February 1, 2009

Fighting for our economic reputation

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Last Friday, former Maoist – and head of the European Commission — Jose Manuel Barroso mentioned Iceland and Ireland in the same breath.

He intimated that, without the euro, Ireland would be Iceland. The same day, Jean-Claude Trichet, the head of the European Central Bank (ECB) and a man who has never had a job outside the cosseted French – and then European – public sector, claimed that there were no difficulties with any eurozone member. Yet, maybe as a result of Barroso’s claim, the markets in London decided by last Friday afternoon that Ireland was more likely to default than Greece.

So, are they right? Will Ireland default? Will Ireland become Iceland within the eurozone? Will we become the first country to default in the currency union because we do not have the cashflow to fund ourselves? Was Trichet simply blurting out what had been on his mind for some time, which is that the euro is weakened by the parts of its sum?

Those parts are Ireland, Greece, Spain, Portugal and Italy. While we are in the eye of the storm, we are by no means alone. In fact, we should probably try to keep bad company for awhile, rather than standing out as uniquely delinquent.

What both Eurocrats know is that, if this gets any worse and liquidity continues to dry up, either the euro will break up or one of the countries within the eurozone will default. It is quite possible that one or more of the high borrowing group – which includes us – will run out of money at some stage.

The dilemma then for the EU will be whether it has the stomach, or indeed the political will, to organise a huge bailout for the weaker countries. If this is even being partly contemplated, then we’d be better off hiding for as long as we can behind the shield of delinquency with our newly acquired Club Med friends.

In return for a bailout, federalists in the EU would demand increased political integration as the quid pro quo for the money. If you doubt this, look a bit at European monetary and political history.

A monetary union with the euro was fast-tracked following the last currency crisis in Europe. As a result of the 1992-93 devaluations – which saw Britain leave the European Monetary System (EMS), and Ireland and Italy devalue by 10 per cent – the European elite decided that the only way to lock Germany into the EU was through monetary union.

This was particularly the case following what Brussels saw as an alarming attack on the French and Belgian francs. If the markets would not believe that the rest of the European currencies were as good as a Deutschmark, they believed that the EU would eliminate this risk by creating a single currency.

The moral of the story is that Eurosceptic traders in London need to appreciate what happens when they attack the foundations of the EU through its monetary chinks. The reaction is always more federalism, not less federalism. With the likelihood of an EU-wide bailout in mind, let’s go back to the utterances from last week at Davos. Barroso appeared to suggest that Ireland was a basket case, and was only being kept alive by the paternalistic protection of Europe’s single currency.

By extension, he must believe – if he has an ounce of economic grey matter in his head – that, without the euro, an independent Irish currency would collapse.

If this is the case, he has just made the most compelling case for why the single currency is inappropriate, and why much greater central EU tax and budgetary powers are necessary if the euro is not to break up. For this to come to pass, the EU has to become a much closer political entity.

The point of a currency union is that it must be appropriate for the country concerned. If a country’s debt position and economic predicament is so perilous that it would find it difficult to maintain a particular exchange rate if it were outside the union, then the euro is an overvalued currency for that country.

This means that the country would suffer social explosion from membership, resulting from huge unemployment and bankruptcies. Most countries wouldn’t tolerate this for long.

They would try to become more competitive by cutting wages, but workers wouldn’t accept this – and the country would either defaultor pull out of the euro, or most likely both.

Trichet has figured this out, which is why he is telling anyone who cares to listen that the euro is okay. He obviously thinks it’s not, because he has followed recent events through to their logical conclusions. So does all this mean that the credit default swap (CDS) traders were right last week? After all, they are betting now that Ireland, the country with the lowest debt to GDP ratio in Europe, will default more quickly than Greece – the country with the highest.

The answer is that they might not be right, but we should be concerned. We have seen (and I am no conspiracy theorist) an orchestrated campaign against Ireland in the British financial press of late.

This is how defaults happen. First, the country gets itself into a mess. Then the tail starts wagging the dog.

The CDS traders start to take positions against the country in the thin CDS market. Then, the much bigger sovereign bond market begins to reflect this. So people start to say things like ‘‘the CDS market is saying that Ireland is moving into default territory’’, even though we might have huge borrowing capacity.

The traders who are taking abet against Ireland continue to drive the CDS prices upwards, and they leak stories to the media about us. This activity attracts others. Large investment banks start to write notes about the deteriorating Irish position.

Suddenly, what began as a trickle – with a few isolated traders taking a punt – becomes a torrent. It is important to remember that the CDS market is still small, but its ramifications are felt everywhere.

Ultimately, Ireland goes to raise money, and fails to get all the debt sold. This causes a run on the Irish government bond market and it becomes ‘common knowledge’ that Ireland is in trouble.

Because we are already going to borrow at least €18 billion to cover day-to-day spending this year, any shortfall in tax has to be paid for by borrowing. If the ability to borrow falters, we face the very real prospect of a fiscal crisis this year. A fiscal crisis is when the Minister for Finance informs the Taoiseach that we can’t pay teachers’ salaries next month because we don’t have the cash.

This is not so far-fetched. Our banks are being drip-fed loans by the ECB to keep them afloat – like many other banks across the EU. This is obviously what Trichet sees every day, and what worries him about the entire single currency. What has happened to our banks is likely to happen to our state.

Although it might not feel like it this morning, we are seeing the beginning of a process that is likely to lead to serious questions about the future of the euro, as well as the membership of the small countries which have borrowed highly, and about their ability to repay their debts.

We are one of this group. Our best hope now is that we do not end up on our own, and that at least a few strapped countries end up playing Russian roulette with the EU.


  1. Malcolm McClure

    David says our economic reputation is at stake, so let’s try to get a handle on the actual state of the Irish economy. This is long, so anyone suffering from a hangover just skip down to the last paragraph. All figures given below are educated guesses, but if David or any readers have better estimates, please pass them on?

    In October 2008 the Irish government guaranteed a maximum of €400 billions to calm the nerves of international investors. (Money they don’t actually have.)

    Putting this figure in perspective, our total annual Gross Domestic Product is about €250 billions. Total government debt is a fairly reasonable €100 billions, but Dresdner Bank puts current Irish bank liabilities at about €920 billions. So Ireland Inc. is over 400% of GDP in the red. That’s serious money.

    Last October the combined market capitalisation of all Irish banks was about €18 billions and that had reduced to about €12 billion by Christmas. The government then stepped in with €6 billions from the National Pension Fund to restore total capitalisation to about €18 billions.

    In 2008 there was a tax shortfall of €8 billions and the government borrowed a further €13 billions. The press diverted our attention to an expected annual shortfall of tax revenue amounting to only about €4 billions A YEAR–Probably a red herring. Now D McW says that we need to borrow at least €18 billion to cover day-to-day spending in 2009. But at 4% interest rate we need to borrow €40 Billions each year just to cover the Trillion plus of our total liabilities.

    A deeper cause for fear is our vast Euro interbank settlements and foreign exchange clearing. Before we can understand its impact on our National solvency, we need to visualize its extent.

    Financial wizards are moving $3 Trillions a day through the global exchange wires, and half of these are in derivatives. The hedging strategies of “exotic” and “plain vanilla” options require the continuous buying and selling of the underlying currencies to maintain risk-free hedges. This is the business that many of the companies in Dublin’s IFSC are conducting.

    Irish banks too, have enormous needs for foreign exchange through their expansion overseas. Both AIB and BoI have significant operations in the U.K. and Northern Ireland. Nearly 28% of AIB, 44% of BoI, and 41% of Anglo IB loan book exposures were in the United Kingdom. These are severely affected by 40% sterling exchange rate decline.

    Both banks have been growing their international businesses. AIB has a large stake in a U.S. regional bank and majority share in a Polish bank. They are geographically diversified, with total foreign loan-book exposures that give them an equal split between Irish and foreign assets.

    Their increased reliance on interbank borrowing and capital market issues produces further international dependency. The average loan-to-deposit ratio for Ireland is one of the highest for industrial countries. AIB and BoI fund about 40 percent of lending in the interbank and securities market. 83 percent of both nonresident interbank borrowing and debt securities were issued and held by non-Euro area residents.
    Finally, the banks buy their risk protection mainly from banks in other countries.

    The key question is ‘how much Money With Irish Affiliations (MWIA) is whistling around the global exchange system every day?’ It is reckoned that London handles $1.3 Trillion of global foreign exchange every day, about 30% of the global total. –Let’s suppose that just 1% of London’s transactions are in MWIA, which means that about $13 billions of ‘our’ money is exposed to the parlous state of our banking system EVERY DAY. Assuming our liabilities are over a Trillion, then the true sum is probably much greater than that. Any default by our banks and the whole of MWIA could disappear into the ether, with untold consequences for the entire Euro system.

    Picture a sink with a tap full on and the plug out. Water in the sink had been at a low but steady level. Concerned foreigners were closing the tap a little at a time.
    Lenihan was trying to keep the plughole submerged by topping up with an occasional pint of stout, thinking that if the tap is turned off, his entire keg of black stuff would disappear down the plughole.
    But luckily for us, the EC can’t allow the tap to be turned off, lest the whole of the ECB collapses. We’re too deeply in debt to be allowed to fail. They realise that the alternative is a Europe-wide barter economy lasting until the dollar takes over.

    • Tim

      Malcolm, It was, precisely, to counter this argument (albeit in a warning/Devil’s advocate fashion) that I posted the “ancient history” link on the previous article’s thread.

      It suggested in, October 2008, that the banks were “too big to fail”; They did.

      You are suggesting here that we (due to high dept) are too big “to be allowed to fail”. Perhaps we’re not.

      • Malcolm McClure

        Tim: If Lenihan owes the ECB €10 Billions, he’s got a problem. If Ireland Inc. owes the ECB €1 Trillion, they’ve got a problem.

  2. John ALLEN

    Barroso is the de-facto Irish Minister for Finance

    • jim

      David mc Williams has to be diplomatic in what he say’s.I on the other hand am prepared to meet Mr.Baroso in any Economic forum in the World and tell him to his face that “he is a cheap shot idiot that knows nothing about Economics and his hamfisted attempt to distract attention away from the obvious failings of the ECB AND ITS MONETARY POLICY at the expense of Ireland is nothing short of scandalous.From Irelands point of view nothing short of his resignation is acceptable.If i was in Brussells I be inviting the ignorant little twerp to the carpark.AS for Trichet the sooner the better that little eurotwerp realises that his precious Euro is being hung out to dry in the North Atlantic and the British/Americans are having a field day with it the better.I’m saying that Irish Taxpayers are not prepared to pay 2.25% over the odds in the Bond Markets.Nor are we prepared to face down Credit Default Swappers and all the rest of the vultures looking for a weak spot to attack the Euro.ITS way past time these little fu..ers mobilised their North Atlantic fleet,our little navy is no match for these big Guns.

  3. David Thompson

    To big to fail maybe so, and then the need to save is paramount but not without some form of serious reprimand and fines on those that have acted in a most irresponsible way.
    It can not be accepted that all three banks over leveraged their loan books and Anglo irish went beyond that , where a select group of customers were actually running the bank.Why was this tollerated and who else benefited?

    The on going corruption here is too big to pass by and has too bigger repercussions for later, if not handled right now, what ever the political implications , new government new ministers etc, even ministers jailed !

  4. Aidan

    Am thinking that we did well to reject Lisbon Treaty when we did; it gives us a good bargaining position in refloating the Irish economy while the EU further integrates – we are the only impediment. The standard EU response to problem is to write a big cheque. We would switch from sceptics to our usual position of Euro Zealots.

    @ Malcolm Mclure – you’re right – the sums don’t add up. We are at risk from the market turning against us. However the political response of a move to greater federalism will effectively counter the move by making the European Union too big to challenge.

  5. John ALLEN

    So the sum of the parts are greater that the whole and if a dog wags his tail that will initiate an avalanche of devaluation in the part(s) and unless it/they is/are decapacitated the whole becomes rotten .
    So this brings us back to our own problem ‘why buy a dog if it does not bark for you ? ‘ .The Irish gov paid the existing chairman and ( resigned ) chief executive of the Irish Financial Regulatory Authority to do an honest days job and they failed .As a result the ECB is now the de-facto Regulatory Authority .What a shame we Irish have become.
    Our own dog is now financially castrated and can only lick its own wounds while the real Dogs of War consider our fate .

  6. Garry

    Saw X Factor on TV a few days ago, so I’ll do a poor Fr. Trendy impersonation, You know, The markets are a lot like Simon Cowell, they don’t care what is it someone does it can be rap, country, pop whatever they are just looking for talent and potential so if they invest they can get a return, if they loan money they can get money back….

    So were at the (currency) auditions, before they start. Iceland steps up to the camera, talking big, making all the right moves, super confident, already cracked London, gonna storm the world this year. China, the US, Japan, UK India all talk a good game but who knows. Theres on band, the Euro, who do a group interview, there’s a couple of big blokes in the center but the trash talking is being done by a few cheeky chappies at the edges. One pasty faced kid catches the eye he clearly thinks he’s the star.

    The singing starts, Iceland are dreadful. Cowell gets rid of them. They storm off. One by one the others step up, until its the Euros turn. Now, behind the scenes all isn’t well. When the band formed everyone was buddies but over the last few years creative differences have started to emerge. So the singing starts, the big guys in the middle keep it together but the cheeky chappies nearly manage to blow it, with their off key singing

    Now the judging.. Well they have to be judged as a unit, so they get through. But clearly there’s problems, Cowell tells the cheeky chappies they are no longer cute, they were but they are now overweight and can’t sing, get their act together.

    As with all these shows the best TV is watching the reaction…. One the way out somebody says that if the fat pasty faced kid had to sing on their own he would have been as bad as Iceland. Others are muttering about the record deal (Lisbon) that fat kid is holding up because he didn’t like something that wasn’t even in there..The fat kid is outraged, how dare anyone tell him what to sign or that he’s fat, sure isnt he better than all them.

    Were left with a picture of the fat kid and his family walking away muttering that all his problems were caused by the Euro, sure isn’t he great they are just jealous maybe he’s too talented for them, he should go solo.

  7. Tom

    “The answer is that they might not be right, but we should be concerned. We have seen (and I am no conspiracy theorist) an orchestrated campaign against Ireland in the British financial press of late.”

    David McWilliams suffering from a bout of Dr Jeckyl/Mr Hyde syndrome?

    http://news.sky.com/skynews/Home/video/Ireland-economy-to-shrink-by-47-percent/Video/200901415213557?lpos=video_Article_Related_Content_Region_1&lid=VIDEO_15213557_Ireland_economy_to_shrink_by_4.7_percent

  8. Philip

    Malcolm’s note articulates it very well and the educated guesses are pretty well spot on. Superb addendum to DMcW’s article. Really, I do not know why anyone is surprised.

    Once we took on the Euro we became defacto federalised. Just need to tidy up the taxation, laws etc so they are aligned with mainland Europe – and to be honest, the sooner the better. We need to drag this looney asylum kicking an screaming into the 21st Century and have a greater socialist mindset beaten into us here – freudian slip from a Euro fundamentalist :)

    Lets be very pragmatic here and recognise the current danger we are in. A default is beyond our collective experience. Services, Public jobs of all sorts etc would vanish. No police, no education system etc. Next year (maybe even this year), those of you with kids at school may have none to bring them to next Sept/Oct..1st, 2nd and 3rd level. Water works would fail (that’d be a right bundle of laughs – one of the key reasons for your health) and utility services would become spotty. I think people need to wake up to the dire situation we are landing ourselves in.

    I know a lot of people here hate the idea of federalism and being integrated any further etc. But you have been sold off for the selfish few here. The local laws will not suffice. The local laws as enshrined in our half baked constitution allow blatant injustice of people walking away from huge debts becasue they are the D4 set and they also allow the abuse of our children. We complain about the obsfuscation of the Lisbon Treaty but conveniently forget to realse the huge legal industry that thrives in the obsfuscation in our own laws and constitution.

    Again I say, wake up. You are Europeans – embrace it. The Germans etc need someone to cheer them up!

    • Yep, just taxation, laws etc. No big deal. An alternative reading of Malcolm’s post is that we’re already the problem of the Eurozone whether we vote for Lisbon or not.

      It’s true that we have some constitutional issues. However, we have had the same party in power for a long time and they have refused to deal with constitutional issues in relation to childrens rights, separated/divorced father’s rights etc. They’ve also held tribunals which have revealed many practices which on the balance of probability indicated a downright crookedness among some of our politcal “elite”. It’s a democracy. We’re allowed to vote for someone else, people forgot about that. Now I’m finding that many of the same dingbats who voted FF every opportunity they got want to hand over complete responsibility for our laws to the EU. European means we reside in Europe, it doesn’t imply a federalised superstate.

      • Dr.Nightdub

        Shane, if we’re stuck with the current lot of pigs (which we are until 2012), then our best bet is to put someone else in charge of the trough.

        • I’m quite hopeful that if FF & the Greens are battered in the local elections, we could have further defections followed by a vote of no confidence. If we vote Lisbon in, we’ll be whinging about commissioners in the same way we’re moaning about FF now. However, we won’t have any say in picking commissioners. It’s a permanent abdication of the right to elect those who run the country.

  9. Woblix

    Let us not forget that that Mr. Barosso has a larger agenda – ie the passing of the Lisbon Treaty – I would regard his remarks as more pointed in this direction than in any other – the Irish people are now so scared that the next refrendum will be an 80% yes.
    There is no point in Mr. Barosso scaremongering any more in this regard, he is simply going to damage the Euro as a whole.

  10. Furrylugs

    In this article from todays Indo,

    http://www.independent.ie/opinion/analysis/a-second-republic-could-cure-our-ills-1622858.html

    Professor John Crown suggests a revamp of our fundamental State structure and quotes;

    “At the core of our public governance is a dysfunctional interface between inexpert ministers and senior civil servants who have generally risen to the top of their departments on the strength of their adroitness at navigating its bureaucracy. The ministers are unfortunately drawn exclusively from a cohort of generally mediocre, frequently nepotistic TDs, whose entree to national politics was based not on a grasp of the big issues of state, but on their ability to manipulate a local constituency party machine. These observations explain the now-exposed incompetence of our Government, an incompetence which was obscured from our view by the Celtic Bubble.”

    Something along those lines must happen to avoid the inevitable scenarios described in Davids article. Those aligned maliciously against the State are confident in our inability to effectively govern. The markets are not so much worried about our inability to repay our debts as our inexperience in economic affairs to manage the process required.

    A fundamental change of personnel, of process and economic governance in this goldfish bowl is the only way to convince outside forces that we have the will and wherewithal to survive.

    • Deco

      100% true actually. We need institutional reform. We must also credit Obama for seeing this first. The Americans are clearly intent on reforming their system.

      But in Ireland authority figures are still in “everything is fine” mode.

  11. Deco

    Barroso is still hurting, because the rejection of the lisBOA Treaty, prevented him from becomming, Great Helmsman of Europe. Like the original of the species, Great Helmsman Mano, never doybts his own ‘judgement’, firmly grabs the helm, and is liable to take devasting swipes at dissenters. We just wonder will Europe’s starling population be next in line for a reprimand ??

    This latest attempt to smear the dissenting voice is an attempt to knock the rebellious Irish in the their place. It seems as if the current Europeanwide bureacracy/rule making machine/faith system does not like dissent, and regards it’s authority as sacrosanct. It is very similar to the the Borgia popes making curses in the direction of the Saxons, the Brandenburgers, and the Hollanders for their rejection of Papal Authority on account of Luther’s 95 Theses against corruption in the Church. It makes it even more amusing that Barroso converted to capitalism faster than a Borgia bishop could put on his clothes back on.

    Of course, the thing is that the Icelanders were able to leave foreign banks with the bill. Ireland on the other hand cannot offend continental banks, and instead tries to shove the bill to the PAYE taxpayer. Our facilitation of the bankers is remarkable. In contrast the PAYE sector just get loaded with more and more bills. Barroso seems completely ignorant of the fact that low interest rates to facilitate Germany, caused asset booms in the PIGIS. Barroso
    also sidesteps the fact that the ECB is supposed to be nuetral of the political leadership, and therefore is obliged to totally ignore his commentary.

    Barroso has shown incompetence in his responsibility on the issue, because as a member of the EU Commision he is supposed to treat all EU members equally, and serve all equally. In fact he might even be making himself incapable to perform his function with his remark. And then there are the practical implications of his ‘commentary’ (he is not an economist). He could cause a serious of events that could cause a default on Italian debt, and a series of banking insolvencies in Spain. And bear in mind that Barroso is a politician from one of the PIGIS economies himself. His remarks could be bringing disaster upon Portugal. A big price for the peasants to pay for one great ego. In true Great Helmsman fashion…

    David McW is correct – we are really playing a game to hold out until the others falter as well. And the big basketcase is Spain. The ECB has bought billions of debt from Spanish banks to keep them afloat, in a manner that is never discussed. That is an unfolding disaster. Which comes first does not matter – once Spain falls the Euro will be in serious trouble. As things stand the Euro is at a record weakness against gold. In fact the Euro is even losing ground against the Polish zloty – something unthinkable a few years ago. Maybe this is because the Poles work harder than the average Euro-zoner.

    Barroso might also take note of the fact that the people who brought this disaster upon Ireland, every one of them endorse the Treaty of LisBOA. A bit like Mao turning his back on Breshnev in favour of an alliance with Nixon. Another move of Maoist proportions, requiring a straight explanation !!!

  12. Lorcan

    David > He intimated that, without the euro, Ireland would be Iceland.

    By the same token David, you seem to be intimating that without the Euro we wouldn’t be Iceland.

    David > Yet, maybe as a result of Barroso’s claim, the markets in London decided by last Friday afternoon that Ireland was more likely to default than Greece.

    Or maybe it was because of Moody’s putting Ireland on Credit watch on Friday? Or has confirmation bias so clouded your judgement?

    David > In return for a bailout, federalists in the EU would demand increased political integration as the quid pro quo for the money. If you doubt this, look a bit at European monetary and political history.

    While this may be true, would you rather we had to go to the IMF for a bailout?

    David > Our best hope now is that we do not end up on our own, and that at least a few strapped countries end up playing Russian roulette with the EU.

    I am at a bit of a loss to try to figure our your very advasarial tone to throughout this article. Some of the language in it would not be out of place in the Daily Mail. But anyway, to cut to the meat of the matter.

    There are several countries within the Euro who are in dire straits, and who will need assistance to get them through the current impasse. So lets start negotiating with Mr. Barosso and Mr. Trichet on the measures needed to help us over the hump. We might have to force the ECB into quantative easing by giving them no option but to buy our debt, and there may have to be some quid pro quo with our taxes and spending. But so be it. The celtic tiger, as you have pointed out before, was build on credit. We overspent and now we have to pay the bills.

    But walking into negotiations with a loaded gun doesn’t seem to be a wise move to my mind, expecially when that gun can only point at our own heads.

    • Furrylugs

      Lorcan,
      Taking Malcolms article above as effectively an executive summary of Ireland Inc’s annual report, it’s hard to see what the gun could be loaded with. Apart from the ratification of Lisbon2, which Eurocrats see as a duty rather than an option, we don’t seem to have much to bargain with. Those who see European convergence as the goal wouldn’t let somewhere on the periphery threaten the dream. We’d be cast out in some shape or form.

      Interesting to see the Chinese have landed in London rather than Brussels for three days of talks.

      • Dr.Nightdub

        That could just as easily reflect the fact that nothing that Brown or Darling have thrown at the UK situation has improved things so the crafty cash-rich Chinese reckon the Brits are more ripe for picking than the euro-sheltered PIGIS.

        Having a stand-along currency isn’t particularly helping the UK from what I can see. And years of resistance to the idea of European integration has contributed to the wildcat strikes in the oil refineries aimed at stopping Italian and Portugese workers taking up jobs there. Somehow I doubt they’re singing the “Internationale” on the picket line.

        So much for “an injury to one is an injury to all”. This weekend is probably the all-time nadir of the British trade union movement. Unless Begg and co wise up, this week could be the same for the Irish equivalent, but instead of British v Italian & Portugese, read public v private sector.

      • Lorcan Roche Kelly

        Furry > it’s hard to see what the gun could be loaded with.

        The gun would be loaded with the peripheral economies’ threat to leave the euro if they don’t get their way. I do not see how this would aid our negotiating position with the commission/ECB. We would be looking for the ECB to engage in quantative easing through buying government debt from the PIIGS. Any threat to leave the EMU would, at best, be a bluff, at worst a pyrrhic victory. Lenihan coming back from Brussels announcing that we were leaving the EMU would be the worst political miscalculation since Chamberlain’s ‘peace in our time’ scrap of paper.

        My reply above (besides illustrating my difficulty with spelling ‘advesarial’) may seem overly critical of David’s article, but we do fundamentally agree about the problem. David is right to highlight the problems we are facing and I can certainly understand his frustration with the EU’s apparent intransigence when looking for creative solutions to the impasse in which we find ourselves.

        But I also feel that the onus is on us to show that we are trying to get our house in order before we can credibly demand help from europe.

        Re the Chinese in London, apparently the europeans did their deals with them while they were in Switzerland, the Brits just have better PR.

        Oh, personally speaking, I enjoy your contributions to the site and the lively debates here, wouldn’t be the same if you went on a self-imposed haitus.

  13. John ALLEN

    furrylugs – it was I who first suggested a new republic way back in earlier articles on this site .

  14. John ALLEN

    There is a tSunami of epic propotions arriving from the US very soon to decimate the Bond Market and that might ‘the tail that wags the dog’ …….not vice versa – welcome to iceland .

    • p

      just all aprt of the economic emetic, John.

      grin and bear it

      as Lorcan would propose, stay positive, work within the system we got, rather than changing radically now, and we’ll be fine

      Could be worse. the Nazis could be invading. a meteorite could beheading for us. I’ll eb fit and healthy in one year’s time as will we all.

  15. Philip

    Guys, There is a financial equivalent of a meteorite headed this way for sure. 100% certain. Do not even consider otherwise. Also, you may not be that fit or healthy if our utilities cannot keep water flowing in your taps or electrical power for your heating etc. We are dealing with a economic breakdown and with it, all else. The system we have is falling to pieces before our eyes.

    And the elite here are too stupid or are making preparations to get out. Sunderland in Davos indicated that maybe our cohesiveness as a nation may pull us through. Frankly, I think he is smoking something funny when he made that comment. Ireland’s societal divisions are going to become all too clear very soon.

    I have zero faith in the Irish to pull themselves out of the muck because of their endless tendency to elect idiots for our governance. If our stupid system cannot stop children from being abused in their own “family” home under the knowing eye of our public services, what hope do we have for a real problem. We are dealing with ditherers and obfuscators and there is no one at the wheel.

    • Deco

      What cohesiveness ? We are taking about Rip-Off Republic. Just look at the fact that a bunch of peat briquettes made in Offaly are cheaper in shops in the North than they are selling in shops in Offaly.

      The Economic Rent Infrastructure has us bunched. And we need to sort it out. If you want to save Ireland, bring down the cost base. And ensure our export sector holds it’s own ground.

      Every recession has an eighteen month period of massive bankruptcies, mass layoffs, restructuring, deflation, etc.. I reckon that this has already started in October 2008. We will continue to be in crisis in many countries until March 2009. Then we will see stabilization. That means growth below the rate of inflation for a while until the bad debts start being controlled.

  16. barry

    I noticed that Sutherland also says we are comparable to Iceland, if we didn’t have the € we would be Iceland….. Now, if I recall well, he was once the boss, or one if the top honchos, of a big investment bank wasn’t he? The bank has given up being an investment bankas a result of the financial mess, I think , so why would we take any notice of him??

    Sutherland is now the boss of BP, that’s what happens when you are part of the golden circle.

    Of course Sutherland is a FG person, maybe he is playing politics?

    I thought it was a bit pathetic that Carswell in the IT took so much notice of Suds, but I suppose he has to fill column inches.

    Bye, Barry

    • Dr.Nightdub

      “…why would we take any notice of him?”

      Same thing occured to me this morning re the ratings analysts’ and CDS traders’ view of our medium-term stability. These are the same guys who said Lehmanns were sound and played roulette with sub-prime mortgage derivatives.

      Their track record suggests they collectively know nada about nada, so why the hell is ANYONE paying them a blind bit of attention? Surely their credibility is shot to hell at this stage…

    • Deco

      Suds had a spell in AIB also. Made a brief appearance at a tribunal or two. A great pal of Garrett Fitzgerald. I think Suds was in AIB during the Dirt tax writeoff.

      Apart from that, where does Suds pay his taxes ??

  17. Sc

    Just withdraw from the euro , abolish income tax and Vat and tax land.Renegotiate our national debt with overseas banks and trade freely with the 6 billion people outside of europe.Prices will fall by 50% and with competitiveness restored Ireland will be the most prosperous nation on the planet.See “Ireland in crisis” by Raymond Crotty (1986).Conventional economic analysis does not apply to Ireland.

  18. Tim

    Sunderland again?

    No-one should listen to this man; give his “fiery” words no oxygen whatsoever. Formerly the Attorney General here, also EU Commissioner for Competition and now BP boss, not to mention his Goldman Sachs job, ……. this guy is CERTAINLY a D4 apologist.

    He seems to believe that the 60% of workers in Ireland (PAYE people) should pay the bill for everyone else and allow the free tax avoidance by the fat-cats. He once had a go at teachers earning 30K, reckoning that they were a “protected” profession – disgusting stuff, coming from a guy who earns multiples of their salary.

    This is just more of the trend in our media, where the Irish Times gives a political platform to an unelected member of the elite to comment on socio-political matters without challenge (c/f the Central BANKER advising government last week to steal €1000 euro or so from everyone who owns a home, just to pay for the mess that he and his cronies presided over).

    We need a FREE media in this country; free from political patronage; free from having to suck-up to the powers-that-be for expensive advertising; free to tell the truth; free to do some investigative journalism; free from the current libel laws that muzzle the few journalists who have integrity and want to DO their job.

    It is not just RTE and the IT; What happened to DMcW’s excellent show, “Agenda”, on TV3? What happened to his morning radio show on Newstalk 106? What happened to Eddie Hobbs’ show, “Rip-off Republic”?

    Why is Gene Kerrigan ignored by the paper reviews on the radio shows every Sunday?

    I suspect that its the same thing that happened to “Scrap Saturday” in the early nineties; “Today Tonight” suffered a similar axing, as did Olivia O’Leary’s investigative “hard-questions” approach to interviewing politicians. Look at what we have instead ………..?

    Drivel …….. from Pat Kenny, Q and A, Prime Time, The Morning Show on 106, the highly stage-managed Morning Ireland on radio 1.

    Maybe we should bring back pirate radio stations. Thank God, we still have Phoenix Magazine.

    That Irish Times Tabloid is sickening: printing doctored photos, interviewing liars and presenting them as “Experts”, censoring letters to the editor (who, let’s not forget, was EXPECTED to shake it up, free it up, when she replaced that D4 crook Connor Brady, because she had, personally been the subject of a government-led conspiracy in the “bugging scandal”, in the CJH era). Geraldine Kennedy is not doing her job.

    Vincent Brown can be good, but he vacillates. He edited Magill, but it was shut down. His current show, “Nightly News can only do so much: it’s on too late for most hard-working people and the guests, it seems, are hand-picked by the D4s.

    David McWilliams is writing/saying/thinking things that are SO important these days that he should have access to wider media exposure than he gets. Where will greater exposure come from for these ideas?

    The mass media in Ireland is a controlled, bought, corrupt, censored, mess. It is not “fit for purpose”.

    • Deco

      Tim – you are right. We have a real stage managed form of ‘debate’ in the Irish media. It basically consists of himming and hawwing, empathy, soft questions, fob-off answers and that is usually the end of that. The result is often the same – nobody is any the wiser as to what is happening.

      I want to know why there is still rampant price-fixing in the Irish economy.Turlough O’Sullivan lied through his teeth again on the evening news. His IBEC membership represents the non-vibrant, non-expansionist element of the Irish economy. Ryanair, Kerry Foods, and Tullow Oil are not on IBEC. IBEC does have members like ANIB-AIB-BOI-ILP etc.. plus FAS, CIE, ESB etc…

      Here is an interesting viewpoint concerning overpaid state employees….
      http://www.independent.ie/national-news/public-demands-pay-cuts-for-rte-stars-radio-ad-rates-hiked-to-help-to-pay-big-names-1623046.html
      As the Great 1 frum Kinsealy sed ‘time to tighten our belts’.

  19. Ed

    I agree with Philip that disaster is heading our way – we’ve elected idiots and the asylum is now out of control. The system has to change – the more I learn of what Cowen did as Minister for Finance, the more I wonder about our ability to govern ourselves. I can’t believe that this guy could have come through one of our third level institutions and do what he did – if this is indicative of the quality of its output, then, forget about a knowledge economy and concentrate on a bawneen sweater one instead.
    Today’s Times, has a piece on Mary Hanafin’s mother taking a case against the state after a fall during a visit to Leinster House – they’re using the state as one big ATM – I’m beginning think that we’re dealing with “Trailer Trash”.

  20. Malcolm: I thought the 1% MWIA figure on the London currency exchange was a bit steep. Agree with the gist of your article and if you ever decide to setup http://www.malcolmmclure.ie I’ll be sure to have a look.

    Anyway, if the US economy doesn’t start recovery within the next 12 months then all the finger pointing at Ireland will be forgotten as every major European economy will start to show serious signs of strain. It’s not just us, any financial tsunami from the US hits the entire Eurozone so we’ll need some retorts to those Iceland jokes.

    The Germans are already concerned about the health of some of their major manufacturing groups, in particular their car companies. It could look attractive to devalue the whole eurozone within 12 months. All we have now is a relative confidence in the German and French economies that may be misplaced. Then it’s dollar and euro in a race to the bottom, with the Chinese looking on bewildered at where their investments have gone. The only plus side for them being that the Yuan might be the only currency worth having if the western world officially enters a depression.

    Can’t remember who suggested buying gold but it’s looking tempting. We need a new Bretton Woods more than we need a currency war between EU & US right now.

    • Malcolm McClure

      Shane: I’m not a financial guru, just a humble seeker after truth. –It’s difficult to get recent figures about global financial data but the CIA gives the following for GDP of the G20 nations:

      Country (G20) GDP ($US millions, 2007)
      United States 13,811,200
      Euro Area 12,179,250
      Japan 4,376,705
      Germany 3,297,233
      China 3,280,053
      United Kingdom 2,727,806
      France 2,562,288
      Italy 2,107,481
      Canada 1,326,376
      Brazil 1,314,170
      Russia 1,291,011
      India 1,170,968
      Korea 969,795
      Mexico 893,364
      Australia 821,716
      Turkey 657,091
      Indonesia 432,817
      Saudi Arabia 381,683
      South Africa 277,581
      Argentina 262,331
      World 54,347,038 – to which I’ve added:

      Ireland’s GDP 2007 186,200
      Ireland’s debt 2009 1,300,000
      I didn’t intend to suggest that all Irish forex was going through London. I’m sure the Irish banks and the IFSC guys deal directly with New York, Chicago and Tokyo too. I was thinking of the volume of MWIA forex being comparable to at least 1% of the London volume. Our debt is being hedged and traded all the time, so our $1.3T is probably being turned over several times a year. $20B a day (10B each way) sees quite reasonable. 260X 20B = 5.2T (To say nothing of CDSs)

    • Malcolm McClure

      Shane: The 1% figure was intended to represent all dealings of Irish banks and IFSC dealers through NY, Chicago and Tokyo etc, not just London transactions. Check out the G20 GDP figures at http://www.g20.utoronto.ca/g20performance-gdp-080821.htm. Ireland’s 2007 GDP of $186,000 M is a bit less than Argentina, but its 2009 debt at $1.3T is more appropriate to somewhere the size of Germany. We were trying to play totally out of our league, a fact that should have been obvious to the regulators.

      Your website suggestion is kindly intended, but I prefer to remain a humble seeker after truth, not an aspiring financial guru.

      • Malcolm: Sorry I misunderstood the implication. However, my basic issue is that I don’t believe we’re hedging the 1Bn Euro. It seems to me that our guarantee is “naked” for at least several hundred billion Euro and we’re hoping a default won’t occur. If we move to hedge the full amount the markets will react to more Irish dishonesty or delusion by increasing our Euribor rates further and demanding higher rates on our bonds. As we’ve started out by lying about our situation we’re becoming more risky with each revelation.

        It’s the same kind of thinking that had initial estimates of our 2009 deficit billions short as we weren’t willing to use accurate figures. I haven’t made my mind up yet whether Lenihan is a bit naieve or just trying to put a brave face on it. I’m charitably going with the latter. Whatever, we need to be seen to be taking tough action to clear up our banking mess.

        Instead, we’re now throwing even more cash into AIB/BoI in the hope things will pick up before a default happens. If Lenihan is true to his word, this will result in more heads rolling in BoI and AIB as their fund raising roadtrip got nowhere.

        This does bring up another interesting point though. In my financial apocalypse scenario then we might see large german and swiss banks failing, of the kind that provides significant amount of debt to Irish banks in the past. If we ever need loan renegotiations the option may not be available with us, or we may end up negotiating directly with the German state. An Irish default won’t happen in a vacuum.

        • Malcolm McClure

          Shane: There’s an interesting idea coming out of Davos that instead of a ‘Bad bank’ existing banks should be left to sink or swim and we should create a new ‘Good bank’. See:
          http://www.guardian.co.uk/business/feedarticle/8337223
          Peter Mandelson has been talking about extending the UK post office to offer a full range of banking services. We could do the same here to prepare for what happens next.

  21. JJ Tatten

    Furrylugs,

    Spot-on with the Professor Brown link. Root and branch reform is an absolute necessity. However, Prof Brown states: “These observations explain the now-exposed incompetence of our Government, an incompetence which was obscured from our view by the Celtic Bubble”

    — so what obscured it from view prior to the Bubble? The answer, I suspect, is nothing. The Irish were used to it. It was only with the advent of ‘prosperity’ (and access to new-media which allowed us to make comparable judgements), that the shortcomings of the pillocks who lead became evident. http://uk.youtube.com/watch?v=e3vEOSkk5AM. If it looks like a biffo, walks like a biffo, and acts like a biffo – it probably is a biffo.

    As I stated before on this forum way back in Sept 2007 (http://www.davidmcwilliams.ie/2007/09/10/the-jack-charlton-theory-of-economics): “On the international stage the diaspora are second to none in terms of their political and social activism, their amiability and their ability to adapt and succeed – often against considerable odds. But for reasons unknown the Irish in Ireland persist in electing an endless procession of self-serving shifty horse traders as their civic representatives who continually fail to give the people the society they deserve. And nobody seems to do anything about it or, indeed, care.”

    A Second Republic, as advocated by Prof Brown, is an admirably lofty notion, but is very difficult to attain when the First Republic arguably existed in name only.

    If only those nice Romans had invaded. Now, what would they have done for us? (apologies to Cleese et al)

  22. Furrylugs said:
    “Professor John Crown suggests a revamp of our fundamental State structure and quotes;

    At the core of our public governance is a dysfunctional interface between inexpert ministers and senior civil servants who have generally risen to the top of their departments on the strength of their adroitness at navigating its bureaucracy. The ministers are unfortunately drawn exclusively from a cohort of generally mediocre, frequently nepotistic TDs, whose entree to national politics was based not on a grasp of the big issues of state, but on their ability to manipulate a local constituency party machine. These observations explain the now-exposed incompetence of our Government, an incompetence which was obscured from our view by the Celtic Bubble.”

    This is a good summation. All politics are local, Furrylugs, hence we have the Martin Cullens ; the Beverley Flynns; the Jackie Healy Raes etc..such opportunists operating as trojan Horses from within a discredited party and are in effect dictating too many local agendas.Until now.
    Fianna Fail buy every vote they need-at any expense-and to hell with those they dont, or who they know dont vote.
    Those they dont need end up paying the bill.
    But the worm has turned.
    I look forward to street demonstrations and civil unrest, from those multitudes on the wrong side of the coming great divide.
    As the unemployment queues lengthen,I look to the voice of those whose furious anger is now directed at self enriching politicians who have bought power, time and time again, with ill gotten taxation on the poorest families:
    and at the expense of many good citizens whom they have now finally stripped of their savings; their jobs; their pensions- and soon to be-their over mortgaged homes.!

  23. John ALLEN

    Thinking : what side does a worm that has turned lie on ?

  24. Sam

    I’m the gold bug!

    And just a little bit of lateral thinking – Why not ignore our busted banks with all the toxic property loans, and instead put the billions earmarked for recapitalisation into a couple of nice brand new clean banks?

    We’re “sailing in puddles of the past” as Paddy Kavanagh ruefully opined.

    • Deco

      Fair point actually. Or simply allow ANIB to fail – and compensate the depositors, with the depositors relocating their deposits into a new bank – call it the Irish Bank of Commerce or Bank of Innovation Captial – which will be completely in the productive sector – no loans to cowboy builders – loans for modern creators who will drive us out of the recession. Just look at the success of the original ACC and ICC. The headquarters should be located in a ‘new’ city/town like Galway, Shannon, Maynooth or Naas. Away from the Dublin 4 networks. And it should be driven by younger people.

      • Tim

        Deco, correct me if I am wrong, but, are we not STILL paying a levy for AIB’s wobble with ICC? I think that we are, also, still paying one for PMPA. With all the failed business models we are paying for, I may be losing track.

        • Deco

          So much for all that talk about the state’s “investment in ANIB” being recovered in some virtual future fantasy time frame.

          AIB are connected to the top political parties through one way or another. Did AIB cough up a repayment on the DIRT ‘lapse’ when they were going gangbusters 2001-2006 ? I don’t recollect that they did. Neither did they pay any fines whasoever over all the corrupt practices and overcharging since then.
          The PMPA event was possibly necessarily to sustain all the customers who were insured by the PMPA. But that was in the CJ era – so I am very suspicous about a deal being done to save Patrick Gallagher – who was I beleive a PMPA investor at the time.

          Strange how these gangsters stick together. I remember during an eventful time in the Tribunals, that Liam Griffen the Wexford hurling manager – was on Questions and Answers. Griffen stayed possibly the most revolutionary statement ever uttered on RTE, in reference to a question concerning Bertie Ahern and the North Dublin maFFia – “you know when I was a young lad, my mother used to say – watch people according to the people they hang around with – that people of the same mindset stick together – that even if you know that one is a crook, then you can be certain that they are all crooks – and if you touch one you are involved ultimately with them all – and I am listening to the Tribunals – and it appears that we see the same names again and again – and they seem to be popping up with the scandals – that really we cannot trust them – no matter what they utter about not being involved”.

          That was the last thing I seen Liam Griffen on RTE discussing anything but hurling. Griffen did not make a swipe at Ahern – but he made a strong cognisant argument that we should not trust Ahern – because of Ahern’s closeness to crooks involved in the political/planning controversies.

          So much for a free country !! So as a matter of principle I support the GAA, on the basis that they allow free independent thinking far more than other bodies like the IRFU or the FAI for example. I don’t buy that unthinking, Green jersey, flagwaving, criticism is banned, drunken, celebrationist, brainwashing empty bull that has been pushed by CJH, Ahern, etc.. Though I must credit Emer Kelly’s column in the Sunday Indo, for opening my eyes somewhat in this area also. And she is also banned from RTE !!

  25. Deco

    Tim – Marianne Finuicane does not have to mention Gene Kerrigan – here is the link in case anybody missed out…

    http://www.independent.ie/opinion/analysis/cutting-costs-doesnt-amount-to-a-plan-1622878.html

    Concerning Eddie Hobbs – The Corkman recommended that Irish graduates get themselves to Australia or Canada and forget about trying to build up experience in Ireland (or the rest of Europe we can assume). Hobbs got criticised harshly from Matt Cooper on Today FM. And bear in mind, that only Today FM will let him speak to the public. With advertising income hard to get, media outlets are getting slightly even more censorous on the likes of Hobbs.

    But-hey we can find out everything that is going on in Corporate Ireland thanks to Phoenix Magazine and the Sunday Indo :)))))

  26. we’d be better off hiding for as long as we can
    Surely David I not reading you correctly. How could you have a toxic bank and not know the real story.
    The problem really would it all be done in secret (has the deal been done) and if so it could spell civil unrest equal to war. Unless it’s calming talk Britain is about to tackle EU law on working terms and conditions which they should have been doing for years being a Labor government. Things are about to turn a little nasty.

    Davos if anything did spell out loud and clear: the financial model is fundamentally flawed.
    Ireland is in trouble big time.
    When the likes of Sean Quinn loses: ah, about two billion, and wont cry in his cornflakes, you know you’re in trouble. Does he know where the rest of his fortune is, does anybody. The vice chairman said in Davos ”what you can see you can get away from, what you can’t see gets you.” Just how much debt can’t we see.

    Life as we knew it (thank god now rather than later) is gone. Ther’s no use thinking it can somehow trickle on till it flows again. The tank is empty.
    We seem to be still in the 3rd stage of Death. The first stage is Denial 2 Anger, 3. Bargaining, 4. Depression, 5. Acceptance. Things get nastier going back and forth from stage to stage getting deeper and further away form dealing with the real problem, hindering a recovery altogether.

    We need to get together all that is, and not exclusion. Everything must be taken into account.

  27. octo

    ” If the ability to borrow falters, we face the very real prospect of a fiscal crisis this year. A fiscal crisis is when the Minister for Finance informs the Taoiseach that we can’t pay teachers’ salaries next month because we don’t have the cash.”

    Please make a stronger attempt to strike a balance between realism and provoking panic. While your noble commentary is always welcome, such speculation will do little to build a cohesive unified national strategy.

  28. Colm_McHugh

    “We have seen (and I am no conspiracy theorist) an orchestrated campaign against Ireland in the British financial press of late.”

    That’s a fairly serious, and disturbing allegation. Why would they do that? What would they gain? Are they sore at the inflow of deposits that resulted from the Irish government bank guarantee and is this (trying to engineer a default) some kind of punishment?

    If there is such a campaign, isn’t it something that the Irish government should be raising with the British government?

    • gadfly55

      LOL, remember George Soros and the billions he made against Sterling. These people do this for fun in the morning to show who is in charge. Darling warned Cowen the next day, publicly. As you sow, so will you reap. And the Irish media congratulated itself on pulling one over on the Brits. The fools, the fools, and the back bogsmen of the Republic cheering for independence, freedom, and liberty from the old enemy.

    • gadfly55

      Just because you are paranoid, doesn’t mean they are not out to get you.

  29. Johnny Dunne

    “Fighting for our economic reputation”

    The Taoiseach Brian Cowen believes he can ‘run our country his way’. Has anyone seen this speech from an IDA meeting in Davos, this seems to be the plan to get Ireland’s ‘economic reputation’? Does this help the media report ?

    http://www.taoiseach.gov.ie/index.asp?locID=605&docID=4234

    On a positive note, it is good to read something about ‘plans’ to create thousands of sustainable indigenous and multi-national companies – “To support high-value innovation of products and services that will create thousands of thriving Irish companies and associated employment”. But one of the big giveaways on the inaction over the past decade is his consistent reference to ‘will’ ie have a highly favourable tax regime instead of ‘have’ — talk is cheap !

    Based on what is in the media today about the ‘done deal’ with the social partners I’m wondering how many of Brian Cowen’s “pro-enterprise tax policies” (in his speech this week below) will survive the social partner ‘deal’ this week ?

    - we apply a corporation tax rate of just 12.5% — that is unchanged;
    - we increased the R&D tax credit available to companies from 20% to 25% putting it to the forefront of R&D regimes globally;
    - we provided an exemption from corporation tax and capital gains tax for the first three years of a new start-up business, and other measures to help people who want to start enterprises and create jobs;
    - a new and highly-favourable tax treatment of carried interest will encourage so-called smart capital to work effectively to stimulate start-up enterprises;
    - we introduced a tax abatement scheme for people who own shares in start-up R&D companies to help such businesses attract and retain employees;
    - a new remittance basis for taxation now applies for certain highly skilled employees paid outside the State;
    - we are committing to developing new tax arrangements for Intellectual Property in 2009 and using this to generate business activity.

    You might wonder is this ‘plan’ based on facts or soundbites for the media to manage the public outcry to more tax ?

    Brian Lenihan said in the Dail this week “In the absence of further policy action, a General Government Deficit in the range of 11 — 12 per cent of GDP is in prospect for each of the years to 2013. That position is simply untenable. In the first instance, we must eliminate borrowing for day-to-day spending.”

    The Minister should go back and do ‘basic sums’,below is the increase in expenditure over the next 5 years, all the government is ‘planning’ is to take this spend back out starting with €2 billion this year and €15 billion over 5 years. Why not hold back the current spend this year to €44 billion, this would save €5 billion straight away !
    2008 44,693
    2009 49,026 10%
    2010 52,019 6%
    2011 54,676 5%
    2012 56,581 3%
    2013 59,012 4%

    We raised €13 billion last year in Income Tax this will be down this year as unemployment increases and social welfare expenditure increase from 70% of income tax last year. The Minister says 50% of income tax comes from 6.5% of taxpayers, that’s about 150k people earning more than the 166 TDs. Does anyone in the private sector believe that near this amount of people will earn as much as this level of income with markets declining this year ?

    It seems the ‘national recovery plan’ to be agreed tomorrow will NOT cut public sector payroll this year but will instead will get some of these ‘ €2 billion savings’ from taking back childcare allowances for under 5 year olds ?

    Doesn’t make any sense if ‘in touch’ with reality. What was once seen as a large salary may not generate ‘disposable income’ for a family today — for example on a TD’s salaryof €100k (in the top 10% earners), with an ‘average’ mortgage repayment equivalent to rental on a 4 bed house and 2 kids in a crèche then you would have about €60 a day to pay all other living expenses – food, clothes, transport, electricity etc ! There is a ‘tipping point’ where you might earn more on the ‘dole’ with family supplements, rent allowance etc. The next group out marching on Kildare Street will be the hard pressed working parents not represented by any of the ‘social partners’ but struggling to survuve financially if there is an ‘unfair’ deal this week ?

  30. Tim

    Folks, I see some extra regulation of the site tonight ……….. interesting development; last weekend, a crash; this weekend, a new registration procedure. What next?

    • webmaster

      Hi Tim

      You could say both things are symptoms of the success of the site of late: there has been a huge increase in visitors and comments which have caused some issues.

      I didn’t really want to force users to register before commenting, but it has become more and more difficult to rely on common sense alone to keep abusive messages and rudeness off the pages. The other option would be to moderate each and every comment. That would stifle debate and take up all my time.

      Ronan

      • For the record, I’ll hold my hands up and apologise to the serious economic commentators for indulging in “off topic” chit chat. This was not any disrespect to the site but a personal inclination to disable negative sentiment with intellectual jousting, so to speak. I have taken the comments on board and will confine my input to topical issues.
        F.

      • Tim

        Ronan, thanks for the effort you put in. I would be against stifling debate too; and I know how impractical it would be to examine so many comments. If it curtails abuse, great.

        Kind regards,
        Tim.

  31. Josey

    Ya’ll, with very little if nothing coming form the Goverment does anyone think they could be deliberately letting the Country fall. I mean they seem to have no ideas at all and even worse no balls. The only time I saw our leader look concerned or show some passion was when a personal attack was made on him last week in the Dawl……if only he’d show half as much for those losing their jobs.

  32. Tim

    Josey, I suppose it’s possible that the Illuminati have organised the fake global recession just to frighten the Irish into signing the Lisbon Treaty so that they can continue with their Globalisation agenda. Just think: if you were running the world, would you allow the “sheeple” to mess it all up by being so fickle as to elect a leader who would “CHANGE” it all? Or, would you, because you ARE running it all, place your leaders as chess-pieces and frighten the sheeple into doing what will work for you?

  33. Josey

    Yeah Tim,
    if it were my dastardly plan I’d have my minions strategically placed to pull in the desired direction all at the blow of my whistle………but then were I to believe such things I’d have a thin hat on, a bottle in one hand and shout “conspiracy” at people as they stepped over me on grafton st.

    There’s no such thing as a conspiracy…..there’s no such thing as a conspiracy……there’s no place like home….there’s no place like home….ad finitum

  34. jim

    I think under normal circumstances we could have weathered this credit crunch,with help from the pension fund and treasury reserves and the ecb,but this damn property bubble has put us way out on a limb.Linehans blanket guarantee has put us in way over our heads.The vultures in the market are circling over our heads,they sense weakness,because of the banks.They will swoop for the kill if we cant convince that we have a recovery plan. 285k per 10 million on swaps were heading for the roof.We cant afford the luxury of finger pointing anymore (sentencing posponed for future court date).All these properties residential,commercial,land,are all our problem now,we signed the guarantee.The buck and the bill stops at us the taxpayers lump it or like it, case closed.The term for these properties from an economic perspective is “excess inventory accumulation”.They are not perishable goods.Can we project a break even price going forward and put an insurance bond in place say 10 years underwritten by the ecb in euros?.ESRI or whoever said we needed to build 50 thousand units per year for 10 years to meet our housing needs.We over produced and inflated prices in 04/ 05/06/07 but the inventory will reduce in the next few years if were allowed time to trade out.We need to get our collective brains working on this one,and just remember when were baying for blood,make sure it’s not our own.:-)

  35. Tim

    Folks, I’ll say this again:

    A 16 year old girl suggested to me THREE months ago:

    “Why don’t we, like, just, shut down the markets, if they are speculating on us and ruining us?”

    Since we are in crisis, ……. why not?

  36. VincentH

    We have on this blog – some of us anyway- pointing out the stupid issues with this economy.
    Where history points to the real reason why we go ape where property is concerned and where hammering the very crap out of the Joneses explain why much of the gold-rush mentality. Someone or other pointed out the early eighties, when a land bubble, when a few subventions from Europe saw the baby of what we have been going through at the moment. And that and this were hardly the first time we have done this insanity.
    The or at least my definition of a fool is doing the same thing and expecting a different result. The scale is all that is different.
    Now as to comment from Europe, I would not take the very time of day from J-M Barosso nor I suspect would any one who lives north of Toulouse. Economics are hardly the strongest point one could make about Portugal. It would be a bit like getting the same from Bertie or Enda. And it sure as shooten will not be him who will make any decisions about Ireland. Nor I suspect will anything he says have much weight within money markets.

    But, today we are going to go through what is a devaluation within the Euro and about time too. The only question will be can we change the way we do things. And not have to go into all of this in another ten or fifteen years.

  37. The Power of Double Think : Recently , we had a Moon Wobble last 29th and the moon has waned since .On tuesday 3rd Feb we have the beginning of a moon gravity pull that will maximise on Monday 9th Feb ie Full Moon .This tuesday was suppose to allow the moon wobble to exit the previous gravity and its energies have not been allowed to rest and so it is quickly dragged back to the Moon again creating a serious stress in the air around us .
    Viewing the present national economics current affairs now makes all of what we see much more interesting .
    Essentially we are entering very dangerous times and if they go wrong during next few days they go very badly wrong.And if they go right they will be perfect .We are viewing two extremes which is what happens in week period to Full Moon.They incluse accidents, weather extremes, emotion madness or joy , forgetfullness , body pains and unable to sleep .
    My guess is that David’s articles this coming wednesday and and sunday will be very hot topic debated here with emotional swings .We are living in very interesting Times now .

  38. Garry

    “By extension, he must believe – if he has an ounce of economic grey matter in his head – that, without the euro, an independent Irish currency would collapse.”

    I think thats obvious enough. Sterling almost collapsed. Whether a hypothetical Irish independent currency was sound or not, in the current climate it would be under sustained attack, along with the banks whose debts are guaranteed. There is only one result when that happens unless your currency is one of the few thats bigger than the bully boys.

    On the comments re a campaign in the British press… People don’t seem to realise how serious this is, countries and currencies that have been successful for generations are now fighting for their lives, and when the stakes are that high dirty tricks are played. You don’t have to have a strong currency to avoid being spanked by the currency speculators, you just have to make sure your currency is seen as better than at least one other…. A collapse of the Euro would suit certain people wonderfully…. But that’s life, lets not blame the Brits, their currency is more screwed than the Euro right now. North Sea oil revenue is collapsing which is concentrating minds over there.

    Go back to the title, Fighting for our economic reputation. Well there’s several things we can do to help our economic reputation. Start putting the CAB on the trail of the Anglo golden circle. Put a few people in jail. Fire the central banker and regulators.. Ireland is seen as a bad place to do business because of corruption, incompetence, and an ethics vacuum at this level, like gambling in a crooked casino… Steps can be taken and in anything other than a banana republic this would be being done to restore our reputation.

    We are now fighting for our economic life. The fight starts at home.The social partners will meet and go thru a charade this week where yet more spin will be presented as tackling the problem. The bottom line is at the end Cowen and Coughlan will still be the best paid leaders in Europe, Hurley will still be one of the best paid and worst central bankers in Europe and we will still be borrowing to pay wages which is madness.
    This is guaranteeing an Iceland like scenario here, the only saviour is if the global economy picks up in 2010 (which aint gonna happen)

    Barusso may or may not be an idiot, I thought his comments were spot on, he only said what everyone else is thinking….. but make no mistake, the people doing the most damage are in government buildings today feathering their nests and spinning token public service pension contributions as a plan for national recovery.

  39. BurrenRocks

    The credibility of the government to steer the country out of the current crisis is shot both nationally and abroad. With the banks to big to fail and equally to big to save, confidence in our present government must be restored immediately. An election now will not work to stave off the speculators. Cowen and co. must take a large pay cut (>50%) and show some leadership through this crisis. Just, consider what it will take to get the inter talking positively about any action taken on our behalf.

  40. gadfly55

    The Irish Government is being taught a lesson in cute whoorism for unilaterally guaranteeing deposits, hence causing a flight of money out of the UK. Big Brother is going to teach little brother a severe lesson. Now the Eurozone family will have to come together and take on the Anglo-American bullies, but the little bastard Ireland doesn’t really know who his family really is, his mother having had so many sires, in a manner of speaking about cute whoors. The respectability has slipped now, and streetwalking, panhandling, begging and other scams of the down and out, in a culture based on the hand out, as we can now see prevailing in Waterford, where the Ministers are suddenly making an appearance, suggests to prudent investors, that Ireland, Inc. will always be what it always was. You don’t need a conspiracy to know where Appalachia stands in the opinion of New York or L.A.. Let us remind ourselves of all our cousins in such corners of America, which have fallen and fallen and fallen into permanent poverty and ignorance. We are not so far from a similar condition. Hence a probable 66% favourable vote for Lisbon, second time of asking. Then again, there are more Yahoos and Luddites and anarchists and back bogsmen than previously considered feasible.

    More integration with France and Germany. please, let the UK sink.

  41. MK1

    David> It is quite possible that one or more of the high borrowing group – which includes us – will run out of money at some stage.

    This is a key aspect to the situation David. Yes, the market has marked Ireland down as risky, and why wouldnt they as our ‘vector’ is perilously heading in the wrong direction at break neck speed. Like a train heading towards a canyon, IF things continue as they are or as they might, we could very well default. If any trader is trading a market that deals with macros and Ireland Teo (lets drop the Inc folks, we aint yanks!), it has to have an exta premium for the added risk. Traders do not know, just like they didnt know when they bought oil at 130 bucks that it would drop to 40. Lets not get into the game of spot trading Ireland’s prospects as I am not a believer in efficient markets. I’ve seen far too many things mis-priced.

    BUT, …. here’s the key thing, we DO NOT HAVE TO borrow at such levels. Some very difficult choices lie ahead, but the country/government MUST cut its cloth to its measure or at least get a lot closer to it. And it HAS to do this regardless of whether we are denominated in euro’s backed by the euro club or in a nua punt. The problem of course is that its a bit like getting turkeys to vote for Xmas. Very hard. We could vote in a new bunch of turkeys but they also will find all of these ‘nettles’ very difficult to grasp.

    Its all about ‘sharing’ the pain in an equitable and fair way. Are the banks getting enough pain or are they being overly protected? Are public sector workers overly protected, etc? My fear is that we need to move fast and we are wasting precious time and funds pussy-footing around and placating to the various interest groups.

    This train journey will be a bumpy one, an unpleasant one, and I dont blame anyone for wanting to jump off it and seek a calmer journey.

    MK1

    ps: didnt have time to read other peoples input yet!

  42. Philip

    Here’s how I see it – and I am not going to bother lambasting politicians etc. or whinging about our impending loss.

    1) Most of the private sector was in construction or supporting it.
    2) With construction gone, the private sector has no spare capacity to keep the country rolling by itself. This means, that taxes etc to fund government expenditure is choked off.
    3) Demand has dropped and so has prices. So anyone maintaining their salary at current levels is actually experiencing an increase in living standards
    4) Public services need to be improved. But they cannot at current cost. By 3) above, they can take a cut. And becasue the private sector has so diminished (not just becasue of construction/property), they have to take a further cut.
    5) Bond prices will rocket the longer we dither. Uncertainty costs money and further reduces our flexibility.
    6) Taxes on existing private enterprises need to be dropped – to zero if possible.
    7) Funding and grants of all sorts to private sector should be eliminated.
    7) Taxes on all economic rent (unearned income resulting from one’s ownership of a preferential location/amenity/facility) needs to rocket.
    8) Shut down the HSE…it absorbs all our taxes as it stands at present. Fire everyone down to senior management grade and Outsource the lot to local private clinics at a competitive price (use those procurement managers who lost their jobs) and outsource to Poland etc for over spill.

    There are 350K unemployed. And 350K in the PS. Negotiation is simple…who wants to swap places? Seriously though, we are not talking about recovery – this is about survival. The penny needs to drop in all quarters.

  43. Malcolm McClure

    Early in 2007 Norah Jones recorded a number that was to become a prophetic anthem for the credit crunch. Listen at:
    http://www.last.fm/music/Norah+Jones/_/Sinkin'+Soon.
    I wonder does it get much play-time on RTE?

  44. Malcolm McClure

    Sorry; that didn’t paste properly. The last bit of link should read Norah+Jones/_/Sinkin’+Soon

  45. Lorcan Roche Kelly

    Here’s the press release from Moodys from last Friday.

    http://www.ntma.ie/Publications/2009/moodys_rating_jan30.pdf

    In it, Dietmar Hornung, a Vice President-Senior Analyst in Moody’s Sovereign Risk Group, highlights the risks to Ireland’s economic reputation in this paragraph.

    “Moody’s notes that a downgrade would follow if Ireland, in the coming year, were to exhibit:
    (i) an economic downturn suggesting a structural erosion of what underpins the Irish “economic model”;
    (ii) a further significant deterioration of government financial strength, aggravated by liabilities arising from the troubled banking system; and/or
    (iii) a fiscal adjustment capacity that would fall short of being able to stabilise — in the
    foreseeable future — debt coverage ratios (debt/GDP, debt/general government revenue) and debt affordability indicators (interest payment/revenue) at levels compatible with a Aaa rating.”

    In (i) they highlight the risk to the fundamentals of the Irish ‘economic model’. To address this we first need to be clear as to what our economic model actually is. To my eyes, our model is a low direct tax one, and so to maintain this we will not be able to raise direct taxes to cover our budget shortfall. Lessons from the seventies suggest that this may be correct, but the temptation to increase taxes to give the unions their ‘pound of flesh’ may prove hard to counter if the government is really looking for a national consensus.

    (ii) The banks. We all know the systematic risks with the bank guarantee, nothing more needs to be said really, other than it is probably out of our hands at this stage.

    (iii) Fiscal adjustment. That would be a euphamism for cut backs. Or tax rises. But tax rises seem to be out so cut backs are the way to go. The most important thing with the cutbacks is that they must be sustainable “in the forseeable future”. This means that the cut backs must be in the current budget, cutting capital budgets is never sustainable. As MK1 says above, we must cut our cloth. If we do not make the difficult decisions we will be downgraded, and a downgrade will lead to the run on Irish government bonds that David outlines in his article.

    Overall the Moodys press release gives an accurate overview of the Irish economy and the problems facing it. The game has changed for the government, the time for playing politics has long past.

    • Dr.Nightdub

      The bit that scares me in relation to point (ii) is that with all this meandering about a “national recovery plan” and partnership talks about cutting €2bn from govt spending, everyone seems to be losing sight of the banks.

      Just cos Anglo has imploded doesn’t mean AIB and BOI aren’t still humungous elephants in the room. They’re the source of much of the potential liability Malcolm referred to at the start of this thread, the government appointees are on their boards since before Xmas, yet how much closer are we to knowing the real toxicity of their loan books? Zip.

      I’m not saying the govt finances don’t need sorting out, but it’s still the banks that could sink us.

  46. Somehow , those moments we are in now seem so much more

    stranger than those before even as late as Nov ’08. We are out of Denial and into

    Fear and the silence of it is deafening .Babies names such as Canyon or Recession

    occupy our minds and instead of height we are thinking deep. Realism is the craft we

    want to hone into and believe that we have a safe pair of hands to do anything , but

    do we?

    Gordon Brown’s assertion that the UK banks were 3hrs from

    collapse at the time of the recent £37bn bail out indicates that in the real world

    conditions remain dire and progressively worse.

    Our recent recollection of moments are in the past and they

    included the smell of deep roasted aromatic lungo coffee sitting in your favourite

    surroundings captivating all your dreams in a fishnet some nearby lady was

    wearing.

    The fuse of near ending Time is approaching like the former

    East German train leaving Berlin to cross East Germany to reach Hanover or vice

    versa.In those days every passenger was a prisoner until they disembarked safely.

    We are feeling ourselves in a Time Zone that the twilight can either be a dawn or

    an approaching darkness .Our minds are disorientating like a disembowled compass

    and our direction has no end .

  47. StephenKenny

    I agree with gadfly55′s premise, but not so much with the reasoning. We need to decide, to some extent, which side of the Atlantic we we are on, metaphorically.
    If we are to improve our financial reputation with the US/UK, then our approach needs to be very different than if we side with the rest of the Eurozone.
    The US & UK are frantically trying to get lending rates back up to where they were in 2007 – Gordon Brown has made this very clear, on a number of occasions. In spite of all the vague rhetoric, judging them on their avowed policies and actions, the intention is to reconstitute the huge, debt driven, financial services industry. The astonishing attitude of the bankers towards their own pay & benefits may elicit verbal criticism, but it’s unlikely to be seriously curtailed. It is an industry that certainly the UK, and to a lesser extent the US, absolutely rely on. In both countries, it has reached the stage of robber barons plundering the national treasury, and I find the sight of it, and the people involved, foul, disgusting, and utterly contemptible.
    The moral hazard that we were warned about last year, has come to pass. It is rearing it’s head in many ways: If you were a CEO of a bank, and you knew that would get a state bail out if you cut your trade credits department (blaming the terrible ‘market’), would you not do it? They have persuaded us that if we don’t do as they say, then our economy will fail and civilisation will almost end.
    The Europeans, on the other hand, see this as a general business and trade problem, with their idiot banks causing all these problems by getting in on these the US/UK real estate-backed instruments. This may be one possible reason for the seemingly strange attitude of the European central banks is the problem.
    The British media needs no direction from the government. They have been useless, and getting worse, for 20 years. As David said in one of his books, ‘if you’re over 40, only an idiot would believe what the FT says’. Without exception, they are worthless as sources of news.

    For myself, I vote that we call the bluff of the US/UK financial industry: Dump our banks, use this downturn as a time to invest in our people (electronic engineering and industrial design, rather than law or banking), and go to the Europeans for a bail out on the back of it. Offer to leave the Euro for a limited period, to take some strain off the Euro, and use the time and money we get to learn to stand on our own feet.

    Finally, given that it is axiomatic that our state sector is not operating in our interests, and the media is not either, we need to do something very old fashioned. We need to ‘Get Involved’. We can use modern technology to get our message, and views, across to a huge audience. Twitter, Facebook, and so forth, are enormously powerful tools for public conversation. As I see it, it’s either that or we sit and watch the glorious dream of the Celtic Tiger disintegrate before our very eyes. I don’t know about you, but I think that the soul of the country is worth it.

    • gadfly55

      Soul of the country? We have seen the soul of the country at work from CJH to the three Brians and the fool who last night said we must cut revenue, thinking she was referring to expenditure, none other than our Tanaiste Mary when speaking on RTE1, at 11pm. Now the Government is going to sign off of 8billion for two banks, hoping that limits their liability to losses. We need to throw ourselves into submission to ECB requirements and forget our constant prostration as a competitive destination for American FDI, and that means raising corporate tax to European levels, as well as property tax, etc. so our revenue streams are similar to continental Europe. I would rather be governed directly by the EU than give these fools any further opportunities to impoverish us for the next 30 years.

  48. G

    Just off the top of my head, time for:

    1. A new Political Party
    2. An Independent Media (not subject to government licence fee and approval)
    3. Institutional Reform of Irish economic and political structures/organisations
    4. End to tribunals as a means of investigating alleged corruption (should be carried out by Dail committees, with set deadlines, like successful DIRT enquiry).
    5. Better distribution of state’s financial resources, targeting so called ‘disadvantaged areas’.
    6. Affordable Housing (for all)
    7. Free education (for all or for all those making less than €50,000 per annum)
    8. Universal health care.
    9. Capping of medical consultants pay.
    10. Examination of pay/expenses/budgets of all politicians, senior civil servants, senior academics, members of the judiciary, and heads of semi-state bodies.
    11. State membership of the boards of all banks (with voting rights).
    12. Independent financial auditing/monitoring service with real power.
    13. Winding up of the Regulators office.
    14. End of unelected ‘fat cats’ with vested interests making pronouncements on the economy or how people should vote in referendums.
    15. End of use of Shannon airport by foreign military forces.
    16. End to Ireland’s involvement in the arms industry.
    17. Greater involvement in developing countries – creation of an ‘Irish Peace Corps’ (drastic curbing of salaries of executives of Irish charities)
    18. More resources for preventative health care and for educational programmes for school children on diet, importance of exercise, financial management etc
    19. Prohibition on alcohol advertising in all public spaces (GAA, bill boards, cinema etc) and greater controls over sale etc
    20. Every effort made to make Ireland a world leader in ‘Green’ technologies.
    21. A 20-30% cut in the price of virtually every product esp. food and clothes.
    22. More educational and cultural programmes on the national broadcaster and a winding down with a view to removing all foreign soap operas and other low grade programming.
    24. Return of bodies such as the Combat Poverty Agency (organisations that point out where gov. is going wrong/foster debate).
    25. Increased powers for the Equality/Competition authority.
    26. ‘Prices’ Tsar – Eddie Hobbs like, who exposes over pricing and other issues in the broader economy.
    27. Better treatment and resources for asylum seekers and immigrants
    28. (you can add your own – see where we get)

  49. Bring Back the Death Penalty into banking

    http://stumblingandmumbling.typepad.com

    Also ………Prices tumble in Dubai

    Under the new Mortgage Law in Dubai ( untested ) Principle Private Dwelling cannot be repossessed by the bank if it is your only home neither will the borrower be put in Jail and those native banks bailed out will be unable to recover the arrears from the borrowers .This is Sharia Law Dubai .Lets consider this and incorporate it under reformed Irish Brehon Laws and enforce it.

    • Dilly

      “Also ………Prices tumble in Dubai”

      I warned my friend about this two years ago, he took my advice and sold up, while other people told me I was talking rubbish.

  50. MK1

    David,

    Not sure if you will read this, but one area that you may not have thrown a ‘spear’ at is the Auditors and indeed Accountancy (although you did with the Balance Sheet ‘mark to movi9ng average’ suggestion).

    As has been shown in the case of AnIB, E&Y auditors managed to somehow miss 127 million or whatever of sums which would clearly have a ‘material affect’ on the balance sheet, and which would result in the published set of accounts not “being a true and fair reflection of the company’s finances”. Not only should E&Y have resigned from being auditors immediately once this fact was revealed, AnIB should have publicly kicked them out. Now our government as AnIB owners should do, especially in light of: http://www.rte.ie/business/2009/0202/anglo.html

    Accountants were complict with the problems in the global financial system with off-balance-sheet treatments, and other treatments of cashflow, balance sheets, etc. The system of how we recognise value is clearly broken, as many who thought they had wealth and who borrowed against it didnt and are now in negative equity.

    Now clearly we need Auditors and Accountants, but we need to reform them. Lets call for that and start local and encourage the global. Brehon counting if you will. Maybe we can replace the Celtic Tiger with the Brehon Elk.

    Tim> 16yr old girl – “Why don’t we, like, just, shut down the markets, if they are speculating on us and ruining us?”

    We need the markets. Ireland Teo goes to the markets to get funds. We borrow from the markets because we NEED the money. Sure, we could ignore the markets, pay off our debts, etc, but that would mean a more major shock to the system than we are currently experiencing. Its not markets buying and selling our debt or products or services that our ruining us. It is ourselves that are ruining us!

    MK1

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