Author: John McHale

Sindo Editorial Does Not Speak For Us

I made passing reference in a thread yesterday to a disturbing anti-German/French editorial in yesterday’s Sunday Independent.   You can make up your own mind about the sentiments expressed if you haven’t seen it already.  It is available here.  

Paul Hunt has described the ugliness of the sentiments more eloquently than I ever could.   He has also convinced me that those who disagree should make their voices heard, however faint we are relative to the megaphone of a leading newspaper.   I must quickly add that I think the Sunday Independent has many outstanding journalists, and I am sure that few agree with the sentiments expressed.  They must be most embarrassed of all.   I would not see any point in this post if the Sunday Independent was not such a worthy newspaper.   Whoever penned and whoever approved the editorial has let the paper down. 

There is a danger in drawing additional attention by posting here.   But Paul and others have convinced me there is a bigger danger in staying silent. 

If you would like to note your disagreement with views expressed in the editorial, I would ask that you add your voice or even just your name in the comments below.   I know the majority of our readers do not usually make comments, but you might make an exception this one time.   It is important to let our partners in Germany and France –with whom of course we will continue to politely disagree from time to time — know that the editorial does not speak for us. 

Thanks, John McHale

Plan A*

Although he had a rough ride in Comments here, Lorenzo Bini Smaghi’s London Business School presentation provides a useful official take on the choice between the Plan A of fiscal adjustment and the Plan B of default. (From a narrowly Irish perspective, his identification of the costs of default probably puts too much emphasis on balance sheet contagion and too little emphasis on the reputational damage to an economy that is one of the world’s most dependent on international trade and investment. Understandably, he also does not dwell on possible costs of default for access to ongoing international assistance, not least from the ECB itself.)

However, I would put the case for Plan A in more dynamic terms – a Plan A* perhaps. The literature on the option value of waiting provides a useful dynamic angle on the default decision. This applies to a decision that is costly and irreversible and must be taken under uncertainty that will lessen with time. An outstanding feature of our present predicament is that there is unusual disagreement about whether we can stabilise the debt to GDP ratio and regain market access. There is a good chance that the range of this uncertainty will narrow substantially over the coming year. Four major sources of (diminishing) uncertainty stand out:

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Aid-Worthiness

The first-order economic challenge facing Ireland is to regain creditworthiness. Both the State and the banks lost their creditworthiness over the second half of last year. Without international assistance – the EU/IMF funding for the State and the ECB as lender of last resort for the banks – the loss of creditworthiness would have been catastrophic. The primary (i.e. non-interest) budget deficit would have been forced to zero immediately and the banking system would have collapsed as people attempted to withdraw remaining deposits. Those who think that the burden would fall only on the public sector would be in for a rude shock. The real loss of sovereignty is not the bailout deal, but the general dependence on foreign funding.

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Taoiseach from Mars, A Guest Post by Richard Fedigan

New blog commenter, Richard Fedigan, has initiated some interesting discussions on recent threads on topics ranging from Ireland’s reputation and influence in Europe to the need for a new industrial strategy.   Richard gathers his views in this guest post in the form of a briefing to the new Taoiseach. 

In an attempt to simplify and cut through all past and present recriminations and political posturing surrounding what will culminate in the election of a new Irish leader in a matter of weeks, the following is a three-point briefing note for a “Taoiseach from Mars”.

The note is intended to brief a reasonably intelligent alien, familiar only with the concept and reality of being what is known on earth as a CEO, but free from all awareness of cronyism, parish pump politics or the emotional hangovers of Irish history, particularly anything to do with the Civil War or the tragedy of Irish emigration. He/she/it would have a “translator” to explain terms like unemployment, democracy, growth, exports, ECB, IMF MNCs, FDI BRIC, etc. but not in great detail because the Taoiseach, it is understood, would have a team of accountable people to propose and formulate strategy, get it approved appropriately and then communicate and execute it.It is most likely that, in carrying out the above programme, it will be necessary to completely re-organise the existing semi-state landscape, audit your entity’s real capabilities and capacities and that this may imply radically different governance and accountabilty structures for the overall entity.

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“Rotten Institutions” or “Blameless Bubble”?

The report of the US Financial Crisis Inquiry Commission was released last week to controversy and criticism.   The report contains a wealth of information and is interesting reading even for those whose interest is mainly in our own financial crisis.  Much of the story has been about the partisan squabbling since the report’s release, with the Commission failing to agree on the final product.   Republican commissioners issued two separate dissents to the “majority” report (see here for the dissent of Hennessy et al.).    This just underlines how politicised the narrative of the crisis has become.   Strangely enough, though, I find the duelling perspectives actually add a useful analytical edge – otherwise lacking – to the report.  (Update: See here for an interesting discussion at the NYT.)

Anger at our government is probably too raw to have a much of a productive debate until after the election.  But to draw the proper institutional and policy reform lessons, it will be useful to similarly consider the competing extremes of the “rotten institutions” and “blameless bubble” explanations for the crisis, and to explore where the truth lies.  

Some short extracts follow after the break to give a flavour of both the majority report and the dissent.

Continue reading ““Rotten Institutions” or “Blameless Bubble”?”