IBRC liquidation ‘Progress Report’


65 replies on “IBRC liquidation ‘Progress Report’”

Progress Report! And loads of glossy charts. But thankfully a surplus.

However, in relation to the information provided, my understanding of normal liquidations processes is that all assets or assets categories are listed showing ‘book’ value and ‘sale’ value, thus allowing creditors to show what the surplus or deficit was on each asset category sold.

We did not get this by asset category, or by detail asset. In the public interest we should also receive date of sale and purchaser.

On another point, it is difficult to comprehend how the state made such a mess of its injection of funds into the dead Anglo bank, that it did not ensure that it was not, at the very least, an ordinary or contingent creditor for any funds lost by the state, thereby trumping (or at least being on a par with) any junior bondholders remaining.

Pardon me while I resist the urge to savour all the ‘alleged SAVINGS’ here ….

@Seamus Coffey

Bit of thread … or not.

Michael Taft’s empirically well argued counterpoint to some of your recent work:

‘What does this mean in Euros and cents?

To reach the average of other EU-12 countries, we’d have to spend an extra €12 billion.

To reach the average of our peer group, other small open economies, we’d have to spend an extra €25 billion.

Now imagine that we were just an ordinary European economy. We’d be spending an extra €12 billion. How much better would our current services be, how many new services could we roll out (e.g. affordable childcare), how much new investment, how much stronger would our income supports be if we spent €12 billion more? Its’ worth pondering.


Ponder initialized! Seven_of_9’s influence …. and I’m still pondering on The Guv’nor’s €100 BILLION ….. I estimated 90 a small universe ago … where did the extra 10 Billion go? Guess who pays?

Genuine economics question!

I’ve been thinking about inflation. The idea is that in the Eurozone that inflation should be almost but not quite 2%.

The Dork (currently bending Bill Mitchel’s ear in Australia) and following discussion pointed out that this does not include asset price inflation, eg property. Is that still right?

But leaving that aside I was wondering why there is a strange feeling in a low-inflation regime that people have to work for longer and longer to keep up, whilst 30 or more years ago the country was poorer but one income could maintain a household. I was wondering whether this is just a ‘feels like’ thing or is actually true.

Then, as I was working out what my kids needed for the week ahead, it occurred to me that perhaps whilst inflation is (or should be) modest there is more and more stuff that can be bought and is crossing the line into needs to be bought. EG, 30 years ago, no mobile phones, now mobile phones (and regular credit top ups) are pretty much needed to function in modern society, also broadband connection, childcare if two adults work, etc. Therefore whilst headline inflation stays (or should stay) steady the cost of living – because of the need to pay regularly for more stuff in modern society – rises.

Now, I know there is a basket of goods and services into which things are placed and removed so is what I’m talking about covered by this? Or is it the case that the inflation figure is an even poorer guide to the cost of living than I thought? Please feel free to say I have the wrong end of the stick.

Apologies if off topic: feeble connection, looking at the cost of massive asset price inflation boom and bust in ireland.

Here’s my take on it. When inflation was high, in the 1970s for example, if you took out a large mortgage you might have five years of hell keeping up the monthly repayments, but after that inflation would have eroded the value of your debt and your repayments. So, things would eventually get easier for you. Without inflation, the burden of debt stays the same, so you go on struggling.

Re: Modern Economies

Gavin wrote,

ut leaving that aside I was wondering why there is a strange feeling in a low-inflation regime that people have to work for longer and longer to keep up, whilst 30 or more years ago the country was poorer but one income could maintain a household. I was wondering whether this is just a ‘feels like’ thing or is actually true.

There are really two curves, that you have to think about. On the one hand, is the one which shows that people are living longer. I.e. They may live for two decades following their retirement. That is like two decades. It’s a significant amount of time. The other curve which is also working against us, is the one which indicates that human progress and evolution of technology, and our world in general is increasing at an accelerated rate. This creates that dreadful problem, whereby people who leave third level education after ten and twenty years, discover that the world is a completely different on, from that which it was only two decades hence. I.e. There is very little longevity left. More to the point, stuff that appeared to be ‘new’, and cutting edge at the time one was studying in third level education, in one’s field after a couple of decades, by the time that a person is reaching their age forty say, . . . all of that, becomes ‘out of date’.

This is the problem in fact, with education, which seeks to turn around whole populations of young people fast, . . . and drive them in one whole, large chunk through the third level degree and accreditation system fast. These people emerge into the economy, and ‘plug’ directly into the system, as it is constituted at that particular point in time. I.e. It is this notion, that training that people receive now in third level, is almost vocational in nature. They might learn to do X and Y, in some computer software language for example. That might tide them over, in the work environment during their youth, and then the company they worked for producing these widgets, which all was constructed off of technology, that was relevant for a short space of time, . . . that disappears all of a sudden, and releases a large volume of young-ish people back into a labour market, at a time when technology has fundamentally just moved on.

Or worse even, you have a very large multi-national, which struggles to survive, but it is weighed down by the fact, that it is carrying this very large global workforce, who proved to be very ‘productive’, and ‘plugged’ right into their system, at a certain time having left their higher education, . . . and now, the large multinational is faced with a massive task, of having to upgrade and develop new skills, amongst it’s existing workforce, right across the organisation. You see this in the public sector in Ireland for example, which is our only home grown version, here in Ireland of large organisations, which we create and develop here on our home soil. But the problems facing these large multi-national organisations, and those facing public sector ones, are not all that radically different. It puts a lie to this notion, that there is some public-private sector divide. I mean, that is something, which media broadcasts in Ireland, love to cling on to, in order to generate a hour’s length of radio, television or newsprint ‘content’ out of. The media, after all is a content-driven business, and that is the production or output challenge, that it is facing.

But the real challenge, that is facing the modern organisation, these days in conducting it’s business, and managing to stay ‘alive’, through these successive generations of technology change and rapid-paced human evolution, is that of being in possession of a work force, which is somehow organized, that it finds itself adaptable to change, as opposed to getting overrun, and collapsing at the first wave of ‘future shock’, which it encounters. It is not at all unlike, that comment which someone like Jeremy Clarkson, of the BBC television organisation, would have made. Clarkson, ironically is one of these individuals, who is exemplary of those who manage to have a longer career and survival. But even he, in recent weeks has emphasized and underlined this idea, to do with dinosaurs, and elimination of one type of ‘man’, and the creation of another type of one.

In regards, to the household, in a modern context. The challenge that the modern household faces increasingly, is not that one income packet, can sustain it. It is this idea, that both spouses may have had, at one particular time, the correct set of skills, which were demanded by a ‘high-tech’ environment and labour market, at one point. But then, very shortly after that initial period, and around the time that children are being born, and so forth, . . . the period during which the household, is looking to become just that, . . . then this shockwave, comes crashing over that entire generation, where they are becoming out of date, and a whole generation at the same time, become dinosaurs.

This is the feature of the modern high-tech environment. What is having to happen, is that salaries have to balloon, prices of things like assets etc balloon also. Because it is considered the case today, that an individual human being, will not possess the skillset and talents any longer, which will sustain them over an entire working life time. People are running into this brick wall (as are entire organisations), long before the official retirement age even. Not to mention the fact, that one individual having been lucky enough to reach a retirement age, in some kind of gainful employment, is also then facing into a longer lifetime, with a need to support themself, when their skills are really and truly, and shockingly not required, by the ‘labour market’, that is present around them.

Some societies have risen to this challenge, better than other ones have. They have created certain meaningful agreements between labour and economic forces, that guarantees that more inertia in what I described above, is built back into the system. I.e. So that entire swathes of labour forces, are not being simply ‘picked up’ for a short length of time, and then ‘dumped’ back down again, at the worse moments. That is more or less, what we saw here in Ireland for example during the end of the 2000’s, following a period of very strong looking economic growth and development (where we witnessed that very confident generation of 20’s and 30’s year olds, saddling themselves with enormous debt burdens, because they considered themselves capable of carrying the same. Otherwise, they never would have assumed that same level of debt burden at all. This really does deserve more honest study and careful consideration. BOH.

Defense mechanism

Gavin wrote,

EG, 30 years ago, no mobile phones, now mobile phones (and regular credit top ups) are pretty much needed to function in modern society, also broadband connection, childcare if two adults work, etc.

A lot of nonsense and mis-interpretation gets attached to this phenomenon whereby both spouses work. A lot of things are attached to it, which have very little to do with it. I.e. Isn’t it great that both spouses work, isn’t it more equal, and so on.

Of course, that is true. But that is also quite superficial, to what is actually going on.

The household, by virtue of the kind of labour environment which exists now in the 21st century, has to deal with kinds of risks to its survival and basic sustenance, which did not exist half a century ago. The idea of both spouses working, even though it may not be economic to do so, whilst the childcare costs are weighing so heavily down upon that household, are going through this, . . . for reasons, which are more attached to what I described above.

I.e. There is no guarantee any longer, in that period between leaving higher education and the birth of the children, and formation of the household, as to which of the kinds of ‘jobs’, which either spouse will do, . . . what type of employment they are engaged with, in their 20’s and 30’s, . . . will still even exist, by the time that these adults reach their ‘middle age’.

I.e. It is a risk mitigation strategy, for both adults in the household, who we will presume for arguments sake, work in different industries and exercise different kinds of skills, . . . that both of these adults, continue to exercise those skills, . . . in the hope really, that by the time these two adults reach their age forty and beyond, . . . that at least one of those high-tech modern industries, will continue to exist, or at least the employment and organisations will still survive.

And there is not guarantee, absolutely none that both, and not only one of those industries and a demand for a skilled workforce in those two industries will not disappear around the same time that the household is having to raise young children.

It is a very rare household indeed, now in Ireland, where at least one or other of the two adults in the household, so not experience that sudden, and destructive ‘speed bump’, or pothole in middle adult life. And it is not uncommon to hear of cases, where both of the adults in a household, both of whom may have been highly trained, highly educated and well paid, in their early life, . . . are both suddenly hit with the same career existential problems, at the same time.

And the situation is made even more perilous, by the prospect, that one of the adults in the household who may be very well trained and educated, and skilled, takes a few years away from work to help to raise a family, and therefore spends the rest of their working lifetime, paying for that short sabbatical which was needed in order to raise the next generation. Such is the world, which we live in today, in the early 21st century.

The worst thing about it though, is that traditional political parties, who are very self-centered, try to deny all of the above. They view it as a criticism on them, when any researcher proposes spending any resources or time, into studying any of the above, and figuring out how society in one country or another, can look at ways in which it may need to evolve, or change (in particular, in terms of how education operates, and spends a lot less of its time, producing graduates for jobs, which only exist for the short duration after which the individual graduates from their third level education).

Government, generally speaking, just want to bury all of the above. That is because people who are oldest and sit at the top of the political pyramid, have grown up in a different era, when the labour market was not like it is today. Governments, when anyone tries to make the points which are raised above, see this as a personal attack upon themselves and their policy. But government, in particular, are the first of those organisations, which probably need to ‘grow up’ somewhat. But it is particularly strange, how this problem which affects the modern society, and the modern economy, is made all the more difficult to solve, because every time, that someone goes anywhere near, the problem and attempts to define it, . . . governments, all of a sudden, begin calling fire engines, and start getting all hyper-sensitive.

And that goes as much for younger generation politicians, in traditional political parties, as much as it goes for the traditional political parties themselves. The only real solution, that traditional political parties have, to any of the above, is to inflate asset bubbles again, and throw that particular form of ‘bread’ at the crowds for a little while, to keep them entertained. We witnessed a lot of that in Ireland, in the last two decades also. BOH.

Re: Debt burden

Mary writes,

Here’s my take on it. When inflation was high, in the 1970s for example, if you took out a large mortgage you might have five years of hell keeping up the monthly repayments, but after that inflation would have eroded the value of your debt and your repayments. So, things would eventually get easier for you. Without inflation, the burden of debt stays the same, so you go on struggling.

And you compound into that, these sudden shocks, which are experienced by households now, on a much more regular basis than before. What happens really, in how we set up our education system, with this emphasis upon training for jobs, instead of training for life, . . is that the younger generations are emboldened because they can extract such huge salaries, very young and for that early period of their lives, into taking on this huge burden of debt, at low interest rates. It is not only in houses either, but right across the board, we have all of these new forms of credit, which individuals are able to carry in the youngest parts of their lives. It is because, they appear coming out of third level education, to have this unlimited earning capability and are viewed as safe risks. Of course, what happens then, is that a decade or two goes by, some widespread economic shock comes about, and suddenly the younger generations who had been so emboldened to go forward, and take on huge amounts of leverage, are not only struggling to sustain that leverage, but also struggling to remain in the workforce at all.

The kind of thing, that I witnessed amongst highly trained, highly intelligent construction professionals for example, was simply unfathomable. It often struck households directly too, which had enjoyed a certain kind of lifestyle for a period of time, and then both of the adults in the same household were affected at the same time, as a result of being in construction professions. What it does too, even where one of the adults in the household happened to have been a public servant, is that it puts colossal strain upon the one remaining income, all of a sudden. Of course, all of this was predictable ten and twenty years ago, by the same lending institutions who create all of the credit. However, because interest rates had fell so low, in order to make the business model of the banking organisation sustainable, what they had lost in quality of loans (at higher interest rates), they had to replace with quantity of loans (by creating a whole raft of different new forms of credit and leverage for consumers to take on).

Again, the only point I would make, . . . is that traditional political parties campaign in elections, on the platform, that they can ‘fix’ all of this. This is a combination of things, a perfect storm of so many things, which extend across so many departmental boundaries, . . . from education, to finance, to housing etc, . . . that there isn’t anything to be fixed. It can’t be fixed. It has to be thrown out altogether, and an entirely new solution made. And the first step in doing that, is to acknowledge the reality, as it exists on the ground now, and stop campaigning for elections, on these promises that we will ‘patch things up’, and keep it going. BOH.

Financialisation came in in the 70s and led to an explosion in debt which
a) drove up asset prices
b) drove down interest rates
c) enriched holders of financial assets at the expense of wage earners

So compared to the 70s house prices as a % of salary are considerably higher. Winners have been boomers generally.
Younger cohorts have often resorted to debt to keep spending going. This is a big feature of the US economy.
Inflation at 2% kills debt slowly . Now central banks are unable to generate inflation so debt increases in influence. It can’t end well.

We need new ways to measure what is going on.

Shouldn’t the banner on The Irish Economy go green for St Patrick’s Day?

@ GK
From a CSO note:
“The CPI is a pure price index. It is not a cost of living index.”
It goes on to observe that a COL index would be extremely complex, you have alluded to just some of those complexities.
I would add that a standard of living index would be more complex still. For example today’s cars are far better than those of 50 years ago. Mobile phones have enhanced our SOL etc.
I would rate my SOL as higher than that say of Henry VII.

@ GK

From a note produced by the CSO:

“The CPI is an index of price changes. It is not an index of cost of living.”

It goes on to observe that a COL index would be very complex, I think they mean too complex as I have never seen one.

You have mentioned but a few of the complications. For example, when mobile phones were invented they would be included in the CPI once it was recognised that they constituted a significant portion of household expenditure. But it is only the price change which is included in a weighted manner in the CPI. The fact that you and the kids must now have a mobile phone, thus adding to your costs, is not reflected in the CPI.

Another interesting example is when something goes from state provided to privately sourced. Let’s say UHI when it is introduced costs 1,000 per person. That is a huge increase in the average COL but it’s month on month price change will be insignificant and other than making up part of the parcel it will have little impact on CPI.

But then we get on to something still more complex, the Standard of Living. The introduction of UHI would be accompanied by big tax reductions so whilst the COL shoots up the SOL should remain unaffected.

Other complications on SOL include for example that today’s cars are much better than those of 50 years ago. The levels of health provision, health and safety and consumer protection have also greatly improved. I would posit that most people in Ireland today on whatever measure of SOL one might use are better off than, say, Henry VIII.

Finally property – a really tricky one. Second hand property is an asset not more or less than second hand cars. They do not therefore get included in CPI which is about consumer goods and services. The costs of new houses are in there (I think) as are the costs of new cars.

@ GK

Sorry for the repeats. I thought the first one had fallen foul of the censor for some reason. Ignore the first.


Valid points, but perhaps you could be more succinct.

@ DoD,

Yes, off topic. I looked at three issues:
– Ireland has fewer people aged 65 and over
– Ireland spends less on old-age social protection per person aged 65 and over
– The GDP/GNP gap (done using GNP plus half the GDP/GNP gap)

The €12 billion/€25 billion figures you cited do just the first of these. What would the figures be is the second two adjustments were added, i.e. excluding old-age how does the amount of our resources we devote to public services and income supports compare to other EU countries? The reality is we are close to top.
Also I’m not sure why the “SOE peer group” only includes Austria, Denmark, Finland and Sweden.

Sequencing of Events

Seafoid writes,

Financialisation came in in the 70s and led to an explosion in debt which
a) drove up asset prices
b) drove down interest rates
c) enriched holders of financial assets at the expense of wage earners

The major difficulty here, is that everyone views history through the lens, of their own profession or industry. People who work in the financial industry, and view the world in that way, always arrive at explanations for the sequence of events, which took place, which more or less puts finance, and financial innovation, in some way, . . . up at the head of the snake.

Everything else, that follows on afterwards, is as a direct consequence of some innovation, which got introduce firstly into finance. A much clearer, and more accurate lens however, is the one I described, which goes to the root of what economies, and economics is really all about. People and how they work in their working lifetime, and how they add value in some way, into production of goods and/or services, which are consumed by some market or another.

The point being, that not everyone works in financial services industry (although, unfortunately a lot too, . . and far, far more of the population now, than really needs to be the case). We witness things here in Ireland for example, since ‘the crash’ in the late 2000’s, and what we witness are the extraction of major amounts of fees, just for transactions which involve turning over assets, transferring legal ownership, packaging up lots of debt and selling it to funds, and those funds gradually working that out on the ‘back end’, and breaking it back up into pieces, . . and selling it on again.

I.e. We have witnessed the same product, or food, which hasn’t been altered one iota, or any real value as such added to it, eaten, digested and some version of that same process repeated, and repeated again. It is this process, around which most of the economic activity that we witness in our economy here in Ireland, now revolves around unfortunately. And sure, all of the newspaper journalists then get to write about it in newsprint. Then the late night television, talks about the newsprint, and on Sundays, radio panel talk shows talk about that.

So, you could say that both at the financial services level of the economy, and the media and broadcast level in the Irish economy, that all that is really going on, is endless recycling and recycling of the same old stuff, . . which unfortunately doesn’t change or develop, in any meaningful way. It just gets re-packaged, re-sold and then that is ‘reported’ in the the public press and broadcast. BOH.

Policy around household debt

The one other observation, which could be articulated in relation to Mary’s point above, about the 1970’s context and taking on leverage upon the household in Ireland, is as follows. You look at what are the aspirations of younger people in the modern era, versus that of a few decades ago. In the olden days, as Mary emphasized, the aspiration is that the burden of debt, upon the household would become more manageable over a time period.

The emphasis in government policy in relation to home ownership, and the carrying of leverage to make that possible, by the household, was the emphasis to get people to ‘take the plunge’. The idea being, that if one didn’t secure that mortgage early on (even though, it entailed that first half a decade of struggle), and one left it go too late, that one may never end up actually owning a home. Mary is right to explain, that those households who took the mortgage upon themselves, eventually did get some assistance at the other end, by virtue of the fact that the real value of the money borrowed was reducing over the decades.

However, one looks at a young generation in Ireland in the 2000’s or 2010’s. What does one observe? What are their hopes and dreams, so to speak? What one observes, more often than not is the lower interest loan, which makes it initially quite easy to take on the leverage, and perhaps the ease by which banks can give this credit out to the younger population, means that the asset prices of the homes increases over time, as additional young people stretch themselves a little further (and especially as interest rates continue to get lower, and some couples even do what is called ‘trading up’). There was a heck of a lot of ‘trading up’, in Ireland, in the 2000’s. A lot of it. Many ended up, getting two or three mortgages in the space of a decade only.

But the real aspiration in the 2000’s and 2010’s, is not any more that the real value of the debt, which is taken on will reduce over a time period. No. In fact, the aspiration in the young generations of today, is that the asset value, attached to the same loan, will increase. This leads to a ‘feel good’ factor, although it doesn’t lead to a reduced real burden of debt over time, as Mary pointed out.

One of the challenges as I see it however, is that so much effort needed to create incentives for young people to take on leverage, was created and formulated by both bank lenders, and by central government, at a time when the high-interest, high-inflation environment existed, . . . and definitely not, the kind of low-interest, low-inflation and almost deflationary environment, which is in existence today. And coupled to that, as I reflected upon above, the realization that whole industries, nay, not only jobs, but entire industries can vanish off the island of Ireland, in an instant.

What I believe happened, was that the idea of double income households, was created as a risk-mitigation strategy, against this real risk, that one adult in the household (and no one could tell which), might find that the organisations and industries that they were employed in, vanished. But how bank lenders looked at it unfortunately, owing to the low-interest rate environment, . . . was they said, look, now there are two incomes instead of one, so we can loan to the household, against these dual-incomes. And what we discover, is even where the two adults still work over long periods of time, that as Mary said above, the burden of debt taken on by the two working adults, does not reduce that much over time, as it used to in times past.

I would stand by a large amount of what Irish economists such as Ronan Lyons, would have said recently about house prices. In order to reduce some burden off of the household, and improve life in general, probably what has to happen is that one works to reduce levels of price inflation of the asset, and thereby reduce the amount of debt, which the household needs to take on. However, that contradicts with the message, which the real estate industry, and banking industry in Ireland has preached to its consumers for a long time, . . . . that is, that ‘relief’ is only found over time, by taking on debt, and the inflation of the asset price attached to debt, resulting in the much wanted ‘feel good’ factor.

And unfortunately too, the political party system attached itself to that same notion, that the only warm and fuzzy feeling inside, that one could hope for, was the knowledge of a rising house price (same to oneself, now aren’t I lucky, that I ‘locked in’, at X, instead of Y). It’s a radically different environment, except that all of the incentive-ization policies for young families, were created in a very different economic and social context than today, where it was all about encouragement of families, to take a plunge, to ‘spin the roulette wheel’ on real estate. BOH.


What would it be like if an economist actually engaged with his/her critics? Michael Taft has put up a fairly thorough critique of your findings. Are you happy to ignore it?

@ Ernie,

I accounted for three things:
– Ireland has fewer people aged 65 and over
– Ireland spends less on old-age social protection per person aged 65 and over
– The GDP/GNP gap (done using GNP plus half the GDP/GNP gap)

I presume we are all in agreement on factual basis of these. To say that the answer would be different if you only account for one of those is surely self-evident.

Accounting for these three factors public spending from our resources in Ireland on services and income supports excluding old-age social protection is above the EU average. If that finding is contradicted I would be happy to engage but I have not seen such a contradiction.

If the wish is to replicate what others countries are doing then the comparison such be to that. Ireland spends around 4.5% of GDP on old-age social protection compared to an EU mean of around 9.0% of GDP. That is a difference of around €8 billion in Irish terms. The average for the four countries in our “peer group” is over 11% of GDP.

Excluding old-age social protection Irish government expenditure is around 37% of GDP. Using hybrid = GNP + 0.5(GDP – GNP) public expenditure is over 40% of the hybrid income measure. This is among the highest in the EU.

We do not have a shortage of public expenditure on services and income supports excluding old-age social protection. To close the gap we can move to a contribution-based rather than flat-rated social protection pension system. But I don’t see too many arguing for that.

@Seamus Coffey

Thanks for succinct and challenging reply. Let’s leave the ontological issue of ‘reality’ to the side for the mo … it would challenge pi day any day!

@Seamus Coffey & Michael Taft

Faced with two contrasting empiricists who tend to tack towards pragmatics – communicative action and constructive dialogue between the pair stands a ***% chance of something useful emerging according to Paddy Power.

Then again, maybe The Guv’nor has discovered Kant, in that Hibernian Political Economics is simply insufficiently “robust”. Such ignorance can be costly to humanoids; as the local critical empirical particular robustly illustrates.


Any 16 year old fast bowlers around? Head for the airport tmro. If we could have converted the amount of spin on this blog at times into a few genes we would have taken sufficient wickets to Win the World Cup! … Twice!


One of the most important financial events and decisions in the history of the state, the liquidation of IBRC, is now reaching it’s conclusion, and there is essentially not a single comment on here about it, with the entire thread instead dedicated to whinging about CPI. Christ, if the IBRC report had flagged a €1.8bn deficit my guess is there would have been a different reaction. Never change commenters, never change.

Thanks for the considered replies and contributions above.

On foot of them I looked up the ECB’s website for their reasoning for and about inflation and found the following in their background documents section.

“The European Central Bank – History, role and functions
Second revised version, 2006”
by Hanspeter K Scheller

“Other channels through which monetary policy can influence price developments mainly work by influencing the private sector’s longer-term expectations. If a central bank enjoys a high degree of credibility in pursuing its objective, monetary policy can exert a powerful direct influence on price developments by guiding economic agents’ expectations of future inflation and thereby influencing their wage and price-setting behaviour. The credibility of a central bank to maintain price stability in a lasting manner is crucial in this respect. Only if economic agents believe in the central bank’s ability and commitment to maintain price stability will inflation expectations remain firmly anchored to price stability. This in turn will influence wage and price-setting in the economy given that, in an environment of price stability, wage and price-setters will not have to adjust their prices upwards for fear of higher inflation in the future. In this respect, credibility facilitates the task of monetary policy.”
Box., 9, P.79

And the self-fulfilling prophecy nature of things is spelled out further here:

“The definition is intended to guide expectations of future price developments and thus build up credibility and increase the effectiveness of the ECB’s monetary policy. The ECB’s overriding commitment to maintain price stability should give both financial markets and the public good reason to expect that medium-term inflation will lie within the range deemed compatible with price stability. Stabilising longer-term inflation expectations in this way should help to prevent firms, trade unions and individual agents involved in the wage and price setting process from incorporating higher rates of inflation into their decisions which, in turn, would make it more difficult to maintain price stability.”

I think this is the common sense view of what inflation is that people hold in general. That is, I think to myself, well, in order to generally maintain my standard of living if I can see that I have a 2% increase in wages coming next year, on the whole things will be much the same. Of course specific things happen each year but in the long view, the benchmark is that if I go along at 2% per year (and support my union, say, in looking for same) then I will at least not be going backwards. But following the discussion above (although I take the point made by the Second about living standards as opposed to costs), I’m inclined to think the inflation rate is not a good guide for assessing future needs and therefore wages.

On the whole I think the main story of the last 30 years or more in the West in general is the rising gap between return to labour and return to capital (workers losing out to capital, cf Picketty etc) and I think that the use of inflation as a yardstick to set wages, as indicated above will tend to make this gap bigger over time.


By the way, this 2006 document has an interesting discussion of, and actually uses the phrase, “liquidity trap”.

The latest from Greece!


Greece is not on the formal agenda of the European Council starting Thursday and there is no evident consensus that it should be. Tsirpas is now seeking a meeting of the main players prior to the Council. A knotty one for Merkel, especially as Schaeuble continues to take a hard line, saying that the Greek government has lost all trust among EZ partners. Tsirpas evidently thinks that he can continue to game the EU system, choosing to ignore its institutional requirements, notably that all its Member States are equal; theoretically at least.

The days of YV seem numbered, at least in terms of taking any active part in future negotiations.

Stern has the – just published – low-down on the political situation.


No doubt, some informal bilateral meeting or other will be arranged if it helps Tsirpas but both the “honeymoon period” and the time for “flowery speeches” are over. Concrete measures are required which require that unrealistic Syriza election promises be abandoned and the first steps taken to retrieve the economic situation.

This is not by any means solely a German position but by now a near consensus among other EZ governments.

Re: The yardstick to use

@ Gavin,

It is probably fair to say, that what is important also, is what viewpoint to use. What I have suggested above, in contributions, is similar to that viewpoint, which one might have to negotiate if one were to speak to those in management consultancy, who are employed by larger organisations to try and understand how best to manage their human resources. This viewpoint, is also important in the context of Ireland, mainly because we can live and die, based on the sorts of decisions that a small few, but very large organisations or industries decide to make (or are forced to make at different times).

I mean, look at the impact, which a very small number of quite large, financial institutions had on the society and economy of Ireland, in the last ten years or more. If nothing else, this should inform us of the degree to which we as a society in Ireland are affected by trends which can emerge in a high level corporate culture, . . . and more to the point, how very little resistance, interrogation or analysis, of much significance, . . . that either media, broadcasting or political discourse in Ireland is able to mount, against such trends that are part of the corporate culture, of a given time.

It would not to an exaggeration, to think, . . . that if the classic guy from planet Mars came down to Ireland in the mid-2000’s, . . . and looked at what was going on, . . . that the said Martian individual, would have thought that all of the media, broadcasters and politicians who look after society’s interest, were all on vacation somewhere around the equator. They only returned some time around the late 2000’s (presumably with sun tans, and began to ask questions, like what’s happening here?)

We all know, that finance is innovative. We all know, that we need a corporate level in economics, and a culture that goes with that. But what we haven’t seemed to have figured out yet, is that the same does need to be challenged occasionally, or at least to the absolute limits of capabilities of politicians, media and broadcasters, to challenge the same. When this does not happen, as in the case of Ireland, well then, . . . there is really no specific limit, on the downside, that is worth even talking about.

And that is precisely, the experience which we got treated to in Ireland in the later 2000’s, and early 2010’s, . . . when we even managed, to become the ‘bad boys’ of Europe for a short period of time, . . and I will wager, that that was never part of the ‘grand strategy’ of anyone in Irish politics (patting on the head and all of that).

What Gavin is reaching for above I reckon, is a narrative, which is to do with the later part of the 20th century. It is a one, that is gradually begin pieced together, by a number of authors in the last decade. Particularly, post the ‘crash’ event globally in finance of later 2000’s. A number of authors have asked the kind of question, where did all of this come from, and where did we get so far off track? Like a lot of things, it doesn’t happen in one sudden jolt, to society, but it happens in a series of things, which ends up carrying society at large down a particular slippery slope, over a long period. I am sure that the society of the 1920’s in America, for example had already been heading further down that slope for a long, long period of time and generations, before it all finally burst.

As to good authors, to consult about this narrative of the later 20th century, you can take you own pick. Some of the authors which can be interesting to study and read, are those who manage to link 2000’s decade and 1920’s decade in some way. Authors such as Robert Shiller for example. But authors who do give a very good perspective of the development of the ‘financial-isation’, of the western economies over a long period are ones like Joseph Stiglitz, or David Harvey. An author that I am always partial to, is someone like Judith Stein, in New York University, who published, Pivotal Decade: How the United States Traded Factories for Finance in the Seventies. Another title, which I have heard is quite potent in terms of painting the picture, about where the gigantic bureaucracy of legal, financial and management consulting firms grew out of, in the 20th century too, is: The Lords of Strategy: The Secret Intellectual History of the New Corporate World,
by Kiechel and Robertson.

The point, which I am trying to make is that this is a fairly large story to be told. There are a lot of parts to this story, and it stretches across a whole lot of different continents, and different decades. Edward Conard is an author, who ought not to be ignored, in this context either (if one is interested in as many contrasting points of view, as possible). His book, Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong, might also find a home in the middle of this sort of research, as could several others which I don’t recall off the top of my head, but are out there. BOH.

Bubbles of perception

Eoin writes,

One of the most important financial events and decisions in the history of the state, the liquidation of IBRC, is now reaching it’s conclusion, and there is essentially not a single comment on here about it, with the entire thread instead dedicated to whinging about CPI.

Maybe you are right.

Indeed, if you are right, then we should be a lot more worried in Ireland, than we already are.

Like I said above, the bubble that has existed in Ireland since the later 2000’s, or the last ten years and even before 2008 crash, is one mainly one which has best been described and written about by journalist and commentators like Fintan O’Toole in the Irish Times newspaper and other places.

It is an economy, which is almost completely based now around non-production, . . . or to employ Gavin’s observation, . . . it is an economy not built around labours, or adding value in the conventional sense.

It is mainly an economy, like that one described by authors such as Stiglitz, where the vast majority of the wealth earned, or at least captured, . . . is that which is earned by the financial services sector, and all of the plethora of services, which extend out from the rear of that one, like a giant flotilla of vessels stretching across an ocean.

No new thing is created. We got out of that business, a long, long while ago.

What we do have, in place of that however, are a whole army of folk, who go around now with smart phones and wireless broadband connections, . . . and do very little else except to analyze and comment, about a dead bank, which loaned finance a decade ago to a whole pile of dead organisations, which never produced anything of any worth, with the gigantic amount of finance, which they consumed, . . . and which is still, to this very day being pawned around as debt notes, between one global, multi-national vulture, pawn shop and another, which have come and set up store, at almost every corner all over cities like Dublin in Ireland, nowadays.

It is no wonder that the only companies growing any longer, are ones who do nothing except to provide ‘connectivity’ for information technology, and mobile phone mast signals. Because all there is in any kind of real economy, any longer are all of these chaps, running around in suits waiting for the next ‘tweet’ to come out, about some financial organisation, which died ten years ago.

Is there anything here, that I have missed? Or anything, which needs to be added to above? Please do advise, if so. BOH.

“One of the most important financial events and decisions in the history of the state”

Up there in terms of significance in Irish history with Kinsale, the Drogheda massacre, the plantation of Ulster and the reprisals after 1798



“The Irish economy has the capacity to continue to grow rapidly without overheating, according to the senior European economist with Goldman Sachs.
London-based Kevin Daly said political factors were now the main risk to Ireland’s economic future, citing the increased popularity of Sinn Féin, with policies similar to those of Syriza in Greece and Podemos in Spain.

“In his view an important explanation for “mainstream” parties losing popularity when the economy was doing so well was due to the fact that job and income levels remained weaker than before the crisis.”

Completely linked to IBRC and paying off bondholders BTW
Deflation. Deflation

The report refers to legal fees being paid according to the NAMA rate card.
Is the NAMA rate card a publicly available document?


‘…This is not by any means solely a German position but by now a near consensus among other EZ governments’

I think this is exactly what’s wrong – the Greek Govt (like ’em or loathe ’em) will rightly state that their mandate was not to do what the other EZ governments requested or hoped they’d do but rather do as the majority of the Greek public voted them to do.

Agreeing to another austerity regime was not on the Greek election menu as proposed by Syriza. Even if a continuation of the austerity menu is now the consensus view in Brussels is somewhat irrelevant.

The austerity regimes have failed Greece. This is beyond doubt. Why propose and request another round of similar polices which have shown not to have worked for the society as a whole and which the Greek society has rejected through its election of Syriza. We can get very worked up about the details of why austerity has not worked but the facts are the regime has failed Greece.

Like it or loathe it I believe a monumental debt write off is the only viable solution here otherwise a Grexit is a forgone conclusion. In the absence of a write off it now seems the Greeks will leave the EZ and the debts won’t be paid anyway. So its heads you lose, and tails you might lose a whole pile more.

Not good.


Which regime has failed? The programme of reform and fiscal consolidation that has been pursued with some evident success in Ireland, and to a lesser degree, in Portugal and Spain, with Cyprus as an outlier, or the succession of Greek regimes that have been in power since the spendthrift ways of the nation caught up with it?

The rest of the countries of the Euro Area know the answer. As, indeed, does the wider international community.




The issue of the country’s lack of capacity to pay back its debt is a red herring. The current burden of repayments is less than that of others, if I am not mistaken. It is a problem for another day. The question is will the country reform and increase its productive capacity to allow it to cease to be a permanent drag on the EU?

I agree that the situation is not good. Tsirpas seems to think that all he need do is (i) seek to divide the governments of the EA and (ii) continue to play to his gallery in his national parliament. Where he is most likely to come unstuck IMHO is in failing to realise that he is attacking the very fabric of the decision-making procedures of the EU and putting the political and economic futures of other countries at risk. You will note that Dijsselbloem has mentioned the possibility of the introduction of capital controls on the Cyprus model. Charlemagne in his blog in the Economist quoted an official involved to the effect that it would take a “near death experience” to wake up the Greeks. This might be it.

The President of the European Council has issued his letter of invitation for the European Council without any mention of Greece!

Interesting that on a day when the anti euro looneys were out in force the euro had its best day in months.

I do not understand the obsession with the Greek Debt/GDP ratio since the Greeks are paying the square root of FA to service the debt. The neo fascisti coalition wants a new economic model which is to live off the taxpayer of the rest of the EZ in some permanent state of welfare. Taxpayers in other countries in the EZ may not be willing to accomodate these understandable freeloading desires.


“Even if a continuation of the austerity menu is now the consensus view in Brussels is somewhat irrelevant.”

Do the democratically elected governments of the rest of the Eurozone get a say in this, or is it purely the Greek government that get to decide? As I’ve said before, Syriza do not have a mandate to exit the EuroZone. If it is a case of austerity or Grexit, then it is up to the people of Greece to decide which they want. They cannot simply say “no austerity” if that is what the democratically elected governments of the rest of Europe have decided (and do remember that all this austerity has seen Greece still only barely eek out a primary surplus last year of 0.3% of GDP, a figure likely to worsen in 2015 given the uncertainty created in the last few months).

@ the second

“Interesting that on a day when the anti euro looneys were out in force the euro had its best day in months.”

That’ll be the QE. Markets are short term in nature. Momentum. EZ equities are big in demand- up 16% since 1 Jan – never mind the fact that revenues are stagnant, feel the PE quality.

@ Tull

re Greece- it’s an outlier. Further along the curve of political disgust with neoliberalism. May 7th in the UK will show more of it from a country a bit behind. The ones who bear the cost of reform won’t vote Tory. the 5% who benefited from QE will but it won’t be enough for a Tory majority.


” The chancellor’s strategy was simple: contrast his competence with the chaos that would ensue if Labour were to win the election, and show how his prudent stewardship of the public finances has allowed him to help ordinary Britons improve their lives. He was at pains to show that the economy was working for all parts of Britain.
Listening to the chancellor, it was easy to forget that his strategy has been a flop. The economy has grown much less than expected, and deficit reduction has been much slower than forecast. Borrowing this year will be £90bn, two-and-a-half times what was pencilled in five years ago.
The government’s failure to rein in the deficit means that cuts in public spending – and deep ones at that – will continue for the first three years of the next parliament. Tax increases are also likely.What’s more, the latest opinion polls suggest that, for most voters, the idea that they are better off now than they were five years ago is highly questionable.”

El Gordo of course is the US and the hope of liftoff in June. All dependent on wage increases that are not going to happen.


Political disgust will define the next leg of this ongoing crisis.
The financiers didn’t have the vision to invest their loot in the real economy and it’s going to come back to haunt them. No financial asset has an intrinsic value when the momentum dies.


Current political arrangements are a very thin reed against which to lean between electoral cycles when growth is going nowhere.
There’ll be elections soon in Holland, France, Spain and Italy and you’ll see how the land lies then.

Merkel slams the door!


From the Google Translate facility.

“No meeting with a small group can or will replace the proposal from the institutions IMF, ECB and European Commission in the Euro group agreement,” she pointed out.

If Tsirpas does not get the point after both the informal get-together (which will include Dijsselbloem) and the bilateral meeting with Merkel, it is hard to know what will make him do so short of the near death experience that the official quoted by Charlemagne spoke of.

Merkel demonstrates once again her tactical political mastery by neatly balancing the imperative not to give further negotiating advantage to Tsirpas with the need to avoid alienating other member countries of the Euro Area in agreeing to the informal meeting in the first place.


There you go again, quoting from the tax dodging Guardian. Come the 8th of May, the Tories will still be in power in the UK due to the delivery of hope and prosperity.


“As I’ve said before, Syriza do not have a mandate to exit the EuroZone. ”

The last time a Greek leader put forward the idea of a referendum, the European (read France and German) was hardly an encouragement of democracy.

Back in 2011:
“Papandreou backed down over his referendum plan as it became clear that Greece faced the prospect of going bust within weeks after EU powerhouses Germany and France threatened to withdraw further financial support for the country until after the popular vote was held.”

Ultimately democratically elected governments have a responsibility and a mandate to run the country that elected them.
FF , FG, Labour or Greens did not get elected on a mandate to throw €64 billion at the banks and finance houses.


Being part of the EZ club does put certain obligations on each individual member, that goes without saying. In this instance however, and you’ve made the point above, the club rules are not working for an errand member.

The member wants to stand at the bar, enjoy to hospitality but doesn’t want to pay for his drink. In normal circumstances he’d be asked to leave, unfortunately the rest of the club members know that if they make that decision his bar tab will remain unpaid and ultimately the bad debt will have to be borne by the remaining members – some of which simply can’t afford such an outcome. And so it goes.

I think the idea that the errand member on being told to stay and pay for his drink and conform with the rest of the club rules or else, could go badly wrong. He will rightly say that he has noticed that the rules have not allowed him prosper or grow and all the while his children and wife at home are besides themselves with anger that the subscriptions continue to mount but the service is still lousy.

I wouldn’t be so sure if the husband comes home one evening and says he’s left the club would there be that much grief from his wife, children or neighbours for that matter.

I think its naïve to believe a Greek decision to leave the Euro would not have as many celebrating in Athens as demonstrating.

Not having a mandate to leave the EZ I think will not come into it. (I don’t recollect the FF/Green Govt having a mandate to guarantee the liabilities of the Irish banking system for instance – yet they still went ahead and did it ) Syriza will make the decision based on what they perceive as best for Greece, not the EZ or the potential local fall out.

I’m more convinced now than I have been in a long time that Greece will walk unless a debt write off can be agreed.

“There’ll be elections soon in Holland, France, Spain and Italy and you’ll see how the land lies then.”
That’s the nub of it. People can point to recent or short term, local (Irish) positives. However, the bigger picture is highly uncertain to say the least. Plus the outcomes are not within existing Elites’ control (although pro-existing govt media in Ireland and elsewhere will do there best to influence voters).

@ YoB

“I think its naïve to believe a Greek decision to leave the Euro would not have as many celebrating in Athens as demonstrating.”

Pre election opinion poll found 70% of the electorate wanted to remain in the Eurozone “at all costs”

@ JR

If you recall, the Greeks themselves were even more appalled at the idea of a euro referendum. It was a political (master)stroke by the then Greek PM.

@ Seafoid

If ur point is that government and politics changes, I think that’s a permanent feature of our democracies. Saying we shouldn’t do something now cos the next lot might think differently isn’t a terribly persuasive argument. The current governments have exposting real mandates.

@ YoB

The Greek people, the Greek government, desperately do not want to exit.

Their foreign minister threatened to flood Berlin with Turkish immigrants which (in his words) would undoubtedly include jihadists, if they were forced out of the euro.

Coming on top of supporting Russian separatists in Ukraine and a pathetic effort to “nazify” the debate you could count the friends of this gangster Greek Government on the fingers of one hand. In fact here is that count: President Putin, Jihadi John, Nigel Farage and Michael Daft.

The second,
The Supporters of Syrizia. Is a much longer list than that. It includes the Shinners, Shane Ross, the half of the Irish commentariat who suck at the teet of the taxpayer.
The all have one thing in common- love of OPM.

The tories can’t seem to break out of the 31-35% band in polls. That Australian
spindoctor Crosby has them all on message and the message is that Osborne is a macroeconomics genius. But the only time the economy has done ok is when the fiscal stance was relaxed. And the deficit is cat. Debt trap, in other words. And a lot of lower middle class and poor people have figured out they are expected to shoulder the burden of reform, without getting anything in return. The Tories need to connect some hopey changey stuff with them and they can’t.
Hung parliament.

U gotta hand it to these neocons. They’re good at getting the whole civilised world on their side. I guess it’s coz we’re afraid of being nuked by them.
I’ll count you as the thumb of Syriza supporters.


I can certainly see the appeal of not paying your debts and sponging off everybody else but don’t you think this cozying up to Vlad, threatening to flood the place with jihadists and reliving WWII is in danger of getting social democracy a bad name?

Do you outsource all your thinking to the Grauniad?

Question for you? New Greek binds issued to EFSF etc are not issued under Greek law? So defaulting on them is different proposition. Creditors have stronger protection?

I ask you do you think threatening to flood the place with jihadists is a smart tactic for social democracy and you reply by bombarding me with a rant which is not nearly as clever as the writer thinks HE is. Just to take one of his supposed gotchas. There is nothing at all inconsistent in saying that there is not another cent for the GGG whilst also saying the EZ is economically strong enough to withstand them throwing the toys out of the cot and giving Vlad a start to building a new Soviet empire.

@ Tull

the UK is running on fumes

Ttry the Morning Star if you don’t like the Grauniad


“Yet the second phase of fiscal consolidation will take place against a very different economic background from 2010-12.
Then, budget consolidation was part of an integrated plan with the Bank of England to change the mix of fiscal and monetary policy. The Treasury accepted that fiscal tightening in isolation would reduce the growth of aggregate demand, but believed that quantitative easing by the bank, and a weaker exchange rate, would restore growth and rebalance the economy.
Whether this strategy proved successful is still a matter of dispute. Those who, like myself, supported the new policy mix, must concede that the economic recovery was initially very subdued, only gaining momentum when there was a pause in fiscal tightening.

The bank presumably thinks that monetary conditions are already expansionary, and that the private sector is now growing robustly enough to allow both fiscal and monetary policy to be tightened together. But that is doubtful. Back in 2010, the private sector was so risk averse that it was running an enormous financial surplus. It had responded to the crisis by increasing savings and reducing investment to an unprecedented extent. As confidence was restored, its surplus was run down by 10 per cent of GDP from 2010 to 2014. This boosted consumption and investment, creating conditions in which fiscal policy could be tightened without holding back an economic recovery.But, from here, it would be rare for the private sector to shift substantially into financial deficit by increasing its expenditure further relative to income. Growth in private activity will therefore need to come from a rise in income, especially wages, not from falling savings ratios. That will be a more difficult process, especially if fiscal policy is being tightened at the same time.
The second phase of the fiscal correction may therefore be even harder to attain than the first. A simultaneous contraction in both fiscal and monetary policy looks problematic: something will surely have to give.”

And that”ll be the Tory vote


Pre election Ireland had people believe Enda et al would look for a write off on the banking debt- we all know where that went.

The point being is that time and new facts and changing opinions can have a dramatic effect on the public perception of things.

A final outcome which sees Greece exiting is a monumental Euro disaster. The point I’m making is that unless Greece can abide and live within the rules and importantly prosper within such an environment then there comes a time when perhaps being outside looking in is a more preferable long term position.
I don’t know if Greece has reached that point or not but on the face of it – it seems damn close call.

@ YoB

I don’t disagree with that general analysis, but I disagree that a large element of the Greek people are at the “hmm, lets Exit” stage yet, and I firmly believe that a Grexit will be seen as a disaster domestically (at least in the short term), rather than some form of strategic retreat/Plan B/”the future is bright”. As such, Tsipras has no incentive to allow such an outcome, and will much more likely agree to some sort of Eurozone reform package, provided he can (a) show he fought for the best possible deal, (b) show that it is better than what was there previously and (c) ensure that any unity government that may come together in the aftermath (cos he’s gonna want to spread the commitment to the plan) still has him firmly in charge of it. As previously suggested, Varoufakis gets thrown under the bus during this process (potentially very soon).


The current liquidity crisis in Greece may be resolved (or perhaps not given the personalities involved ) but the longer term issue remains whether Greece, and indeed a number of other euro countries, can exist in a monetary union with Germany, particularly if the above paper on the dismal outlook for euro growth as a whole is broadly right. As for ‘structural reforms. I can’t find any research showing it has material effects on any country.


‘According to the model estimates, the output increase would largely be a result of higher investment’

Simulating changes in a model that results in higher investment will obviously boost GDP. Whether one could call a fall in wages ( as used in the simulation) ‘structural reform’ is another matter.

@ DMcL

I am not technically educated to a point to allow me to come to a personal judgement other than that “structural reform” seems to be the only game in euro town. I have a fairly good idea, however, as to what it means as far as Ireland is concerned. It would involve posing, and answering, a very straightforward question; what are the objectives we are collectively setting ourselves in order to increase wealth and its equitable distribution and how do we best organise ourselves to do so?

We are failing on innumerable fronts, the most obvious being where the country is statistically “off the charts” e.g. number of households with “low work intensity” and the soon to be published report by the ESRI on the mis-match between the number of graduates and employment opportunities.

The reality is that the same old apparatus that got us into the recent mess is still in place.


I think that the author has done great work but he reminds me of the fable of Sisyphus. The question should be whether the hill he is trying to climb should be there in the first place.


I take ‘structural reforms’ to mean supply side measures aimed at boosting productivity and hence potential growth. That would obviously be beneficial to any economy but it is clearly not that easy given the fall in potential growth rates now perceived to have emerged across most of the developed economies, although falling labour force growth is also a factor. As for evidence on the impact of structural reforms one should be aware that all model based ‘estimates; depend on the structure of the model.

In broader terms the official EU policy response to the crisis has been to rely on monetary policy to stimulate demand and to urge supply side reforms. The former essentially means the creation of more private sector debt but it has not worked , at least to date, in part because many households and firms are deleveraging and in part because the banking sector is less willing and able to lend. The lack of joined-up thinking from policy makers is also striking- banks are now required to hold more liquid assets, but the ECB is going to reduce the supply of such assets by over €1 trillion in the next 18 months.

Comments are closed.