Podcast on Spring Statement

I discuss the government’s Spring Statement with Cliff Taylor and Arthur Beesley in this Irish Times podcast.

67 replies on “Podcast on Spring Statement”

Last January the Dept of the Taoiseach produced data based on unreliable surveys to produce a full-employment target assuming a jobless rate of up to 6% and a forecast of 160,000 jobs added in the period 2015-2018.

Economists at the Dept of Finance now forecast 200,000 net additional jobs in 2015-2018 — an average of 50,000 annually compared with 29,000 added in 2014.

30% of the forecast jobs are in the international tradeable exports sectors.

The official employment rate is forecast at 7.8% in 2018 and 6.9% in 2020.

Today the fall in the Live Register was matched by a rise in activation numbers with a total of 439,000 (including 90,000 in activation schemes) or 20% of the workforce.

It’s striking how little attention is being given to the long-term issues: overreliance on FDI (absent foreign firms, we would be as closed as Greece); the dysfunctional property system; enterprise and science policy.

Ireland: Coalition drops 2018 full-employment target


If they can really get employment in internationally tradable sectors up by a net 60,000 in the next four years, that will inject enough money into the economy and tax revenue to drive total employment up by at least 200,000, even while choking growth in public service numbers to cut tax rates. Achieving the 60,000 is the big challenge.

One is tempted to say “forecasts, shmorecasts”!


“Independent Budget Office

Social Justice Ireland welcomes the announcement that “Government will examine the possibility of establishing an Independent Budget Office”. This Office would have an important role in ensuring that policy options are costed before they are introduced. However, we are disappointed that Government believes that consultation will be so lengthy that the proposed Office “will only be fully in place after the next election” (SES p.41). We believe that the early establishment of this Office is a priority, which would enable political parties, civil society organisations and the electorate to have good information on the costs of all policy proposals which are being
considered or advocated. However, we do not think that a lengthy process would be required to establish this Office and suggest that this Office should be established and be fully operational in advance of the next general election.”

The spirit of St. Augustine is alive and well. In the meantime, the preparatory budgetary debate is to take place in the absence of any access to independently verified costings i.e. in the dark!

Independent Budget Office

Careful now! The example of the much-admired Congressional Budget Office in Washington has been alluded to in this connection. The following is from their website:

CBO’s staff numbers about 235. Most of those people are economists or public policy analysts with advanced degrees, but the agency also employs lawyers, information technology specialists, editors, and people with other areas of expertise that contribute to the agency’s mission.

From small acorns, mighty oaks do grow! This one would be at least a sapling by now had government, and the establishment widely defined, not spent the past few years faffing around on the subject of fundamental budgetary reform. Something it has every intention of continuing to do, and almost certainly its successor also.

Surely you do not need 250 staff on academic pay scales to cost a few party manifestos properly. Give the ESRI 500k in 2016 and a mandate to produce an analysis of the party platforms along the lines of the IFS in the UK.
To make it more interesting do not allow the parties to submit their wish list for costing. Let them do their own ekker and have it corrected.

Let’s make it a ‘Spring Quartet’:

A Statement in Spring, A Society in Winter
April 29, 2015, Michael Taft,
What was the point? Two documents with over 100 pages between them. Hours spent in the Dail. Many more hours of commentary in the media. And the whole thing boiled down to only one substantive policy statement: the Government will have between €1.2 and €1.5 billion available for tax cuts and spending increases, which they intend to disperse on a 50/50 split. That’s it. Would have taken a Minister a few seconds to stand up and say that. Instead, we got bells and whistles and the Spring Statement.

[…]The Spring Statement is not a policy. It is not a platform for a modern European state. It conjures a future that condemns us to a low-tax, low-investment economy still pursuing austerity in real terms. This is, by any definition, a toxic combination.

If there is only one reason why this Government should not be re-elected, it is contained in the Spring Statement.


Wrt the Independent Budget Office (IBO), the Government is subject to considerable scrutiny under the European ‘Semester’ (even if much of it isn’t very effective) and from IFAC (the ‘comhairle comhairleach’ lest anyone think it might be expected to do anything useful). The Government will blithely ignore any admonitions or criticisms from the European Commission or IFAC. The European Commission doesn’t have a leg to stand on since it allowed France to decide how the Excessive Deficit Procedure will be applied to it. (In addition, the Commission and the Council will give Ireland the kid glove treatment as they exploit its “austerity poster-boy” status to batter the Greeks. And the Government isn’t shy about exploiting this to extract concessions – in the same as the Brits wave the prospect of Brexit to extract concessions.) And as for IFAC….

The reality is that it is the various opposition parties, factions and groups which have more to fear from scrutiny by an effectively resourced and empowered IBO. The delusions, fantasies, economic illiteracy and ourdated ideological claptrap they spout would be exposed. And the Government parties might have similar concerns when, sooner or later, they end up in opposition. All parties out of power seek to lie and bluster their way back in. Any objective highlighting of their lies and bluster would spike many of their guns – and reveal them as the power-crazed spoofers they are. However, even though the opposition groups and factions don’t really want an IBO they’ll exploit the Government’s delay in establishing one mercilessly. It’s this shameless hypocrisy that turns so many citizens off the whole political process.

And I wouldn’t share (totally) Colm McCarthy’s concerns about another over-staffed quango. Indeed the owner of this shop, in the podcast, suggested that the delay in establishing this new entity might be justified by a current shortage of economists. In fact, with some limited additional resources some of the existing staff in the ESRI could do this work – and the required institutional arrangements could be developed from that starting point. But they would be required to report to the Oireachtas or to one of its committees.

However, there’s no chance we’ll get anything that’ll work in the public interest. So we’ll get another useless quango.

The level of detail given in the forecasts for sub-components of the economy years ahead is farcical and causing unnecessary anxiety among many economists. David McWilliams got all worked up in yesterday’s Indo at the prospect (forecast in this report) of productivity growth (not economic growth) falling to 1.2% towards the end of this decade. To suggest that one can predict productivity growth in 2019 to one decimal place is absurd. No one should pay attention to such forecasts. Its like me predicting now that Tyrone will beat Dublin by 2-11 to 1-10 in the 2019 All-Ireland quarter-final, transforming a 5-point half-time deficit into a dramatic victory with a couple of late goals.

All we can say as of now is:

(a) The recession is over.

(b) High growth (5-6%) has resumed.

(c) There is nothing on the horizon to indicate that this growth will falter anytime soon.

(d) At some point in the future the growth will stop (for a couple of years or so) and there will be a recession. This will probably be triggered by some malevolent global event that no one foresaw even 5 minutes before it occurred.

(e) No one has the slightest idea how big the time gap will be between (b) and (d). For the growth that started in 1958/59, it was 23 years. For the growth that started in 1987, it was 21 years. This time it could be longer or shorter. Economists should stop pretending they know.

I personally do not perceive the ESRI as having enough independence and objectivity to play the key role in our democracy that Tull proposes, and more to the point I am sure that there are significant political players in Ireland who would feel the same.

Compounding this, policymaking in Ireland is already excessively dependent on the ESRI’s HERMES macroeconomic model, and it would be unwise to increase this dependence.


There was an 18 months period between the establishment of the Irish Fiscal Advisory Council in mid-2011 and Dec 2012 when it was put on a statutory basis.

Noonan and the Dept of Finance got their wish with little if any pressure from the Oireachtas to have a body that was given no powers.

The proposal of an Independent Budget Office now is likely to get ahead of opposition parties making such a proposal at election time.

@ BeeCeeTee

EI supported jobs have the potential of greater impact on the rest of the economy.

It would be optimistic that an additional foreign worker in administration (almost half employment in the ICT sector is in administrative functions) could trigger more than 3 other jobs in the economy.

Scepticism about the ESRI modelling is merited.

John FitzGerald, who retired as a research professor at the Economic and Social Research Institute (ESRI) last December after 30 years of service told the Banking Inquiry last February that the ESRI’s ‘Medium-Term Review 2008-2015’ which was published on May 14, 2008, “took no account of the potential financial collapse that might occur in the US and, especially in Ireland. It did not provide any preparation for the dramatic shock that was to hit the Irish economy five months after the Review was published.”

The late Brian Lenihan, finance minister for just 8 days, must have been very happy to receive the ESRI’s report which said the economy has “the potential to grow at around 3.75% a year over the coming decade, despite significant short-term problems.” It added that the drivers of Irish economic growth are changing. “Exports of business and financial services are a vital contributor to growth” — this too was wrong.

@ Tullmcadoo

You merit my green buffoon award for erudition :mrgreen: 😆


I consider the ESRI to be a bunch of Irish Times reading soft lefties but at least they have an economic model.

McWilliams had a piece in the indo yesterday about growth without wage increases.


3.75% out to 2020 looks fanciful when the US is lethargic again.
Wage increases are key to growth but plutocracy is in the way.


Q1 figures probably have some climate change effects in there as well.
S&P PE ratios have a lot of growth built into them. It had better turn up.


thank you. I do love your nuumerous inciteful and erudite pieces on the shortcomings of your place of residence.

One really needs macro modelling to demonstrate the relationship between jobs in exporting industries and in the economy as a whole. That said, if one does not have a macro model available, a very crude analysis would suggest that every job in tradable industries has historically supported 4+ other jobs in the economy through taxes, spending by tradable sectors in non-tradable sectors, and consumer spending. I’d personally expect FDI jobs to have a slightly greater impact on other employment than EI-supported jobs because the average pay is higher.

I think it’s worth investing in another model outside the ESRI’s control. Not just because the ERSI is insufficiently independent to credibly evaluate party proposals, but also because reliance on a single macro model inaccessible to outslders creates a risky and unnecessary “single point of failure” problem with the country’s economic management.


Models are only as good as the people who use them….


Steve Eisman had become a poorly kept secret. Five hundred people called in to hear what he had to say, and another 500 logged on afterward to listen to a recording of it. To evaluate the situation, he urged his audience to “just throw your model in the garbage can. The models are all backward-looking. The models don’t have any idea of what this world has become….”

Acceptable models

1 Clearly stated and assumed assumptions
2. Clear on idealisations and simplifications
3.Transparent on which effects are neglected
4. All relevant risk factors taken into account
5. The model relies not purely on historical data but aims to model the future risks using theory, scenarios, expert opinion
6. The model is tested
7. The model is regularly challenged and compared against industry best practice

Unacceptable models

1.Theory is misapplied
2.Pure stats, no explanation
3.Hidden and unclear assumptions
4.Too many simplifications
5.The model is not tested against the real world
6.Inappropriate or stale parameters
7. The model is not sufficiently understood within the organisation

Just having a model isn’t enough. Ask Hef.

fyi … Austerians look away now ….

The case for cuts was a lie. Why does Britain still believe it?

The austerity delusion by Paul Krugman


@ESRI & John Fitzgerald

Where is the critical analysis of the ‘assumptions, mindsets and conceptual models’ of how you missed the ‘bust’?

Not good enough to rely on IMF, OECD, EC et al. – as a small open society we need to ‘think better’ than the behemoths.

McWilliams’ piece doesn’t make sense to me. Unemployment is still at 10%. Therefore the economy can grow without wage increases, by putting more people back to work.


Are Creditors Pushing Greece Deliberately Into Default?
by Paul De Grauwe on 28 April 2015

…. But are these conditions reasonable?

The austerity measures that were imposed since 2011 led to devastating effects on the Greek economy. They drove millions of people into unemployment and poverty, and produced intense political instability that is responsible for the rise of Syriza. Insisting on further austerity does not seem reasonable when the failures of this strategy have become so obvious. The surprising thing is that ministers of finance continue to hold the moral high ground and preach to the Greek that they should be more reasonable. Being reasonable is equated to accepting the conditions of the creditors even if these conditions have failed to produce positive results. It is even more surprising that most of the media have now accepted this story.

Some of the structural reforms the creditors insist on are badly needed. Tax reform that would lead the rich to pay taxes is one. But surely this is a reform that the Tsipras government, in contrast to the previous government, is willing to introduce. But other structural reforms are patently unreasonable. The privatization program that was agreed with the previous government and that the creditor nations insist should be implemented does not make sense. A country should not be pushed into disposing of its valuable assets in a forced fire sale. This will lead to very low revenues for the Greek government and will mainly profit the buyers, some of which are companies in the creditor nations.

Read on:


@Ministers Noonan and Howlin ….

How about investing 5 Billion to benefit the humble suffering citizen-serfs? Do something useful …. or are you and Fine Gael/Labour simply branch managers of the financial system ….

@seafoid, BCT et al.

The state of labour in the age of minimalist wages …

fyi Minister for Labour:

‘The economy doesn’t make stuff anymore. That much you know. So what does it make?

It makes assholes.

The Great Enterprise of this age is the Asshole Industry.

And that’s not just a tragedy. It is something approaching the moral equivalent of a crime. For it demolishes human potential in precisely the same way as locking someone innocent up, and throwing away the key.’


Good IT summary of the essential points made by Trichet this afternoon.


@ MH

I think that there is a larger problem than the question of whether or not a Parliamentary Budget Office (PBO) is established. It lies in the very idea itself. It is one pursued under the “Westminster model”, to take the description used by the the Dept. of Public Expenditure and Reform (DEPR) as the one to follow in terms of reform. I do not think that it has much traction with the wealthier countries of the Euro Area. They are all, to varying degrees, inheritors of the Napoleonic and Bismarckian rules of government administration, if I could put it like that, which shows up in a multitude of ways, from the differences between the common law and codified systems to the very capacity IMHO to grasp the concept of of a social market economy as exists in a swathe cross Northern Europe.

The essential problem of our membership of the euro club is that it may not be culturally impossible to adapt to the changes in social and economic attitude required. The performance of those involved in the exchanges with Trichet today would tend to bear this out.

The Irish banks are synonymous with the Irish State The ECB, and Trichet, or the ECB, makes no distinction between the Irish State and banking in Ireland.
States, under ECB jurisdiction, are clearly 100% liable for all the liabilities of their banking system.

“We had helped Ireland more than any other country..”

“Brian knew we were helping Ireland more than any other country”

“The ECB, he continued, could not have continued to extend unlimited credit to Ireland. At peak it was 100 per cent of Ireland’s GDP. ”

Supporting Ireland?
Supporting financiers to get their money out scot-free out of the private Irish banks.
That was the role the ECB in the crisis.

@ skeptic01

What we see here on productivity and the dropping of the full-employment target is the economists in the Dept of Finance asserting themselves over the politically-driven ones in the Economic Management Council.

Until recently the Dept of Finance was claiming that unit labour costs in period 2008-2015 would improve 20% compared with the EU average but this figure includes items like Double Irish services and contract manufacturing.

It appears that as the true productivity change (ex distortions) is difficult to calculate, the economists opted for a low growth level.

Besides, the UK experience has been poor in recent years. Financial Times research shows that the stagnation of productivity since the crisis is largely explained by just four sectors — professional services, telecommunications and computing, banking and finance and manufacturing.

@ Joseph Ryan

It is true that Trichet has a simple narrative but from the outbreak of the credit crunch in Aug 2007, the ECB took over the role of other banks in the wholesale market as they wouldn’t lend to Irish banks.

re Trichet:

One aspect of the ECB’s line on Ireland is puzzling. Trichet argues that no bank was to be allowed to go bust and that the Irish government accepted this in 2008. Yet in 2010 the ECB was actually threatening to do just that, by withdrawing ELA.

On forecasts: The annual SPU is an EU requirement since 2005 and Finance can hardly be blamed if governments cherry pick areas of the forecast. In fairness, the document also includes a risk and sensitivity analysis, showing the impact on the forecast of changes in world growth, interest rates and the savings ratio. Again , governments choose not to mention these.No forecast can be wrong a priori, of course.

As noted by others, models are generally based on past relationships and most did not, and do not, include credit or credit conditions.Yet people crave certainty and demand predictions of the future- there is much debate in the UK, at least in the financial press, about the likely Budget deficit in 2020, even though the past 5 years have shown that longer term fiscal forecast are pointless.

On the ESRI model their mantra is that theory trumps fit.

The opposition should capitalise on what Philip has pointed out re the spring statement. The government parties have essentially agreed economic policy for their next term. They have joined themselves at the hip and as philip says, thats “big news”. Enda has said how much he wants to continue his next term with Labour. However the PR system punishes harshly when parties engage in pre election pacts. It is a feature of the system. Pat Rabbitte should have learned that lesson. It amazes me how quickly political leaders forget this.

@Hibernian Citizen-Serfs under the Financial System Occupation

Wise up; Rise up; Get up; Stand up; and Fight!

@Minister for Labour


@The Guv’nor

Sound knock!

p.s. you might leave the keys under the mat!

I suspect that, at least as far as modelling the Irish crash is concerned, the issue over including credit conditions in the model is a bit of a red herring. You don’t need to include much on credit conditions in a macro model in order to model the impact of a scenario made up of a sharp stop in building construction compounded by a deep recession in export markets, which is essentially what happened to Ireland. The argument at the time about whether or not we were in for a soft landing and Morgan Kelly’s analysis of prospects for the property market should have given a clue that it was worth modelling a contrarian very hard landing.


It’s very hard to get people to model “contrarian very hard landing”. Markets can’t price them so they tend to ignore them. Bonus calcs don’t consider them. Value at Risk approaches use past data and are useless . Low volatility is dangerous if it’s built into models and leads to a ratcheting up of volatility afterwards.

Volatility, leverage, default rates and liquidity are the 4 horsemen of financial apocalypse and they all came together in the Irish case.

A 67% fall in commercial property prices, a 50% fall in house prices and a 7& fall in GDP in Irish GDP in one quarter (q4 2008) had nothing to do with credit conditions?
Here we are , 7 years later, with interest rates still at zero across the developed world, central banks printing trillions to buy assets and commercial banks subject to much higher capital ratios, a liquidity ratio, a stable funding ratio , a leverage ratio and much more. Some people obviously think that credit matters.

Brendan Keenan on Trichet


What is somewhat surprising is that there is no reference to the central point of Trichet’s argument in relation to the issue of burning senior bondholders i.e. that, at the points in time in question, it would have been contradictory to be both doing so and seeking to re-enter the bond markets (which Trichet couched tellingly in terms of regaining the confidence of investors). Indeed, I recall the point being discussed here at the time and the parallel being drawn that the attempt would be like seeking a loan from your bank manager while at the same time informing him that you intended not to pay the one currently outstanding.

He also referred to other countries not doing the sensible thing that Ireland had done i.e. followed the “advice” of the ECB or rather, coming to the right conclusion in the context of a fully “confident” relationship.


I think that the perplexity of the ECB and its staff is genuine. The perspective from which the topic was viewed by many in Ireland was at the time as skewed as it still seems to be in Greece. It is not the job of any outside body, country or institution, to help national politicians to meet electoral promises they cannot fulfill.

Dan, of course those had something to do with credit conditions.

That doesn’t mean that credit conditions had to be modelled in more than a trivial way in order to show that a collapse in construction activity would have a catastrophic impact on the rest of the domestically traded economy.

@ DMcL

Dan, it is not a contradiction to wish that no bank should go bust and yet not to lend to busted banks.

You do not save busted banks by lending to them, you save them by giving to them. Giving to banks is not within the ECB’s mandate.

Having listened to Trichet’s robust defence of the role of the ECB I become more convinced than ever that Ireland got outa jail free here, and much of the thanks goes to the incredible forbearance of the ECB. Fact is that in lending 100% of GDP to Ireland’s banks the ECB had stretched their mandate beyond credulity.

The pursuit of Trichet for war crimes by Colm McCarthy seems truly pathetic.

@Michael Henningan

Trichet gave a spirited prosecution case against ‘Ireland’ this week.
Summary: It was all ‘Ireland’s’ fault, and the ECB ‘helped’ Ireland more than any country in the universe was ever ‘helped’.
A few questions, not put to Trichet.

1. Before Lehman Bros, and during the build up of ELA/ ECB money to Irish banks, what solutions did the ECB propose to stem the stem the deposit/bond flows from Irish banks.
Were capital controls proposed, and if not why not. In whose interest was it that capital controls not be proposed?
Was it proposed to put any bank into examinership, and if not why not.?

[Trichet, we can recall at the time was busy working on disastrous interest rate increases].
2. The same question during the entire period of 2009/2010, as ELA ratcheted up, particularly in the period April – Sept 2010, as to my knowledge approx €60 billion of bonds were maturing. Why did the ECB wait until October to begin to force the Irish govt into a bailout. They waited until the very significant tranches of bonds had been paid. Why?

3. How did Trichet expect that his imperative to save the banks at all cost (i.e the tiny Anglo being the EZ Lehmans), would be funded, given that the ECB had no intention of funding it. Whose pocket had he in mind to rob.
And what legal right had he to propose robbing those those pockets.

4. There is now , according to Trichet, a new ‘mechanism’ to fold banks with specified liability priority. What is this new ‘mechanism’, and has it been transcribed into Irish law.
5. If ‘burden-sharing’ is now the new and correct philosophy, what forces prevented it being adopted in the case of Ireland. Who was being saved?

Cliff Taylor, in today’s Ir Times has a very good and witty opinion piece, that is worth a read.

That said, I accept fully the culpability of the Irish banks in the first instance, the Irish CB and Regulator, and the DOF and political establishment for the catastrophic failures they were responsible for, but whose most acute costs they did not bear, and had no intention of bearing.

The hard part is to listen to the ‘we were there to help you’ piece from the body ultimately in charge of the EZ financial system, who watched as the system collapsed, saved the bondholders, saved the large interbank and other depositors, and passed the burden (losses) onto the citizens of the country from which capital was being extracted freely from.

Trichet is now in the business of salvaging his very tarnished reputation. He is wasting his time. The ECB under his watch has effectively catapulted not only the Eurozone into crisis, but also the very concept of a common Europe has been destroyed beyond recognition.

That happened because the ECB, much like the ICB, put the interests of the large banks and bondholders, above the interests of the ordinary people of Europe, and above the interests of democracy. Ultimately that was the call he made.
When the losses came in, the big boys would not pay, and Trichet found a way to help then out. That is his legacy.

@ DOCM: “the parallel being drawn that the attempt would be like seeking a loan from your bank manager while at the same time informing him that you intended not to pay the one currently outstanding.”

Its quite an inappropriate parellel – if’n your Grounding Strap is actually connected to ground, that is. I’d class it in the nature of the application of “Psychic Balm” [see: Warren Samuels. ‘Erasing the Invisible Hand’ – for a full explanation of its use by economic modellers and forecasters].

“It is not the job of any outside body, country or institution, to help national politicians to meet electoral promises they cannot fulfill.”

Well if it isn’t – they sure have been doing a pretty good job at it for some time now. Anyways, who believes electoral promisies then? Yeah, I thought so!

What role did Geithner(Mr. Wall St) play in the decision to pay all bondholders?

The real difficulty for Ireland lies in the future, not the past. There is little to suggest that the necessary lessons have been learned in terms of budgetary procedure if the content of the “Spring Understatement”, to quote Miriam Lord, is any guide. Indeed, the dismissive reaction to it is probably the most encouraging aspect.


Cliff Taylor misses the central point of Trichet’s defence in the same way as Brendan Keenan, which does suggest that it is, indeed, a problem of perspective i.e. of where you stand. The besetting weakness of the political and economic debate in Ireland IMHO is to view the EU, and even the management of the euro, as something external to the country and not something in which Ireland is a fully volunteer participant. If we get the feeling that we are being talked down to, the question we need to answer is why we have such a feeling (as evidenced by various, what might be described, as colour pieces, in the media). The answer lies in the other constant complaint that nothing has been done about “politics as usual” but the connection has not, up to this point, been made between the two.

Another weakness is the imagined image of Ireland alone being a victim of the crisis. That this was not the case was another another central plank of Trichet’s defence. Whatever was done was in line with the international “consensus” at the time. And Ireland was not alone in suffering the consequences of the global crisis, notably in relation to banking bailouts. Here is one example close to home.


Trichet seems to miss the fact that protecting senior (and junior) bank bondholders at the expense of Irish taxpayers was one of the main factors that drove up risk to holders of Irish sovereign debt. The bank guarantee did not just expropriate value from Irish taxpayers. It also expropriated value from existing holders of Irish sovereign debt, who were instantly less likely to see it repaid. Extensions to the effective scope of the guarantee, extracted under menaces by the ECB, continued the expropriation process.


He phoned Frankfurt and the game changed.

A Shannon front row remains on 24/7 stand by to introduce him to The Claw and to collect ~20 BILLION on behalf of the humble Citizenry should he ever land.

With regard to Trichet claiming that the international consensus has worked for Ireland, seven lean and stagnant years before the recovery started, the prospect of more lean years while it takes hold, and a huge increase in indebtedness is a terrible outcome that only looks good in comparison with the disaster that is the wider European economy.

Problem with your analysis is that is wrong. Irish bond holders who held thru crisis did very well. Those that bought when idiots sold lost though.

Gavyn Davies on the global economy.


“The sole bright spot is the eurozone, where activity growth has improved slightly further to 1.8 per cent, following an encouraging pick-up earlier in the year. The gap between US and eurozone growth has, for now, disappeared completely.”


“Kathimerini understands that the ECB is working on three scenarios: Haircuts of 44 percent, 65 percent and 80 percent. The current discount applied to Greek banks’ collateral is 23 percent. Should the ECB choose the more drastic scenarios, local lenders would find it increasingly difficult to come up with the amount of collateral needed in order to maintain the flow of liquidity from Frankfurt.”

From 23% to 44%, 65% or 80%!
Like one of those old gangster movies, with the victim already shot in the ankle (23%); the gunman then politely muses as to whether he should aim for the groin(44%), the heart (65%) or the head (80%).

But of course the percentages could be very intricate econometric calculations!

@ Tull

Should they sell now ? That is the question.
210 bn or whatever sov debt and a fabulous 0.65% yield and deflation settling in in Europe .Or is there more upside on the way to minus 5% ?

So what if Trichet changed his mind when he realised the impact on French and German bondholders? The very fact that he openly said this to Brian L proves that his motivations were honest.

He is right to be “less than candid” when answering questions on this from the Dublin mob – with them already baying with the malevolent interpretation of that change of mind.

Anyway, the key thing is that it all worked out far better than anyone expected and we should be glad he changed his mind, whatever his motivations.

Government bond yields across the euro zone have risen sharply of late; the 10-year bund yield is now 0.44% having traded down around 0.07% and the Irish equivalent is 0.97% and as such back above the levels existing when QE formally commenced (although not when it was announced).

Is this profit taking or a view that the recent upside surprises to euro data (from inflation ,through high frequency indicators to the credit figures) will prompt the ECB to stop QE earlier than expected?. The sell-off now encompasses core markets so presumably Greece is not the sole driver.

Two articles by Dan O’Brien very pertinent to this thread, especially in the context of the “restoration”.



What is certain is that our politicians will not get it right. The real question is to what extent they are forced in the right direction by various pressures. The first, and the most important, is whether these help a consensus to emerge with regard to what is the best way to manage the state’ finances in order to maximise economic growth. (Increasing the pay of public servants above the rate of such growth, for example, will have precisely the opposite result). The pressures might be summed up as (i) a changing public perception about the the matter, which may or may not result in electoral shifts (ii) the fiscal treaty limitations on extra spending and, as a result, the difficulty of meeting the competing demands (notably from the dysfunctional health sector) on the limited amount available (iii) the pensions “time-bomb” i.e. the impossibility of continuing to pay public pensions from current taxation income, especially when coupled with the near collapse of many private pension arrangements.

Unfortunately, Dan O’Brien does not push his analysis sufficiently far to come to the near unavoidable conclusion i.e. that achieving a basic common foundation of employment and pension conditions across the workforce, irrespective of whether they are in the public or the private sector, must be the ultimate goal.

Government spokesmen are maintaining that the Spring Statement introduces a new budgetary process. This is clearly not the case. The present government has, on the evidence, not the slightest intention, any more than any of its predecessors, of having an organised examination of the budget proposals in the body actually charged under the constitution with agreeing it i.e. the Dáil. This examination would ideally, of course, be about the detail of the overall budget, not just the extra spending but possible adjustments in existing spending, including extra spending in some areas as a result of reductions elsewhere, something that is already happening but in a very dis-organised and non-transparent manner.

Curiously, what may also be pushing events in the right direction is the fact that modern computer billing for tax and services collection is such that the process of “evidence-based policy making” may invent itself, with developments in this area literally leap-frogging over encrusted administrative procedures. In short, the revolution, if and when it comes, will be one of gradual improvement, the most important being a shift to the point where the traded sector, whether in private or public ownership, is clearly in the driving seat.

@ JR

You will have to add the IMF to your list of baddies.


There are two views of what has gone radically wrong in Greece and it is not the one held by Syriza that is in the ascendant.


The truest observation, and one obvious even to outside observers with little direct knowledge of Greece, is the following;

“Tsipras got into power on the votes of the old centre left and that is where he has to move,” says Christos Memis, a veteran political commentator now in charge of the respected news portal Protagon.gr. “If he doesn’t want to lose his allure and go down as the man who oversaw euro exit, it is his only option.”

One can also be fairly certain that the centre-left in question was not active in the traded sector of the Greek economy. They now have the tiger literally by the tail.


“The gap between US and eurozone growth has, for now, disappeared completely.”

1.8% growth and something like $ 9 tn pumped in by CBs globally. Most of it went straight to the top to be paid out in the form of bonuses and share buybacks. It is NOT being invested. Productivity is the basis of stable economic growth and is not going anywhere. Short termism is the order of the day. The US recovery is a joke. 1.8% six years on.

Here is what the EZ still needs….


Political paralysis in the UK is a far better guide to the Zeitgeist than one quarter of EZ growth. No sign of Tull’s Tory majority either.

@ DOCM: “The gap between US and eurozone growth has, for now, disappeared completely.”

So too do mirages – the closer you get to them!

Any Rate-of-Growth LESS THAN 3% is no longer a genuine increase. And since the relative error in measuring G*P is hardly less than 10% – just how hight has the basic measured value, +/- its 1st SD, have to be above the previous measurement, before it can be considered statistically significant? A lot!


1.8% growth could also be entirely down to population increases. I read somewhere that that and tech advancement can easily generate 2% a year. One reason neolibs love immigration.

The persistence of the Dublin 4 media/academia/political class mob in trying to blame sundry foreigners for the state of total economic ruin and collapse that Ireland is supposed to be in, when in reality Ireland has by far the fastest-growing economy in the EU, which growth, if it continues for even another 3 years, will leave Ireland as the richest (based on GNI per capita) country in the EU (bar tiny Luxembourg), is becoming an embarrassment and a farce. Do these clowns ever check an economic statistic?

Its starting to remind me of the old George Best story, where George is checking into a 7-star hotel, with Miss World on one arm, a few bottles of champagne in his other arm, and his suitcase full of £50 notes, and the porter asks him ‘When did it all start to go wrong for you, George?’.

@ seafóid: Yes, that’s indeed probable. But G*P, as used, is a statistically unreliable estimate with a large relative error: a Meaningless Mean. But, sure what the heck. Economists (and some other professions) simply cling on to discredited or outmoded ideas.

I would argue that there is a ‘before’ and an ‘after’ era in economic Rate-of-Growth: before the 1970s; then after the 1980s. Basically, in western economies there has been a long-term trend-shift away from productive investments (to make stuff) toward financial investments (speculation). This proportionate shift should have been accompanied by a parallel change in the characteristic of the economic measurement process – but it was not.

The Rate-of Growth variable is an exponential. Rate-of-Growth occurs in a physical setting, hence will eventually max out. But if you substitute out the physical (making stuff) and increase the proportion of the virtual (financial speculation) you can drive that curve a very long way up the vertical before dY/dt eventually starts to inflect (you cannot reduce the physical proportion below 15%-20%) – like now. Math is like Nature in the raw – bit of a bitch!

If’n I observe an economic Rate-of-Growth in excess of 5% for an extended period – then I will pay attention. Anything less is simply ‘marking time’ – until energy costs start to escalate again. Then ‘The Hunger Games’ will begin in earnest.

Do you think DOCM might get interested in the Trans Pacific Partnership and its Atlantic ugly sister? Greece is looking good to become a 5*st state 😉

Professor Fitzgerald on the topic of setting pay levels in the public sector.


Salutary in terms of reminding all involved as to how we got ourselves into the situation which required such blunt recovery measures. But still failing to address the central problem while identifying its symptoms. If the public sector is having difficulty in attracting recruits, and is losing staff to the private sector, to do, one must assume, the same job, it must be because there is no market mechanism in the public sector that fixes an appropriate rate for it. This is the conundrum which the more successful economies have overcome by reducing or eliminating the distinction between the public and the private sector employment. The problem cannot be resolved piecemeal by having an extra pot of money where particularly difficult recruiting difficulties arise.

It should be noted that such an approach would also help recovery from the many distortions introduced in terms of working conditions for public servants due to the unwillingness of trade union members to share the burden of adjustment equally.

I am not holding my breath! Especially as all are on notice that the dysfunctional and grossly inequitable health service which the electorate collectively seems set on retaining is likely to gobble up a large chunk of the available budgetary leeway.

@Hibernian Ministers – a wee tutorial

fyi on Power and Failed States

A new paper by Dutch economist Servass Storm znd C.W.M. Naastepad, embedded at the end of this post, does a deft job of shredding the two key beliefs that underlie austerity policies: that government profligacy and insufficiently competitive labor markets caused the crisis, so the remedy is to crack down on government spending and wage rates.

In contrast to most economic papers, this one is not just well documented but also well written. The authors give themselves license to decry these intellectually bankrupt policies. The abstract:

The Eurozone crisis has been wrongly interpreted as either a crisis of fiscal profligacy or of deteriorating unit-labour cost competitiveness (caused by rigid labour markets), or a combination of both. Based on these diagnoses, crisis-countries have been treated with the bitter medicines of fiscal austerity, drastic wage reductions, and far-reaching labour market deregulation—all in the expectation that these would restore cost competitiveness and revive growth (through exports), while at the same time allowing for fiscal consolidation and private-sector debt deleveraging. The medicines did not work and almost killed the patients. The problem lies with the diagnoses: the real cause of the Eurozone crisis resides in unsustainable private sector debt leverage, which was aided and abetted by the liberalization of (integrating) European financial markets and a “global banking glut”.

The raw numbers show how badly the orthodox policies have performed. European GDP has yet to reach its precrisis level, and the average unemployment level is 12%, and the social costs are high as well:

The crisis is creating an even more polarized society in which the poorest have to fight for access to basic items such as critical medicines, have to queue up for the soup kitchens and are ever more often homeless. The crisis has turned the Southern Eurozone into a depressing world of closing of possibilities, hopes and dreams, a dark world of heightened inequalities, high unemployment, pay cuts, rising in-work poverty, and people going hungry, hunting for food through garbage cans—as there is no (longer a) welfare state to fall back upon.

As Storm and Naastepad debunk what they depict as the central myths of the Eurozone crisis …

Read on inc. link to paper:


“You will have to add the IMF to your list of baddies.”

Those IMF staffers, on changing the guard, tend to sign a different tune to the one they are obliged to whistle while on duty.

One wonders what they (privately) made of the 2010 bailout of private bondholders in Greece.

On the subject of Greek billing methods, I suspect there were few credit card payments down in Conway’s pub when land rezoning was (or perhaps still is?) the dominant topic.


@ JR

The point I was making related to the computerised billing and payment mechanisms now available, and the impact these are most definitely having on the ability to avoid tax, not what happens in particular countries. Attempts to do so – avoid tax, that is – are ubiquitous. And in surprising places.


Germany was also the most insistent country on the introduction of high denomination euro notes (€200 and €500). I have yet to see one in Ireland. I presume that this is because there is no requirement on the CB to print them.

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