July 18, 2011

The exchange rate is the key to the recovery

Posted in Sunday Business Post · 88 comments ·

Wynne Godley, the brilliant Anglo-Irish economist who sadly died last year, once declared that, because he wasn’t much good at mathematics, he was one of those economists who was ”obliged to learn how to think”.

Godley’s people come from Carrigallen in Co Leitrim, where he spent his childhood summers. Gladstone granted a title to Wynne’s grandfather, Lord Kilbracken, because of his support for the Liberal cause of Home Rule in Ireland.

Godley was one of those (far too few) renaissance men in the economics game. Not only was he a professor at Cambridge, but he was also a professional musician, the principal oboist at the BBC’s Welsh Orchestra.

Like the great Keynes, he hung around with interesting people. His wife had been married to the painter Lucian Freud, and his father-in law, Jacob Epstein, was a renowned sculptor who led a bohemian lifestyle.

What made Godley so interesting was his ability to predict things using basic economic rules and principles, rather than mathematical models — what might be termed ”common sense economics”.

Maybe this was because, unlike other academic economists, he worked for many years in the normal world before setting foot in Cambridge.

Godley’s perceptiveness and ability to think laterally made him one of Britain’s most brilliant economic minds. I thought about him last Friday when I heard the report on Dublin from the so-called troika.

I couldn’t quite figure out how they could report that everything in Ireland was moving along just fine and yet the markets were pricing Irish debt as junk, almost guaranteed to default.

The two views could not both be right. So let’s see what’s happening in Ireland.

We know that punters who have money are saving. But didn’t Mr Noonan exhort the nation to spend? So if we are saving, who is spending? And if we are not spending and the government is set to cut its spending, what happens to the level of demand in the economy?

This is where our economist friend from Leitrim comes in.

He was, a bit like myself, interested in the hydraulics of economics or the ”if this goes up, what goes down” end of things.

One of Godley’s insights was a straightforward economic truism, which was that the balance of trade of an economy is nothing more than a reflection of the balance of savings in the economy.

If the punters are saving or hoarding and not spending, then the government will have to spend to offset this saving, otherwise the economy will contract.

The only way to prevent this is if we can persuade foreigners to buy stuff from Ireland in huge quantities. But why would they buy stuff in Ireland that they can get at home?

Bear this basic idea in mind when we look at why the markets are scarpering from Ireland, and why Irish money is still leaving the Irish banks looking for a safe deposit abroad.

Who is right? Are people right to be taking their money out? Are the financial markets right to be selling Irish bonds and also taking their money out?

Or is the troika right in saying everything is more or less hunky-dory?

If we follow the troika’s austerity programme and bring the government deficit down from14 per cent of GDP to 3 per cent in (say) three years, where will that missing 11 per cent of GDP come from? If government spending isn’t replaced, the economy will shrink by the same amount.

We are talking about 11 per cent of total income. If the economy shrinks by the same amount, so does the tax base.

If the tax base shrinks, what happens? Well, if we are to achieve the austerity targets and the tax take falls, the cuts will have to be much bigger.

But this won’t make the economy grow — it will have the opposite effect. The cuts will make the economy shrink.

Unless, of course, the trade surplus can increase dramatically, which would mean that our savings and the government savings were offset by demand from foreigners.

But the simple back-of-the-envelope calculations would mean that, for the economy to stay stable, the trade surplus would have to increase by at least 11 per cent of GDP from here.

The trade surplus today is ’2.8 billion. But, given that our GDP is about ’170 billion, our trade surplus would have to move sharply from ’2.8 billion to ’21.5 billion in the next three years to keep the economy stable.

Our main export markets are the US, which accounted for ’13.3 billion last year, Belgium and Britain. What Belgium is doing there is beyond me, though it appears to be due to the shipping of some multinational products through that country to other final destinations.

But these three territories comprise 52 per cent of the total value of our exports.

How likely is it that we can increase exports to these countries when we know that the US economy is struggling and we also know that Britain is pursuing its own austerity programme? In addition, how likely is it that we can increase exports to these countries with our high cost base, when they are allowing their currencies to drop?

How can Irish exports to the US and Britain be competitive, particularly when a small change in their currencies, which can happen overnight, will more than compensate for any fall in our cost base which, because we can’t devalue, has to come gradually and with political consensus?

Obviously, to achieve this type of trade turnabout quickly, we would need our own, highly competitive exchange rate to give our exports a chance, and to make us think twice about buying imports, particularly non-essential consumer ones.

Taken together, it seems highly implausible that we can increase our trade surplus eightfold from’2.8 billion to ’21.5 billion, without a change in our currency. Countries such as Finland, Sweden, all The Asian tigers and, more recently, Iceland have responded to banking crises with massive devaluations — all of which have been successful in terms of trade enhancement.

This has to be an option for us, particularly As we can’t go on borrowing, otherwise we are caught in what could be termed ‘Godley’s paradox’. The domestic economy — as we have already seen with the latest GNP figures — will contract with austerity because we won’t be able to export enough, quickly enough.

Wynne Godley, like that other great Cambridge economist, Keynes, was never scared to change tack. Keynes once famously said: ”When events change, I change my opinion.

What do you do, sir?” We should not be afraid to change our policy.

This is particularly the case when basic, straightforward economics tells us that the present course of action simply cannot succeed.

  1. adamabyss

    The Fall of the House of Usher.

  2. Deco

    Well, if the exchange rate is the key to recovery, then based on previous scenarios where a country had to devalue it’s currency – we are in the category of countries that are fully deserving of “Junk” rating.

    I am saying this because the media, the government, IBEC, and the EU Comm. all are telling the world that Moodys made a mistake – and that our Junk rating is not deserved. Now the media, the goverment and IBEC have a track record in coming together to sing from the same hymm sheet every time the Irish people are about to get taken in for a con-job. The fact that it is supposed to appeal to our pride should be warning enough that we are being controlled by emotional cue-pressing.

    It is also implies that the Irish banks (what is left of them) are in a much more precarious situation than the official statements coming from the EBA “Stress tests” are telling us.

    I am very sceptical about the state culture that created the Irish method of banking & regulation (Las Vegas on the Liffey), can run a currency. It seems that much of what the state has operated in the last twenty years has been a disaster.

    Therefore, we are back again at square one dealing with the thorny issue of responsibility.

    Personally, I think we are better off with DE,NL,AT,FIN running the currency, on the basis that we learn how to adapt to such a scenario, rather using it as an opportunity to go on an almighty binge everytime possible.

    • NeilW

      In economics there are three values: the inflation rate, the unemployment rate and the exchange rate.

      You can control two of those, and the other acts as a shock buffer.

      Each country just has to pick which two it wants to remain stable, and which one will float.

      Over the last thirty odd years of neo-classical economic theory it is the unemployed that have been the buffer.

      Are you happy for that to continue?

      • Deco

        Interesting point but –
        Germany, seems to be able to control all three.

        I suppose if you are efficient and organized, it is possible.

        On the other hand if you have P.Sneary, and the other clowns put in charge by the Irish establishment, you will end up being incapable of controlling anything.

        My advice to every individual – make sure you yourself are prepared for the disasters that come from the mistakes of others. And the place to start is being intellectually free of the mainstream media coverage/response to what is happening. Be your own news analyst. Do not depend on media outlets that take advertising money from the banks, or the state (which is heading towards bankruptcy at a speed of 20Billion Euro per year !!!! (not sure what that in Euros per hour).

        This serving the interests of your own loved ones and community – don’t take seriously the “Green Jersey” argument, because that is always the last resort of scoundrels in the establishment.

        • CitizenWhy

          A country can control unemployment three main ways:

          1. Business and job growth. This can actually happen in Ireland is foreign countries continue to locate operations here due to the low corporate taxes. But Poland now lures, a country not tied to the EUro, so local wages can be really low compared to places where wages are in dollars or Euros.

          Is increase job and business growth likely in Ireland? Possible, not probable. But increased hiring and wages can lead to inflation, with increased buying and increased prices and increased government spending on hiring and wages and increased benefits.

          In boom times the US controlled inflation largely by importing cheap goods from China. Hence spending occurred (making for a big GDP), but prices did not go up. This was the dirty little secret of the much lamented balance of trade deficit problem (the US importing much, much more than it exported). No one really wanted to “solve” the trade deficit because it was keeping inflation under control.

          Now, with the US economy weak, the US appears to be pursuing a weak dollar policy to increase exports. Weak is another term for a devalued currency that is not officially devalued. A weak dollar comes from printing money to make up for government deficits, unemployment, bank insolvency, and increased benefit payments. More dollars, less value to each dollar.

          Before the EU debt crisis the big complaint/problem for Europe,especially Germany, was the weak dollar. But the flexibility of the US government in supporting a weak dollar over a strong dollar enabled its central bank (the Fed) to provide $16 trillion (not a misprint) to bail out banks in the US AND Europe. The $16 trillion figure comes from a recent audit by an independent branch (GAO) of the US govt.

          2. Wage stagnation. No raises lead to people keeping their jobs. Germany controls the unemployment rate by keeping the salaries for labor stagnant. The German unions have agreed to wage stagnation over the past 10-12 years. Despite low wages, Germans save a lot, preferring to buy cheap, lousy food, for instance, to buying better quality. Hence Germany has a lot of capital, or had a lot before the fraud/collapse of Wall Street complex derivatives cleaned out the capital in their banks and huge loans were made to banks and governments in Ireland, Greece, Spain, Italy, etc. France increases employment by limiting work hours, but increases unemployment by making it hard to fire anyone so employers are reluctant to hire unreliable and untested young people, who they fear they could be stuck with as poor producers. France also sets entry level wages high, discouraging new hiring.

          The Irish government pays its workers a very high wage compared to elsewhere in Europe. Will that change? Not likely.

          3. Increased government hiring. Despite its problems, this could happen in Ireland. Politics can override management, and should do so at times. But now?

          4. Emigration.

          5. Vast slums, with no jobs and little or no government benefits or services.

          In sum, the basic premise that “something goes up and something else goes down” holds, even for Germany.

          Ironically, panicked small businesses in the US support the Tea Party’s desire to impose an artificial government spending ceiling by cutting benefits yet not raising taxes and leaving industries proven to be almost criminal in their “self-regulation’ completely unregulated. The US government may also be forced to default. All this will greatly shrink the buying power of ordinary Americans and lead to the demise of many small businesses. They do not get how things are related. They see only one thing. But of curse they are funded by billionaires and the moves advocated by them will benefit those billionaires.

          We are living in an age when the right triumphs, even advocating a return to the nasty economic/social systems of the 1700s/1800s, the system that serves as the background for “The Fields of Athenry.” Yet many, many Irish-Americans are great supporters of the Tea Party.

          Yet the left and the Irish “do me favors” system has to sober up on how to solve real problems.

      • CitizenWhy

        Great comment.

  3. Deco

    I think that a hard currency regime works, when you are disciplined and organized with regard to participation.

    As can be seen by the Celtic Binge, we were disciplined and organized to the extent that an unavoidable cathastrophe was completely predictable.

  4. manofiona

    Irish exports have very little to do with the exchange rate. Most of them are made by companies whose trade from Ireland with the US is largely internal and is based on their own internal transfer pricing arrangements and whose trade with Europe is facilitated by the common currency – and by Ireland’s encouragement of using its low corporate tax rate, and the absence of a common corporate tax base, as a means of offering tax arbitrage. Those exports to Belgium are mostly paper exports, literally bits of paper which create a plausible tale to tell the taxman in one or other country of the EU.

    The idea of Ireland as an exporting colossus is mostly hokum, and dangerous hokum. Ireland is simply a tax-convenient location for mostly US-based multinationals to do their European business, either in fact, or increasingly in fiction.

    The proposal that Ireland should leave the Euro and devalue its way to prosperity is dangerous nonsense. It is nonsense because the very hint of any Irish move to leave the Eurozone (only possible legally if Ireland actually left the EU) would not just sink the banking system (which has only been saved from sinking by gripping onto a lifejacket tossed out to it each day by the ECB), it would jeopardize the basis on which the multinationals invest in Ireland: the certainty about Ireland’s place in the EU.

    It is dangerous because, if repeated often enough, some people will actually believe the idea of Ireland leaving the Eurozone and striking out on its own. Disastrous policy decisions might be made by foolish politicians in Dublin based on this illusion: they have a record of living in fantasyland and millions of Irish people are now paying the price of that illusion.

    The Eurozone as a whole has to come to grips with the implications of the common currency and those implications are far-reaching, going as far as the effective political union of Europe. All other suggestions are mere diversions from reality.

    • uchrisn

      What is your opinion on the fact that taking a break from the Euro is not banned in the treaty? Ireland could simply say they are taking a break. Then they would be in the same situation as Sweden. Sweden are supposed to join the Euro some time in the future. Ireland would be supposed to rejoin if ‘taking a break’. This was suggested by a Harvard professor.

      • manofiona

        It is an obligation under the Treaties to join the Euro (Article 3, paragraph 4 of the Treaty on the European Union; Article 119, paragraph 2 of the Treaty on the Functioning of the European Union) and there is no provision for leaving the Eurozone. Sweden negotiated an opt-out from joining the Euro when it joined the EU. Ireland did not negotiate an opt-out and its legal position is therefore completely different from Sweden’s (or the UK’s for that matter). Harvard professors of economics are not necessarily knowledgeable about European law

        • uchrisn

          His point was that as the treaty does not actually forbid taking a break from the Euro so its possible to do so.
          On another point what do you think of the European Financial stabilty fund. Is it breaking the no bailout clause terms of the nice treaty? A group of German professors are taking this to the German courts.

          • manofiona

            He is wrong. It is a legal obligation under the treaties to use the Euro. If Ireland wanted not to use the Euro as its currency, it would have to renegotiate the treaties, not just with the other Eurozone states but with all the other member states of the EU.

            The EFSF is technically independent of the EU institutions but in any case it probably does not violate the prohibition in the treaties (Article 125 of the Treaty on the Functioning of the European Union) on member states guaranteeing or assuming commitments in respect of each other’s debts. The EFSF does not guarantee a member state’s debt or pay the debt on the member state’s behalf. Tt simply lends to a state, which then uses the funds to pay off its creditors. Also, the German courts do not have the final word on the interpretation of the Treaties. That is the prerogative of the European Court in Luxembourg.

          • uchrisn

            It will be interesting to see how that case on article 125 goes in Germany. The professors feel they have a strong argument.
            On the point if taking a break from the Euro, there certainly seems to be a grey area there. The guy from Harvard has gone through the treaty. It could be again one for the lawyers and/or the courts.

  5. Ramanan

    Oh maybe that was Wynne Godley’s modesty that led him to declare that he wasn’t good at Mathematics. When I took undegraduate courses in Mathematics – which was my favourite, the Professor started with sequences. Never could I have imagined that what I now love – Macroeconomics can be looked at as sequences. And Wynne’s usage of sequences is flawless.

    Nice phrase Godley Paradox. Maybe his policies can be said to lead to Wynne-Wynne situations.

  6. Malcolm McClure

    The original headline for David’s piece ‘Troika’s claim that Ireland is doing fine is a load of junk’ was controversial, but was better than the above headline ‘The exchange rate is the key to recovery’. Ireland does NOT have an exchange rate and no amount of wishful thinking will get us one this side of Christmas. The crisis is moving too fast to allow Ireland to establish a separate currency, starting from scratch. Wolfgang Munchau in today’s FT says that the odds for a breakup of the eurozone is now 50:50 and a eurozone bond backed by all member states is the only solution to the crisis.
    Some economic pundits believe that his breakup is liable to happen before September.

    Godley uses his fingers to play the oboe, and probably also to count, as he says he was no good at maths. An economist who doesn’t understand the mathematical basis of compound interest and NPV is as useless as a fingerless oboe player…. he can probably blow well enough, but his tune is liable to be monotonous.

    Godley “was interested in the hydraulics of economics… or the ‘‘if this goes up, what goes down’’ end of things.” That simplistic approach is fine and dandy for digger manufacturers, who are dealing with a known quantity of fluid. Economic liquidity is a much more flexible quantity, subject to quantitative easing, inflation, taxing, devaluation and hoarding, all of which can be parameters input to mathematical models.

    David’s ‘simple back-of-the-envelope calculations would mean that, for the economy to stay stable, the trade surplus would have to increase by at least 11 per cent of GDP from here.’ He may well be right, but only if all variables are measured in a stable unit of value like gold— now $1600 per oz.

  7. Colin

    I have the solution. Raise Dirt on deposits from 25% to 100%. Tell depositers the new rate will come into effect on the 1st of September. Now, reduce VAT to 0% immediately until the 31st of August.

    • Deco

      I disagree.
      If the DIRT goes to 100% – then there will be no money in the banks – and the Irish government will have to explain to the IMF why the Irish deposit base moved to Germany and The Netherlands in one week.

      Concerning VAT – 21% of too much, reduced simply to too much is not a deal. The problem of high rates, high cost electricity, the minimum wage, and the other levies charged on business needs to be examined. But we are in a situation wherein the political parties rely on local authorities to provide jobs for many of the foot soldiers of every election. The Political system has overcome local government.

      • Colin

        Right, well somewhere on the scale from 25% to 100% is a tipping point, lets say its 49%, so up DIRT to 49%.

        I know the rates and electricity and other levies are the structural economic problems we have, but the temporary suspension of VAT can spark people to start up new businesses, especially if people see value in what you are selling. Then after a few months, tackle the rent, rates and all that jazz to make those new businesses sustainable.

        • seanmh

          Dirt only raises considerable revenue when there is a high rate of interest being paid to depositors. Vat is virtually transparent to businesses other than those who sell to the end user. Trade to trade businesses would see no real benefit from a zero vat rate and with DIRT 100% of nothing is still nothing.

          • Colin

            I’d trust Aldi & Lidl to pass on VAT reductions, so the unemployed and working poor could benefit from this by shopping there.

            I thought the banks were competing with each other to attract badly needed deposits by offering great deals, and with ECB pursuing a high interest rate policy in the short term, I’d imagine a substantial amount could be creamed off with a higher DIRT %. Consider it as a wealth tax, wouldn’t that be a good idea?

            And what happens if everyone takes their money out of the Irish banks, it precipitates a banking collapse, which forces us to act, instead of all this pissfarting around which has been going on for the past 3 years.

        • Deco


          Because of the low ECB rates, deposits can move quickly to chase a return. However, in a crisis, and with low interest rates, people have a tendency to be concerned about the pincipal in their savings as well as the return.

          An Post as a bank loan money to the government. To be honest I do not think that they are any more secure than AIB or BoI, because ultimately the taxpayer is being committed to their defence in a crisis.

  8. Davids Subconscious Revelations

    Wynn or No Wynn David says the center of gravity is the number 11 .

    September 11 2011 is MOON WOBBLE

    ( the end is nigh )

  9. Deco

    I would also be extremely concerned about a meltdown in the UK. I do not see the Con-Lib government breaking up, simply because the Lib-Dems know well that they are competing with the British Labour Party for seats, and will want to see reforms to Britain’s skewed and unrepresentative constituency map before a General election. Basically, the Lib Dems will stick it out, for the sake of the type of reforms that will reduce the probability that the Labour Party will be the largest political party in Britain – so that their role as the “add-on” will be more likely in future.

    But as our main export market, we should be aware that our cost base is not competitive with Britain. Further weakening of the Pound Sterling will make this an even greater crisis in the jobs intensive part of the Irish economy that relies on trade with the UK.

  10. paddyjones

    What David is really saying is that we must leave the euro ! utter rubbish , we are so intertwinned with the euro e.g. 160 billion emergency funding from the ECB and half a million tracker rate mortgages.
    DMcW is really scrapping the bottom of the barrel here , his soft information on economics is really immature drivel, what I would like to see is hard facts and figures from any credible economist.
    Gurdgiev is good at this type of economics , McWilliams is just a populist.
    Austerity is our future the fall in GDP over the next few years is just an adjustment following a boom, it wont make any difference, since when did GDP growth do anything for the Irish people ? it just made everything more expensive…housing, leisure , food, energy , it just created inflation to match growth as seen in China and Russia.
    David never mentions our deficit and our need to keep borrowing , if we balanced our budget then we wouldnt need to borrow.
    I say

    adopt austerity=> let GDP fall=> balance the budget=> start repaying debt=> problem solved.

    • Tull McAdoo

      I am a little confused and maybe you could help me out here with a few things????

      1. This 160 billion in emergency funding from the ECB was not for the Irish Sovereign State because the budget deficit for the year was about 18 billion or thereabouts. So this vast sum was for the benefit of private banks in Ireland , would that be correct?

      2. These Tracker mortgages that you mention had nothing to do with the Irish Sovereign State but were in fact a concoction of the above mention private banks. These mortgages were in fact issued by banks to give themselves a competitive advantage over other banks in the Irish property market. Yes/no ???

      3. Austerity would have been very modest even with an 18 billion deficit, as our debt to GDP ratio was very small and indeed amongst the lowest in the western world.yes/no???

      4. The size of a country’s GDP/GNP per head of population,(when you have a reasonable distribution of wealth) is a great measure of a country’s net worth and general wellbeing, would you agree.???? I mean Irelands GNP where almost 80% is derived from consumption is a major dynamic and driving force. Yes/no??

      5. GDP / GNP growth in and of itself does NOT cause inflation, but inflation and its control as in our case is the sole responsibility of the ECB and its Monetary policy, which includes setting interest rates, capital reserves and so on. Yes/no ???

      6. Budgets can be balanced by increasing growth to offset and rises that could produce deficits. Would you agree that sustainable growth is a much preferred option to Austerity which I presume means cutting back on voted expenditures? Yes/no??/

      7. Would you consider the option of policies of working hard, growing your exports, Investing in the future in terms of education, innovation, efficiency and all those more laudable pursuits more worthwhile than the negative, narrow minded, kneejerk and bloody minded ignorance that you suggest with your final sentence of …..“adopt austerity=> let GDP fall=> balance the budget=> start repaying debt=> problem solved.” Yes/no???

      8. Having travelled the world dealing with economic issues, the one fact that has repeated itself without fail during every recession is that the people who call for austerity and cutbacks are rarely if ever affected by these measures… What say you Paddyjones??????

      • Deco

        Calling it austerity, is like taking an ice-cream away from an obese individual, but telling them that they can have as much take-away as they wish.

        There is no austerity in Ireland at an aggregate level. People who are under 25 are being “encouraged” to leave the country, because they have no bills and can survive on the dole. People who have commitments can not and are leaving anyway. But with a near 20 billion euro deficit and a marginal tax rate that is greater than 50% at the average wage, the state is not making any meaningful effort to balance the books – and that is before you start to evaluate further sunk costs like NAMA, Anglo, the two “Pillar” banks etc…

        • Tull McAdoo

          Let’s call it for what it is Deco and austerity it is not what comes to my mind.

          When you close the surgical theatre of a midlands hospital for two months because of so called funding shortfalls, then I call that “selective cruelty” for the less well off who would avail of this service.

          When you close this theatre and continue to pay bonuses and inflated salaries to cronies and insiders then it becomes “amoral selectivity”. I know all about the boffins up in the Department of Finance sitting back wondering what pins they are going to pushy into what voodoo doll next.

          Voodoo austerity backed by voodoo economics that’s what we have here. They have’nt got the first clue about how to “work” or “trade “there way out of economic shortfalls. You are right about one thing Deco, the under 25’s who we have educated well and who you would ask for a big effort now in this time of need are being actively encouraged to leave.

          Let me pose this conundrum for you and tell me what you think. FAS are running a diploma course for medical administration, at a time when the HSE are looking to offload thousands of administrative staff. People on the course are being told that this skill is on the “selected skills list” for entry into Australia and offers the holder of this diploma a chance of permanent residency here in OZ.

          Calamity Coughlan when she was running FAS said in an interview that “at least this time when they leave ,they will be better educated, and that should be a help”.

          Deco the thinking in Ireland is all arseways and to be fair a lot of it you could not make it up……

          • imithe

            +1 That comment about FAS is a real eye opener. It beggars belief – training people to emigrate.

            But then make a call for patriotism to get people to spend, or save or buy BoI shares. It would be funny if it wasn’t so tragic.

          • Deco

            It is all about making sure that suckers are made, who will pay up for the scams.

            the manufacturing of consent.

          • Deco


            You are right. People simply get no respect from the system, only deceit and abuse.

            There is a cohort of young Irish people in Canada at the moment, under the age of 25. It is the cream of the generation as such. And you get the feeling that that is where the Irish politicians want them – so that they will send money home to their parents, and not be pushing up the misery statistics (unemployment rate for example).

            The likelihood that the producers from the group will return is diminished by the fact that the best ones get the most respect in their new work environment.

            Can we ask Calamity Coughlan to leave, and that would be a help ?

          • Colin

            Great comment Tull.

            We should not be surprised what malevolent actions Official Ireland gets involved with. Survivors of Magdelane Laundries are on the National Airwaves describing conditions in these institutions which the Nazis wouldn’t even stoop to.

            So your mother dies while you’re young? That’s your fault, now into the laundry and work like a slave, here’s your new name, and NUMBER (might as well have tattooed it on their wrists), forget about your education, forget about getting a wage for your work, and be thankful that we are feeding you and putting a roof over your head.

            Official Ireland is the modern day Slaveowner Class, who have programmes on getting graduates to work for free while keeping the dole. The slave mentality is still alive, while huge salaries and bonuses are order of the day for the protected fat cat bosses, especially in Semi-State Sector.

    • @ paddyjones

      I am very confused .

      • paddyjones

        My analysis is shared by FG,FF,ILP,EU,IMF,ECB

        Austerity=> 3% deficit by 2015=> followed by 0% deficit by say 2016=> begin to repay debt.

        What is that DMcW chap saying …..no austerity, leave euro ????

        Growth will not happen , we will not leave the euro, we will continue with austerity, the EU/IMF/ECB are in control.

        Better face the truth than live in a dream world.

  11. Philip

    We are now facing a great many issues in the western world at once. The exchange rate is a non issue and indeed will further spook an already spooked financial community who as far as I can read it are finished. The ar$€ has fallen out of the Euro and the Dollar and Ireland is seriously endangered by its overreliance on an uncontrollable cost input – i.e. oil. It also has other uncopntrollables resulting from being an island and having a low population. The Euro has been a boon and elitist incompetence has brought us to our knees – not the Euro.

    Hydraulics and its more general knowledge area – fluid dynamics – was one of the so-called weed out topics for budding engineers. So when I hear of non-engineers blathering about hydraulics, alarm bells go off – might it explain a lot of the decisions over the last few years? But enough of this. Time is running out and fast and I would ask that you, David start thinking about global imbalances and stop imagining that ireland can proceed as though these issues are irrelevant. We need to focus on basics and we need to think in terms of being truly isolated.

    What you say about Sweden and Finland was in a different time and does not apply. What you say about Iceland is not wholly played out.

    Here is Ireland…
    1) Ireland exports are FDI/ multinational and amount to accounts management.
    2) We are over dependant on energy imports.
    3) THE BIGGY: US/ UK and Now Europe as a whole are in danger of going unstable. Western world as an economy is in serious trouble and its collapse will bring China and India with it. Remember that the knowledge to drive these economies comes from the West.
    4) WHAT HAS BEEN HAPPENING FOR LAST 30 YEARS: Incompetence emerging from a contented majority (Galbraith) when people are not ar$€ed to do any real innovation is driving us to the Malthusian paradigm

  12. Deco

    Retail in Ireland in dire trouble ?


    This is a big headline because it is a single event.

    However, beyond this there are thousands of retailers up and down the country which are in rag order. The work is rotated amongst family members to long term employees.

    The issue of commercial rates, and the fact that most of the money is wasted by local authorities, by people who are members of political parties is being completely ignored by the political establishment.

    The politicians are killing retail.

    And then we had that famous incident where BIFFO the Clowen opened a Tesco shop in the Midlands and talked about the jobs (that it was relocating at the expense of other retailers). There is a very good documentary concerning Tesco in the “freedocumentaries.org” website. It points out the damage that Tesco do to a society, a community and an economy. Another example of a politician with a legal degree proving that he is clueless with regard to economics.

    And where Tesco and the local authorities in Ireland meet is at that planning feature “the Tesco Roundabout”.

    Just take notice of the number of Tesco outlets that have a roundabout on the public road outside their outlet, and compare to the number of other retailers that have the same feature.

  13. The Receivership of Super Quinn is to me the end of the middle class in Ireland as we knew it .

    • Tull McAdoo

      John if the so called “middle class” thought that a bottle of water imported specially from America and retailing at just under 50 bucks for 1.5 litres represented value for money, then one of two things were going to happen
      1. Superquinn goes bust or
      2. Middle classes goes bust.

      On another matter ,you would hardly consider taking lessons and learning to play the flute, ala “the pied piper of Limerick”. You could lead all the rats out of Limerick City and re-unite them with there pals above in Kildare Street.

      • adamabyss

        What product was that Tull?

        • Tull McAdoo

          Bling H2O – With its stylish frosted glass bottle encrusted with Swarovski Crystals, Bling H2O is sourced from the Smokey Mountains in Tennessee at a depth of 800 metres and produced in limited quantities. It retails at €44.99 per 750ml bottle.

          Sheena Forde, Superquinn’s Purchasing Director says the ‘World of Waters’ range is designed to give discerning shoppers more choice than ever before when choosing a mineral or spring water. “Our extensive new range of waters has something to suit every taste, giving shoppers plenty of choice at every price point. We are delighted to be able to offer many of our waters exclusively in Ireland, for example the much talked about Bling H2O which will appeal to our luxury conscious shoppers, many of whom are purchasing the bottle as a fun addition to their dinner parties.”

          • coldblow

            Like the positive attitude. A breath of fresh air. Wonder do they sell quality air as well? “Pure ionized molecules carefully selected at 20,000 feet…”

          • adamabyss

            I have heard it all now. What a scam, but the sad thing is people in Ireland will fall for this sort of crap. Two more years to go and I’m out of this dump. I have a river on my land in the Caribbean – you can drink the water straight from it and it doens’t cost 45 quid a bottle. Anyone participating in the rat race here really gets what they deserve.

          • Deco

            Yeah that tastes like Bull…

          • Deco

            Surely the name is a dead giveaway that is a ripoff.

            Was on vacation in Germany in the 1990s, and tasted a mineral water called “Rhenser”, like rinser.

            Despite the name it was a really clean and good taste.

          • Julia

            Hilarious. I am always amazed at how gullible some people are.
            I’ve always shopped in Superquinn but never saw that product. It never made it to the Bray branch. Must be Blackrock.

  14. Deco

    Another problem for the Euro.


    Just wait until Spain starts to see stuff that it was previously not seeing…

  15. @deco

    substitute ‘ dancing at the crossroads’ with ‘ tesco at the roundabouts’ …what visions have we left ?

    • Deco

      It is one of those obstructions on the public road that is annoying. And there is no discussion about how this is always included in the planning permission of every outlet.

      I am really cynical about this.

      • @deco

        Come to Limerick City and witness the madness of the various county councils surrounding the city and how they distroyed the city center trade and shops closing daily and swaths of black retail spots harbouring new squatters namely RATS .Its when Quangos become Doh Nuts ie clueless .

        • Colin

          Limerick City’s biggest and most powerful enemy is County Limerick. The National Media’s dark portrayal of the city is caused by the the county’s actions over the years. The county seems determined and has more or less succeeded in turning the city centre into a shithole. The county has refused to let the urban boundary expand, so now you have more people living in suburban County Limerick than you do in the city and her inner suburban areas. You have zero council estates in suburban county Limerick, meaning the city had to provide all this, which meant immediately there was a ghetto-isation of certain neighbourhoods in the city when a very very high concentration of lower socio-economic groups were forced in together and allowed to fester by all authorities, including the county’s suburban parkland University which turned its back on the city.

  16. NeilW

    It is of course a fallacy of composition that everybody can be an export nation.

    Moreover what you are doing there is exporting your unemployment to another country due to a lack of domestic consumption. That is what Germany has been doing and the collapse of the net-importing nations in the Euro is the result.

    Nations that rely on others to keep their population employed are part of the problem – not the solution.

    • you are re-defining common market and ignoring foreign hard currency and exporting people who have no skills or education as in the 50s also you are taxing exports by subsidising them to compete ( say) uk.

  17. Water Exchange Rate from Shannon river to Dublin

    I wonder if we can measure the distance from 1,500 acreas in Offally to the doorstep of Klown and count more quango quango foot prints in stuffed wellingtons boots .

  18. uchrisn

    Short-term devaluations have been used constantly as a way of helping countries get out of difficult spots. One of their benefits is that as exports are cheaper, more is exported and more people are employed. Another benefit is that it is cheaper to come in and set up a business in your country and cheaper to hire people. Another benefit is that more people will come to your country for tourism. Usually the devaluation is short term in nature to help a country out of a rough patch and after a couple of years the currency appreciates again.
    There are countless examples of this through history. Monetary easing in the EU in general is recommended by Roubini and other top economists by keeping interest rates low.

  19. uchrisn

    Getting the monkey of exposure to banks is also another key to recovery. Iceland got rid of that exposure and devalued their currency. They are in a much stronger position than Ireland and can borrow money on the markets. Their currency will most likely appreciate over the next few years. Iceland like Ireland was heavily dependent on the financial industry and not a big manufacturing country.

  20. piombo

    I tend to agree with Manofiona’s line of reasoning. I believe it to imprudent to even think of a linked EU-exit followed by a neat devaluation of the Punt Nua. Let us imagine the practicalities of such an event:
    1) Our energy bill would increase immediately by the % of the devaluation against the € & $;
    2) The multinationals would en masse migrate in about a week as a measure to protect their revenues denominated in €;
    3) Ireland would become known as a pariah in the International financial and commercial arenas of the western world;
    4) Triple digit inflation for at least the time it would take to renegotiate the external debt;
    5) Secular and structural poverty of a sort to beget civil unrest.
    I think David is both sincere and in good faith, but it seems he is wedded to the Argentine way of dealing with the debt. Ireland cannot for a myriad of reasons follow Argentina, and permit me to add, David show know these quite well.
    Finally, just last week, Argentina transferred €45 billion (>90% of it’s foreign reserves) to it’s account in the Swiss-based Bank of International Settlements in an attempt to ring-fence these monies from foreign creditors still in pursuit of their debts of almost twenty years ago.
    Is this the future, David has in mind for Ireland?

    • uchrisn

      Piombo, have you heard of Iceland?

      • piombo

        Yes, I have heard of and visited Iceland. An isolated sparsely populated country(<400,000 if memory serves me) with near-free raw materials to export, ie mackerel and cod. In addition, they are in a de facto political and commercial union with the Scandinavians.
        With whom would Ireland ally itself with it's brand-new Punt Nua to protect it's trade and financial links?

        • @piombo

          Ireland would appoint Bob Geldof as chancelor and arrange bi-lateral trade agreements with Equitorial New Guinea, Sierra Leon, North Korea ,Tripoli Regime etc and our flag would adopt the emblem of a Banana ….to show what apes we really are.

        • uchrisn

          Iceland are in a much better position than Ireland at the moment.
          Ireland could base the value of its punt nua on a combination of the dollar, pound and Euro as they are our 3 main trading partners. Ireland had its pound before which was linked mainly to sterling.
          Basically Ireland should be prepared to put leaving the Euro on the table at discussions.
          The other option is of course a properly designed fiscal union where article 125 of the treaty is changed and Ireland gets not loans but grants when it needs help. So as interest rate rises hold Ireland back that shortfall is made up by money from other Eu countries.

  21. Deco

    The creditors of Anglo Irish Bank got an almighty bailout.

    What will the creditors of SuperQuinn get ?

    The bill, for the entire misadventure, probably.

    • Colin

      Perhaps Superquinn will get a visit from Fergal Quinn for some Retail Therapy, with RTE Cameras following him around, sure it seems its what the people want on the telly these days.

      • Deco

        That would invite disaster. Aging multi-millionaire, sweet talking, patronizing politician visits staff who are now worried about their jobs (and who he left in a hurry a few years ago, in contradiction to all his previous mantras about staff etc..).

        He might get a punch.

  22. coldblow

    “What would be your reaction if it could be shown that a set of policies would result in deepening the recession, increasing unemployment, reducing domestic demand (meaning more business closures) while having only a minimal effect on the fiscal deficit?”

    Michael Taaffe, 28 June 2009, ie 2 years ago (taken at random – there’s lots of similar articles)

    Taaffe quotes ESRI scenarios, including one where 10% of all health and ed. staff are fired:

    - GNP down by 0.9%
    - unemployment up by 0.9%
    - public sector wage bill down by 1bn
    - defecit reduced by 0.2% of GDP

    “Wow. Getting rid of all those lazy, unproductive workers – which we are told is an absolute virtue – sends all the indicators in the wrong way. And we only end up cutting the borrowing requirement by 0.2% (remember, the IMF and their deflationary cheerleaders here want the borrowing requirement cut by nearly 10% in four-five years).”

    “The ESRI’s conclusions confirm a truism, which somehow gets lost in translation here: that you can’t cut or tax your way out of a recession. You can only grow.”


    2 “The adjustment will fail and fail again.”


  23. Yep DmcW is using plain logic, so here’s the skinny of an answer to his conundrum.

    The fact is the insiders have control of the rudder and have steered the economy to sup all benefits they can accrue from the ECB EMU. They’ve built roads and ghost estates all over the country in celebration of their power to access such unregulated riches.

    On the way up, there were the confetti loans from Anglo. On the way down, there is the confetti support of the ECB through ‘bailout’ or ‘more lending’.

    They do not want to lose their position at the trough that has brought them political power and financial power under the wing of the EMU and the ECB. If austerity is the price the ECB want to ask them to pay, they’ll pay it. They’ll even invent their own Mrs Thatcher (Joan Burton) to achieve this goal.

    They are terrified of losing the power and being abandoned by their sponsors in the EMU.

    On another topic I’m building a small, fun mobile app to help with simple research into economics to help with widening knowledge on a less than transparent subject in Ireland.

    Part of it will use an rss feed on links to resources sites in Ireland. If I’m missing anything, or if someone would like to add resources/links, feel free to let me know. Or if you’s like to contribute by sending me links you have yourself, feel free to do so.

    Here’s a sample of the eventual list, rss feed


    • You can begin to use that immediately. If you have a windows livemail email client or any rss feeder, give it the above url address and it will load the rss items, click anyone of the items and you are away to your favorite economics link:)

  24. Original-Ed

    The Public Service Unions are way ahead of the curve on this exchange rate solution – The Croke Park agreement is nothing but a holding position in anticipation of the “ big drop” from a devaluation. Howling is doing a brilliant job on the fudge front and the media would appear to be in on it as well.

    It’s time to start hoarding those foreign Euro notes – codes below:
    Z Belgium
    Y Greece
    X Germany
    V Spain
    U France
    T Ireland
    S Italy
    P Netherlands
    N Austria
    M Portugal
    L Finland
    H Slovenia
    G Cyprus
    F Malta
    E Slovakia
    D Estonia

    • Deco

      You are correct. Howling at the moon is doing a fantastic PR stunt. The first thing he did was commission a new report into the public expenditure reform.

      What happened to the McCarthy Report and the remit of “An Bord Snip” ?

      Effectively, McCarthy to get replaced with a report that will be more tame and controlled.

      You will also observe that the economics profession are being pushed away from government policy at the moment because they do not agree with ILP policy. In this regard the ILP seem to reek of even more arrogance than FF.

      I know for a fact that CPSU officials told civil servants to vote ILP first preferences, and then others, and not at all to FG or SF. This was because SF were not playing ball with the ponzinomics of continually increasing the state borrowing with their “burn the bondholders” mantra.

      The CPSU also singled out Shane Ross for rebuke internally, and warned that nobody was to vote for him or aligned candidates like Sommerville.

      Personally, I think that this sort of behaviour is dispicable and disgusting. In the last week of the election there was a swing towards the ILP orchestrated by unions, when they realised that FF were in meltdown, and FG were in danger of getting so close to an overall majority that a link up with Ross, and others would have sealed it. The ICTU would be cut out of the running of the country – their worst nightmare. They had to intervene, and they did.

  25. paddythepig


    This is a useful little article from Seamus Coffey, economics lecturer at UCC.

    What it shows is that the improvement in balance of trade for goods, which is often bandied about as a cure to our ills, is more due to a falloff in imports than a boom in exports (which on aggregate have remained static).

    It means that Paddy is no longer importing the bouncy castles, the JCBs, or the 50 inch flatscreens, at the rate he was. Hence the retail sector which trades in imported goods has collapsed. That is unfortunate for the ordinary people who worked in this sector, but in all honesty, such blind consumption-based so-called growth is doomed from the outset if it is not countered by genuine domestic export oriented innovation and trade.

    This blows a hole in the ‘make the public spend’ argument being put forward by so many on this board. If you make Irish people spend, on aggregate they will spend it on goods not produced in this country. The net benefit will be to the economies of origin of these goods. This is folly ; the car scrappage scheme is a very good example.

    This article shows that the discretionary goods that the ordinary man on the street wants to consume, and which are subject to cyclical forces, are not made in Ireland.

    As for exports, well the main growth is in chemicals (mostly produced by multinationals), not in grassroot export-oriented small businesses. A new devalued currency is not going to stimulate an economy in any meaningful way, if the domestic export oriented sector is too small to make an impact.

    • Colin

      I presume that post was directed at me, and fair enough there is some sense in what you say, but let’s examine it..

      “If you make Irish people spend, on aggregate they will spend it on goods not produced in this country.”
      I’ll clear up a few things here, I don’t advocate making everyone spend. I only expect those who have funds available (aka big depositors) to spend, not those who wish to use their credit card or obtain a credit union loan for retail therapy. I would like to see spending encouraged, not forced. Regarding what kind of spending, there are plenty of Irish products and services you can spend your money on, home insulation for example which reduces the demand on imported oil. Why can’t people buy Irish art to give as presents instead of German/French electrical goods for wedding presents for example. It requires thinking outside the box, you need to de-programme the mind which has been conditioned by 15 years of relentless advertising and sponsoring. Buy an Irish author’s book instead of a Hollywood Blockbuster DVD. Attend a live music event performed by Irish musicians instead of forking out over the odds for International acts visiting our shores.

      Ending on a positive note, its healthy to see less and less imported JCBs and 50′ plasma TVs coming in. But we need our high streets to remain open, and I’m advocating a policy that encourages them not to throw the towel in.

  26. @paddythepig

    Good Observation on your part …well done.

    This begs the question why are indiginous irish companies too small to export our natural resources and products from the land .Take for example France owns the monopoly of many Irish companies that export food and dairy and drink from this country so they make a profit on our exports …they also sell to the irish market motors , cosmetics , food , waste disposal , banking etc So they have it wrapped up on both sides of the Irish Brush ( scuab).

    • Deco

      They own practically the entire portfolio of Irish Whisky brands.

      Another example of the Competition Regulator in Ireland being asleep at the wheel !!! (But the former head of BoI was steering the deal, therefore they had the correct connections to ensure regulatory approval).

  27. I have yet to see an Irish Bus Driver in France or Poland or Nigeria for that matter .I could count all day the foreign bus drivers in our cities.

    • piombo

      Godo morning all,
      John’s last point is the pristine example why there are “foreign” bus drivers in our cities. The reasons are twofold:
      A) Irish wages in the public sector are still considerably higher than those of continental Europe and the UK, including Germany;
      B) The unemployment benefits are also the most generous in the entire EU, except for Sweden. Here in Italy, the unemployment STOPS after a maximum six months and is only Ghent a fraction of the Irish dole.

      • coldblow

        Three things occur to me here:

        1 Ireland is the most expensive (or second most) country in Europe. Even allowing for this I have doubts about the validity of your statement about high PS wages in absolute (and not just relative) terms.
        2 I wonder how easy it is for foreigners to find work as bus drivers across Europe?
        3 So what do the Italians do with their unemployed after 6 months? I haven’t read any reports of starvation.

        Re that last point, long-term welfare dependency is obviously bad for all concerned. But I don’t understand why Joan Burton is getting exercized about it just now of all times, when unemployment is approaching 1/2m and there aren’t any jobs. Was she saying the same in 2006? As it makes no sense at all she must be sending out some kind of signal.

  28. Malcolm McClure

    Will tomorrow, Thursday 21st July, be remembered in the annals of triumph or infamy? Will it be D-day for the Euro or its Dunkirk? Will the EC leaders rise to the challenge or continue to obfuscate?

    EC President Jose Barroso has just laid it on the line:
    “Nobody should be under any illusion; the situation is very serious. It requires a response. Otherwise, the negative consequences will be felt in all corners of Europe and beyond.
    “The situation requires full engagement by everyone at the summit and I believe we’ll have it.”

    Let’s hope his prayers are answered.

    • @malcolm

      …it will be abomination….ignominy atrocity contempt …..’with o’ leary in the grave’.

    • Re “Let’s hope his prayers are answered”

      Judging by Enda in the Dáil today, he’s switched churches. The new untouchables are the bankers and the gods of Wall Street. What about a Cloyne for bankers? Compare the Murphy report to the inquiry we’ve had into Anglo and banking in general in Ireland. Honahan et al reports, consider the lack of detail, the casual allusions to further Garda investigations = let’s wait for enough time to pass until its forgotten, then our DPP pounces with ‘lack of evidence to proceed’ :) Not to take away from the craven responsibility of Magee and Brady both hiding away their tracks uncovered by Murphy as we remember how they ganged up on Diarmuid Martin, the cleaner.

      • Malcolm McClure

        cbweb: The difference is that Fine Gael tried, without success, appealing to the Holy See.
        Fianna Fail tried, with success, appealing to the unholy don’t see: P Sneary.

  29. We need high grade think tank stimulus of the economy that doesn’t pour money into the wasted property and financial industry and the banks, but one that targets an indigenous, home grown productive enterprise at the high corporate and low end.

    Money spent on education isn’t wasted and a long term strategy to create a public service along the lines of the Swedish model with investment in industrial and educational infrastructure should be our goal, instead of pouring taxpayer resources into the coffers of banks, bondholders, and odious debt tricked from taxpayers.

    The experiment with the euro has been badly managed and banks and governments across Europe have milked the ECB cow in an unregulated and criminal way for the past decade or more.

    The austerity remedy is a joke. Giving more debt to those who cannot pay their current debts while dismantling their economies with austerity is ridiculous smoke and mirrors.

    The chickens are coming home to roost. Arguably sovereign governments are better able to manage their economies than the troika, this could be the endgame:

    “The falcon cannot hear the falconer; Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world, The blood-dimmed tide is loosed”(Yeats) I suppose is the worst that can happen.

    The problem is Angela Merkel’s Marshall Plan or extension of the EFSF Euro financial Stability Facility is just not big enough to cope with the likes of Greece/Italy/Spain together needing bailouts as big as ours:(

    Which brings me to the pragmatic solution of rejoining sterling, alliance with NI and a new Commonwealth 11 relationship with the UK. This would mean recall of our peacocks from Europe and halving the salaries of their replacements as we wean ourselves off their gravy train:

  30. Malcolm McClure

    Papandreou to Frau Merkle:

    Greece is the word:
    We take the pressure and we throw away
    Conventionality belongs to yesterday
    There is a chance that we can make it so far
    We start believing now that we can be who we are.

    I got debts they’re multiplying
    And I’m losing control
    Cause the credit you’re supplying
    It’s Electrifying!
    You’re the one that I want, oh oh oh honey
    You’re the one that I want, oh oh oh honey

    More lyrics: http://www.lyricsmode.com/lyrics/g/grease/#share

    • Malcolm McClure

      Wall Street Journal:
      The plan includes cutting the interest rates on bailout loans to Greece from 5.5% to 3.5% and doubling the repayment period to 15 years. Officials said Ireland and Portugal could also see the interest rates on their bailout loans cut to the same low interest rate.

      • thirdeye

        EU has shown it is not fit for purpose.The EU’s auditors have once again refused to sign off EU spending budget, making it the 16th year in a row they have refused to do so up to 2010.EU leadership have at the same time dictated to weak members of the euro currency that they must adhere to any austeruity measures already agreed upon. Eu Elite tonight stated tonight they will do everything to save and protect the euro sounds to me the last stand not only of the euro but the eu wide total collapse.Ironic the eu hoping this new strategy will appeal to the financial markets and ease pressure on the euro but also added it will in reality ignore the various ratings agencies predictions is tempting fate as most of the investors are outside the eu itself would gauge investment strategy on the various ratings agencies in what countries in the eu are financially stable.How will various political and economic groupings outside of the eu digest this and I feel will use this news on ratings agencies to be even more causious of any so called political deals as just a smokescreen.

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