……the unpitied calamity of being repeatedly caught in the same snare….

If an extend-and-pretend deal is done it will be the third Greek ‘rescue’. Without debt relief it will also be the third to break the IMF rule, adopted after the Argentina failure in 2001, to avoid financing countries with unsustainable debts.

In early 2010 the debt/GDP ratio in Greece was predicted at 115% (it turned out to be 130%), the deficit in double digits and GDP sinking fast. The Fund rewrote its rule-book to get involved in the Troika despite the unwillingness of IMF staff to sign off on debt sustainability. See the account from the CIGI think-tank

https://www.cigionline.org/sites/default/files/cigi_paper_no.61web.pdf

The 2012 deal repeated the procedure, this time with haircuts of private creditors.

The Greek economy is again contracting, the budget headed back into serious deficit, the debt ratio headed for 180%. Even with low interest rates and long duration of official debts, no sustainability analysis is likely to look healthy. The bond market, to which Greece must return, agrees.

The IMF cannot credibly repeat the routine of 2010 and 2012 – it does have non-European members after all, and its exposure to Europe is already unacceptable to them. Lagarde, as French Finance minister, opposed Greek debt restructuring in 2010 but there is no guarantee that the IMF board will participate again without haircuts, this time for its European ex-partners. The week could see no deal with Grexit, or Trexit, the end of the Troika.

Ireland in Recovery, Greece in Crisis

Adele Bergin of the ESRI and I made a presentation to a mini-symposium on Austerity: the Irish Experience at UCD last week.  Our analysis points out how wrongheaded it is to suggest, as some have done over the last few days, that if only the Greeks would take their medicine the way we did they might be able to expect an equivalent recovery.  This ignores the huge structural differences between the two economies.

Faced with evaporation of the tax base, jittery markets and a need for concessionary funding, our current government and the previous one did what was required on the fiscal side.  In the language of economics textbooks however, consolidation was necessary but not sufficient for the timing and pace of the recovery.

The first structural difference is the vastly greater openness of the Irish economy.  This cushions the domestic economy to an extent, since imports bear some of the brunt of consolidation.

Irish exports, though they took a hit in the early days of the international crisis, nevertheless propped up the economy in a way that the Greek export sector cannot do, because of the share of exports in the Irish economy, the sectoral pattern of our exports and our portfolio of export destinations.

The fact that Ireland was hugely specialised in goods and services for which international demand remained buoyant massively bolstered the economy.  Pharmaceuticals dominate Irish merchandise exports: pharma increased as a share of total US, UK and eurozone imports from 2000 to date (as shown by Stephen Byrne and Martin  O’Brien in the Central Bank of Ireland Quarterly Bulletin, 02, April 2015). Computer and information services dominate Irish services exports:  these increased as a share of  total US, UK and eurozone imports from 2000 to date.  Agriculture and food dominate indigenous exports:  these increased as a share of  total US, UK and eurozone imports from 2000 to date.

Services comprise an unusually high share of Irish exports.  Since transmission is almost costless, these are less geographically constrained and substantially less dependent on EU and North American markets than is the case for merchandise exports.  In the case of the latter, the MNCs can shift export destinations much more easily than indigenous enterprises can, as reflected in an increased US share as the US recovered earlier from the global crisis.  And Ireland of course benefitted much more than other eurozone economies from the weakening of the euro against the dollar and sterling over recent years.

Jobs in export production began to recover rapidly from 2009, driven by labour-intensive indigenous manufacturing exports and by the growth of both indigenous and foreign-affiliate services exports.  Ireland’s export-led recovery then fed into domestic demand.

It would be impossible for Greece to replicate this pattern.

And by way of footnote:  Even though it’s true that most Irish exports are produced by the foreign-owned multinational (MNC) sector, and that any €1 million of these exports creates less domestic value-added than €1 million of indigenous exports, a different perspective emerges when you look at backward linkages per job.  These are particularly impressive in the case of the rapidly growing MNC-services sector.

The Five Presidents’ Report

Here.

The submissions from the Irish government are here and here.

My own submission is here.

Bank Runs as end runs for policy?

The Greek Finance Minister appeals directly to Ireland in the IT here, while on Medium, Karl Whelan puts the blame for the calamitous situation on the official response of the Troika in 2010.

A serious question we do need to answer: are bank runs, or the potential for bank runs, becoming the ultimate backstop in a currency union comprised of creditor and debtor nations?

In the end the Oireachtas banking inquiry is unearthing the powerful narrative threat of the ‘ATMs running dry’ as driving much of the decision to deliver the 2008 guarantee, Cyprus had a bank run precipitate its crisis, at least partially. Iceland had the same experience, and we all know what is happening to Greek deposits right now, ELA or not.

 

A general practitioner’s perspective on the guest blog by Dr Kevin Denny

Dr William Behan, co-author of “Does Eliminating Fees at Point of Access Affect Irish General Practice Attendance Rates in the Under 6 Years Old Population? A Cross Sectional Study at Six General Practices”

You can download a .pdf of this blog post with references here. 

Most of the state sponsored; CSO or university department generated statistics on general practice utilisation since 2001 have been based on surveys employing 1 year recollection. Dr. Denny uses Growing Up in Ireland (GUI) the largest database available for the purpose of determining the marginal effect of granting private under 6s patients medical cards. Intuitively this makes sense……or does it when the potential biases of that particular survey data are explored?

We really have to examine biases in statistics collection to determine what is more likely.