Yay! Ireland exits recession? – or – Boo! Ireland doesn’t exit recession?

Depending on whether or not you regard GDP or GNP as the best measure of the actual size of the Irish economy, Ireland may have (or did not) exit recession in Q3 2009. Ireland is an unusual case in that substantial amounts of economic activity recorded in the GDP figures result from transfer pricing, where organisations transfer economic activity generated in one location to another within the same company.

The Central Statisitics Office report that

The seasonally adjusted estimates show that for Q3 2009, compared with the previous quarter, there was a small increase in GDP of 0.3 per cent while GNP declined by 1.4 per cent..

Now some Irish economists, notably Karl Whelan do regard GDP as a fair reflection of the Irish economy as profits made by multi-national corporations can be taxed here – see an explanation of his viewpoint here. Others, such as Colm McCarthy regard GNP as superior, as the profits themselves are often earnt from economic activity elsewhere and are simply booked here for tax purposes (which rather limits the governments room for manouvere with respect to taxation). For an explanation of the consensus view, see here.

As we noted earlier on Slugger Capital Investment pretty much collapsed in Ireland this year (down 35%), consumer spending weakened significantly (down 7.3%). Net exports (total exports – total imports) rebounded strongly in the third quarter, contributing an additional €2.8bn towards GDP. This appears to be due to decreased cost of imports rather than increased exports (i.e. As also reported previously, the currency collapse in our biggest import partner has been a net boon for Irish economic figures). Per the CSO report

The expenditure components had decreases in personal consumption, capital formation, government expenditure and exports but also had a lower level of imported goods and services resulting in a small increase in GDP.

RTE report economist Alan McQuaid of Bloxhom stock brokers said that

the quarterly figures were relatively new and ‘there appears a reluctance on the part of the Central Statistics Office to stand over the reliability of the numbers’. He said Irish analysts continued to focus on the year-on-year change in both GDP and GNP, which were down quite sharply again.

Davy economist Rossa White feels that GNP growth may turn positive in Q1 next year. It’s far too early for cheers of joy (except perhaps the festive kind), but it does make a change from the bleak news..

Update : Worth highlighting that Constantin Gurdgiev thinks that US MNCs may reduce their transfer pricing activities in Ireland in 2010. Even for the GDP figures, one swallow does not make a summer.

Should Ireland-based multinationals reduce their transfer pricing activities in 2010 – a prospect consistent with a possibility of a restart of new investment cycle in Asia and the US – an even greater share of the burden of paying for public sector expenditure will be falling onto the shoulders of rapidly thinning minority who still have higher value-adding jobs.

  • Three tenths of one per cent! Wowza! And “seasonally-adjusted” at that. So no tinkering there. Perhaps.

    Quite obviously any elevator has to stop dropping at some point. It looks as though most of the Archipelago is bottoming out around the same time. That same time being shortly before the full impact on consumers’ budgets starts fully to be felt.

    Even so, I can’t help musing that there’s something odd with these economic statistics. The last UK quarterly GDP figures were — oh, shock ! horror! — down by four tenths of one per cent. That was all the headlines for 23/24 October. Then, a month later on 24/25 November:

    Revised national output figures showed that the economy contracted by 0.3 per cent between July and September…

    Whoa! Three tenths of one per cent — now, where did I see that number previously?

    Today we are told the UK sales figures for November were “unexpectedly” lower by three tenths of one per cent. Whoa! Spooky, huh?:

    The ONS blamed a sharp fall in sales at non-specialist retailers, including department stores.

    Now, as I recall, there were only four shopping Saturdays in November (which was, where I live, a singularly wet-and-depressing month): there were five in November ’08 and in October ’09. My impression remains that Saturday is still the prime shopping day — so that implies another bit of statistical jiggery-pokery, perhaps?

    Or is that three tenths of one per cent is currently the statisticians’ favourite number?

  • Mack,

    I just came across this, not sure if you have seen it, any thoughts.

    George Papandreou said on Friday:

    “Salaried workers will not pay for this situation: we will not proceed
    with wage freezes or cuts. We did not come to power to tear down the social state.”

    Full article here,and below.

    Will Greece, Ireland and Latvia Lead the Way?
    An EU / IMF Revolt


    Total financial collapse, once a problem only for developing countries, has
    now come to Europe. The International Monetary Fund is imposing its
    “austerity measures” on the outer circle of the European Union, with
    Greece, Iceland and Latvia the hardest hit. But these are not your ordinary
    third world debtor supplicants. Historically, the Vikings of Iceland
    repeatedly repulsed British invaders; Latvian tribes repulsed even the
    Vikings; and the Greeks conquered the whole Persian empire. If anyone can
    stand up to the IMF, these stalwart European warriors can.

    Dozens of countries have defaulted on their debts in recent decades, the
    most recent being Dubai, which declared a debt moratorium on November 26,
    2009. If the once lavishly-rich Arab emirate can default, more desperate
    countries can; and when the alternative is to destroy the local economy, it
    is hard to argue that they shouldn’t. That is particularly true when the
    creditors are largely responsible for the debtor’s troubles, and there
    are good grounds for arguing the debts are not owed. Greece’s troubles
    originated when low interest rates that were inappropriate for Greece were
    maintained to rescue Germany from an economic slump. And Iceland and Latvia
    have been saddled with responsibility for private obligations to which they
    were not parties. Economist Michael Hudson writes:

    “The European Union and International Monetary Fund have told them to
    replace private debts with public obligations, and to pay by raising taxes,
    slashing public spending and obliging citizens to deplete their savings.
    Resentment is growing not only toward those who ran up these debts . . .
    but also toward the neoliberal foreign advisors and creditors who pressured
    these governments to sell off the banks and public infrastructure to

    The Dysfunctional EU: Where a Common Currency Fails

    Greece may be the first in the EU outer circle to revolt. According to
    Ambrose Evans-Pritchard in Sunday’s Daily Telegraph, “Greece has become
    the first country on the distressed fringes of Europe’s monetary union to
    defy Brussels and reject the Dark Age leech-cure of wage deflation.”
    Prime Minister George Papandreou said on Friday:

    “Salaried workers will not pay for this situation: we will not proceed
    with wage freezes or cuts. We did not come to power to tear down the social

    Notes Evans-Pritchard:

    “Mr Papandreou has good reason to throw the gauntlet at Europe’s
    feet. Greece is being told to adopt an IMF-style austerity package, without
    the devaluation so central to IMF plans. The prescription is ruinous and
    patently self-defeating.”

    The currency cannot be devalued because the same Euro is used by all. That
    means that while the country’s ability to repay is being crippled by
    austerity measures, there is no way to lower the cost of the debt.
    Evans-Pritchard concludes:

    “The deeper truth that few in Euroland are willing to discuss is that
    EMU is inherently dysfunctional – for Greece, for Germany, for

    Which is all the more reason that Iceland, which is not yet an EU member,
    might want to reconsider its position. As a condition of membership,
    Iceland is being required to endorse an agreement in which it would
    reimburse Dutch and British depositors who lost money in the collapse of
    IceSave, an offshore division of Iceland’s leading private bank. Eva
    Joly, a Norwegian-French magistrate hired to investigate the Icelandic bank
    collapse, calls it blackmail. She warns that succumbing to the EU’s
    demands will drain Iceland of its resources and its people, who are being
    forced to emigrate to find work.

  • Latvia is a member of the EU and is expected to adopt the Euro, but it has
    not yet reached that stage. Meanwhile, the EU and IMF have told the
    government to borrow foreign currency to stabilize the exchange rate of the
    local currency, in order to help borrowers pay mortgages taken out in
    foreign currencies from foreign banks. As a condition of IMF funding, the
    usual government cutbacks are also being required. Nils Muiznieks, head of
    the Advanced Social and Political Research Institute in Riga, Latvia,

    “The rest of the world is implementing stimulus packages ranging from
    anywhere between one percent and ten percent of GDP but at the same time,
    Latvia has been asked to make deep cuts in spending – a total of about 38
    percent this year in the public sector – and raise taxes to meet budget

    In November, the Latvian government adopted its harshest budget of recent
    years, with cuts of nearly 11%. The government had already raised taxes,
    slashed public spending and government wages, and shut dozens of schools
    and hospitals. As a result, the national bank forecasts a 17.5% decline in
    the economy this year, just when it needs a productive economy to get back
    on its feet. In Iceland, the economy contracted by 7.2% during the third
    quarter, the biggest fall on record. As in other countries squeezed by
    neo-liberal tourniquets on productivity, employment and output are being
    crippled, bringing these economies to their knees.

    The cynical view is that that may have been the intent. Instead of helping
    post-Soviet nations develop self-reliant economies, writes Marshall
    Auerback, “the West has viewed them as economic oysters to be broken up
    to indebt them in order to extract interest charges and capital gains,
    leaving them empty shells.”

    But the people are not submitting quietly to all this. In Latvia last week,
    while the Parliament debated what to do about the nation’s debt,
    thousands of demonstrating students and teachers filled the streets,
    protesting the closing of a hundred schools and reductions in teacher
    salaries of up to 60%. Demonstrators held signs saying, “They have sold
    their souls to the devil” and “We are against poverty.” In the Iceland
    Parliament, the IceSave debate had been going on for over 140 hours at last
    report, a new record; and a growing portion of the population opposes
    underwriting a debt they believe the government does not owe.

    In a December 3 article in The Daily Mail titled “What Iceland Can Teach
    the Tories,” Mary Ellen Synon wrote that ever since the Icelandic economy
    collapsed last year, “the empire builders of Brussels have been confident
    that the bankrupt and frightened Icelanders must finally be ready to
    exchange their independence for the ‘stability’ of EU membership.”
    But last month, an opinion poll showed that 54 percent of all Icelanders
    oppose membership, with just 29 percent in favor. Synon wrote:

    “The Icelanders may have been scared out of their wits last year, but
    they are now climbing out from under the ruins of their prosperity and have
    decided that the most valuable thing they have left is their independence.
    They are not willing to trade it, not even for the possibility of a
    bail-out by the European Central Bank.”

    Iceland, Latvia and Greece are all in a position to call the bluff of the
    IMF and EU. In an October 1 article called “Latvia – the Insanity
    Continues,” Marshall Auerback maintained that Latvia’s debt problem
    could be fixed over a weekend, by a list of measures including (1) not
    answering the phone when foreign creditors call the government; (2)
    declaring the banks insolvent, converting their external debt to equity,
    and having them reopen with full deposit insurance guaranteed in local
    currency; and (3) offering “a local currency minimum wage job that
    includes healthcare to anyone willing and able to work as was done in
    Argentina after the Kirchner regime repudiated the IMF’s toxic package of
    debt repayment.”

    Evans-Pritchard suggested a similar remedy for Greece, which he said could
    break out of its death loop by following the lead of Argentina. It could
    “restore its currency, devalue, pass a law switching internal euro debt
    into [the local currency], and ‘restructure’ foreign contracts.”

  • The Road Less Traveled: Saying No to the IMF

    Standing up to the IMF is not a well-worn path, but Argentina forged the
    trail. In the face of dire predictions that the economy would collapse
    without foreign credit, in 2001 it defied its creditors and simply walked
    away from its debts. By the fall of 2004, three years after a record
    default on a debt of more than $100 billion, the country was well on the
    road to recovery; and it achieved this feat without foreign help. The
    economy grew by 8 percent for 2 consecutive years. Exports increased, the
    currency was stable, investors were returning, and unemployment had eased.
    “This is a remarkable historical event, one that challenges 25 years of
    failed policies,” said economist Mark Weisbrot in a 2004 interview quoted
    in The New York Times. “While other countries are just limping along,
    Argentina is experiencing very healthy growth with no sign that it is
    unsustainable, and they’ve done it without having to make any concessions
    to get foreign capital inflows.”

    Weisbrot is co-director of a Washington-based think tank called the Center
    for Economic and Policy Research, which put out a study in October 2009 of
    41 IMF debtor countries. The study found that the austere policies imposed
    by the IMF, including cutting spending and tightening monetary policy, were
    more likely to damage than help those economies.

    That was also the conclusion of a study released last February by Yonca
    Özdemir from the Middle East Technical University in Ankara, comparing IMF
    assistance in Argentina and Turkey. Both emerging markets faced severe
    economic crises in 2001, preceded by chronic fiscal deficits, insufficient
    export growth, high indebtedness, political instability, and wealth

    Where Argentina broke ranks with the IMF, however, Turkey followed its
    advice at every turn. The end result was that Argentina bounced back, while
    Turkey is still in financial crisis. Turkey’s reliance on foreign
    investment has made it highly susceptible to the global economic downturn.
    Argentina chose instead to direct its investment inward, developing its
    domestic economy.

    To find the money for this development, Argentina did not need foreign
    investors. It issued its own money and credit through its own central bank.
    Earlier, when the national currency collapsed completely in 1995 and again
    after 2000, Argentine local governments issued local bonds that traded as
    currency. Provinces paid their employees with paper receipts called
    “Debt-Cancelling Bonds” that were in currency units equivalent to the
    Argentine Peso. The bonds canceled the provinces’ debts to their
    employees and could be spent in the community. The provinces had actually
    “monetized” their debts, turning their bonds into legal tender.

    Argentina is a large country with more resources than Iceland, Latvia or
    Greece, but new technologies now allow even small countries to become
    self-sufficient. See David Blume, Alcohol Can Be a Gas.

  • Local Currency for Local Development

    Issuing and lending currency is the sovereign right of governments, and it
    is a right that Iceland and Latvia will lose if they join the EU, which
    forbids member nations to borrow from their own central banks. Latvia and
    Iceland both have natural resources that could be developed if they had the
    credit to do it; and with sovereign control over their local currencies,
    they could get that credit simply by creating it on the books of their own
    publicly-owned banks.

    In fact, there is nothing extraordinary in that proposal. All private banks
    get the credit they lend simply by creating it on their books. Contrary to
    popular belief, banks do not lend their own money or their depositors’
    money. As the U.S. Federal Reserve attests, banks lend new money, created
    by double-entry bookkeeping as a deposit of the borrower on one side of the
    bank’s books and as an asset of the bank on the other.

    Besides thawing frozen credit pipes, credit created by governments has the
    advantage that it can be issued interest-free. Eliminating the cost of
    interest can cut production costs dramatically.

    Government-issued money to fund public projects has a long and successful
    history, going back at least to the early eighteenth century, when the
    American colony of Pennsylvania issued money that was both lent and spent
    by the local government into the economy. The result was an unprecedented
    period of prosperity, achieved without producing price inflation and
    without taxing the people.

    The island state of Guernsey, located in the Channel Islands between
    England and France, has funded infrastructure with government-issued money
    for over 200 years, without price inflation and without government debt.

    During the First World War, when private banks were demanding 6 percent
    interest, Australia’s publicly-owned Commonwealth Bank financed the
    Australian government’s war effort at an interest rate of a fraction of 1
    percent, saving Australians some $12 million in bank charges. After the
    First World War, the bank’s governor used the bank’s credit power to
    save Australians from the depression conditions prevailing in other
    countries, by financing production and home-building and lending funds to
    local governments for the construction of roads, tramways, harbors,
    gasworks, and electric power plants. The bank’s profits were paid back to
    the national government.

    A successful infrastructure program funded with interest-free national
    credit was also instituted in New Zealand after it elected its first Labor
    government in the 1930s. Credit issued by its nationalized central bank
    allowed New Zealand to thrive at a time when the rest of the world was
    struggling with poverty and lack of productivity.

    The argument against governments issuing and lending money for
    infrastructure is that it would be inflationary, but this need not be the
    case. Price inflation results when “demand” (money) increases faster than
    “supply” (goods and services). When the national currency is expanded to
    fund productive projects, supply goes up along with demand, leaving
    consumer prices unaffected.

    In any case, as noted above, private banks themselves create the money they
    lend. The process by which banks create money is inherently inflationary,
    because they lend only the principal, not the interest necessary to pay
    their loans off. To come up with the interest, new loans must be taken out,
    continually inflating the money supply with new loan-money. And since the
    money is going to the creditors rather than into producing new goods and
    services, demand (money) increases without increasing supply, producing
    price inflation. If credit were extended for public infrastructure projects
    interest-free, inflation could actually be reduced, by reducing the need to
    continually take out new loans to find the elusive interest to service old

    The key is to use the newly-created money or credit for productive projects
    that increase goods and services, rather than for speculation or to pay off
    national debt in foreign currencies (the trap that Zimbabwe fell into). The
    national currency can be protected from speculators by imposing exchange
    controls, as Malaysia did in 1998; imposing capital controls, as Brazil and
    Taiwan are doing now; banning derivatives; and imposing a “Tobin tax,”
    a small tax on trade in financial products.

    Making the Creditors Whole

    If the creditors are really interested in having their debts repaid, they
    will see the wisdom of letting the debtor nation build up its producing
    economy to give it something to pay with. If the creditors are not really
    interested in repayment but are using the debt as a tool to exploit the
    debtor country and strip it of its assets, the creditors’ bluff needs to
    be called.

    Ellen Hodgson Brown is the author of Web of Debt: the Shocking Truth About
    Our Money System and How We Can Break Free. She can be reached through her

  • Sorry Mick about taking up so much space, but I was sent this in an email, and I have yet to get a link back. The above is only part of the article I have been sent, I thought it was interesting and worth posting as it sets an alternative to crashing the societal state. If you feel I have over-stepped the mark please take it down

    Mick H

  • Mack

    Interesting, read the Ambrose Evans Pritchard article in the Telegraph. Here’s another one on Greece –


    Worth bearing in mind Argentina have their own currency where as we don’t & the IMF don’t force themselves on anyone. They’re lenders with very stringent conditions attached (understandably lenders tend to want their money back), if you can do without them – that’s the best path. Though when countries need money from the IMF they already tend to be in dire straights. This is a great article on the current crisis from the perspective of an ex-director of the IMF (I blogged it previously on Slugger here)


    This alternative –

    To find the money for this development, Argentina did not need foreign
    investors. It issued its own money and credit through its own central bank.

    Is high risk. Increasing the money supply over and above the supply of goods and services (which is limited by the productive capacity of the economy) leads to more Pesos chasing the same goods and services -> high inflation. It may have worked for Argentina (and seems to be working for the yanks – so far!) – it was disasterous for Gideon Gono and Zimbabwe!

    Greece is interesting, as they’re in a whole an taking the exact opposite approach to Ireland (I’m not sure if they’re banking system is as f**ked as ours though). So we can have some sort of comparitive case study.

  • So the expansion of the EU was a big plot to exploit Latvia. And their motivation to join of their OWN FREE #$%@ING WILL was?

    The Latvians can halt the progress to the Euro simply by defaulting on the entry requirement and devaluing their currency. Just ask Sweden how to do the first bit.

  • There must be some vast bonnets around to contain these Europhobic bees.

    So, lets start with Mack @ 07:06 PM:

    bearing in mind Argentina have their own currency where as we don’t…

    Nice thought. If George Soros and a few others could bring down sterling on 16 Sep 1992, if Lehman Brothers (15 Sep 2008) and its ilk came within a whisker of dethroning the dollar, if each and every national of Dubai wanders around with a debt of $400,000, what’s ones “own currency” matter?

    Then there’s Mack @ 07:06 PM fretting again, unable to compare Greek and Irish national debt problems. That one’s easy: look at the cost of insuring against default. The last time I looked (around the time Dubai hit the news) you paid €166,000 p.a. to insure €10M of Irish Government bonds. As I recall, the equivalent for Greece was about €216K/€10B (and Dubai peaked at something like €600K/€10B). For comparison, the UK figure is up to €79K/€10B.

    What eludes me is the constant need to bash the bankers. OK, OK: why not? But the blame should equally be loaded on the backs of those politicians who encouraged over-easy credit, mainly borrowed on the bourses of Europe, to finance re-election.

  • Mack


    I’m neither Europhobic nor Europhilac, I just like to discuss the situation as I see it. The fact that Ireland doesn’t have it’s own currency _does_ rule out actions that other countries can take. And it does explain why the consensus economic view here is pushing for a ‘real devaluation’ via lower wages to restore competitiveness & increase employment.

    Fiscally Greece is a basket case, I don’t know what state their banks are in. Fiscally Ireland is relatively sound, but the banks are on life-support and the state is on the hook for all their liabilities. If this wasn’t the case the Irish spread over German gilts would be much less.

    But the blame should equally be loaded on the backs of those politicians who encouraged over-easy credit, mainly borrowed on the bourses of Europe, to finance re-election.

    Nope. At the end of the day the business men who pushed the flawed model are responsible for their own mess. Ideally they’d be punished with bankruptcy. Certainly the politicians bear responsibility for the lack of proper regulation..

    Perhaps we could equally blame the politicains who bailed them out, ensuring that we privatise profits and socialise losses.

  • Gréagoir O Frainclín

    Hurray! Huzzah! …the recession in the South is over…
    So…1, 2, 3, c’mon everyone raise your glasses and join in…“We’re in the money (again) , we’re in the money (again), we’re in the money (again)…..

    “My only regret in life is that I did not drink enough champagne”

    John Meynard Keynes!