is being run in a manner than I despise as intellectually bankrupt (if something fails, repeat), but who gives a toss what I think? This is the big, big problem I have with the EZ and the EU—they have disenfranchised me.

“bad blood has clearly been created following last weeks repeated spats. But I still think Germany is acting more bad cop than just bad.”

Plenty of experience on both fronts so will be interesting to see which….

@Mary Feely

text from Blind Biddy in Brisbane during an innovative bazooka-firing tutorial with Paul Stirling: “Fight back!”

@SC

The FC was a victory for the politics of fear- it sits up there with the vote on scottish independence but of course has far big reprecussions. The people, including your good self must take responsibility for it – you knew it meant what you now say it means when you voted for it….surely you knew that is what it meant.

Lucinda (remember her)…was the main protagonist for the fear merchants if remember. We didn’t just vote it in because we needed more money btw, we voted it in but because we were told IF we needed more money from our friends to pay back our friends, then we had to vote for it….courageous lot the lot of us, eh!

Mary,
You will have ample chance at the next GE inside a year to vote for parties that agree with you -SF, Shane Ross and Minger’s crew. Maybe a few others.
Zhou,
Syrizia campaigned in their GE for a debt write down and Rock Star has been clear it is his preferred option. I think they will look for it in next stage of negotiations on new programme, if we ever get their. They would almost certainly get re-profiling just as we got over two or three goes. Problem is that interest rate is very low and payment terms stretched out. They would also have good case for lower PD. But they have cocked it up spectacularly in the last week.

I don’t think there will be a Grexit yet, Syrizia will surrender unconditionally in next 24 hours. Grexit would be catastrophic for them – no banks, no money.

Longer term, Greece has to leave the Euro , devalue 30-40% and run a tight fiscal policy, open markets up, slash public expenditure and bring in a few hundred heavies from the inland Revenue to collect taxes. The correct role model for Greece to follow is Turkey. Maybe it should go the whole way and reunify with its former colonial power.

Slovakian PM on FT website – inter alia he says

“This is a red line for us. It would be impossible to explain to the public that ‘poor’ Slovakia . . . should compensate Greece,” Mr Fico told the Financial Times in an interview in his office on Thursday. “To explain to people that we have to give money to Greece for their salaries and pensions? Impossible. Impossible.”

http://www.ft.com/intl/cms/s/0/692bfc12-b831-11e4-86bb-00144feab7de.html#axzz3SDv3zQJ8

While governments may tend to be lavish with other people’s money by times, they are, sensibly from their point of view, usually only lavish on those who can re-elect them (or help get them re-elected).

The apportionment of blame for how the Greek situation came to pass, and the impracticality of Greece being able service or repay monies already lent, are interesting, but secondary to the (I hate the term) realpolitik concerns of the creditor nations.

Greek citizens owe 76bn in taxes to their own govt. Collecting that money either by enforcement, attachment or amnesty would reduce GREECE’s debt by 20% . How about trying to collect that debt before defaulting on its debts to other sovereigns.
Tsippy might even consider factoring that debt to the EU?

@ Nocense

Recent research on risk evaluation points to people selecting and favouring information made available through public discussion of politically contentious issues in terms of (a) its perceived relevance to their own immediate life circumstances; and (b) the extent to which it accords with whatever group identity they aspire to. Referendums are a blunt instrument for political decision-making and it’s generally accepted that they’re hardly ideal for making decisions on complex issues, although they have other benefits. Most follow-up studies on why Irish people voted the way they did in one referendum or another point to the complexity of people’s reasoning for going with ‘yes’ or ‘no’.

Sure enough, fear of what might happen in the event of a ‘no’ result was identified as an important factor in the FC referendum. But in all the circumstances of the time who’s to say that the decision to vote ‘yes’ was not a rational choice for the individual voter? Nor does it reflect either on individual or collective ‘courage’, whether or not you, or I, liked the outcome.

What annoys me, I guess, is political advisers retrospectively bemoaning the FC as a constraint on their freedom of action to promise a BMW in every driveway and one outside on the roadway and a lobster in every pot, when it suits them. Especially so, when they loudly beat the drum for an FC ‘yes’ vote only two years earlier.

@Veronica

“say one from the ‘liberal’ persuasion and another coming from the social democratic perspective, and two political figures from similarly competing points of view might make for a more fruitful discussion?”

No. That’s what every other show does. I get very tired of contrived polarised discussions between the usual suspects that just ends up in a shouting match with people saying predictable things. For that reason, I very rarely have politicians on the show. We all know what they’re going to say. I’m making an exception this week because I think the government line needs to be explained and Brian is on top of it; Harry is a regular on the show and I know can put the left wing side of the debate in a really nice global and historical context, without cheap slogans. And Colm can tell us the truth 😉

@Nocencse (I think)

on Lisbon. Yes I voted Yes. Because a) I thought “fiscal responsibility” would bring an end to the budgeteering of “When I have it I’ll spend it” which seemed to make sense. No more FF election buying and massive unnecessary transfers to the middle classes. and b) a no vote seemed to bring major instability with it and c) I approved of the EU project in principle. Europe has been very very good for Ireland – eh, up to a point. So no, I didn’t foresee ending up in a massive recession with big debt that had to be endlessly paid down and that even when he reached the “preventative phase” we would still be restricted in

On the basis of my conversations this week, it appears I was wrong. This does happen from time to time. In fact, I would go further than saying I was wrong. I didn’t understand.

Finally, I’m still not buying into the line that the *only* reason the Irish gov is not supporting Syriza is out of electoral panic. As Tull I think has said, Ireland is not alone. Europe is actually united on this point, especially the Baltic states. AND as my chap in DoF said, Ireland has NOT rejected or not supported Greece, because Greece put nothing on the table bar “give us the bridging loan AND the right to do what we want”.

On the domestic politics you could turn it around and say the populist parties are incandescent because tonight we have proof that campaigning on unachievable promises ends in tears. They are the ones exposed, not FG.

At least, that’s how it looks tonight. Things change.

Whoever said I was describing the world as it is, rather than how I would like it to be was right. Most of the time I’m trying to understand rather than describe.

Right now it looks like Syriza made a bloody mess of it. They have a moral case and the f*cked it up. So much for Game Theory. The Irish government method of back-channel diplomacy and back stabbing seems to have achieved more than war jokes and big talk.

“do not borrow anohter big pile” !

BCT,
The problem for Syrizia is that leaving the euro is not what they promised to the electorate. Neither is continuing with the current arrangement.

Clearly the terms on which they won the electorate, writedown, end to primary surplus, spending OPM on welfare, no labour market reforms, etc etc. so which ever way they go is problematic.

@Sarah Carey

The Eurogroup and the EZ Institutions do appear to be united against Syriza but for the most part it is about domestic political concerns and what you might like to call the “appalling vista” aspect of accountability rather than reflecting genuine national interests.

Finland, Germany and the Netherlands are against any easing of Greece’s debt burden or austerity because they share a bizarre Calvinist economic philosophy part of which involves viewing debt is a sacrament. In addition the public has next to no understanding of how savings get interest (why were they lending) and how demand choking at home caused inflation to be exported. Opposing the reduction of Greece’s debt burden (or austerity) is part of their national character.

Finland and the Netherlands have in addition the need for a foreign scapegoat – they have both doggedly followed the way of the Merkel but despite privatizations, balanced budgets via austerity and structural reforms the economic results have been poor. Finland has had had stagnant or negative GDP growth for 8 out of the last 12 quarters. In the Netherlands they have the highest personal debt to income ratio in the EZ (250%). Syriza and the rest of the GIPSIs are a convenient explanation for why things have gone so badly – the Greeks are dragging us all down.

In Portugal, Spain and little Ireland the ruling right wing parties face left wing challengers and diminishing the power of the left in the EU as well as defending their own sad legacy of submission is vital to careers.

Other countries have a mixture of these problems but almost all of them share one big problem.

For the last five years the governments and institutions of the Eurozone have promoted austerity as a solution to economic troubles. Social welfare benefits and public services have been cut, there has been stagnant growth, dropping real wages and a whole generation of young people left on the scrapheap of unemployment. It has been a miserable experience for a majority of the population and there has been no payoff as yet.

The admission that reducing austerity was the correct policy for Greece would raise the question of how a continents entire political and technocratic elite went along with the wrong policy for six years. As Lord Denning said failure of the establishment on that scale would be such an appalling vista that it has to be assumed that it was not the case.

The entire EU establishment has been complicit in the crimes of austerity but Greece getting a changed deal (and worst of all prospering) would be the evidence for a conviction.

@Tull
It sure is, but it is only useful in the context of a coherent goal.
I don’t think the moderate euro political parties realise how bad the economic situation is. And they were already weakened in the eyes of the public in 2011. The PTB deposed Berlusconi in Italy but it made no difference to the debt dynamics. Renzi is no miracle worker.In France The UMP is a mess and the Socialists are polling dreadful numbers. In the UK the Tories are under serious pressure in key marginals from the UKIP whose support are reportedly very worried about the future. They are the ones bearing the weight of adjustment.
I wouldn’t assume continued indefinite political accommodation for failed economic policymaking.

The EU has a responsibility to co-ordinate with Greece. There are 2 paths they can choose.
1. More help with their debt and more investment continuing to reform and progress their economy with help from the European Investment banks and other funds. Also speed up plans for a EU fiscal union including more fiscal transfers.
2. Just stick their head in the sand and after a few years Greece leave the Euro. Looking at the current high unemployment and debts and low levels of international credibility it must be said that the Greeks made a mistake to vote to stay in the Euro a couple of years ago.

As for the current situation – the worlds current imperial leaders the US have through their all powerful secretary of treasury instructed both sides to make concessions so a watered down version of 1 is the most likely outcome.

@Shay
Great post 223 but one thing is missing. Austerity for the people and trickle up for finance. Who made all the money on the compression in bond yields ? It didn’t generate any growth but it went somewhere. This increase in inequality on top of economic stagnation is politically toxic when people start joining the dots. Or take the eurostoxx 600. 14% increase in earnings last year. 13% due to cost cutting. Workers take the hit. Who takes the increase in the share prices as profit? Lots of it goes into property investment, driving up prices beyond the reach of ordinary people. And the crisis of youth unemployment across Europe. Who takes the hits and who creams the profits? It’s a big decision in a town called malice.

The FT has a piece about Schaeuble dissing the latest Greek proposal in 34 words. All down to Angie now. Are the reforms introduced post 2011 robust enough in the absence of a CB with LOLR ? ESM, bailout fund and joke bank stress tests. 2 tn in assets at negative yield says no. Mody and the other guy know the internal wiring of the Euro and what is held together by sellotape.

The Germans can scweam and scweam but the Landesbanken are full of overpriced piggy sov debt. How much weight can they bear ?
I bet the Germans will yield. No Grexit.

@ Sarah

I think Skeptic and JTO are right.

I think your man in the Dept of finance is playing you.

Did he mention that Ireland only needs to reduce their Debt to GDP by 2.5% so from 110% to 107.5% under the terms of the FC and that it will happen naturally once we don’t borrow another heap on balance sheet?
Or we could do another Enron accounting trick if needs be.

When he told you we cant support Greece as they never made a proposal this was a red herring.
The problem is that Noonan has spent the last 2 weeks throwing sauerkraut at them without any provocation.

@Tull
Syriza won an election that was called unnecessarily by the Greek FG over the selection of a new president. The previous pm made a bad call and threatened grexit if parliament did not comply.
Greece already had lost pasok and this lost it new democracy.
The political system can’t take more contractionary expansion and dud bailouts. Varoufakis knows where the EZ bodies are. This is a great soap opera.
With deflation off camera.

The ez isn’t ready for Grexit. The institutions don’t have the necessary programs and mechanisms in place. Maybe in 2018 but not now.

@seafoid

“The Germans can scweam and scweam but the Landesbanken are full of overpriced piggy sov debt. How much weight can they bear ?
I bet the Germans will yield. No Grexit.”

In this minute (13:34) i agree. It could change by tea-time!

@Eamon

On being played. This is the great dilemma for the likes of me. Whose playing whom? Is it the gov who would benefit from Syriza failure, or the opposition who would benefit from Syriza success?
All i can do is listen to everyone and ask each side to respond to the other’s points.
And watch the body language. That tells me a lot.

New question: Is Grexit containable, or more to the point, do the Germans think that Grexit is containable. My Man in Merrion Street thinks not containable and therefore bad. Or at least that’s what he said. I thought his line when I suggested it was containable was convincing “well, that’s what people thought about Lehmans”.

@vinny

lol. oooooh miserable attempt at passive aggression!

I’m a romantic conservative whose trying to understand. And I like Star Trek, which helps. Most of the lads, actually all of them except Ernie really, here get that and are nice to me. When we disagree, they feel a bit let down. But we make up in the end.

I’m also a bit manic and should get off the site for a while and think about the questions that really matter for the show tomorrow.

Who knows what tomorrow will bring??!! Whoever said they were playing Kobayashi Maru was SO right.

JF,
Good the see the properly governed UK is doing so well, albeit the bit below Berwick on Tweed. Also good to see that 500k WMT hourly paid workers got an 11% pay increase y/day.
Dr Copper also appear to have got back up on his feet in recent weeks.
We got good MArkit PMIs in the EZ and decent industrial orders in ITaly.
I think the deflation story will turn out to be a load of BS and QE in EZ will be pro-cyclical.

JF,
You are forgetting Lord Ross of Dundrum who wants us to default on our debt, support Syrizia and purchase the Ryanair stake in Aer Lingus.

The UK is a mess too. No mention of the 5% deficit, Johnny. Or productivity.
And that low inflation looks like deflation.

@ sarah
Greece is not containable. A messy exit and a bad set of non farm numbers in the US could sow panic in the markets. They were fairly ropey in January already. Hedge funds have had a bad few years and would love a bit of macro volatility prising Portugal away from the Euro herd. The EZ still has no lender of last resort, deposit insurance or rules on how to wind down dead banks. The hedge funds know this. Draghi knows they know this. The EZ probably needs another 10 years of slow incremental progress, not another failed ultimatum.

@ boh
+1

@ sarah carey

It was a genuine question….not ‘a miserable attempt at passive aggression’…you keep referring to a ‘show’ ….what channel is your show on…I feel I must have a look…

@all

Well, that all ended predictably. Complete and utter Greek capitulation. Maybe Varoufakis will update his game theory textbook? A horrendous humiliation for Syriza but also a great loss for the Greek people – they almost stumbled on the only thing that is going to save them by accident. Now it is back to debt slavery.

Also – to all the people barking about Syriza’s ‘democratic mandate’. What mandate do they have now exactly – given that they have completely reneged on their electoral promises? Answer – the mandate to do the best you can in a world that never looks like a textbook.

Seafoid,
Sell long duration fixed income govvies to ECB buy cyclically sensitive assets. Actuaries will go to jail over this next mis-selling scandal

Re: Over and out

In fairness, no one here knows for sure.

The value, of the exercise as partaken in overhead, is that in twelve months time, many of ourselves, and indeed, many others and return here and study some indication of the thought processes, that existed in February 20th 2015, and are illustrated in some fashion, above.

Remember, before our melt down, moment, here in 2008, we didn’t have the benefit of any electronic, dis-intermediated, medium to capture any of the same. What we had, in brief, was a couple of Morgan Kelly, article URL’s and no a whole lot more.

I don’t think that Twitter, or smart phones even existed back then, but someone might correct me.

A lot of the thought processes, as reflected above, are ones that reflect people who need, two plus two, to equal four and a half, or four and some indeterminate figure, that isn’t exactly four.

And it is out of that margin, that distortion, that some markets, in Europe have now grown to depend upon, and build their business. And the only question, that you should all ask yourselves now, is whether it is wise to base a livelihood on such certainties. Indeed, was it wise in 1929, or 2008, or is it wise now.

There is a sovereign debt, austerity, bubble that has been inflating in Europe these last few years, and I know, many will not want to know. But you’d better all duck, when eventually, it just can’t support itself any longer. All the best.

Some readers, at this stage may have recognized, both their strengths, and their vulnerabilities, in business, in life and in general after today’s turmoil. Act accordingly, and don’t gamble, or at least try, not to gamble on the gamble. Really. BOH.

I suspect the Rockstsr will turn. Out to be a one hit wonder. No 2nd album here. He can go back to teaching game theory I some small mid west university. He has been exposed as an utter spoofer.
Will Tsippy throw him under a bus

Looks like Germany got its unconditional surrender from Greece, a fact that will go down very badly in Greece.
Perhaps like good debt slaves they will take it.

If only the EU could bring Putin to heel so easily.

I’ll think I’ll wait until Monday, when the Greek refrom proposals are sent through, to see if this is a real deal or not. Or maybe for another couple of weeks, which is when the ECB says it will decide on accepting Greek bonds again. Or should I wait until about a month from now, which is when the Greek governement is said to run of cash? Or perhaps until April, which is when all the new “reform” proposals are supposed to be agreed, and then implmented. Or even the end of April when the remaining programme funds will be paid over provided all condiions have been met ..?

I wonder if the Yanks had a word with Angie. The EU has handled Ukraine very badly and another miscalculation on Greece in Q1 would have been very unwelcome. The financial system isn’t robust enough to digest policy mistakes concerning Greece that trigger chaos elsewhere. That is one of the features of globalisation. Everything is linked.

Is this the stupidest headline in the history of the world?

http://www.independent.ie/business/personal-finance/fears-for-irish-economy-as-prices-drop-for-second-month-running-31005743.html

The price falls are due entirely to the 50 per cent fall in world oil/gas prices, which Ireland imports.

Presumably, if OPEC decided to give away oil for free, this would arouse even more fears for the Irish economy?

But, if people genuinely feel oil-driven falls in the cost of living are a danger to the
Irish economy, there is simple solution: increase the water charge to 1,000 euros per month. This should cure deflation and ease the fears the Irish Independent article refers to.

The gloss came off two Special Ones this week, perhaps more due to their supporting casts than themselves.

Did someone say “total capitulation”?

Tsipras: “Yesterday’s agreement with the Eurogroup … cancels the commitments of the previous government for cuts to wages and pensions, for firings in the public sector, for VAT rises on food, medicine.”

John, I think you may be a tad over excited – Angie baby has not started to sing – yet!

Ukraine is the problem. As Winston once said – “We have come merely to the end of the beginning.” – or some such. NATO is no match for Mother Russia – and its her patch they are contesting over. This Greece thingy is a mere doddle by comparison. Bears hibernate – and when they emerge in the spring they can be very tempremental – not to say downright bad-tempered and aggressive. Wise folk keep well clear. Is the EU wise? Is the US wise? Looks dodgy.

A genuine decline in oil price signals the prelude to a serious economic showdown, somewhere. Its counter to the expected. So expect the un-expected – maybe out of Left Field!

The US economic fundamentals are in pretty poor shape – despite the desperate propaganda outpourings that “recovery is confirmed”. Its not.

From the show:

George Hasidakis from Athens: Why are the media portraying a Greek victory? “You don’t want to upset the government.” http://tinyurl.com/p4nfhzg

And the panel discussion

http://www.newstalk.com/player/home/Talking_Point_with_Sarah_Carey/Talking_Point_Panel_Discussion/79359/where_now_for_greece

funny quality on that – better on this, but skip 1st 6 mins

http://www.newstalk.com/player/listen_back/16/16620/21st_February_2015_-_Talking_Point_with_Sarah_Carey_Part_1

@BEB
Is a ” total capitulation” by Greece good for the bond market ?
Does it make the system safer ?

@ Veronica: Interesting comments.

” … to adopt an aggressive posture …” – oops! One woman’s agression is another woman’s assertive position. But no matter. How would one characterize Mrs T’s “That’s OUT! – and that’s OUT – and that’s [aka: Harvey N] – OUT!”. Hmmmmm

If the situation requires a display of rage – and it most surely does, then “rage” it is. Mind you it ’embarrases’ onlookers, but that’s merely our social-software default – us humans are genetically hardwired to protect our mates, our offspring and our food supply. With lethal force usually. 3,000 years of so-called civilization does not trump 3,000,000 years of evolution.

Church Street was it? How about the good monks move their distribution centre to Lansdown Road – on the day of a Six-Nations event. Think that might rank as an ‘aggressive’ stance?

“Representative democracy is the best system of government that has ever evolved in human society.”

I’ll buy that; just skip the ‘evolved’ bit. Its a societal thingy. But not this; –

“But the social democrats, and the centrists, are floundering badly.”

Nope. They have carefully, deliberately and successfully distanced themselves from ‘local bother’. Its the polity that is (in part) floundering. Sleep with one eye open.

@Veronica

Janey – you are of course completely right on Lisbon/Fiscal Compact. All week I’ve merged the two and the weirdest thing is that I’ve had several conversations and email exchanges with people doing the same thing and no one corrected me. Politeness is dangerous. ALWAYS correct me.

I’m very lucky with the show as I’ve great autonomy and can pick topics that I like and approach them with a fresh, expert driven angle.

They should’ve named the FC after somewhere memorable. Anyway – apologies!

@ airman@; “The Fed got it wrong, but at least tried to remedy the problem with QE.”

Sure did get it ‘wrong’ – but those QEs have not remedied the matter. They have caused a financial assest price bubble in the US. Housing is still moribund. Retail is sinking. Proportion of working-age population in full-time employment is (reportedly?) below 50%. Median wage has stagnated. Household and corporate debts have increased.

“The ECB got it equally wrong, and QE hasn’t even started here yet.”

How about Negative QE: wipe-out a load of debt? Creating fiat money only debases your currency. Might stimulate some export trade, but it will go badly pear-shaped when energy costs start rising. Three years?

Folk allude to a demand problem. I guess that’s true. But the real problem is the huge productive potential-supply gap: its gapping even wider, just as actual demand either sinks or stagnates. Strong technology gains are accelerating potential productivity – but its the consumers who are constrained. QE for consumers – in the form of debt wipe-outs might help. I have my doubts. But it might be worth a try.

@ seafóid: “- debt would still be the driver of growth”

That’s correct – if the “steady, log-arithmetic advance” of economic activity stays at the necesary 3% p/a rate – otherwise the situation inflects into an arithmetic stagnation state. I reckon that’s where we are now.

I’d class it as ‘trickle-back’ – from the east-lands. That’s where the environmentally-costly, but money-costless labour is. And the Tricklers artfully ‘barged’ their technology from west to east. It is not coming back – any time! But deflation is.

@ BWS

Deflation and then some.

The CBs missing their inflation targets is so important. 2% inflation puts smacht on debt.
0% doesn’t.

Wallerstein hasn’t been featured here for a while

http://monthlyreview.org/2011/03/01/structural-crisis-in-the-world-system/

“Premise No. 1 is that all systems—from the astronomical universe to the smallest physical phenomena, and including of course historical social systems—have lives. They come into existence at some point, which needs to be explained. They have “normal” lives, the rules of which need to be explicated. The functioning of their normal lives tends, over time, to move them far from equilibrium, at which point they enter a structural crisis, and in due course cease to exist. The functioning of their normal lives has to be analyzed in terms of cyclical rhythms and secular trends. The cyclical rhythms are sets of systemic fluctuations (upturns and downturns), in which the system regularly returns to equilibrium. However, it is a moving equilibrium since, at the end of a downturn, the system never returns to exactly where it was at the beginning of the upturn. This is because secular trends (slow, long-term increases in some systemic characteristic) push the curve slowly upward, as measured by some percentage of that characteristic in the system.
Eventually, the secular trends move the system too near its asymptotes, and the system is unable to continue its normal, regular, slow upward push. Thereupon, it begins to fluctuate wildly and repeatedly, leading to a bifurcation—that is, to a chaotic situation in which a stable equilibrium cannot be maintained. In such a chaotic situation, there are two quite divergent possibilities of recreating order out of chaos, or a new stable system. This period we may call the structural crisis of the system, and there is a system-wide battle—for historical social systems, a political battle—over which of two alternative possible outcomes will be collectively “chosen.””

@ Zhou

I think you are being unfair on Noonan, at least v-a-v how the Greeks themselves have positioned themselves or acted. Very good article in Fortune which has a first hand take on Syriza/YV etc over the last month.

http://fortune.com/2015/02/20/greece-germany-yanis-varoufakis/

Zhou: He also objectified Varoufakis by calling him “a bit of a rock-star”.

First off, the fans of YV in the media coined that initial description, and some of his close colleagues have no problem using it.

“People in cars roll down their windows to shake his hand, bus drivers stop to salute him, he’s surrounded by kids in the streets.” Varoufakis even stopped for five minutes to reassure a cleaning lady looking for work, his hand on her elbow. “He’s as much of a star as Alexis Tsipras [Greece’s new prime minister],” says Galbraith.”

Zhou: Secondly, Noonan was very disparaging about Varoufakis

Well, its not as if YV has been the most complimentary of his European colleagues.

“As an example of Varoufakis’ unvarnished honesty, he cites his friend’s statement that among those with whom he’s negotiated, Schaeuble, a staunch opponent, is “the only one whom I have found to have intellectual substance.”

@Sarah Carey

No offence intended 🙂 I was on the move and the RTE Radio apps are great. I am looking forward to listening to the podcast of your show.

@Eoin Bond

“As an example of Varoufakis’ unvarnished honesty, he cites his friend’s statement that among those with whom he’s negotiated, Schaeuble, a staunch opponent, is “the only one whom I have found to have intellectual substance.” ”

Nothing stings quite like the truth!

The Daily Mail view!

http://www.dailymail.co.uk/news/article-2963471/Was-Greek-finance-chief-s-punch-threat-just-ruse-learnt-Essex-Rock-star-Marxist-uses-volcanic-temper-tense-talks-bailout.html

At the time of writing, VF has not yet submitted his homework on behalf of the Greek government. There are suggestions that he may not even meet the agreed deadline, presumably of midnight tonight. The teleconference of the Eurogroup is, nevertheless, going ahead tomorrow. An interesting morning in prospect for the financial markets, especially in Greece!

The two confused participants in the negotiations, from the description in the Fortune report, were VF and Galbraith.

@Sarah Carey

A fortnight tonight (9th March) will be an important anniversary – exactly one year since Morgan Kelly’s last public pronouncement.

In case you can’t remember what he predicted, here it is:

http://www.thejournal.ie/morgan-kelly-joan-burton-smes-1352622-Mar2014/

Might I suggest your excellent show mark this anniversary by interviewing the great man and asking him how his forecast of a year ago is coming along.

That could work. It’s like a Mayan calendar thing. The doom mongers have to keep pushing out the date of the end of the world…..
Have to go easy on my listeners this week though. The crowd at mass agreed Greece was heavy going. I think rural bus routes…

On that – who can tell me whose subsidising whom? Rural or urban dwellers? Us culchies reckon we’re paying far more for Luas and Dublin Bus…

Very good FT piece from December about Greece

http://www.ft.com/cms/s/0/283e089c-807f-11e4-872b-00144feabdc0.html

“Yet in certain respects Mr Tsipras is advocating only what a number of perfectly level-headed foreign economists advocate, too. It beggars belief that Athens will ever repay all its debts
What should preoccupy Europe’s leaders and investors is not the parliamentary arithmetic in Athens, or the cuts that the creditors want in the 2015 budget. It is whether Greece has the desire and capacity to continue the arduous modernisation effort begun in 2010 — or whether it will maintain old structures of clientelism, corruption and oligarchy under a façade of obedience to foreign overlords.”

@ Sarah

Any thoughts on why oil fell by 50% in Q4 ?

Meanwhile in the US there has been almost no sales growth for the last 4 years. In other words, earnings have increased but not because companies are doing more business.

Just wondering where the hopey changey stuff is.

On oil – no thoughts at all! I’ll have to look that up.
On hopey changey stuff – well it’s after 4am. Haven’t been sleeping great recently – waking up with a racing heart so I’ll take whatever hopey changey stuff gets me through!

@zhou

I know the exact guy to complain to about this. I bumped into him last week and he told me they are launching a new version soon. Use this link

http://www.newstalk.com/player/shows/Talking_Point_with_Sarah_Carey/16/16620/21st_February_2015_-_Talking_Point_with_Sarah_Carey_Part_1
and skip in 6 mins

and the Greek journo George who is fascinating..

http://www.newstalk.com/player/shows/Talking_Point_with_Sarah_Carey/79362/greek_journalist_george_hazidikis_from_athens

good point of view, here other point of view about Greek crisis https://www.patriotdirect.org/greek-crisis-surrender-financial-power-consequently-for-bailout/