Austerity and Ireland’s sacrifice of growth (and tax revenue)…

Stephen Spillane sums up the dilemma of all political parties in the Republic, when he notes the latest word from the IMF…

We have no choice but to cut. The deficit is too high. Its that or leave Anglo fall. Maybe that would mean the cuts would not have to be so deep and therefore we would have a fighting chance of recovery. I some how doubt our government will take that chance.

And despite the hyperbole from both opposition parties, it is not clear they will cut and run from Anglo either. There is a lot of legacy money from the government buried in that project. It’s also worth noting that the Fianna Fail/Greens government were just following orders, erm, from the ECB, and mainstream financial opinion.

Stephen links The Telegraph which flags up a lesson from Ireland for George Osborne, who for all his brilliance may have one major weak flank – the deflationary medicine he proposes for the UK has nearly killed Ireland’s economy:

We are seeing a pattern – first in Ireland, now in Greece and Portugal – where cuts are failing to close the deficit as fast as hoped. Austerity itself is eroding tax revenues. Countries are chasing their own tail.

In Britain’s case we await the facts of the CSR before rushing to the assumption he’s not already taken this into account. As far as Ireland is concerned, the epic fail is not just the failure to right the ship but the failure to act early enough.

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  • Itwas SammyMcNally whatdoneit

    A genuine concern regarding Feckless Fail’s (FF) attitude to Anglo is that if it had been let go bust and the bondholders told sorry but it is a corrupt, out of control private institution then perhaps Anglo’s relationship with the government or those close to the government may have been availabe for close inspection during the inevitable series of court cases that would have followed – and it is reasonable to ponder if any dirt on the government or it’s pals might have been found.

    I fully undrstand the reaons given for not allowing it go bust but still am a bit uneasy when FF are involved and not sure there was a proper debate carried out earlier enough.

    Of ourse FF’s relationship with the banks has always been a cosy one except perhaps when it came to their own money as we saw with Berty-the Brown-Paper-Bag-Man claiming he didnt have a bank account when he was Minister of Finance – perhaps a cuter hoor than he has recently been given credit for.

  • Anon

    As far as Ireland is concerned, the epic fail is not just the failure to right the ship but the failure to act early enough.

    By this you mean so early that regulators did their job and Anglo never happened, given that the Republic cut early and cut deep? They could cut and run early, which might be the endgame, or they could have admitted the scale of the losses early, but I can see with uncertainty to the result translating to billions the government wanted to hold off on it.

    What do you mean the CSR take it into account? The only way you can take a deflationary trap into account is by saying if you get a double, you will very abruptly reverse course, because the nature of said trap means further cuts has you “chasing your tail”. Except you can’t because changes might be hard to reverse and the markets may well wipe your eye for it at that point. Chances of this outcome being admitted: zip.

  • Munsterview

    Itwas Sammy…

    Fianna Failure has been trading on image for quite a few decades now; an image that bore no relation what so ever to the operative practices of the party.

    It started with the ‘lads around town’ Haughty, Boland and O’Malley : all three were frequently carpeted by Dev individually or collectively. That ladish behavior first was tolerated from favorite sons and then accepted.

    The sixties industrial expansion brought on another load of chancers : accounting and other professionals had exacting standards when producing feasibility studies, cash flow projections etc. A big problem but not for long.

    I am constrained by what I can legally say here but one of the biggest accounting firms in the State was set up by three prominent politicians. Chines walls and all to that. Firms that Government ministers were associated with prepared the reports, these same ministers decided on grant aid and funding, and these same firms that got ‘the grants approved’ took a percentage of the company as payment.

    Under Haughty the ‘opportunities’ went up market,: the financial services center was supposed to be for foreign financial services: within the first year every Irish Financial institution of note was ensconced there and more Chinese walls.

    From there the Galway Tent developers throwing money around like confetti was inevitable. Southern Irish Society was corrupt to its core and every one in Southern Government with the exception off the Greens learned their trade at the side of ‘Nod and Wink’ corrupt then senior politicians. The press were complicit in that.

    I tried to have property corruption stories broken ten years ago only to have the property journalist and the Commercial manager of the property section scream the house down once the corrupt builder was contacted. RTE was in the government pocket….. just how long did the ‘lets divide up the RTE grants and make a level playing field’ debate go on ?

    All in public life and the top elites of society including most Roman Catholic Bishops drawn from the same gene pool, knew how the ruling elites and decision makers of Irish Society was. George Redmond sold a toll road concession for millions, the State bought it back for billions.

    The Senior Civil servants had to be kept sweet ; they gor exorbithant salariies and then the government pegged their salaried to civil service pay grades. No marks for guessing who appointed the review bories for the civil service payscales !

    If this was China and the same rules for corruption applied I can think of dozens from one particular party that would go before the firing squad. In fact there would not be enough left to form a football team much less a government!

  • Alias

    The epic failure is the failure to grasp that extracting revenue from the Irish economy in the form of taxation and exporting it to eurosystem banks as part of the 70 billion repaid to those banks by last September would have a devastating effect on that economy…

  • slappymcgroundout

    Hey, Mick, would be “nice” if you could tell Pete “the fascist” Baker to not censor speech. Thanks.

  • People in the Republic are saving rather than spending at the moment – I don’t know what the scale of the impact of this is on VAT (nevermind retail jobs), but it is certainly contributing on some level to a proportion of budgetary restraint. This is due to the overall negative atmosphere (just watch the constant doom and gloom on RTE and you’ll get the idea).
    At its most basic – Anglo should not have been afforded the level of protection it was given in the guarantee, similarly those that loaned money to Anglo, who surely had done their homework on the risk involved, should have been forced to accept and quantify their own exposure to that risk prior to Anglo’s inclusion within the government scheme. If they claim they didn’t know the lending environment they were getting into, then Anglo should fall completely as a greedy institution run by fools, borrowing from fools and lending vast sums to fools. Taxpayers aren’t just paying for Anglo, they are paying for financial traders who entered what became a win-win, no risk transaction. But should we be surprised? FF love taking the credit for everything (whether they deserve it or not) and take the blame for nothing.
    And people can argue all they want about the markets and capitalism – no risk transactions expose the inequities of global finance.

  • Itwas SammyMcNally whatdoneit

    John,

    “At its most basic – Anglo should not have been afforded the level of protection it was given in the guarantee, similarly those that loaned money to Anglo, who surely had done their homework on the risk involved, should have been forced to accept and quantify their own exposure to that risk prior to Anglo’s inclusion within the government scheme.”

    All very well to say that now – the fact seems to be that the best thing to do was to bail out Anglo if as many(most?) economists are suggesting and that not to have done so would have left the country fecked.

    My main issue is the the lack of proper debate and the untrustworthniness of Feckless Fail with Feckless Gael not much better.

    Life is not fair nor rational and economics simply reflects that and if it means the Plain People of Ireland have to have pay cuts and a shit health service to save the country then politicians should tell them that.

    That is not to say that if there was a referndum tomorrow to reintroduce capital punishment for bankers/regulators/politicans deemed culpable that it would not have my complete backing and I suspect it would be massively carried with large numbers (including myself) paying to carry out the good work.

  • Anon

    I agree. What I don’t get is what the upside to pouring these vast sums of money into Anglo is. These aren’t government bonds.

  • Munsterview

    Anglo should have been thrown to the wolves and the other two shored up !

    Yes we would have several weeks, months even of financial turmoil, but when things stabilized we would be the cleaner and leaner for it. And we would not be 35 billion under and paying the biggest interest rates in Europe.

    The Anglo decision was not taken in the interests of the Irish People, it was taken out of cronyism and to protect two fifty to three hundred people at most. Fialla Failure did not give a Flying Feck about the plain people of Ireland, they did not since Haugheys famous ‘we must all tighten our belts’ speech while taking thousands form every possible source himself.

    Lenihan is but last in a long line of Fianna Failure bullshit merchants, the only difference is he has been exposed as a ‘no answer waster’ inside two years where we usually have to wait until their political careers are over to see with hindsight the small minded, incompetent intellectually bankrupt people they truly are.

  • As much as economics has itself been pretty devalued (again) over the most recent global fiscal upheaval, there wasn’t really much time for debate when the guarantee was given. But the government and its golden circles intimately knew the exact status of Anglo and it all stinks of clientist politics on the biggest scale ever seen here.

  • Itwas SammyMcNally whatdoneit

    MV,

    I’m afraid, based on what I have read and tempting and populist as your view is – it appears to not have been the best choice.

    The arguement in favour of propping up Anglo runs like this the bondholders who lent money to Anglo did so knowing that they were protected under Irish law just like the depositors and if they were not paid then neither could the depositors and if one bank failed then there would be a run on all the banks and house prices would go through the floor and repossesions would have followed. It is not clear anyway if we could have taken that decision without being thrown out of the EU.

    Feckless Fail on this one probably made the right decision – and it is not often you get to say that.

  • Munsterview

    I am not expert on this, I look to experts !

    David McWilliams and others who called the shots right on the lead up to what was happening and who constantly highlighted the insanity of the situation say it could have been done then and can be done now.

    Lenihan and his crony wasters that caused this nightmare disaster says it cannot be done !

    Guess you pick your sides on this one ?.

  • There isn’t an upside. And no-one seems to be following the trail backwards either – if Anglo agreed to lend a developer E200m, he presumably paid a proportion over for a property or built something with it. While the latter is an impaired asset, no doubt owned by NAMA, the former means that the sum lent was paid out to the original owner. So some of those loans went somewhere other than redundant housing stock.
    What galls me is that it is possible that big financial interests flogged some shopping centre (or whatever) to a developer while another aspect of their business loans Anglo the money for the developer to make the purchase. So they loan money out one side, get it back via another and then get it a second time as the state bails the loan itself. That might sound like a conspiracy theory – but if you knew where to look, I’d bet you could find examples of that within the whole Anglo-NAMA debacle.

  • Munsterview

    Cannot name names on slugger and expose Mick!

    Seanie Fitzpatrick was not the only prominent person with a handy and inexplicably wealthy wife / brother /niece / significant other etc.

    Cronyism from the very top just like Charlie was taken care of by his own contacts in the Wealth Establishment so also were many of our decision makers deciding things ‘in our interests’

    This Twenty Six county State is, as republicans have always claimed, corrupt to the core and until that is faced up to, anything else is tinkering around the edges.

    You may as well attempt to get the unionists to accept democracy involving others as Fianna Failure to accept honesty. These traits are just not in the genetic make up of either party

  • The only problem with any theory regarding Anglo is that it was being propped up by Anglo loans to buy its own shares, making off-balance sheet transactions with other institutions to hide the nature of its books, etc. All of which should have been used to retrospectively rendered its guarantee redundant.
    The irony here is the speed with which previous juntas (I think the expression is appropriate these days) moved to apply emergency laws against republicans for their ‘threat to the state’, had been so busy cannibalising the state from the inside to make good on some half-remembered promises made over a few pints in a tent at the Galway races. As terrorists, the state has excelled in scaring the wits out of its own citizens.

  • Itwas SammyMcNally whatdoneit

    MV,

    “These traits are just not in the genetic make up of either party”

    Are yuo not inadvertnetly dissing a few of you heroes there?

  • Itwas SammyMcNally whatdoneit

    John,

    “The only problem with any theory regarding Anglo is that it was being propped up by Anglo loans to buy its own shares, making off-balance sheet transactions with other institutions to hide the nature of its books, etc. All of which should have been used to retrospectively rendered its guarantee redundant..”

    I dont think that is relevant to the legal rights of the external bondholders unless there is an exemption clause for the state if the particular bank is corrupt.

    But as I indicated earier I dont think the EU would have allowed Ireland to let Anglo go bust.

    I presume yourself (or Munsterview) are not of an opinion that Ireland should not be in the EU?

  • To be honest, I’m ambivalent about it. While there have been obvious benefits for the Republic in EU membership, it has promoted a lazy pattern of thinking (particularly with the economy). It’s always overlooked that many of the better cultural and political devices also tend to be Council of Europe-led, rather than being anything to do with the EU. And financially, you’d have to retrospectively wonder at how useful financial integration has been. The state’s destruction of it’s own fishing fleet to allow other EU fleets access to Irish waters apparently has made it a net contributor to the EU over it’s lifetime (another point that is often lost in debate).
    Another supposed major economic benefit has been as a low-tax Anglophone hub (oh, the irony) for US corporations within the Eurozone. But what regulation that existed was being morally outsourced to the EU rather than operated locally. The movement of ECB rates also tended to go against the needs of the Republic’s economy as well, meaning that the Republic’s banks (or the government or the opposition) needed to show leadership qualities which they didn’t have.

    I do believe that the discrepancies in Anglo’s activities should have rendered any guarantee redundant (surely the practices were ‘corrupt’ by any definition) – the bondholders could then have sued those involved for their money.

  • Itwas SammyMcNally whatdoneit

    John,

    “I do believe that the discrepancies in Anglo’s activities should have rendered any guarantee redundant (surely the practices were ‘corrupt’ by any definition) – the bondholders could then have sued those involved for their money.”

    I know it seems like it at times but the government is not stupid corrupt, self-serving, untrustworthy, treasonous etc – but not stupid. If we can raise the possibility of the ‘criminality’ issue then I suspect so can the government’s lawyers.

    I dont believe that Lenihan, who is a very able operator has not got this angle covered and if it were the case surely every economist and opppostion spokesman would be giving Lenihan serious grief – if it turns out they havent -as I mentioned it first above then I put my hand up as the saviour of the Irish economy – though I am prepared to let you share some of the glory.

    Regarding Europe everybody kows the drawbacks but you have as much chance of selling get out of Europe to the Plain People of Ireland as you have of seeing Tommo-the-Orangeman-Elliott wearing a Fermanagh GAA shirt that hasnt been cut and pasted on to him.

  • Munsterview

    Itwas,

    Off thread here but very pertinent !

    I was always able to separate person from party and I have never denied that there are some good, sincere people in all parties. I even have life long friendships with some.

    Free Legal Aid was in an absolute mess twenty wears back. the then chairman made all the usual mild protestations about of lack of resources and finally resigned.

    Some months later two paralegals assisted a woman who was barley literate to take a constitutional case in the Super Courts to have Free Legal Aid as administered declared unconstitutional.

    The High Court did not accept that the woman was discriminated against in law as she appeared articulate enough to plead her own case, while her husband had a solicitor, a barrister and a senior council !

    She appealed to the Superior court on the fact of her ability, they referred it back to the High Court for a full hearing on all issues in the statement of claim. The court, despite strenuous opposition, found in the woman’s favor.

    The Fianna Failure Government immediately appealed to the Supreme Court. That was the time labor got in and even before he had a physical office he contacted the woman in person and assured her the appeal would be withdrawn, which it was.

    Fianna Failure were prepared to do then with the Free Legal Aid ( not that it is any great shakes now) as they are now with the health services, allow innocent victims to stew in their own misery!

    The Senior Council that resigned could have crossed the hall and made the same application as that semi literate woman made. He did not, he held his silence and in due time Guess who became a High Court Judge ?

    There is one certainty here, if he did make that application against Fianna Failure he would not be a High Court Judge.

    Fianna Failure has its ‘technicians’ that take care of their interests and they in turn take care of these ‘technicians’ be they legal, financial or otherwise. Once professionals are involved, few other from the same profession are prepared to oppose, much less expose !

    How many thousands in the legal profession in the Southern State 10, 15, 20 ? How many prepared to sue colleagues over a hundred…..OK……….over 200 ?

    There is your answer Cronyism, mutual back covering by the professions in a grotesque obscene, dance .

    How then with either politicians in special interests pockets or profession in Fianna Failure pockets, can we ever thet the full picture or full story ?

    Incidently how are things in the Four Goldmines these days, pretty busy from what I hear ?

  • Munsterview

    Sorry, ommitted Mervin Taylor’s name, he was the Labor Minister who contacted the woman directly his first day in office, even before he had a physical office.

    That is the difference, Labor cares about people and their person, Fianna Failure care about people and their votes !

  • Yeah, exiting Europe isn’t going to happen (although being kicked out is a more likely option).

    As to Lenihan and covering angles – George Lee simultaneously nobbled both RTE and FG. Other critics (e.g. Shane Ross, Matt Cooper etc) have been trenchant in their criticisms of the decisions and the decision-making process (most of them also dismiss McWilliam’s as too lightweight and self-serving in his analysis). I think the scale of this is so big that no-one has come to terms with it yet.

  • Munsterview

    John

    I have always said publicly when banned from radio, TV, and de facto full participation in literary festival, that the censorship had little with punishing the Boys of the Old Brigade and everything with protecting the Brown Envelope Brigade !