Guess what? Ireland drank neo-liberal magic potion and it failed


by Sunny Hundal    
8:50 am - November 23rd 2010

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This is what Duncan Weldon predicted yesterday morning:

But first, it is worth dealing with one central point: this bail out will not work. Without strong medium near (and preferably near term) growth, there will be no solution to Ireland’s problems and such growth will not emerge against a back drop of severe fiscal tightening, The medicine prescribed by the Irish government, and urged by the UK, will kill the patient.

Guess what? That’s exactly what had transpired by yesterday evening.

The EU stepped in with money, and then everyone realised the economy was going to get worse and a lot more money would be needed to keep the banks afloat.

Why? Larry Elliott explains:

Because the banks remain heavily exposed to the Irish housing and construction markets, both of which are set for another clobbering when the lame duck government announces its latest four-year €15bn (£13bn) austerity package on Wednesday. Deflating the domestic economy will lead to a bigger problem of negative equity, more foreclosures and bigger losses for the banks.

How anyone in Ireland , the IMF or EU didn’t see that coming is beyond comprehension.

But this reinforces the simple point that Labour made in the immediate aftermath of the financial crisis: that cutting drastically would put us in the same catastrophic situation that Ireland is in now. Right-wingers got it wrong and Ireland is the evidence.

This isn’t to deny that the Euro places a constraint on what the Irish government can do, but it didn’t cause the crisis.

Here’s Philip Stephens in the Financial Times today:

As it happens, Ireland’s property-boom-turned-banking-bust had little to do with its membership of the single currency. Ireland is not Greece. The closer parallels are with Iceland and, dare one say it, Britain. Gordon Brown got precious few things right as prime minister, but his bank rescue package probably saved Britain from Ireland’s fate.

Those who imagine the euro to be responsible for Europe’s ills are left to explain Britain’s financial mess or why, say, France has ended up with a much smaller fiscal deficit.

Don’t expect right-wing ideologues to accept this even if, as Chris Dillow points out, blaming the Euro is contradictory with their own beliefs.

In contrast with Greece, Ireland’s problem lies with the private sector. So, cutting government spending wouldn’t save much money but would only depress the economy further and exacerbate the crisis. This is exactly what Gordon Brown argued circa 2008 and why he was right to prop up the economy then. No surprise then to find one of the world’s richest men, Warren Buffet, praising government action then and saying he should be paying higher taxes.

What’s worse now is that Irish politicians are still following the neo-liberal handbook of prescribing more cuts to wages (thus depressing consumption and the economy) but refusing to budge on increasing taxes on the very companies that caused this crisis.

If Tories were in charge in 2008, we’d have gone through the same the Irish are now. Yesterday, Osborne was happy to lend money to prop up Irish banks but wouldn’t do the same when the crisis hit our banks. The stupidity speaks for itself.

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Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


So how long do your reckon it’s going to take the first neo-liberal purveyor of magic potion to post a rebuttal and insist that everyone else is deluded, and that it’s NOT the potion that’s at fault, but the way it was administered….?

I think the headline is wrong – the potion didn’t just fail – it was poison.

Given that the Irish economy relied on cheap money to grow the economy and its low corporation tax to attract business I can see why they wouldn’t want to look less attractive by raising taxes. They’ve boxed themselves in, haven’t they? The lack of currency flexibility due to the euro must be a factor.

@3 It’s acknowledged as a factor, but it is being painted by supporters of the neo-liberal measures as being the one and only factor upon which all of Ireland’s ills hinge upon. This rather handily puts the blame on the EU rather than say the neo-liberal policies that far more significantly helped box Ireland into it’s current position.

Real interest rates in Ireland fell from 4-5% pre-euro to zero within two years, where they remained for 7-8 years until recently.

Let’s not pretend that had nothing to do with it.

The US bubble was also assisted, shall we say, an extended period of zero real rates.

Of course neither the euro, nor neo-liberal magic potion (whatever that might be precisely) is the whole story.

What is certainly true is that euro membership is making the workout far worse.

Totally missing the point once again.

The Euro allowed Ireland to blow up a huge credit/property bubble with the benefit of far too low interest rates and credit spreads (Irish CDS was trading down at 20bp until the blowup – patently ridiculous). This allowed, with a healthy sprinkling or corruption and poor lending standards, their banks to become hugely overleveraged, with massive bad debts.

This in itself would not have been a huge problem until the government decided to back ALL bank deposits, effectively taking the bank balance sheets about the size of national GDP onto their own. This is in direct comparison to the UK bailouts, which gauranteed small deposits and gave banks enough cash to top-up their captial adequacy. Until that point their deficit had been declining and growth slowly recovering. After that point their defict shot up to 32%, forcing this crisis.

As for the austerity package; there is little evidence from the GDP growth rate, which is recovering from its low of nearly 10%, that this has caused more problems. Just looking at the chart, it looks liek the austerity package was initially pretty succesful in lowering Irish borrowing costs (by about 150bp) until they made the mistake detailed above regarding their banks.

So they’ve been forced into a painful internal devaluation (cuts). Which they have little alternative for, given they can’t raise debt in the capital markets easily (or at all) and Euro membership means they can’t devalue their currency to escape some of the pain that way…another reason why the Euro has been a disaster for Ireland.

So, in short, Duncan misses one of the bigest reasons for Irelands problems (nationalising roughly annual GDP of bad bank loans) and blames it all on austerity, which has been forced in part at least by Euro membership and hasn’t been actively shown to have caused the problem in the first place…..

….if nothing else, please tell me how an effectively bankrupt nation can keep running a 10% budget deficit when it has little or no access to debt capital markets? Who is going to buy and fund that deficit? Your argument is pretty moot till you can answer that question…..

All the bad investments made during the boom years are being liquidated. I don’t see how this is a bad thing.

I’m glad you rejected the phrase “kool-aid” in your headline.

In a similar fashion to how too-low interest rates and the “savings glut” are probably contributory factors to the financial crisis in the USA and elsewhere, too-low interest rates (negative real rates) probably made things worse in Ireland than they’d otherwise have been. It probably explains why the property boom in Ireland reached such absurd proportions. You are allowed to be left wing and recognize this.

You do, however, have to be a right-wing ideologue to reduce Ireland’s problems to “it was the Euro” and ignore what the crisis reveals about the wisdom of “don’t worry the banks know what they’re doing”

But this reinforces the simple point that Labour made in the immediate aftermath of the financial crisis: that cutting drastically would put us in the same catastrophic situation that Ireland is in now. Right-wingers got it wrong and Ireland is the evidence.

Lawks a mussy, didn’t we have this thread yesterday? And the answer’s the same: if you think that Ireland’s problems, including a current budget deficit of 33%, are the result of their budget last year, you are seven kinds of fathead. If you think that everything would be all right, if only Ireland had increased their deficit to 40%, then you are eight kinds of fathead.

For perhaps the fifth time since you started this line of argument: Ireland is stuffed chiefly because it guaranteed the liabilities of its banks – liabilities that have turned out to be beyond the state’s ability to pay.

Why were the banks’ liabilities so large? Not, this time, thanks to sub-prime mortgages or fabulously complicated derivative structures, but because the entire Irish financial sector went gangbusters lending to the construction sector, puffing up an enormous property bubble that has now popped. There were, back in March 350,000 vacant houses in Ireland – a country with a population of only 4.4 million.

Why was this done so disastrously? Three reasons: unhelpfully low interest rates (set by the ECB), sloppy lending rules, and corrupt and inefficient government at central and local levels.

Why is Ireland in such trouble now? Because when faced with such a monstrous deficit it can only use fiscal measures to get out of it. Ireland’s cost of borrowing has risen so much that it will struggle to service its existing debt, and will be desperate to keep its extra debt to a minimum.

Iceland, in a similar state, went bust and devalued its currency (by 80%!). That at least wiped the slate clean (3% growth is forecast for 2011). Ireland can’t devalue, can’t inflate – all it can do is use fiscal measures. That’s why it’s cutting public spending – it’s the only lever it has left.

What’s worse now is that Irish politicians are still following the neo-liberal handbook of prescribing more cuts to wages (thus depressing consumption and the economy) but refusing to budge on increasing taxes on the very companies that caused this crisis.

And there’s the next bit of the rub, right there. Ireland can’t raise its corporation tax rate – or all those multinationals would leave. That’s what Germany and France want of course, they see Ireland’s low corporation tax as a way of stealing German/French tax money. So raising the rate would reduce the revenues coming in – unless you think the multi-nationals are really there for the craic and the Guinness. (Oh, and as a sidenote, I’m not really sure that Microsoft, Google and WPP really caused the financial crisis).

Ireland’s stuffed. Grade A sage-and-onion. But it’s stuffed thanks to one political failure and two poor decisions. Not the budget of 2009.

10. margin4error

Cjcjc

Neither the Euro nor slashing the public service (neo-liberal potion) – also basing their economy on low tax attraction to foreign investors, cutting market regulation, and so on also all contributed.

But it is hard to argue that the government’s deficit reduction measures – so lauded by people like Osborne at the time they were launched – have utterly undermined growth in the economy, and so undermined tax-take.

Also – it is somewhat foolish to argue that euro-membership is automatically significant contributor.

For a start many euro-members seem not to have the same problem. Meanwhile the Scottish economy seemed to recover, or at least stabilise, despite a massive banking collapse out of all proportion to its economy, perfectly fine under Stirling. (A single currency lets not forget)

And at the same time, Iceland has neither the Euro nor EU membership – but didn’t hold out as long as Ireland and Greece did before needing a bailout.

Now none of that means that Ireland doesn’t suffer from an inability to devalue its currency. But it does emphasise that that alone is not the whole balance of the Euro’s effect on an economy.

What is this? Repeat a line often enough and it becomes true?

Ireland’s problems are everything to do with the euro, specifically the inappropriate interest rates that allowed them to massively overheat their economy, and is a major factor in causing the disaster we see unfolding now. To ignore this is to do exactly what you are accusing your opponents of, being blind to the facts by ideology.

12. Luis Enrique

what does the left-wing economic playbook say here?

subtract the bank bailouts themselves from the deficit figures to get at some idea of the “underlying” problem.

You have a state with revenues x and spending X. Now OK you may prefer a policy weighted towards protecting spending and trying to raise revenues, but you cannot pretend that tax increases are good news for an economy on its back either – that’s anti-Keynesian, a fiscal contraction in the middle of a slump. That is to say, they’re fecked either way. I’m afraid I side with Tim J on this one – to describe Ireland’s crisis as one brought on by excessive cutting is a case of trying to shoe-horn a story you like into a situation where it doesn’t fit.

How can Ireland clear the decks and get the economy moving again?

Presumably they need mortgages and other property debts to be renegotiated, the loan originators to take some losses, the government (Euro, Ireland) to step in a bear some of those losses too (by paying off creditors) which will just have to be paid off slowly over time (via debt) but – and this is the bit I don’t understand – why don’t they also make the creditors take some losses too? I suppose Ireland’s creditors are UK and others banks that aren’t in much state to bear it. Much like the problem that Portugal’s biggest creditor is Spain.

Neither the Euro nor slashing the public service (neo-liberal potion) – also basing their economy on low tax attraction to foreign investors, cutting market regulation, and so on also all contributed.

Looking at those two factors then, Ireland’s low corporation tax rate led to substantially greater revenue since its introduction. The rest of Ireland’s tax structure is not notably low. As for cutting market regulation – can you point me to the specific deregulation measures that caused the current crisis? People often cite ‘deregulation’ as a catch-all reason for problems, but I’ve very rarely heard a specific measure identified.

As far as I can see as a novice on these matters when Ireland was enjoying the boom everyone was more than happy to dip their hand (corrupt or otherwise) into the trough snd help themselves. The fault here is not the system but 21st century capitalism and greed. But those who gorged on the boom are not the ones suffering it’s once again the poor tax payer.

Shouldn’t we just let the banks collapse? That’s free markets after all isn’t it? I know I will get a lecture on the contagion and the domino effect but isn’t that the paradox of capitalism, it requires socialism to bail it out when it exceeds it’s limits?

How can Ireland clear the decks and get the economy moving again?

What they probably ought to have done was told the bank’s bondholders to take a haircut. It’s the weight of the bank’s debts that is crushing the economy more than any other factor. Why didn’t they? Probably because most of those bondholders are German, French, Spanish and UK banks none of which are really in a position to take the hit. Politics, politics, politics.

On that subject, in case I’m looking like a cartoon free-marketeer blaming all and sundry on useless Governments and hopeless currency unions, the prime cause of the Irish disaster was the construction bubble. And one of the prime movers behind that was the over-exuberance of the banks. Better regulation, through capital adequacy requirements perhaps, or simply more stringent risk analysis, should have been in place because most private enterprise gets dazzled by the prospect of easy money.

Tim J,

On that subject, in case I’m looking like a cartoon free-marketeer blaming all and sundry on useless Governments and hopeless currency unions, the prime cause of the Irish disaster was the construction bubble. And one of the prime movers behind that was the over-exuberance of the banks.

AIUI a similar thing is happening in Spain – my Spanish acquaintances are surprised their country hasn’t been in the news more.

TimJ
If Ireland raised it’s Corp Tax rates, then yes multinationals may choose to relocate else where in the Eurozone – or in the EU at least and pay normal tax rates.

This “stolen” money could then be used to bail out the Irish.

Ireland’s unsustainably low Corp Tax rates, and tax loop holes are harming the whole of the EU and should be addressed as part of the rescue package.

The only people who are stealing money are the multi nationals who are dodging their tax burden while expecting the states in the EU to provide stable countries with infrastructure, educated populations and safe environments.

So how long do your reckon it’s going to take the first neo-liberal purveyor of magic potion to post a rebuttal

Not long. Tim J nails it.

Sunny’s attempt to ascribe Ireland’s problems to their austerity budget is like blaming a cancer patient’s illness on their last dose of chemotherapy.

The real cure will involve leaving the Euro and the sooner they take that medicine the better.

Shouldn’t we just let the banks collapse? That’s free markets after all isn’t it?

@ skooter

YES

“For a start many euro-members seem not to have the same problem.”

Erm, that’s because they didn’t have zero real interest rates. Pay attention!

Of course their banks were just as reckless…just not in their own real estate markets…

The Euro allowed Ireland to blow up a huge credit/property bubble with the benefit of far too low interest rates and credit spreads (Irish CDS was trading down at 20bp until the blowup – patently ridiculous). This allowed, with a healthy sprinkling or corruption and poor lending standards, their banks to become hugely overleveraged, with massive bad debts.

@Tyler – Why is it that interest rates are always given the blame in this situation? There are plenty of other ways of controlling credit through regulation. To me it seems like they are a convenient scapegoat because it avoids talk about the need for more regulation, something that right wingers have never been in favour of.

AIUI a similar thing is happening in Spain – my Spanish acquaintances are surprised their country hasn’t been in the news more.

Well, it’s next but one in line isn’t it? After Portugal of course. Once Spain goes down, we can start wondering whether Italy’s next.

Here’s an interesting parallel for someone who knows more about the subject than me to consider – just as CDOs and CDSs gave financial institutions the illusion that default risk was a thing of the past, thereby allowing greater and greater risks to be taken, in the unfounded belief that downside had been eliminated, so too did Euro membership give the fringe nations the illusion that since inflation and devaluation were now a thing of the past, policies could now be undertaken without any associated risk of inflation.

@ Tim J 15

Some of the AIB bonds have been restructured with the bondholders taking effectively an 80% haircut. It’s being done in stages – 970m USD face yesterday.

It is fair enough to blame the banks to a certain extent, but joing the Euro moved Irish real interest rates from positive territory to negative real rates overnight as suddenly they were exposed to EUR rates but Irish inflation.

The net result of this was extremely cheap money/credit, which incentivises banks to lend, but negative real rates also act as a double whammy as borrowing short term money is effectively free and you can lend long term at a great profit.

In short, the Euro *DID* have a lot to do with the Irish blowup.

And increased regulation is what we are getting, in the form of the Basel III capital rules.

Although being introduced slowly (and a good thing too – unless you want lending to collapse even further) they will eventually bite.

eg see here

“Barclays Capital, the securities unit of Barclays Plc, would have lost money over the last decade under Basel III capital rules that force banks to set aside more capital to cover their riskiest units, UBS AG analysts said.

“The increased capital intensity of the fixed-income, currencies and commodities business under Basel III represents a challenge,” UBS analysts including John-Paul Crutchley said in a note to clients yesterday. “If the proposed Basel rules and likely capital requirements had been in place over the past decade, Barclays Capital would probably not have grown to its current size.”

The unit, created by Robert Diamond, would have lost more than 3 billion pounds ($4.8 billion) in 2008 and at least 1 billion pounds in 2009 under the latest Basel rules, according to UBS. The division wouldn’t have made an “economic profit” in any of the 10 years under Basel III, Crutchley said.”

http://www.bloomberg.com/news/2010-11-16/barclays-capital-would-have-posted-losses-under-basel-ubs-says.html

@21… so are you in favour of ol’ fashioned HP?

Oooh, what a catchy policy, while you are at it we could go back to exchange controls as well as incomes and prices policies.

After all Labour’s got a throwback leader, it’s paid for by throwback unions… let’s have some throwback policies too.

TimJ @ 15 nailed it.

The root cause of the problem – The Euro.

Why was Ireland bailed out? – The Euro.

End of story.

Mike@25 – HP? Could you possibly expand that abbreviation.

@21 Andreas

The main way of controlling credit extrension is via interest rates. You can legislate to control credit but in real terms it’s very hard. Both companies and individuals borrow against assets (like property) and when those assets are increasing in value the loan-to-value ratios decrease, so they can afford to borrow more….combine that with super low nominal interest rates, negative real interest rates and whatever legislation on amounts people are allowed to borrow doesn’t do much to slow down a credit bubble UNTIL it beocmes very hard to borrow short term money to fund the long term debt, at which point the bubble bursts.

Luis Enrique: “You do, however, have to be a right-wing ideologue to reduce Ireland’s problems to “it was the Euro” and ignore what the crisis reveals about the wisdom of “don’t worry the banks know what they’re doing””

True. You also need to be a right wing ideologue to ignore the fact that very recently right wing economists were cheering on the economic bubbles they now deride the Irish government for ‘allowing’. In fact it went beyond that: their collective political influence on the Irish government was critical to creating and maintaining the bubble-friendly policies in the first place.

You also need to be a right wing ideologue to ignore the fact that very recently right wing economists were cheering on the economic bubbles they now deride the Irish government for ‘allowing’.

This is probably true to an extent. But it is still worth noting that Ireland did a lot of things ‘right’ before the smash. They were aware that interest rates were artificially low, and so instead of treating the tax revenues from the booming construction and financial sectors as permanent features of the new economy (as, say, the UK did) they concentrated on paying down debt. Ireland ran budget surpluses for much of the past decade, and on the eve of the crash their nationa debt was only about 25% of GDP – remarkably low.

It was, in fact classical Keynesian economics. Run a surplus through the good years to try and even out the bad.

@27: “The main way of controlling credit extrension is via interest rates. You can legislate to control credit but in real terms it’s very hard.”

True – financial markets are very porous because of globalisation and domestic controls on credit can often be circumvented by borrowing abroad in the absence of effective exchange controls, with borrowers accepting the exchange risk of necessary.

However, better regulation of domestic banks could prevent them from taking on excessive risk in lending thereby hazarding the systemic stability of the entire domestic financial system as in Ireland.

In testimony on 24 October 2008 to the US House of Representatives Oversight Committee, Greenspan said:

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
http://online.wsj.com/article/SB122476545437862295.html

Self-regulation of financial markets doesn’t work.

@29 Tim J

Very true, and quite opposed to today’s left-leaning neo-keynesiansim espoused by Krugman, Blanchflower et al, who seem to forget about the surplus part of Keynes theory, and advocate deficit spending now, but were happy with it in times of growth for political rather than economic reasons.

Quoting Krugman in the NYT in 2002 (post dotcom bubble);

“To fight the recession the FED needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, Greenspan needs to create a housing bubble to replace the NasDaq bubble”

That ended well for us all now, didn’t it?

“@29 Tim J

Very true, and quite opposed to today’s left-leaning neo-keynesiansim espoused by Krugman, Blanchflower et al, who seem to forget about the surplus part of Keynes theory, and advocate deficit spending now, but were happy with it in times of growth for political rather than economic reasons.

Quoting Krugman in the NYT in 2002 (post dotcom bubble);

“To fight the recession the FED needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, Greenspan needs to create a housing bubble to replace the NasDaq bubble”

That ended well for us all now, didn’t it?”

Everytime you do this someone points out that you are misquoting Krugman there. Likewise, Krugman last week that America needs Death Panels, he actually said it! But it was part of a wider point that without some mechanism to control Healthcare costs America will be bankrupted. Krugman is polemical, its fun and effective.

And everytime you say “Keynesians don’t want to pay down debt” you’re reminded that Clinton ran a surplus and it was your side that ran huge deficits! Krugman was highly critical of Bush’s fiscal policies, were you?

Ireland has loads of problems, the Euro is one of them, but just making the whole of the Irish economy about monetary policy ignores the role financial globalisation through the “great moderation” played. People thought finance was tamed and that we knew how to deal with crises, I’m not sure it was or we do and that is Ireland’s problem.

“Guess what? Ireland drank neo-liberal magic potion and it failed”

Quite so,

but don’t expect the right to admit it. They never take responsibility for their actions. Responsibility, taxes, and morality are for the little people. ‘Do as I say, not as I do,’ is their rallying call. Always has been.

““To fight the recession the FED needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, Greenspan needs to create a housing bubble to replace the NasDaq bubble”

I’m reminded of the Onion’s headline ‘nation demands new bubble to invest in’. Perhaps the solution lies in that……

Hey!

And don’t forget that up to 2007-8 Ireland ran those sparkling balanced budgets – even surpluses! – that the Right worships with all its might!

When will the Right admit it is hopelessly, damagingly, nation-wreckingly wrong?

Not soon if Tim J’s airhead rants are anything to go by.

When will the Right admit it is hopelessly, damagingly, nation-wreckingly wrong?

Not soon if Tim J’s airhead rants are anything to go by.

If we may be permitted to bask for a moment in the glow of your wisdom – what specifically do you think caused Ireland’s economic difficulties, and what steps do you think they should take to resolve them?

37. Luis Enrique

BenM

I don’t understand you – how would Ireland be better off now if it had ran budget deficits in 2007?

this latest crisis has been triggered by the (perception that) the Irish government will not be able to service its debts (debts it acquired bailing out the banks, who are ultimately to blame for all this. Finance is the “nation wrecker”).

If Ireland hadn’t been in the Euro, it would still probably have had a banking crisis. More or less every country with big banks has done. In Ireland’s case, Euro imposed monetary policy may have made the crisis worse, perhaps a lot worse, perhaps not much.

If Ireland had chosen different rates of tax and spend, personally I can’t see it would have made much difference but if you think “spending more” is what the Irish government should have done to avoid this crisis, you need to explain how that would have increased confidence in its ability to service its debts. To do that, I think you’ll need to drink some magic potion of your own – magic government spending.

35

For those of us confused by the intricacies of the dismal science (which admittedly seems to include most of those within the discipline and those pontificating above) it is worth remembering that in any room of economists, you will usually get twice as many opinions as there are people present.

NONE of you have “the” answer; you all construct monstrous, fixed positions extrapolated from idealised theoretical positions which rarely if ever pertain in the real world. The certainties of yesterday turn into the ridiculous fallacies of tomorrow with a regularity that makes your head spin.

It doesn’t take a nobel prize in economics, or even being a staunch supporter of the Euro, to see that those attributing the falling ot the sky whooly or even mainly to the Euro are doing so because they have an ideological axe to grind. The differences between the situations in Iceland, Ireland, Greece etc., etc. are quite enough to demonstrate that such glib generalisations are as facile as they are inaccurate.

The failures of regulation and oversight which underlie the global crisis are political failures. Ireland isn’t in the mess it is because of the Euro, it’s in this mess because of crass political decisions both by the Irish themselves, those in the EU who allowed the Euro to go in the direction it did, and of course lots of others in the USA, UK and elsewhere who thought we’d seen the economic equivalent of Fukuyama’s “End of History”.

He was wrong, and so were they.

39. Luis Enrique

please note anybody tempted to argue that we – the Irish, the UK, the USA – would all have been better off if we’d not relied on the finance sector so much for our tax revenues, that unless you are saying our governments should have given banks tax rebates and exemptions (an argument I would have enjoyed watching somebody make in 2006), you are merely saying we’d have been better off with a smaller less profitable safer financial sector. In which case, well, yes. We know that.

Basically the Governments of Ireland, Greece, Spain, Italy and Portugal should all meet secretly over the week and on Saturday announce a large haircut for their creditors, a partial default. Much wailing and nashing of teeth followed by a less painful rebalancing. Short term pain which does not result in economic success is not rewarded so in the short, medium and long term this is probably the best option. What do people think of my (evil?) plan?

Tim J

Part of your analysis is correct, right down to the

Why were the banks’ liabilities so large? Not, this time, thanks to sub-prime mortgages or fabulously complicated derivative structures, but because the entire Irish financial sector went gangbusters lending to the construction sector, puffing up an enormous property bubble that has now popped. There were, back in March 350,000 vacant houses in Ireland – a country with a population of only 4.4 million.

But then you get all waffly. You don’t really identify why the construction sector boomed other than pointing at the Euro interest rate. But that’s only part of the story.

The other part is that perceived demand was inflated by the foolish corp tax rate which attracted the multinational bloodsuckers and provided a spike in menial admin type employment to certain areas of Ireland.

So, that tax rate effectively holed Ireland below the waterline because it fed the bubble so much – and pleased all the shrill rightwing economists who egged the country on – right up until the moment it was too late.

And even then the country still had choices – it could have looked to stimulate through fiscal policy, as we should do here in the UK, but here again the shrill Right drowned out saner voices.

The country only heeded the yelling on the Right and began systematically undermining its economic demand, its tax base and, of course, its people, through failed austerity measures.

Here’s the result of Ireland’s dalliance with neo liberalism:

1. Unemployment at 14pc
2. GDP 20pc below its peak
3. A brain drain
4. EUR100bn bailout.
5. Further so-called “austerity”

That is, by any measures, a complete, wholesale failure of a bankrupt economic model.

What do people think of my (evil?) plan?

And when the enormous (paper) losses unbalance the German and French domestic banks, causing some of them to fail? Do we just announce the whole of the continent of Europe insolvent?

Ben M – Are you really arguing that part of the problem was increased employment?

Saner voices indeed.

Just to address the title of the article – neo-liberalism apparently doesn’t work. There’s a surprise – probably why I never liked it (actually, there are better reasons…).

As you are aware, neo-liberalism is a system where the state takes a large role, working closely with large companies and organisations – see the Bush (George W.)-period Whitehouse for a classical example. It is not liberal – it allows for a lot of state control – hence the neo-.

But there is a bit of a logical leap from a lot of commentators to assume neo-liberalism is standard right-wing belief. You do not have to look far to find right-wingers who argued that banks should be allowed to fail (protection for those with savings invested would be fine). Yes, the cuts in Ireland have not worked as some might wish, but they have not caused the problem (which predates the cuts – otherwise why were they made?). And to be technically accurate, cutting the state is not neo-liberal in any meaningful way.

Thanks to the Euro Ireland had negative real interest rates. When you have negative real interest rates the rational thing to do is load up with debt and buy assets, which is exactly what Irish people did stoking up an enormous property bubble. Exactly the same thing happened in Spain. This didn’t happen in Italy or France because the Euro was crippling their competitiveness so they did not have enough growth to start a bubble going, as they didn’t want to cut tax rates like Ireland had done to become more competitive.

The core Euro countries needed very low interest rates simply to keep their economies going. The fringe Euro countries need higher interest rates to cool their economies. The same thing didn’t happen in all of the Eurozone countries because every Eurozone country had different economic conditions. That is one of the big problems with the Euro which Eurosceptics have warning about for years, and have now been proved right.

As with every bubble a bust was going to happen sometime and then the Irish state then went and made the decision to take all of the debts from its bankrupt banks onto itself. The crisis then went from a bunch of bankrupt banks thanks to the fall out from the bursting of the property bubble to a whole bunch of bankrupt banks and a bankrupt state.

The UK is a bit different, not being in the Euro and not having had negative real interest rates, but it still had very low real interest rates for years thanks to Gordon Brown deciding to taget CPI rather than RPI or RPIX which are more realistic measures of UK inflation. We didn’t have quite as bad regulation as lead to Anglo-Irish, but the system of bank regulation put in place by Gordon Brown was still deeply flawed. Hence a smaller bubble, and a burst that is painful but that can be dealt with without bankrupting the country. Luckily in the UK we still have an independent currency (Brown’s best decision as chancellor) so some of the value of the debt can be destroyed through importing inflation as the currency devalues, or creating inflation through printing money, and the rest of can be paid off through a few cuts plus economic growth as the devalued currency makes us more competitive.

Ireland however is in the Euro. That means that it cannot import inflation by devaluing, or create it through printing money. The only way that it can pay for the debts that it has taken on is by cutting the amount it spends and increasing the amount it takes in. On top of this it cannot gain competitiveness to get growing again through devaluation, it has no other than deflation to regain competitiveness. Debt-deflation was never going to be fun for them but thanks to the Euro their choice is that or default and for political reasons they are being pressured not to do the right thing of defaulting sooner rather than later.

41 – So if Ireland had had higher unemployment and lower tax revenues it’s deficit would have been lower. And the best way for it to provide a fiscal stimulus would now be to raise taxes.

I’m clearly too much of an airhead to comprehend such wisdom.

43 Falco

Would have been much better to have increased employment through higher investment rather than the artificial spike Ireland generated through its near zero % corp tax.

35 “And don’t forget that up to 2007-8 Ireland ran those sparkling balanced budgets – even surpluses”

Yes it did, which is exactly what it should have done. Taking money out of an overheating economy is pretty orthodox Keynesian policy. It is much better than Gordon Brown running deficits at the top of the boom. Unfortunately Ireland did not take enough money out to deal with the bubble that the Euro and negative real interest rates had inflated, or to mean that Ireland would not become bankrupt when it took on the debt of the banks caught up in the bubble when the bubble burst.

40 “Basically the Governments of Ireland, Greece, Spain, Italy and Portugal should all meet secretly over the week and on Saturday announce a large haircut for their creditors, a partial default”

Sounds good.

49. Luis Enrique

LO

I like this topic.

here are what I think are the available means of dealing with a financial implosion.

The first move is that existing equity shareholders get wiped out, and money is raised from private sector or by nationalization of banks, representing new equity that now owns financial sector assets. We’ve more or less done that, although we may have to do it again. What options are left, assuming assets are still insufficient to repay all creditors (which is the fundamental problem).

1. Impose losses on creditors. Assuming retail depositors (man on street) is protected, this means imposing losses on institutional investors, pension funds etc. including banks, which might mean another round of bank insolvencies. We appear to be going to all lengths to avoid this.

If the creditors don’t take the losses, the state has to pay off the creditors and then shoulder the losses. I think the primary means for doing this is for the state acquire assets from banks at too high-price, reselling them later (or simply collecting repayments if the assets are loans) at a loss. I guess you could also loan money then write off the loan, there are probably other ways but they all amount to giving the banks money for nothing. The two ways of funding this are:

2. an “intertemporal” loan. Borrow money to give to the banks, then future generations pay taxes and receiving nothing in return, because they are repaying debt.

3. Printing money to give to the government to give to the banks. This does not cost future tax payers, it costs savers and benefits borrowers, to the extent that it creates inflation. In some respects hurting savers is quite similar to 1. hurting bank creditors (because savers are bank creditors) although a pensioners are a different kind of saver than a hedge fund investor, and inflation hurts indiscriminately whereas 1. can at least in principle be targeted. Are we doing this by ‘stealth’ anyway?

if anybody is interested, I have a half-finished essay on this:
here

note it’s quite possible that the losses the taxpayer shoulders turn out to be smaller than everybody thought at the time, if banks are being bailed out because of loss of confidence and true extent to which assets fall short of liabilities is being exaggerated.

50. Luis Enrique

oops. can somebody with editorial rights delete that link to my essay in previous comment please. thanks.

51. Luis Enrique

(oh look, when I say equity owns bank assets, that’s not what I mean, but if you know enough to know why that’s wrong then you should also know what I meant)

Ben M – “Would have been much better to have increased employment through higher investment rather than the artificial spike Ireland generated through its near zero % corp tax.”

This investment presumeably coming from the land of ????? rather than business’ attracted by the corporate tax rate, (all business investment being artificial obviously).

I really don’t understand where you’re going with this.

53. Luis Enrique

christ that was written far too quickly and really shit – would appreciate it if somebody delete the lot.

While the consequences of not bailing out’ banks are unsupportable, it is clearly time to end the ‘dependency culture’ of the financial sector. .

At the same time, we should end the ‘dependency culture’ of those employers who fail to pay a living wage, also depending on the state to compensate the ‘working poor.’

We can all disagree about the causes of the crisis though it seems to me that all sides are partially right.

The key reason was the housing bubble and absurd over lending.

The banks were the central culprits aided by politicians and regulators who ignored all the warning signs.

In other words it was a colossal market failure.

But the euro did contribute to the problem to this by keeping interest rates artificially low which fed the bubble.

However we are where we are now. The central question now is whether even more fiscal austerity measures are the answer. I suspect not and that they will actually make the situation worse. Laying people off and cutting wages will increase defaults and the banks bad debts. The article that Luis linked to suggests that we haven’t really seen the true scale of the bank’s bad debts in the residential and commercial sectors. More austerity means more defaults and further bank bailouts. A vicious circle.

But if Ireland were to come out of the euro and reinstate the punt would the scale of the bank’s debts then be made even larger because their debt is denominated in euros and the punt would immediately depreciate markedly?

The only way I can see for Ireland to get out of this is for the bondholders to take a haircut. Did this happen in Iceland? What would be the impact on the banks and other large institutional investors some of which are hardly in rude health to begin with?

Tim J says:
Why was this done so disastrously? Three reasons: unhelpfully low interest rates (set by the ECB), sloppy lending rules, and corrupt and inefficient government at central and local levels.

I like how low interest rates and ‘sloppy lending rules’ are blamed for banking making bad decisions and pricing that risk wrongly.

I suppose those rules and the interest rates are the equivalent of someone holding a gun to their head. Those poor bankers! What could they do but lend wildly? Blame the govt!

What rubbish.

). Ireland can’t devalue, can’t inflate – all it can do is use fiscal measures. That’s why it’s cutting public spending – it’s the only lever it has left.

Also rubbish. Devluation of the currency would only invite tit-for-tat measures across the EU. You’d have everyone thinking they could devalue to get out of the crisis and we’d be back at currency war status.

Secondly, it could also seek to raise revenues by increasing taxes. I see you conveniently forgot to mention that.

And there’s the next bit of the rub, right there. Ireland can’t raise its corporation tax rate – or all those multinationals would leave.

Yeah, because the evidence for that really stacks up
http://bit.ly/f47kRZ

“I suppose those rules and the interest rates are the equivalent of someone holding a gun to their head. Those poor bankers! What could they do but lend wildly? Blame the govt!”

It’s the moral hazard problem. The banks didn’t give a monkey’s because the governments had given an implicit promise to bail them out, (on account of being too big to fail). Personally I have very little sympathy for them and think that it would have been better to let them go to the wall rather than store this problem up for yet another time and an even worse crash.

“Secondly, it could also seek to raise revenues by increasing taxes”

That does rather make the assumption that raising taxes wont kill off any recovery. Intresting times.

“And there’s the next bit of the rub, right there. Ireland can’t raise its corporation tax rate – or all those multinationals would leave.

Yeah, because the evidence for that really stacks up”

Sunny, I assume that you are of the camp that believes that Irelands rate was too low and unfairly attracted many firms to it’s jurisdiction. You can’t hold that belief and simultaniously the belief that the multi’s wont leave if the rate increases so as to now be “fair”.

bubby@55 – Personally I’m less inclined to blame the regulators, when regulators relaxed regulations it was usually as a result of lobbying on behalf of the banks rather then the regulators acting on their own initiative.

On a more general note, one of my previous comments suggested that I wanted to go further and start imposing capital controls and the like. I’d have to ask, why not? I know it’s not been done for a very long time, but personally I’m not at all averse to the idea of restricting flows of money accross international borders.

I like how low interest rates and ‘sloppy lending rules’ are blamed for banking making bad decisions and pricing that risk wrongly.

My bad – I meant for ‘sloppy lending rules’ to be read as applying both to Ireland’s regulatory rules and the banks’ internal rules. But if you don’t understand why negative real interest rates lead to higher rates of lending…

Also rubbish. Devluation of the currency would only invite tit-for-tat measures across the EU. You’d have everyone thinking they could devalue to get out of the crisis and we’d be back at currency war status.

Um. How on earth are Ireland supposed to devalue here? They’re in the Euro. They can’t devalue. If they weren’t in the Euro, they would have devalued, because people would have been frantically selling the punt – that’s floating exchange rates for you. Jesus Sunny, where are you getting your economics from? 1950? Look at what happened in Iceland – the result of their national bankruptcy was that the Krone devalued by (at trough) 80% against major currencies.

Secondly, it could also seek to raise revenues by increasing taxes. I see you conveniently forgot to mention that.

Hoo boy. Ireland is raising taxes. It’s taking steps on both sides of fiscal policy, and I suspect their next budget will see more tax rises. But it’s far easier for a Government to cut discretionary spending than it is to raise substantial sums in additional revenue. In any event, both tax rises and spending cuts are fiscally deflationary. The further problem is that raising corporation tax would most probably be counter-productive.

And on corporation tax: France and Germany want it raised precisely in order that the multinationals leave. They’re based in Ireland exclusively because it is a low tax jurisdiction. The advantages for Ireland is that they provide employment, and in fact Ireland’s tax take from corporation tax has both increased substantially since rates were lowered, and makes up a larger proportion of overall tax revenues than in other high-tax jurisdictions like Austria.

Trying to prove that this won’t happen – that companies based in Ireland entirely because of the tax regime won’t leave if tax rates spike – by link to an article about financial institutions in the City of London is beyond lame. Nine kinds of fathead in fact.

Sunny,

Also rubbish. Devluation of the currency would only invite tit-for-tat measures across the EU. You’d have everyone thinking they could devalue to get out of the crisis and we’d be back at currency war status.

Apart from the problem in keeping track of the value of foreign investments etc, what the hell is the problem with a currency war, if conducted for the good of the countries concerned? The word war (why has my autocorrect just given me world war for that?) is not in itself enough to make something bad.

“How on earth are Ireland supposed to devalue here? They’re in the Euro. ”

They could leave. Which kind of seems the best option here – except it’s politically unacceptable to the rest of the euro-zone.

“It’s the moral hazard problem.”

Well I’d say its the fact that banks were operating in a climate that rewarded short term performance – they could make massive profits by lending to people and immediately selling the loan onwards rather than obtain the profits through the loans being repaid over time. Furthermore their employees were being paid/rewarded by the amount of mortgages they granted, not by how many were paid off (and thus profitable).

Sunny,

Read through that link twice. It doesn’t mention Ireland or corporation tax (or anything similiar) once.

It mentions personal tax rates and regulation on banks – so if true it may win a totally different argument. But even then the 40% increase in foreign-owned business could reflect other factors – companies buying out the interests of British businesses for example, or perhaps a reflection of the increased market confidence up to and especially after the election (although the timescale there is tight).

So if your best argument is the internet equivalent of shouting ‘look over there’ and running away in the opposite direction, then I am not convinced.

I think too many people are searching for the medicine to cure the disease when the patient has already died.

It is true to say that austerity measures will reduce market liquidity and risk further recession or worse. At the same time it is madness to borrow more on top of the existing debt which is astronomical.

So what to do? Most day traders in this position would jump from a tall building. Perhaps Ireland should do the same.

It is true to say that austerity measures will reduce market liquidity and risk further recession or worse. At the same time it is madness to borrow more on top of the existing debt which is astronomical.

Spot on.

Sure Andreas

The banks lobbied hard to be allowed to be as reckless as they liked. I also agree with you regarding capital controls. I know it’s been deeply unfashionable but I’ve been arguing for them to be re-introduced for years. I don’t want to set myself up as some kind of seer but I’ve also been telling people for years that when the shit hit the fan in the shape of a major EU wide recession then the Euro could disintergrate. People thought I was mad at the time.

I am not sure about this idea that raising taxes is necessarily deflationary. It depends what kinds of taxes you put up. If you introduce wealth taxes on what is effectively dead money- property, yachts, paintings, helicopters – Ireland had the most helicopters per-capita pre -crash- etc then recyle that money back into public investment then surely that is inflationary rather than deflationary. But of course that depends on the government having the balls to take on the rich and finding a way of dealing with the potential for capital flight.

So what to do? Most day traders in this position would jump from a tall building. Perhaps Ireland should do the same.

Everybody seems to assume that we have Ireland by the short and curlies but they have us in the same position.

There is no way that the big Irish banks and hence the Irish state can be allowed to default. The impact on the European financial system would be too serious. It would set up a chain of European banking defaults worse than in 2008.

There is a serial misunderstanding on this thread of the difference between loose money and loose credit. Moreover, to point out that all members of the EZ did not follow the same path and suffer the same kind of financial crisis rather proves the point that the critics of the euro make. They are all widely divergent economies. So why exactly do they all have the same monetary policy?

The ECB throughout the noughties followed a loose monetary policy to help Germany recover lost competitiveness from the reunification shock. The loose money policy led to loose credit in places like Ireland. Finance was available to Ireland at rates they would not be able to obtain outside the currency union. Their banks were not lending them their own money they were borrowing it from the money markets i.e. those bank bondholders that you keep hearing about. So what that France and Germany did not have loose credit. They are vastly different economies with importantly different levels of home ownership. Different effects throughout the currency union just proves the folly of a one size fits all monetary policy.

The UK was not part of the euro and was massively impacted by the financial crisis. Ergo, it can’t be the euro. Oh dear, where does one start. London is a global financial centre and by some measures the number one financial centre for global capital. Certainly the global banking centre. So in a financial/banking crisis of course the UK will be impacted. The UK throughout the noughties did not follow a loose money policy. There was always a significant interest rate differential between the BoE rate vis-a-vis the ECB and the Fed. However, we did have loose credit because the banks were able to borrow funds cheaply from money markets. Appropriate regulation of the banks could have dealt with the loose credit.

Iceland were not part of the euro. True, but the whole state became almost a hedge fund. Moreover, most of their debts were being borrowed in? What do you know, euros.

The Fed followed a loose money policy after the dot com crash and 9/11. This manifest itself in many cases in loose credit. However, not every city in the US blew up in bubble. Just like not every part of the eurozone blew up a credit bubble. However, that does not mean the policy was appropriate.

I don’t think anyone is saying the euro is the only factor. It makes perfect sense for the euro core nations to share a currency. Germany, France, Benelux and Austria are the core. Denmark are also a core nation but they wish to remain outside the euro. However, the rest should not be in the same currency union. Ireland are part of the sterling area and always have been even after independence. Before Ireland joined the euro if the BoE were changing interest rates they would just phone up the Irish central bank and they changed at the same time. So although they had their own currency it was pegged to sterling.

Joining the euro had a massive impact on the periphery and without being in the EMU their governments could not have run up the debts as their borrowing costs fell towards the German rate. Mispriced risk ensued. Now risk is being reassessed and it is not a pretty sight is it?

Of course, Ireland should not have offered a blanket guarantee for their banking sector liabilities. The UK with considerably more resources did not do that. However, they did do it for whatever reason and are suffering the consequences. I don’t understand why some people believe if the government had not cut spending the problems would not be as bad. The IMF and EU etc have had to intervene because the markets will not give them the money even after cutting their budgets. Who exactly was going to finance their deficit and fund their banks if they had not cut spending?

Being tied to a currency at least 20-25% too high for the fundamentals of their economy is crushing for the EZ periphery. If their currency can’t depreciate then their whole price level must fall in an internal devaluation. That means cuts in nominal wages and falling prices. However, their debts do not fall so they are rising in real terms. The likes of Ireland and Greece are small irrelevances to the exchange value of the euro. They do not impact anything unless they start to affect Germany. What is happening in Germany is really all that matters to the exchange value of the euro. Without currency depreciation the only way out of their mess is by internal devaluation. So why do folks deny the euro is their foremost problem?

The “Irish government” issued the debt that it is defaulting on. These are called “bonds”. I take it you hold private parties responsible for the utter failure of government borrowing. Pathetic.

67

” So why do folks deny the euro is their foremost problem?”

Because many of the wonks on here and more generally arguing the toss about the minutiae of economic policy (which few understand anyway, and in any case comes in a host of often mutually contradictory quasi religious groupings) are conflating a pre-existing political hostility to the Euro as a project, with lots of the aspects you discuss above which are nothing to do with the Euro as a “grand projet”, and everything to do with political and regulatory failings on a fairly biblical scale.

Richard I think the question is will the population – not just in Ireland but in countries across the EZ periphery -be prepared to live with years of austerity and real wage cuts or will you find leaders elected who pledge to take their countries out of the euro? I suspect the later and that in two years time the Euro will look very different to how it looks today.

71. Luis Enrique

for long and how badly the Irish will suffer as a consequence of this obviously depends on the country’s economic growth, but whatever that may be, there is still the question of how much debt the Irish state will have to work off. Debt is nominal, so the real cost of servicing that debt will depend on the price level, if Ireland stays within the Euro. Inflation would be helpful, deflation seems more likely? If Ireland exited the Euro, at what rate would its Euro debts be translated into New Punts? I suppose of the EU let Ireland exit at too-generous a rate, and the subsequently inflate itself out of trouble, that would equate to the EU wearing some of the losses and letting the Irish off some of the suffering. Is there any sign of the EU being willing to bear some of Ireland’s losses?

Tim J – I was talking about a scenario where Ireland wasn’t in the Euro – then devaluation would have the knock-on effect of everyone else devaluing. You don’t think Portugal, Spain, Greece, Germany etc would have followed suit? Where would that leave anything?

Also funny how you have sympathy for the bankers’ moral hazard problem… without attributing them any agency or any regard for shareholder interest, but won’t do the same when you want to blame households for accepting cheap mortgages.

Tim J – I was talking about a scenario where Ireland wasn’t in the Euro – then devaluation would have the knock-on effect of everyone else devaluing. You don’t think Portugal, Spain, Greece, Germany etc would have followed suit? Where would that leave anything?

Sunny, devaluation isn’t really a conscious decision by Governments and hasn’t been since the days of fixed exchange rates (obvious exceptions here being those countries, like China, who do operate fixed exchange rates). If Ireland weren’t in the Euro, it would have already undergone substantial devaluation. Like Iceland did, and like the UK did.

Also funny how you have sympathy for the bankers’ moral hazard problem… without attributing them any agency or any regard for shareholder interest, but won’t do the same when you want to blame households for accepting cheap mortgages.

What is this? Psychotherapy or projection? I’m not blaming households for accepting cheap mortgages – my household has a cheap mortgage. With hindsight, Irish banks were pretty dumb in their lending policies – but then hindsight is 20/20 isn’t it? Shareholders weren’t complaining when record profits were showering down. Banks had dumb lending policies – exacerbated by money being so cheap that it just flew out of the door. Whose fault is that? The banks, the borrowers, the Government, the Euro… the list goes on.

Oh, and ‘moral hazard’? I do not think it means what you think it means.

@ Galen10

I am sure some of the critics of the euro project are coming from a nationalistic xenophobic perspective. However, just because there are some people like that does make the inherent contradictions of the euro go away. Sure, it is not the whole story and more could have been done with better regulation everywhere. However, it is now a pretty significant millstone around the neck of the periphery.

Yes that is true, bubby. What is being asked of the periphery is pretty much unprecedented. Whether governments can survive severe deflation is a moot point. It was after all the deflation of the 1930s that brought the fascists to power in Germany, not the hyperinflation of the 1920s. The market is betting that the periphery will be unable to do what is being asked of them.

My,my the tory trolls, like their corporate masters at troll central are spinning like tops.

If the moon was to fall from the sky they would say it was because the moon was in the Euro.

If Ireland exited the Euro, at what rate would its Euro debts be translated into New Punts?

This seems to be the crux of the issue if they are considering exiting which I think is a real possibility. As you say though its a zero sum game either the Irish or the bondholders will have to take a bath.

Luis – can the big European banks afford to take the kind of bath that might be required. Are they solvent enough to absorb the enormous losses that might accrue if the debts were re-estimated in punts and the Irish inflated away their debts?

I think the error that’s been made was, we bailed out our banks without taking control of them or regulating them such that the crisis could never happen again. As Will Hutton warns in his “Them and Us”, it will happen again & worse next time. They should not have been allowed to pay themselves such huge bonuses – bonuses for abject failure? GTFO! Seriously? Fair enough, we should have bailed out & nationalised the banks too big to fail, but then stopped any further rot, and we should be making them pay back what they owe us, with reasonable interest, until it’s all paid back. These guys aren’t creating real wealth. If they really would leave if they didn’t get their bonuses, well, I daresay there’s hundreds more would like their jobs even with just their base salaries, which frankly are far too high.

IMF report on Ireland in 2006 …………

“The outlook for the financial system is positive. That said, there are several macro-risks and challenges facing the authorities. As the housing market has boomed, household debt to GDP ratios have continued to rise, raising some concerns about credit risks. Further, a significant slowdown in economic growth, while
seen as highly unlikely in the near term, would have adverse consequences for banks’ non-performing loans. Stress tests confirm, however, that the major financial institutions have adequate capital buffers to cover a range of shocks.”

IMF today…….

“Ireland should gradually lower unemployment benefits and cut the level of its minimum wage in order to boost employment, the International Monetary Fund said in a paper released on Monday.”

Why the fuck does anybody listen to these charlatans? Rich elites waste billions in massive casino binge, and then want poor people to pick up the tab, through taxes and cuts in benefits. Get your Pitchforks and mobile guillotines ready , we are going to need them.

77. Agree with that.

77

“These guys aren’t creating real wealth. If they really would leave if they didn’t get their bonuses, well, I daresay there’s hundreds more would like their jobs even with just their base salaries, which frankly are far too high.”

Exactly; the same thing is always trotted out by those with their snouts in the trough, and their hopeless dupes in the city who with they could be there too. The same specious argument is made about making them pay a fair whack in tax…. the sky would of course fall, and civilization as we know it would come to an end….

….yeah, right.

78. I recommend you read the Joseph Stiglitz book Globalization and Its Discontents. He has plenty to say about the IMF. They really are following the US economic model but then they are based in Washington for a reason.

74

Richard, I’m not saying it isn’t a mill stone, or that nothing can or should be done, nor was I particularly pointing the finger at you. I guess I just meant that “ordinary” people with little understanding of economics can’t really be expected to listen to anything these people have to say with any confidence, partly cos they’ve been so wrong before, and partly cos they generally have an agenda, which they aren’t above promoting by skewing the argument to match their pet theory!

Luis/Bubby – If the Punt were to be reintroduced, why not just reintroduce it at 1:1 initially and let it float?

78

The reason why a certain type of person listens to these charlatans can be explained by reading this

http://en.wikipedia.org/wiki/Right-wing_authoritarianism

Here’s a small extract from the research.

“According to research by Altemeyer, right-wing authoritarians tend to exhibit cognitive errors and symptoms of faulty reasoning. Specifically, they are more likely to make incorrect inferences from evidence and to hold contradictory ideas that result from compartmentalized thinking. They are also more likely to uncritically accept insufficient evidence that supports their beliefs, and they are less likely to acknowledge their own limitations”

85. Luis Enrique

bubby … I’m afraid I don’t know, but I guess the EU central bank could wear the loss and spread it acorss EU taxpayers.

Andreas # 83

this is not something I know a lot about, here are some tentative thoughts. the numbers on the bills (nominal rate) isn’t as important as the real rate (quantities of goods you can buy). Whatever nominal rate Ireland exited at (be it 1:1 or 1:10 or whatever) the nominal euro debt would be converted into some nominal New Punt debt, but what would the lenders end up being repaid in real terms? When Ireland promptly devalues, the real value of those NPs would plummet at the lenders would suffer real losses.

So, somehow EU lenders would want Ireland to exit at some rate that anticipates the likely devaluation – but I cannot see how that would work – or with some mechanism that tries to maintain the real value of the debt, so Ireland would not benefit in real terms from exiting then devaluing.

would be interested to hear from anybody who knows more about these things than me.

Just like the people of Japan, the Irish will sit idly by as their leaders sell them into debt slavery for the next century. The Americans will follow in due time and the world will return to the middle ages. There is nothing new under the Sun.

What happens when right-wing economic ideology meets reality? The answer in one word: Ireland.


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  1. Liberal Conspiracy

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  10. Captain Disco

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  11. shelleyoh

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  14. Joshua G B Hardy

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  16. Peter Pannier

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  17. sally

    RT @libcon: Guess what? Ireland drank neo-liberal magic potion and it failed http://bit.ly/eLDw6M

  18. Sue T

    RT @libcon: Guess what? Ireland drank neo-liberal magic potion and it failed http://bit.ly/eLDw6M

  19. Miles Weaver

    RT @sunny_hundal: Guess what? Ireland drank neo-liberal magic potion and it failed (why Tories are wrong, pt 2) http://bit.ly/eLDw6M

  20. irene rukerebuka

    RT @sunny_hundal: Guess what? Ireland drank neo-liberal magic potion and it failed (why Tories are wrong, pt 2) http://bit.ly/eLDw6M

  21. Pucci Dellanno

    RT @libcon: Guess what? Ireland drank neo-liberal magic potion and it failed http://bit.ly/eLDw6M

  22. irene rukerebuka

    RT @libcon: Guess what? Ireland drank neo-liberal magic potion and it failed http://bit.ly/eLDw6M

  23. HLM

    RT @sunny_hundal: Guess what? Ireland drank neo-liberal magic potion and it failed (why Tories are wrong, pt 2) http://bit.ly/eLDw6M

  24. Greener London

    @jo_rea seen this from @libcon ? http://bit.ly/fBW0Wd

  25. sunny hundal

    Guess what? Ireland drank neo-liberal magic potion and it failed. Wonder why… http://bit.ly/eLDw6M (from this morning)

  26. Brian Moylan

    RT @sunny_hundal: Guess what? Ireland drank neo-liberal magic potion and it failed. Wonder why… http://bit.ly/eLDw6M (from this morning)

  27. Chris Roberts

    http://liberalconspiracy.org/2010/11/23/ireland-takes-neo-liberal-magic-potion-unsurprisingly-it-fails/

  28. Hot In Business

    Guess what? Ireland drank neo-liberal magic potion and it failed | Liberal Conspiracy
    http://safe.mn/1Ktl

  29. Hot In Business

    Guess what? Ireland drank neo-liberal magic potion and it failed | Liberal Conspiracy
    http://safe.mn/1Ktl

  30. sunny hundal

    @NaomiAKlein The stupidity of the neo-liberal potion speaks for itself http://bit.ly/eLDw6M

  31. Tom Chivers

    Left says neo-liberalism to blame for Irish woe http://bit.ly/eLDw6M Right blames the euro http://bit.ly/bEak1y I say: NEITHER OF YOU KNOW.

  32. Nick H.

    RT @sunny_hundal: Guess what? Ireland drank neo-liberal magic potion and it failed. Wonder why… http://bit.ly/eLDw6M (from this morning)

  33. Mark Martin

    RT @sunny_hundal: Guess what? Ireland drank neo-liberal magic potion and it failed. Wonder why… http://bit.ly/eLDw6M (from this morning)

  34. Spir.Sotiropoulou

    RT @libcon: Guess what? Ireland drank neo-liberal magic potion and it failed http://bit.ly/eLDw6M





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