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Ireland Implodes

by Frank Schnittger Fri Feb 13th, 2009 at 11:51:49 AM EST

Cross posted from the European Journalism Centre Think about it Competition website  (Shameless self-promotion - please comment on and rate post on the Think about it website if you have the time!)

Ireland has changed at a faster pace in the last 15  years than any other country in the world of which I have some experience.  First we had the Celtic Tiger - over 10 years of uninterrupted economic growth of c. 6-8% P.A. resulting in a doubling of the Irish economy and workforce - over 10% of which consisted of recent immigrants from Eastern Europe.

That was followed by a financial and property bubble - rapidly increasing land, house and consumer prices and wage costs which rendered Ireland increasingly uncompetitive on world markets.  In the days before the Euro the Irish Government could have controlled this by increasing interest rates and devaluing the Irish Pound.    However with low Euro zone interest rates and an appreciating currency the boom continued on unabated with a populist Government throwing petrol on the flames by reducing tax rates when it should have been tightening fiscal policy to compensate for its lack of control over monetary policy.

from the diaries - Jérôme


The fall from grace has been a bit like the Wiley E. Coyote cartoon character who races over a cliff and only starts to fall when he realises he has been threading on thin air for some time.  We might have gotten away with a minor recession had it not been for the unfortunate fact that our bubble burst just as the Global financial system was imploding.  

Now we are seeing negative growth numbers never before seen in the history of the Irish State. Irish GDP is expected to decline by over 10% in the period 2008-2010.  Unemployment will treble from 4 to 12% and that is even after many of the immigrants from eastern Europe have returned home.  Consumer expenditure fell by 8% in the last quarter of 2008.  House prices are expected to fall by 80% from peak to trough.  House construction is expect to fall from a peak of 90,000 in 2007 to 23,000 in 2009.  Inflation has actually turned negative (-0.1%) over the past year, and deflation is expected to rise to c. -4% in the current year.

This catastrophic crash is being led by the Irish financial sector.  The Government has just approved a €7 Billion recapitalisation of the two major banks - AIB and Bank of Ireland - after it was forced to nationalise the third largest Irish Bank - Anglo Irish Bank.  This comes hot on the heals of a Government Bank guarantee for all bank liabilities which requires Irish taxpayers to insure Bank liabilities of up to €400 Billion - more than twice Ireland's GDP!

This implosion in the Irish economy is now being followed by an implosion in the Irish political system.  A quiet revolution is happening. Voter passions have been inflamed by the disclosure that the former Chairman of Anglo-Irish Bank, Sean Fitzpatrick, had undisclosed loans from the bank of €87M and that another Irish Bank - Irish Life and Permanent - had deposited €7 Billion in Anglo-Irish bank for a few days just before he latter's financial year end to make it appear that the latter had a healthy flow of deposits in its annual accounts.

The Government has been forced to take desperate measure to shore up the national finances in the face of a rapid decline in tax revenue.  The Government current account deficit threatens to balloon to 10% of GDP - over three times the 3%  limit allowed under the Maastricht Stability and Growth Pact .  It has sought to claw back €1.3 Billion from a levy on Public Service pensions entitlements - to the understandable outrage of public servants.

A huge blame game is being played - with the rogues gallery being filled by bankers and developers who hyped the Irish property boom, regulators who failed to regulate, and above all, politicians who failed to Govern.  Fianna Fail, the largest party which has been in power for most of the past 87 years of Irish independence, has fallen to third place with just 22% popular support.  It normally gets more than twice that.  The Labour Party, which normally gets c. 10% of the vote, now stands at 24% popular support.

Many commentator's see a fundamental realignment in Irish politics - from a traditional divide between Fianna Fail and Fine Gael - two conservative parties which arose from those who took opposite sites in the 1922 Civil War - to a more standard European Left-Right Divide - with Labour (25%), Sinn Fein (8%) and the Greens (4%), making up a viable Left wing alternative Government for the first time.

However I would caution against reading too much into short term political trends.  Labour and Sinn Fein take diametrically opposed views on Europe - and Lisbon in Particular - and are about as far apart on matters of ethos as it is possible to be.  Labour has always opposed Sinn Fein's militaristic tendencies - until very recently it was little more than the political wing of the Irish Republican Army (IRA), the most active Terrorist group in Europe - and even though peace has reigned since the Good Friday Agreement (1998) - the divisions in Irish society which this conflict engendered remain bitter.

What is not in doubt however, is that Fianna Fail will be absolutely trounced in the June European and Local Elections by an electorate just waiting to take its revenge against a party which was seen as being too close to the Bankers, and Builders who led Ireland into the property boom and who are seen as being largely responsible for the bust which followed.

How the Government's unpopularity will effect the second  Referendum on the Lisbon Treaty - expected to be held in October - is a more complex question however, and one which I will return to in a separate post!

Display:
Now we are seeing negative growth numbers never before seen in the history of the Irish State. Irish GDP is expected to decline by over 10% in the period 2008-2010.  Unemployment will treble from 4 to 12% and that is even after many of the immigrants from eastern Europe have returned home.  Consumer expenditure fell by 8% in the last quarter of 2008.  House prices are expected to fall by 80% from peak to trough.  House construction is expect to fall from a peak of 90,000 in 2007 to 23,000 in 2009.  Inflation has actually turned negative (-0.1%) over the past year, and deflation is expected to rise to c. -4% in the current year.
[Drew's WHEEEEE™ Technology]
[Jerome's WEEEEEE™ Technology]

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 09:55:40 AM EST
Deflation is largely due to the drop in mortgage rates so far, apparently.

Is local deflation within a currency zone a bad thing, especially in a region where prices have got way ahead of the rest of the zone?

by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 09:57:08 AM EST
[ Parent ]
Does Ireland have an inflation index that excludes the cost of housing, and what does it look like?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 10:00:06 AM EST
[ Parent ]
Starting point here - I'm too busy to chase it right now.

However, the monthly data is a tale of two trends, with prices rising in eight of the 12 categories measured by the CSO. The overall cost of living fell due to the weighting attached to the four price areas showing a decline.

The principal reason for the fall was a sharp drop in mortgage costs, which declined 15 per cent. In the three months to January, declining mortgage interest costs have accounted for two-thirds of the inflation drop.

Homeowners saw repayments fall by €50 to €150 on average as a result of the European Central Bank half-point cut in rates to 2.5 per cent in December. A further cut of 0.5 per cent in January will feed into inflation data for this month.

Consumers also benefited from lower petrol (-4.3 per cent) and diesel (-5.5 per cent) prices last month. Air fares dropped by 9.6 per cent, following a 10 per cent drop in December as global oil prices continue to weaken.

Post-Christmas discounts offered by retailers saw clothing and footwear costs decline 13.2 per cent last month.

Despite the sharp monthly fall in mortgages, fuel and clothing, prices for many Government provided services such as health, education, energy and public transport continue to rise.

Health costs rose 2.8 per cent last month and by 5.8 per cent in the year, while hospital services rose by 10.4 per cent. Over the year education costs rose 5.6 per cent. Increases in bus and rail fares and motor tax saw overall transport prices increase 8.6 per cent in January.

by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 10:04:57 AM EST
[ Parent ]
Yes, the CPI includes things like reduced mortgage interest rates which have turned the rate negative.

Inflation decline first in 50 years - The Irish Times - Fri, Feb 13, 2009

The harmonised index of consumer prices (HICP), the indicator used to measure inflation across the euro zone which does not include mortgage interest, rose 1.1 per cent over the past year, despite falling 0.8 per cent in January.

The Irish HICP rate is now just half the euro zone average of 2.2 per cent.

However I would expect even the HICP to turn negative soon...

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 10:27:43 AM EST
[ Parent ]
Deflation is largely due to the drop in mortgage rates so far, apparently.
Frank says "Consumer expenditure fell by 8% in the last quarter of 2008". It might not all be due to dropping house prices or mortgage costs.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 10:01:14 AM EST
[ Parent ]
It shouldn't be, but it largely is. Companies are still resisting dropping prices, I think, except for the hardest hit. Wages are going to drop here, and so prices - which were wildly inflated anyway - are going to do so as well.
by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 10:08:22 AM EST
[ Parent ]
So far it seems that the companies that are failing are ones you'd expect to fail - ones that were in trouble even at the height of the boom, restaurants that never made any sense at all, that sort of thing. Oh, and anything connected to property.
by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 10:15:43 AM EST
[ Parent ]
I'm pretty sure consumer expenditure does not include major capital items like houses - CPI includes only Mortgage interest.  It does however include car purchases

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 10:31:05 AM EST
[ Parent ]
Price-stickiness.  It'll take some time for that to filter through to deflation, though.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 13th, 2009 at 10:38:34 AM EST
[ Parent ]
As I write this I am listing to a radio phone-in programme full of people complaining of being charged more than €200 for a 20 minute Medical consultants consultation.  The unreality of the elite is breath taking.  The head of AIB made a big deal of taking a pay cut from €2.9 Million to only €2 Million.  That's still 5 times what top bankers in the US are allowed to earn under Obama's cap.  And this for a bank that is pea sized compared to a major US bank...

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 10:46:45 AM EST
[ Parent ]
Persistent cross-the-economy deflation is bad.  As the purchase cost of stuff & service falls the relative value of money (cash, say) increases.  Thus people can 'make' a 'profit' by shoveling their excess cash into a mattress.  Further if everybody 'knows' an item will cost less next week the tendency is for people to put-off purchase until next week, decreasing consumer activity, and all the rest of it.

Downward spiral, in short.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Feb 13th, 2009 at 03:33:19 PM EST
[ Parent ]
Worse still, when people don't trust the banks and instead shove the money under their mattresses, they further contract the economy, so that instead of lower interest rates that would put some natural foundation down for recovery, you wind up with even higher rates choking off investment.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 13th, 2009 at 08:11:34 PM EST
[ Parent ]
Inflation has actually turned negative (-0.1%) over the past year, and deflation is expected to rise to c. -4% in the current year.

Negative inflation and positive deflation are one and the same thing: fall in (clearing - wholesale ergo retail) price, where price is a monetary metric of quantity demanded, not necessarily quantity produced --OR-- production cost. Firm management will, according to historical obaservation, market quantity below cost; contrary to classic doctrine of "rational economic behavior" AND pool strategy, or cartel price fixing to set a "floor" within any one industry sector.

The Great Merger Movement in American Business, Lamoreaux. Lesson learned despite New Deal AAA and NIRA price regulation thirty years later.

The principle of "rational economic behavior" is profit taking, any time, anywhere. Whence "price wars" among firms to capture revenue, literally, at any cost. Where "any cost" is gross sales by cannibalizing own product lines (revenue centers) according to internally enforced limits established by algorithms of price elasticity of demand for each product ("power pricing").

Price cleared (gross revenue ergo GDP) will fall until the firm obtains each limit.

Diversity is the key to economic and political evolution.

by Cat on Fri Feb 13th, 2009 at 11:25:28 AM EST
[ Parent ]
And next time a general election comes around they'll all file into the voting booths and vote for Fianna Fail again. Watch.
by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 09:55:53 AM EST
Hard to say what will happen in a general election in 2/3 years time, but I'm pretty sure Fianna Fail will get hammered in June.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 10:32:55 AM EST
[ Parent ]
Odds of an early election...?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 10:41:01 AM EST
[ Parent ]
They are hanging on for dear life - together with their coalition partners, the Greens.  The Greens are under huge pressure from their base which had mixed feelings about entering into Government in the first place.  However the Greens are being thrown a lot of bones in terms of increased Government support for home insulation, infrastructure etc.  Pulling out now would be like asking people who will probably never have another chance of being a Minister to commit hari-kari.  There is almost no tradition of Ministers resigning in Ireland....

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 10:50:36 AM EST
[ Parent ]
European Tribune: Ireland Implodes
with Labour (25%), Sinn Fein (8%) and the Greens (4%), making up a viable Left wing alternative Government for the first time
That would mean the Greens could pull out and remain in government after the election?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 10:52:54 AM EST
[ Parent ]
Would they be allowed in the coalition, though?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 13th, 2009 at 11:02:29 AM EST
[ Parent ]
Probably. They can dump the blame for the financial stuff on FF pretty easily - they only joined government at the last election.
by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 11:07:35 AM EST
[ Parent ]
If there is a realignment, it will far more likely result in a Fianna Fail/ Fine Gael National coalition government (for the first time since the civil war).  Even at todays crises levels, Fianna Fail (22%) and Fianna Gael (32%) would easily manage an overall majority.

What is striking, however, is that Fine Gael, the main opposition party, lost 2% in the latest poll, whilst Labour gained 10.  So what we are seeing isn't simply a protest vote against the Government, but an ideological swing to the left (from a very small base).

The other interesting facts are that the Greens are unchanged at 4% (despite being in Government) and Sinn Fein have gained a statistically insignificant 1% to  8%.  A straight anti-Government swing would have seen the Greens lose and Sinn Fein gain a lot more.

No figures are published for Lisbon (probably held over until tomorrow) but I would suspect that this means the anti-Lisbon side have made no progress and may actually be losing ground as this crisis unfolds.

The EU is a lot more popular than the Government at the moment...

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 11:12:08 AM EST
[ Parent ]
The swing could be Fianna Fail's more left wing turning away in disgust at the realisation of how firmly they're holding the free-market line even in extreme circumstances like this. Or people screaming "stimulus, you fuckwits" at their TV every evening when the government announces yet more cuts.

An FF-FG coalition wouldn't be a bad thing, because then you do get a right-wing vs. left-wing oppostion, which would be interesting.

Though FF will just rebrand themselves as socialists in a few months time to forestall that.

by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 11:18:51 AM EST
[ Parent ]
I think it is a lot more visceral than ideological.  I don't think most people have any conception of what went wrong - beyond a few top people behaving very badly.  It i more about a loss of trust and faith in Fianna Fail as "the people's party".  I don't think any rebranding can now overcome this - even if they are seen to come down hard on the elite in due course.  It is too late for that now for the nest electoral cycle at the very least.

However I simply cannot see Fianna Fail playing second fiddle to Fine Gael.  That would be a short cut to annihilation.   They will go off in a huff instead and leave Fine Gael to form a Government with anyone else they can find - and Labour would be very stupid to take the bait.

The really interesting thing will be if Sinn Fein hold the balance of power.  I can't see anyone bar Fianna Fail going into coalition with them.  And even they will find it hard. How the electorate perceives the options at the time will be crucial to the outcome.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 11:29:44 AM EST
[ Parent ]
You're awfully optimistic.
by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 11:35:39 AM EST
[ Parent ]
I think a lot of middle class people who thought they were part of the elite are now realizing they are part of the working class when it comes to the real distribution of power in the country.  This could be the basis for a left-right realignment.  However I can see the public service moving over to support Labour en bloc as a means of preserving their relatively privileged position.  So the "left" may end up being embraced by those who want to retain their advantaged position whilst a growing lumpenprolitariat will be left with Sinn Fein.  Is that optimistic?

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 11:57:48 AM EST
[ Parent ]
Sounds optimistic to me. I'm expecting a  Sinn Fein-FF government or some similar horror.
by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 01:06:16 PM EST
[ Parent ]
Not likely if these forecasts hold up, especially if Fianna Fail is so easily tied to the banks.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 13th, 2009 at 10:39:55 AM EST
[ Parent ]
Hah.
by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 11:08:48 AM EST
[ Parent ]
The received wisdom in Ireland is that many older voters, in particular, had their party loyalties shaped by the side their family took in the civil war and would vote for Fianna Fail even if they put up a donkey as a candidate. (They have frequently come close!).

However my take on the popular anger is that this is in the process of changing pretty dramatically.  

The remarkable thing is that the Fianna Fail Ministers are quite possibly more competent than their opposition counterparts and yet they will take the fall because they were in power when this fiasco was put together in a slavish adoption of anglo-disease ideology and the hubris which accompanied the Celtic Tiger.

The relatively close relationship which used to exist between the electorate and the political elite has been irreparably broken.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 11:20:05 AM EST
[ Parent ]
The remarkable thing is that the Fianna Fail Ministers are quite possibly more competent than their opposition counterparts and yet they will take the fall because they were in power when this fiasco was put together in a slavish adoption of anglo-disease ideology and the hubris which accompanied the Celtic Tiger.
"More competent" for certain values of "competent".

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 11:26:37 AM EST
[ Parent ]
Obviously those terms are relative to their opposition counterparts (who didn't necessarily reside in a very different paradigm - but were simply doing what oppositions are paid to do).  There was very little intellectual content to the opposition to the Government - beyond a populist decrying of the close links between Fianna Fail and the Builders - which  was all fine and dandy so long as the economy boomed.  It is difficult to see Fine Gael, in particular, now handling the crisis all that differently if in power, even if they might have been more "conservative" in their management of the economy during the boom years.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 11:45:59 AM EST
[ Parent ]
The received wisdom in Ireland is that many older voters, in particular, had their party loyalties shaped by the side their family took in the civil war and would vote for Fianna Fail even if they put up a donkey as a candidate. (They have frequently come close!).

Yes, sort of like the Yellow-Dog Democrats, who'd vote Democratic even if the Dems put up -- you guessed it -- a yellow dog.

These things break down through new generations and crises.  Not to say it necessarily happens here, but just saying.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 13th, 2009 at 11:29:16 AM EST
[ Parent ]
How do yellow dogs get on with blue dogs?

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 12:12:29 PM EST
[ Parent ]
Blue Dogs are the last echoes of the Yellow (pronounced "Yalluh") Dogs, except to say that Yellow Dogs were -- not many left -- actual voters while Blue Dogs are politicians.

Yellow Dogs are basically the Southern version of the "Reagan Democrats" -- the blue-collar whites in the Rust Belt for which a certain segment of the Left has such a fetish.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 13th, 2009 at 01:04:35 PM EST
[ Parent ]
Etymology of "Blue Dog"

Etymology of "Yellow Dog"

The unofficial story is that the Yellow Dogs are all the Southern Conservatives who never quite got over the whole "Lincoln was a Republican" thing.

Precisely how the Blue Dogs and the DINOs differ - if they do at all - is unclear to me, however.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 15th, 2009 at 04:33:49 PM EST
[ Parent ]
Bloomberg.com: Irish Outlook `Appropriate' After Cuts, Moody's Says (U.K. & Ireland, February 4, 2009)
Ireland's Aaa rating and "negative" outlook remain "completely appropriate" after the government announced plans to cut spending by more than 2 billion euros ($2.6 billion), Moody's Investors Service said.
Meanwhile, Spain has already been downgraded to AA... Speaking English has to count for something...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 09:58:16 AM EST
of an article I saw in the plane yesterday and wanted to blog about:


Moody's shakes up its triple A ratings

The world's most highly rated countries have for the first time been put into different categories reflecting their risks for credit downgrades, in a sign of the deepening financial crisis.

Moody's Investors Service today split the 18 triple A rated nations, which are normally considered risk-free, into three categories with Spain and Ireland classed as the most vulnerable to downgrades because of their struggling economies.

(...)

In contrast, the US and UK, which have also built up large levels of debt in the private sector, are considered safe from downgrades because their economies are considered much more flexible and efficient. They are classed as resilient to a downgrade.

The 14 other triple A rated countries, which include Germany, France, Australia and Canada, are considered safe from downgrades too because they have been less exposed to the financial crisis, with, in general, more stable housing markets and banking sectors. These countries are classed as resistant to a downgrade by Moody's.

Not sure if "resilient" is better than "resistant"

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Feb 13th, 2009 at 11:31:54 AM EST
[ Parent ]
"resilient" means "everyone knows the UK and the US cannot possibly do worse than the rest".

"resistant" means "we'll ignore the bailouts of Dexia and Hypo when considering whether a banking sector is stable".

Sovereign credit rating is just prejudice elevated to the category of financial regulation.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 11:42:33 AM EST
[ Parent ]
Going on Moody's site, they make things rather more explicit than the FT... (you need to register (free) to get access)


Moody's report concludes that all Aaa governments are affected, but to different degrees. The rating agency distinguishes between three groups of countries: (1) resistant Aaa countries, such as Germany, whose rating is so far largely untested despite strong headwinds; (2) resilient Aaa countries, such as the UK and the US, whose ratings are being tested but, in our view, display sufficient capacity to grow out of their debt and repair the damage; (3) vulnerable Aaa countries (Ireland and, to a lesser extent, Spain) who face equally stern challenges and whose rating will depend on their ability to rapidly regenerate their economies.


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Feb 13th, 2009 at 12:12:53 PM EST
[ Parent ]
BOE's King Says UK in Recession, Further Easing May Be Needed | CEP News
(CEP News) Frankfurt - Bank of England Governor Mervyn King says that the UK economy is currently in a recession and that further monetary easing may be required, possibly in the form of increased money supply.

"Further easing in monetary policy may well be required," King said at a press conference following the release of the central bank's quarterly inflation report. "That is likely to include actions aimed at increasing the supply of money in order to stimulate nominal spending."

Further easing may also be required to bring inflation back to the target level of 2%, King added.

Currently, the BOE expects GDP to contract by 4% year-over-year in Q1 2009, while inflation is likely to slow to 0.5% by the end of next year. The forecasts are based on market expectations of the bank rate falling from its current level to 0.7% by the third quarter.

I'd like to see Moody's definition of 'failing' if this is their idea of 'resilient.'

I suppose technically the UK is unlikely to start defaulting on its debts - yet.

But accelerating GDP contraction - it was less than 2% in Q4 2008 - is hardly reassuring, especially considering the BoE's legendary ability to get its numbers wrong.

Imagine how much worse this would be if we spoke French or Spanish.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 13th, 2009 at 02:11:11 PM EST
[ Parent ]
Did the BoE take over the ONS?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 13th, 2009 at 08:02:50 PM EST
[ Parent ]
European Tribune: Ireland Implodes
This comes hot on the heals of a Government Bank guarantee for all bank deposits which requires Irish taxpayers to insure Bank deposits of up to €400 Billion - more than twice Ireland's GDP!
No, no, that would be a Government Bank guarantee for all bank liabilities. Deposits are a small fraction.

ThaiPR.net: Moody's changes outlook on bank debt guaranteed by the Irish government

The guarantee covers deposits, senior debt, dated subordinated debt and covered bonds of the six institutions, both existing and new instruments, for a two-year period that expires on 29 September 2010. 
This requires Irish taxpayers to insure Bank debt, not just deposits.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 10:10:30 AM EST
Thanks for the correction.  I'm pretty sure it is popularly referred to as a deposit guarantee - perhaps o convey the image of small depositors being protected, when in fact it is the Banks which are being guaranteed an almost risk free environment to behave more or less as they behaved before....

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 10:34:57 AM EST
[ Parent ]
The European Union agreed to raise the deposit guarantee from €20k per depositor and institution to €50k with an option to raise it to €100k.

That one is the deposit guarantee. The €400bn is a (scandalous, IMHO) guarantee including all bank debt.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 10:40:17 AM EST
[ Parent ]
Effectively the Government is treating the Irish Banks as "house banks" - an integral part of the Irish economy and infrastructure which it doesn't want to see in foreign ownership.  The question is who owns who - the Banks own the Government or vice versa ???

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 12:23:23 PM EST
[ Parent ]
So nationalise them. Sheesh.
by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 01:01:40 PM EST
[ Parent ]
Don't be ridiculous!

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 05:39:56 PM EST
[ Parent ]
Even worse than ridiculous: It's unserious.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 14th, 2009 at 11:25:00 AM EST
[ Parent ]
Even worse than Unserious: It's Unpossible.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Feb 15th, 2009 at 08:36:36 AM EST
[ Parent ]
So basically the banks own the entire Irish economy, with a legally binding promise of a one-off 100% interest payment from the government to make sure they don't run off to their creditors with it?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 13th, 2009 at 10:40:46 AM EST
[ Parent ]
So basically the banks own the entire Irish economy
I'm not sure who used to own the Irish economy before the guarantee, but I would guess a large part of that 400% of GDP is debt to foreign creditors. One function of the guarantee is, therefore, to ensure that the Irish banks remain under Irish management (further, under the same irresponsible management that made the guarantee necessary).

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Feb 13th, 2009 at 10:47:21 AM EST
[ Parent ]
In fairness the Government is extracting a c. 0.5% pa. insurance fee for guaranteeing liabilities and also charging a stiff 8% coupon for the preference shares it is taking as part of the €7 Billion recapitalization.

Both of these could turn out to be very handy earners for the Government if all turns out well, but that is a very big if.  The consensus seems to be that the Banks losses on their property loans will exceed that and it will be a very long time before their shareholders will see a dividend again.

The smart money is on the banks needing further bail-outs in due course.  There is n0ow pressure on the Banks to reduced their costs/overheads - particularly on executive salaries/bonuses but there is nothing like the Obama style cap yet.

For some reason the Irish elite still seem to be able to run rings around the Government when it comes to negotiating skills - and are managing to hold onto almost all their privileges and jobs.

That is the real reason for the public anger -and swing to Labour.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 10:59:23 AM EST
[ Parent ]
It is scary here at present. A government supporting Journalist is on National radio now basically saying that asking questions about this car-crash situation in the banks and government is tantamount to treason.

There is a smell of class war seeping out of every part of the media. A comedy programme that is usually bland was viscious last night. The usual pravda style boundaries of polite debate are collapsing.

The one thing that hasn't really made it into the debate is the corruption that is at the stinking heart of this. I will dig up the reference but some journalist went to the bother last week of asking government members if they were in hock to the recently nationalised (corrupt) Anglo-Irish Bank. 6 or 7 refused to say wether or not they had outstanding loans with the bank. It went down the memory hole.

"The car is on Fire and There Is No Driver At the Wheel: The Government is Corrupt"

by irishhead on Fri Feb 13th, 2009 at 12:33:08 PM EST
I think the implosion is likely exaggerated, more a necessary and painful correction to the overshoot from fifteen years of catch-up.

Assuming the rest of the world doesn't drag us into a depression with us we'll be fine in a year or three.

by Colman (colman at eurotrib.com) on Fri Feb 13th, 2009 at 01:04:43 PM EST
[ Parent ]
or five?

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 13th, 2009 at 01:44:33 PM EST
[ Parent ]
More like if other countries don't follow Ireland into a Depression.

These interlinked Global recessions/panics/depressions are, indeed, Global and the only real question for nation-state is how bad their economies will be affected.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Feb 13th, 2009 at 03:46:29 PM EST
[ Parent ]
Well the corrupt mania is there for all who have eyes to see in the sunday times of today.

The popularity of the government had dropped through the floor.

All talk of a recession has turned to all talk of depression and crisis.

I don't have your optimism.

Out in the rain and wind and all we have is this rotten 'green jersey'.

The Green Jersey Agenda

by irishhead on Sat Feb 14th, 2009 at 07:05:28 PM EST
[ Parent ]
Given how little, now that all is said and done (and let's not forget the corruption...anyone remember Haughey?) that Fianna Fail and Fine Gael have now been seen to have done for Ireland...well, not unlike the same class of politicos in America.

When there's European-funded subsidies for farmers, freeing up Dublin from a proper rural policy, permitting them to cut taxes on real estate developers and the like, they (dublin)  also  thereby screwed the rest of us by fiscal dumping. Inviting the Americans in for cheap fdi, undermining the neighbours even more, was just icing on the cake. You describe it well, two conservative (and worthless) parties, trading chances at power, alternately screwing the rest of us. If the country speaks English, more likely than not that's what's going to happen.

But, I think you are unfair to Sinn Fein, who deserve much more credit that the clowns who have run Ireland since 1921.

And especially the recent ones, taken to hand tailored French shirts and shoes.

Sincerely,

John Edward Redmond

by redstar on Sat Feb 14th, 2009 at 12:32:39 AM EST
Sure, but you know sinn féin through their propaganda abroad, mediated by the delightful emigrant population. Frank and I have to live with them. They're not nice people at all.  
by Colman (colman at eurotrib.com) on Sat Feb 14th, 2009 at 05:29:00 AM EST
[ Parent ]
Not entirely so. My knowledge of Sinn Fein is mostly through a former colleague and current good friend, who is an Irish national and who votes Sinn Fein.

Anyhow, we're not all on the same political page, so it's not surprising what is considered "nice people" isn't going to be the same, either. Some don't like Besancenot's LCR/NPA people either; they're not nice, you see. But, also I know a few and they seem nice enough to me. Don't agree with them on somethings but, given what's going on right now, "nice" isn't always what it's cracked up to be.

by redstar on Sat Feb 14th, 2009 at 01:19:16 PM EST
[ Parent ]
Sinn Fein have personally tried to intimidate me on a local issue in the past and there are too many echoes of Fascism ever for me to be comfortable with them, but that isn't to say they are incapable of change, and I would be the first to acknowledge the political feat of leadership of moving them away from terrorism to political activism.  (For the record, the intimidation issue was in relation to where they supported illegal quarrying by a global business in my locality so forgive me if I don't see them as progressive of all issues).

On the other hand Adams & McGuinness, despite a personal tendency to over-negotiate which has resulted in them missing many opportunities for better deals in the past, (from their own point of view), are nevertheless head and shoulders over many of their contemporaries in terms of their political skills.

They will certainly seek to represent many of those who are going to be marginalised by the current crisis and I can't but see them increasing their vote.  I'm just not sure they will have anything much positive to contribute - a bit like Libertas, albeit from a very different perspective.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Feb 14th, 2009 at 05:05:53 PM EST
[ Parent ]
It's amazing the extent to which online communities drive activity. Here, you've drawn all sorts of attention and on the competition website, only 1 (mine, btw).

FWIW

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Sun Feb 15th, 2009 at 12:34:36 PM EST
Many thanks for your comment to which I have replied.  Yes, I'm not sure how live that blogging community will become.  You can't just stick 80 people into a room for two days and expect them to become an online community.  People have very different interests, orientations and reference communities, and we have really had a chance to develop "online relationships".  I find this difficult as I prefer blogging as conversation rather than blogging as declaiming ones views and hoping someone will respond.  However perhaps something will come out of it as the competition/community starts to focus more on the EP elections.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Feb 15th, 2009 at 03:54:12 PM EST
[ Parent ]
I assume you can check your stats, I can on my two wordpress blogs - the wordpress.com blogs have stats built in, and I've installed stats on my home installation. So. Check your views. Post often. Spread the word, and get Bono or Alizee or Medvedev to comment on what you post.

You'll be almost as famous as Jerome. :)

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Sun Feb 15th, 2009 at 08:52:59 PM EST
[ Parent ]
The blog site is controlled by the European Journalism centre and I don't have any admin rights, so I presume I can't see any stats.  I will ask the question whether they will be made available.  However page impressions aren't much use to me - I need real people to talk to!

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Feb 16th, 2009 at 11:57:17 AM EST
[ Parent ]
"House prices are expected to fall by 80% from peak to trough."

Land speculators have had nice times in Ireland.

by kjr63 on Sun Feb 15th, 2009 at 05:13:41 PM EST


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