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Irish taxes were between 33% and 37% prior to the crisis. That I think is to low. It should be possible to raise this level to 40-45%.

Or you can cut the level of expenditures to 33-37%. But I don't think you can run a real welfare state on this.

Now regarding the middle of a depression: I don't assume that Ireland will in three or five or ten years still in the middle of a depression. And then taxes can be rised. And debts be serviced.

As for paying back - why? States are long lived. If Ireland wants to keep the debt another fifty years, why not. Economic growth will then make the debt more bearable.

But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid. More I do not assert.
   

by IM on Mon Feb 7th, 2011 at 10:27:07 AM EST
[ Parent ]
I don't assume that Ireland will in three or five or ten years still in the middle of a depression

I wouldn't be surprised if it was, given that we're meant to be running massive austerity budgets for all of that period.

GNP is going to shrink again this year and probably next year - any recovery will be drowned at birth by further austerity.

Sure, tax rates here are too low, sort of. Effective tax rates may be quite high for the poor because of how VAT and charges for government services are structured. I've been calling for increases in Irish taxes for years.

by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 10:42:59 AM EST
[ Parent ]
But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid.

No. It can't.

Why is this so hard to grasp? It's Keynes For Kindergardeners: You cannot run a budget surplus during a serious depression. Not enough surplus to pay interest, not enough surplus to amortise, no surplus at all. Full stop.

So Ireland's bonds will have to be carried for the next five to ten years (more like fifteen if Germany insists on practising Austerity) without the bondholders seeing a single eurocent. Now, that would not in and of itself be a problem, if the ECB were doing its fucking job and printing money on demand. But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.

Now regarding the middle of a depression: I don't assume that Ireland will in three or five or ten years still in the middle of a depression. And then taxes can be rised. And debts be serviced.

If the ECB had been doing its job and printing unlimited amounts of money for Ireland, then your proposal would have been something worth talking about. It would still have been odious, because there is no good reason the Irish taxpayer should bail out the Irish banks, so the part of the debt that corresponds to the bailout should be defaulted upon, at the very least. But it would have been within the realm of the possible.

With the ECB practising Austrian economics, however, your plan of "carry now, pay later" is delusional. It can't happen until Weber, Trichet and Stark are fired and replaced with people who understand the real opportunities and constraints that a fiat currency represents. So unless you have a proposal for how to get Messrs. Trichet, Weber and Stark fired and replaced with Keynesian economists that does not involve defaulting on everything with a business address in Frankfurt, I don't see how your plan is anything but a pipe dream.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 01:11:42 PM EST
[ Parent ]
Of course your plan is even more of pipe dream.

But on the ECB: There are 16 member states  of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.

by IM on Tue Feb 8th, 2011 at 10:11:01 AM EST
[ Parent ]
Of course your plan is even more of pipe dream.

Oh, I don't expect the extortion to actually change ECB policy.

But when they default, that will cease to be Ireland's problem, and the Germans who get burned can take it up with Messrs. Stark and Weber, who bear the lion's share of the blame for the ECB's stupidity.

But on the ECB: There are 16 member states  of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.

Oh, but that is the whole point of this strategy: Pressure the €-zone countries into sending loose-money governors to the ECB.

That said, it really is undignified seeing you try to fob the blame off on someone else - anybody else - other than the last twenty years of German policymakers. The inflation mandate was a German idea - in fact, a German condition for joining the € in the first place. So was the General Stupidity Pact, by the way. And there is no doubt that German policy positions wield a disproportionate influence in the ECB. For that, you only have to look at its actual interest rate policy over the ten years of its existence as a functioning central bank: They have consistently favoured German macroeconomic policy at the expense of the interests of peripheral countries.

When you follow the money, you end up in Frankfurt.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 9th, 2011 at 01:13:30 AM EST
[ Parent ]
Tell that the Weber. Shouldn't his resignation put a little dent in your "the germans runs everything" conspiracy?
by IM on Sat Feb 12th, 2011 at 05:41:28 PM EST
[ Parent ]
Merkel runs Germany.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Feb 12th, 2011 at 09:31:43 PM EST
[ Parent ]
I thought the Bundesbank?
by IM on Sun Feb 13th, 2011 at 07:54:44 AM EST
[ Parent ]
Weber's ouster is good news. Now we just need to get rid of Stark, and we'll have a shot at getting somebody sane in office.

But it doesn't change the fact that the ECB has been consistently favouring the surplus countries - of which Germany is the most prominent and powerful - and has for far too long been pandering to German inflation neuroses.

Incidentally, you should be happy about this outcome. Weber was the most significant obstacle to Ireland's debt being repaid in full, due to his insane insistence that the ECB shouldn't carry it at below market rates until the crisis was over.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 13th, 2011 at 12:31:49 AM EST
[ Parent ]
Actually, all 27 EU member states. See the ECB General Council page.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Feb 9th, 2011 at 02:24:43 AM EST
[ Parent ]
But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.

But that is much too generous an assessment of the mind set of the ECB. Rather than laboring under delusions, they are much more likely acutely aware of the ire they would recieve, the hit their financial futures would take, and the general opprobrium they would endure were they to deny their private sector patrons the seigniorage to which they feel entitled. They are probably at least aware of the arguments that they can create money without seigniorage, but also aware that this is like a third rail for central bankers in a neoliberal economic environment.

It would be very interesting for Trichet to be asked by, say an MEP, why he has not considered issuing money without siegniorage to help the recovery of banks and central banks that threaten the stability of the entire system. The answer, if truthfully given, would be that so doing would undo too much of the narrative that underlies existing policy and would harm the beneficiaries of the neoliberal policies -- the very wealthy.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Feb 8th, 2011 at 02:46:29 PM EST
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