What’s to be done with the Irish economy?

Last week’s podcast has comfortably passed the 200 download mark. That’s thanks mostly to a little bit of buzz around the Irish blogosphere. For which, thanks to John, the Irish Left Review, Stephen, and Gerard did their bit to spread the word… If you enjoyed the last chat tune in again tomorrow at 11.30… And spread the word…

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  • Greagoir O Frainclin

    “What’s to be done with the Irish economy?”

    Get the Rosary beads out and kneel down and pray?

    …..and the statues might start moving again!

  • eranu

    “What’s to be done with the Irish economy?”
    as paul daniels would say. “not alot” !!

  • Greenflag

    ‘and the statues might start moving again! ‘

    LoL ,

    Alas there would appear to have been more ‘real ‘ movement in said statues of yore than would appear to be the case in the present among most of our ‘elected’ statues in the financial ministries of the western world . Meanwhile the ‘credit ‘ market shows all the mobility of the Great Wall of China and the pound sterling exhibits anchor like qualities as it heads titanic like to Davey Jones locker . It will however not overtake the Zimbabwean dollar on it’s way down .

    Stiif upper lids and remember be ‘British ‘ if you can and enjoy the craic if you’re not ;)Hold on to your euros and whatever ‘equity ‘ you have left and pray .

    Don’t ask me who to pray to as there’s nobody listening but hey if it makes you feel better why not 😉

    The wurrrrld is coming to an end – again 🙂 But don’t hand over your worldly goods to those preachers of end times who say they have the inside track with the man/men /women /it above and for a modest donation of your ‘worldly ‘ goods will ensure you get a ringside seat in the great throne room on judgement day . It will have to be some ringside given the 80 billion ‘human beings who have people the earth since Adam 😉

  • ZoonPol

    The answer my friend is blowing in the wind, but seriously if the Lisbon Treaty fails to be ratified by them again then they should have a plebiscite on their exit from the EU.

  • Greenflag

    My apologies for the scurrilous tongue in cheek remarks made before I listened to the podcast . An excellent follow up on the previous one and I’m surprised there have been few direct comments re the content . Probably a case of ‘economy ‘ overload .

    Michaale Taft raised the important issue of ‘confidence ‘ which is critical and also the fact that we will have to wait for the USA juggernaut to turn before much of anything happens here or in the UK or elsewhere .

    Mr Obama said in his speech that the ‘ground has shifted ‘ from under the feet of traditional left versus right simplistic solutions to this crisis .
    There is too much at stake world wide for USA policymakers to get it ‘wrong ‘ again .

    Grateful thanks again to all the contributors and to Mick who focuses with precision on the key questions .

    I was not expecting such a quick second podcast but thanks again for an informative 45 mins 🙂

  • What we need is decisive leadership, and that is alien to Cowen and Fianna Fáil since 2004 in particular. The thrashing the party took in the local and euro elections persuaded Bertie to come out as a Socialist and slow down or stop moves towards completing the unfinished revolution of economic liberalism began in 1987 (when spending was reined in, followed by the first income tax-cuts in 20 years in the 1989-92 govt and huge income-tax cuts in 1997-2002). The party took 2004 as a lesson that they needed to move to the Left, and I believe that is where the seeds of the financial and construction-crisis were sown. The govt brought in benchmarking, which was originally intended to bridge the gap between public and private-sector pay. The nonsense of this mechanism is that it remained in place in spite of public-sector pay now exceeding that of the private-sector on average by 20%. Now that we have reached that stage, the public-sector unions have changed their justification for benchmarking, namely that it would be wrong to introduce what they consider the inequity of working-conditions in the private-sector into the public-sector. They always have an excuse, and Fianna Fáil always farms the issue of public-sector reform off to committees, commissions, consultants etc. – anything to avoid doing something.

    The solution to this is a sort of Thatcherism that was begun in 1987,. interrupted in 1994-7, and only partly pushed through (through taxation and the privatisation of Eircom, Aer Lingus and a few state-owned banks) up to now (almost all before 2002 – FF blocked Aer Lingus privatisation until 2006, 4 years after the Programme for Government which included it). FF has lost its way, and I agree (for once) with Matt Cooper that the troubles began when McCreevy was exiled to Brussels. FF need to rediscover its inner Thatcher, and take on the public-sector unions that are increasingly resented by the 75% of the public that are in the private-sector. They are getting a 6% pay increase in the National Pay Agreement when we are predicted to have deflation this year for the first time since the 1940’s. It’s a national scandal and instead of leadership and urgent ultimatums (which are what is required), we are kites in the press and the broadcast media every day as to what might happen e.g. pay-cuts, changes in public-sector pensions, which are then contradicted by a minister or which merely fizzle out of political-discourse on the govt benches. I think we have a govt that is rudderless and hasn’t a clue how to get us out of this mess. They fomented what amounts to a massive property pyramid-scheme by inviting immigrant-labour to Ireland to build houses and to fuel demand for housing. They turned a blind eye to planning-corruption in local-govt which inflated the price of land through rezoning and even now are failing to implement the promised fixed-price contracts (a deal was reported some time ago in the Irish Independent between Lenihan and the Construction Industry Federation that approx. €150 million in contracts would not be fixed-price). It’s times like this when I begin to wonder about our wonderful electoral-system that allows small parties to dictate policy. On balance I still favour it, but am increasingly drawn to the conclusion that the love that dare not speak its name in Irish politics – that of a FF-FG Coalition – may ultimately be the only way to start digging us out of this mess, which is only partly a function of the global-downturn. Even in the UK, the economy reportedly declined 1.5% in the last quarter of 2008, demonstrating that its economy may not be holding up as well as some Unionists would like to think when comparing with ours in the South. But it is undoubtedly the case that at present, our growth forecasts for this year are frightening and in large part a product of wrongheaded and irresponsible policies spawned in the late Galway Tent. Maybe you can get the politicians out of the Galway Tent but not the Galway Tent out of our politicians.

  • Greenflag

    Brian Boru ,

    ‘FF has lost its way’

    McCreevy was as popular with the public sector unions as Sean Lemass was in the 1960’s. Lemass came to power in an era when the very economic viability of the state was in question. Then the problem was restricted to the Republic as the rest of Europe and the UK were enjoying strong economic growth . Today it’s the entire Anglosphere and the world .

    ‘FF need to rediscover its inner Thatcher’

    Rumour had it that Cowan was the ‘inner thatcher ‘ but was shushed by Bertie in the run up to the last election . Any resolve he may have had then has either been washed away in the present ‘crisis ‘ or perhaps never existed . FF have never really faced down the public sector and neither have FG/Lab coalitions . The only exceptions were in Lemass’s time and with Reynolds /McSharry post 1987 .

    ‘It’s times like this when I begin to wonder about our wonderful electoral-system ‘

    The multi seat constituency PR system does’nt help either given that the last seat in many constituencies can be decided by a few hundred votes either way and a ‘directed ‘ public sector vote , can be decisive in favouring not just one party over another via preference, but also preference within a party for the more ‘pro public sector ‘ candidate, than say a candidate who favours reduction or cutbacks . Even in ballygobackwards the local turkeys are not known to favour christmas ;). We all know that the only way to get said turkey to the christmas table is by wringing it’s neck ;). In our democratic system the quick ‘neck’ wringing approach is a vote loser in all but the most extreme economic conditions . There appears to be some denial inspired indecision in government circles .

    Something needs to be done at bringing public sector pay into line with the private sector or at least preventing the gap widening as may happen in the current scenario. That widening gap is the path to a Northern Ireland style economy :(. Evenyaully when it no longer becomes affordable it’s also the path to reintegration into the UK ;( just kidding ) or an economic civil war between the cosseted and the uncossetted 🙁

    At least we are in the euro zone which gives us more shelter for the present than would otherwise be the case . Small countries with stand alone currencies are virtually powerless in these kind of circumstances. Ireland has always been linked to a larger currency previously sterling and now the euro . As one of the world’s most open economies we don’t really have much choice imo.

    What will probably be needed for the world to extricate itself from this mess and to save said world from the same mess again will be a new Bretton Woods . Next time it will have to include more than just G7 but will have to include probably China , India , Brazil , Russia , Opec , Mexico , and probably also South Africa /Nigeria .

    All of the Finance Ministers of said countries plus their Central Bankers will have to set new standards for world banking , regulation etc etc . Perhaos even a ‘World Regulatory Institution ‘ ? Elected political leaders may want to attend as ‘observers ‘ of the public interest or as dilettantes 😉

    Sound impossible ? So too did the first Bretton Woods . The world’s economies are now so much bound together that nothing else will suffice . President Obama and the other western leaders are all reborn Keynesians -as this is the only weapon they have left for now . If that fails then it is goodnight vienna . Could some of the world’s democracies fold as a result of this debacle a la Weimar Republic ?. Hopefully not ? The entire banking industry across several countries and their spin off financial services ‘looters ‘ have a lot to answer for -ditto of course for the self serving and political dilettantes who as you say above ‘pretended ‘ to lead but who in fact did anything but 🙁 And this is not just an Irish ‘phenomenon ‘ .

    I believe it was one of the Chamberlains -who was British Chancellor at the turn of the last century who in a speech to the bankers association made the point that it was ‘society ‘ that enabled the banks to thrive and prosper but they could only do so as long as they did not undermine the very foundations of society by their ‘overweening ‘ greed and irresponsility in the search for ‘new ‘ profits !

    One hundred years later it seems the banks haven’t learned a thing and our politicians even less 🙁 Historically in times like these when all the options were seen to be closing off the imperial powers and or kingdoms , states recoursed to ‘war ‘ to clear the ‘air ‘ and give the economy a real boost 😉

    I don’t see our local representatives (British or Irish ) being able to achieve very much until it appears that the USA reforms are beginning to have an effect and/or until Mr Con F Dense returns to the markets .

    Excellent post BB 🙂
    But recover we will -eventually.

  • Dave

    BB, the monetary policy of the ECB wasn’t decided in a tent in Galway. Take a look at this article in The Independent from 2003 wherein the ECB interferes in the sovereign monetary policy of the UK (actually offering sound advice in the process):

    [i]Booming House prices in countries such as the UK must be monitored closely as a sudden property crash could threaten the stability of the financial sector, the European Central Bank said yesterday.

    The ECB urged policymakers to pay attention to forces driving house prices when they set interest rates because stable prices could be undermined. It cited Denmark, the Netherlands and the UK as countries where homeowners had taken advantage of surging house prices to take out big mortgages.

    “The resulting high indebtedness increases the vulnerability of households to income shocks and interest rate changes and may eventually affect the stability of financial institutions,” the ECB said. And in a veiled criticism of last month’s rate cut by the Bank of England, the ECB added: “Lower rates could fuel the boom or even a bubble further, thus later aggravating a downward correction of house prices with negative consequences for the economy.”[/i]

    You will note that the ECB links low interest rates with housing bubbles, warning the Bank of England not to cut its interest rate as this would fuel a housing bubble with potentially disastrous consequences for its economy. Sound advice, eh? So what was the proposed interest rate cut by the Bank of England that alarmed the ECB? It was a cut by from 4% by 0.25% to 3.75%. So what was the interest rate set by the ECB at that time? It was set at 2% by the ECB, which was half the rate set by the Bank of England.

    This begs the question: why did the ECB set a rate of 2% that applied in Ireland and yet make no intervention in Ireland to warn that its own monetary policy would fuel a housing bubble in Ireland with potentially disastrous consequences for its economy? It could warn the UK about the dangers of low interest rates, yet it set interest rates in Ireland that were half the rate that was set by the Bank of England. It is evident that the ECB knew full well that its monetary policy would destroy the Irish economy but it allowed it to be sacrificed under the one-size-fits-all policy because Germany required low interest rates at that time, and the needs of the German economy too priority.

    The ECB was, of course, correct: low interest rates would fuel the bubble and cause the economy to overheat. As Ireland had delegated sovereignty over its monetary policy to the ECB, it had no means to stop its economy from overheating as it could not raise its interest rate to do so. We should sue the ECB for wilfull criminal mismanagement of the Irish economy.

  • Heather

    Live in the past and think everything is all right in wee norn Iron!

  • Mack

    Dave

    Low or negative real interest rates fuel bubbles. CPI inflation was high – and to a larger degree under government control (benchmarking, indirect taxation, price hikes at the ESB etc) – in fact it was directly related to our loss of competitiveness. Did government fiscal mismanagement help drive CPI higher?

    And, certainly once the dynamic was in place, it was self-feeding. The money supply expanded massively (wholesale borrowing in Euros by our banks), helping drive prices / wages in property related sectors much higher.

    Ireland may or may not have performed significantly better (i.e. not had such a bad bubble outside the Euro) – I accept that preventing such a bubble would have been easier (but question the political will to prevent it, had such conditions emerged regardless).

    But how is any of this relevant to where we are now?

    All our debts are in Euros. The owners of that debt would be ill-disposed to allowing us to reconstitute that debt in a currency we indend to devalue!

    Incidentally did you read David McWilliams in todays Sunday Business Post – the price for any EU bailout for Ireland will be greater not less integration. So perhaps pushing these buttons is not the most sensible approach for people who share your Eurosceptic views..

  • Driftwood

    Mack
    A while back I asked you about unemployment benefit differentials, seem i’m not the only one interested:

    http://www.independent.ie/national-news/crossborder-dole-tourists-fleecing-welfare-system-1622965.html

  • Mack

    Driftwood

    Potentially very worrying. FF has been very generous in good times, without giving any serious thought to what their policies mean when times turn bad! While Irish cross-border benefit tourism may be bad enough – imagine this on an EU scale!!

    Dave

    Barry Eichengreen in 2007 –
    Adopting the euro is effectively irreversible. Leaving would require lengthy preparations, which, given the anticipated devaluation, would trigger the mother of all financial crises

    There is only one realistic outcome of anti-Euro agit-prop in Ireland. An EU bailout and tighter integration! Be careful what you wish for…

    http://www.voxeu.org/index.php?q=node/729

  • Driftwood

    Mack
    How long before the expats in England being made unemployed realise how better off they would be back home. And surely the GFA right for anyone on the island to be an Irish citizen etc, will be cynically exploited for economic gain.
    Quite a few people on both sides of ‘the border’ in Ireland have benefitted from it, not always unionist.
    As you say, on an EU scale, the chickens are literally coming home to roost. How long before the xenophobic rock is lifted?