“the Wild West of European finance”

In today’s Guardian, Terry Eagleton reviews Fintan O’Toole’s Ship of Fools – “As O’Toole points out, bribery, tax evasion and false evidence under oath have not simply gone unpunished; the very idea of penalising the culprits is viewed by the governing elite as unsporting or even unpatriotic.”

This is partly because Ireland, having in O’Toole’s words “imported” its modernity from elsewhere, is in some ways a country with a first-world economy and a third-world political system. Local, cronyist and clientelist politics still thrive. The state is widely seen as “a private network of mutual obligations” rather than an impersonal body. Palms are greased, backs scratched and old pals promoted, often without much sense that this is anything other than the natural thing to do. The discrepancy between formal and informal codes in the country, between official behaviour and nods and winks, bulks large. Stretching a point or turning a blind eye is rife, in ways that would scandalise many a German or American. What may be agreeable in personal terms can prove lethal in public ones. It is the kind of thing that can happen in a country where everyone seems to have been at school with everyone else.

Read the whole thing.

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  • Dave

    A lot of euro-muppets in the Irish media have been solicited by English publishers to write similar books as Fintan’s wherein they deflect attention away from the actual cause of Ireland’s economic collapse (arbitrary ECB macroeconomic and monetary policies, integration into the Eurozone, European Commission banking regulation, ect) are ignored and in favour of a EU propaganda to the effect that the problem of macroeconomic mismanagement of the Irish economy does not reside with those who actually managed the macroeconomic policy but rather with those who did not, e.g. “The Bankers: How the Banks Brought Ireland to Its Knees” by Shane Ross and “Who Really Runs Ireland?: The Story of the Elite Who Led Ireland from Bust to Boom… and Back Again” by Matt Cooper.

    The blurb for wee Fintan’s book contains this gem: “The factors that made it possible for Ireland to become prosperous – progressive social change, solidarity, major State investment in education, and the critical role of the EU – were largely ignored as too sharply at odds with the dominant free market ideology.” Classic.

  • “Stretching a point or turning a blind eye is rife”

    I wonder if Fintan has been on that other ship of fools with an EU dimension and wondered about cronyism. I’m sure it’s not limited to the ‘South Sea Bubble’ state.

  • igor

    I am afraid that Fintan needs to get out more.

    Our American friend might be scandalised but only at the openness of it and the fact it was discussed. Washington is awash in corruption, backhanders and back scratching. Who invented the Pork Barrel? Oh and who exported Tammany Hall to them?

    As for German probity I seem to recall a few little scandals at major German Companies over the last few years. The French will bribe anyone to get business. Most of our newly joined European Neighbours in the EU are corrupt on a lavish scale especially Bulgaria and we have that shining star to the East in Bulgaria. Meanwhile our British neighbours seem to have adopted a ‘don’t ask, don’t tell’ approach in the hope that it will all go away. Unfortunately the MPs got caught out on expenses before the lost their seats. Shame that.

    In short ….it endemic

  • Dave

    Davy stockbrokers correctly identified the destructive effect of the ECB’s monetary policy on the Irish economy in 2005, but unfortunately for economically illiterate Fintan, it doesn’t give him a platform from which to declare – as his paymasters have done for centuries – that the Irish are not fit to govern themselves:

    [i]When the euro was introduced in 1999, the key imponderable was the answer to the following question: how would the “one-size-fits-all” macroeconomic policy framework satisfy the requirements of such a diverse group of economies? Fiscal policy was still at the discretion of national governments, albeit with meaningful constraints imposed. But individual governments or monetary authorities could no longer influence exchange rates. More importantly, control of monetary policy was lost.

    Ireland has had few fiscal or exchange rate worries since the inception of the single currency. At no time has the general government deficit even approached the 3% Maastricht limit. The country’s debt/GDP ratio is the second lowest in the eurozone at 30%, not within shouting distance of the 60% danger zone.

    Arguably, if Ireland still had the punt, it would be trading close to parity against sterling (instead of the effective 88p it buys today). Indigenous exporters would be much more vocal in their call for assistance to combat market share and margin erosion. Against this, consumer price inflation would be somewhat lower. On balance, stringent budgetary rules or the loss of the punt have not negatively affected Ireland’s economy.

    [b]But losing control over monetary policy to Frankfurt in 1999 has had an impact on the Irish economy. Think of record housebuilding, annual credit growth running at 25%, a near doubling in house prices, and 5.5% average inflation in the service sector.[/b] While potentially storing up problems for the future, interest rate-sensitive sectors of the economy contributed handsomely to three years of above-trend growth, followed by a strong recovery from a shallow recession. All of which poses the important question: at what level would the key policy rate stand if the Central Bank of Ireland still had control over it?

    The simplest way to estimate the appropriate policy rate for Ireland is to use the Taylor rule. It specifies that the real policy rate reacts to two crucial variables: deviations of inflation from its targeted level and deviations of real GDP from its long-run potential. The rule sets the nominal policy rate equal to the rate of inflation plus an equilibrium real interest rate and the weighted average of the aforementioned deviations. John Taylor found that it neatly described the US Federal Reserve’s decision-making process and it is now widely used by forecasters to estimate the desired level for policy rates.

    The Taylor rule assigns equal weights to the deviation of inflation from target and output from trend. Inflation will be 0.6 percentage points above target, which adds 0.3 percentage points to the nominal rate. There is no output gap so we need not make any further adjustment.

    Putting all of this together, we reckon that [b]an appropriate policy rate for Ireland is around 6%, fully four percentage points above its actual level.[/b]

    [b]There is no doubt that an inappropriate policy rate for Ireland is fuelling the booming residential construction sector.[/b] One way to think about it is to imagine the mayhem that would ensue were interest rates to rise to 6%. Our worry is that an elongated boom could lead to a more severe correction in the housing market when rates finally begin their ascent (to 3% rather than 6%) or when sentiment changes. A return to higher inflation rates may also occur. Private-sector credit is growing at 26% year on year while services and construction wage inflation is back up to 7%. We may well have to rely on another tool beyond our control to keep inflation in check—further appreciation of the currency.[/i]

    http://www.davy.ie/content/pubarticles/wmccr20050124.pdf

    Wee Fintan doesn’t grasp that monetary and macroeconomic policy

  • Pete Baker

    Dave

    You don’t seem to grasp that the two scenarios are not mutually exclusive.

  • Dave

    Pete, you don’t seem to grasp that Ireland’s economy was brilliantly managed by said ‘gombeens’ prior to allowed EU gombeens to destroy it. The actual Celtic Tiger period 1993-2000 being an example of it. That, of course, was the free market period that upsets wee Fintan so much. Even if we had an unmitaged genius as minister for finance after integrating into the Eurozone, he would not have been able to stop the external debt from rising from 11 billion punts prior to integration to 1.67 trillion euros today because he has absolutely no control over it.

  • Pete Baker

    Dave

    To repeat myself, not mutually exclusive.

    Or do you disagree that “Local, cronyist and clientelist politics still thrive”?

  • Dave

    Yes, and that was always an Irish Times myth. Fintan can’t point to any evidence of political corruption so he merely asserts that the lack of evidence is due to a culture of not prosecuting corruption. That’s quite funny, but that’s the Irish Times.

    And by the way, Pete, those dodgy loans to property developers (circa 50 billion) account for less than 3% of the total external debt. You might want to look at where the other 97% went and figure out how the government could have controlled it. Too much money chasing too few investment opportunities causes bubbles – and where the other 97% went too, which was just about every sector the Irish economy. In reality, all banks use the mark-to-market model to value property. Do you think the Irish government could have said, “Look, folks, we know we gave sovereignty over monetary policy to the ECB and we know they are pursuing expansionist monetary policies because that is what the German and French economies need but it is the last thing that Ireland’s economy needs, so we beg you to ignore the monetary policies of the ECB and not to borrow this cheap money even if the ECB are supplying it cheaply so that you will borrow it. Please do not borrow money as the branch of government that has responsibility wants you to. Please don’t! We’re we right eejits for joining the Euronone? We’re sorry.” Emm, no. They actually have a legal obligation under the Maastricht Treaty to support the policy, even if it proves utterly destructive. That’s crazy but that is actually how it works. Even if they didn’t have that legal obligation, they’d still have to support it in order to avoid a conflict between monetary, macroeconomic and fiscal policies. Because they don’t control the former, they can’t control the latter either.

  • Pete Baker

    “Fintan can’t point to any evidence of political corruption”

    Nor of appointments of political cronies to public office no doubt?

    Seriously, Dave, your disagreements with the European Union would be more convincing if you addressed the same scepticism towards Ireland’s polity.

  • Wilde Rover

    Pete Baker,

    “your disagreements with the European Union would be more convincing if you addressed the same scepticism towards Ireland’s polity.”

    Could it not also be argued that your disagreements with the Republic of Ireland would be more convincing if you addressed the same skepticism towards the development of the EU?

  • Scaramoosh

    All true – the country is finished, brought to its knees by the dangerous mixture of cronyism; poisoned Catholicism; vacuous nationalist narratives and a psychological fixation with the notion of Mother.

    The legacy of the Gombeen man’s failed enterprise is that the old narratives are dead. Even many Irish now feel uncomfortable with the notion of being Irish.

  • aquifer

    ‘Local, cronyist and clientelist politics still thrive.’

    Ahh the wonder that is PRSTV in a split polity.

    Fixing this could take a while.

    Hope the IMF can wait.

  • Mack

    Nor of appointments of political cronies to public office no doubt?

    Ah now Pete. They weren’t political cronies, and they weren’t appointed because they gave money (which they did), they were appointed because they were friends.

    Heart warming..

  • Mack

    Having read the review, but not the book, it highlights some genuine uncomfortable truths. Problems that need to be dealt with. Although his views are far to the left of mine – I admire O’Toole’s honesty and the fact that he demands more from public figures. It’s difficult to disagree with any of the issues he highlights in that regard.

    I think he’s often just plain wrong when he comments on economic matters, and the summary of the book seems overly gloomy in that regard. There are problems to be fixed, if the right decisions are taken (which will be tough and painfully), they can be fixed and Ireland will exit this recession still wealthier than our larger neighbour..

  • Mack

    This

    The pity of it, as Ship of Fools points out, is that the boom years were largely squandered. For a fleeting moment, the country had the resources to improve its crumbling social facilities. Instead, entranced by the possibility of tax cuts for the rich, it blew it. Perhaps its best hope now is to revert as soon as possible to third world status and qualify for a loan from the IMF.

    Is pure drivel – Let’s recap the glory years – .

    A new motorway network
    The LUAS system in Dublin
    Port Tunnel in Dublin
    Hugely improved road network generally
    Huge increase in quality office space, retail space and quality residential property units
    Top tier broadband network for (high end business clients at least)
    Google, Microsoft, Pfizer, Intel all set up major operations here – all are still here. Facebook expanding in Dublin, LinkedIn appear to be setting up shop now too.
    The growth of Ryanair, CRH, IMN, Riverdeep, Quinn Group
    Second terminal at Dublin airport
    Greatly improved access to 3rd level education, 57% of our young go to 3rd level
    Reduced class sizes
    Reduced infant mortality and improved health outcomes
    Net incomes amongest the highest in Europe
    GDP and GNP per capita significantly above those of the UK
    The new Croke Park
    The new Aviva Stadium
    The National Aquatic Centre – we went from no 50 metre pools to a plethora of such pools across the country
    National Basketball Arena (built 1993)
    World class parks and play areas across Dublin at least
    Explosion in top quality private gyms and sports facilities
    New public sports facilities
    Growth of the GAA and Rugby facilities in that period

    & much, much more..

    The social infrastruture in Dublin at least is streets ahead of anything north of the border – despite 10 or 15 years worth of peace process investing up there. And the school system is infinetely superior to that of Englands.

  • Mack

    Not to mention –

    A doubling of the number of people in employment from circa 1 million, to c. 2 million

    An population increase of 1 million from 3.5m in 1990 to 4.5million today

    Infant mortality _halved_ during the 1990 to 2007 period.

    Finners is a socialist who idealogically abhors capitalism, this despite the fact that capitalism works and socialism doesn’t. He’s on the money on corruption – but that’s about it..