Economic crisis blogburst 2: Not an overnight crisis…

Okay, the news is coming thick and fast so here’s a slice of today’s comment, bloggish and otherwise:

– Ronan has a piece pointing out that whilst other periphery countries have their budgets in the public domain, Brian Lenihan is having to work with the most unbearable public scrutiny and an EU Commissioner taking in everything he does over his shoulder: Is this the crux of that economic sovereignty issue we keep hearing about:

…no-one in Europe wins if, for reasons of economic illiteracy, Ireland is forced to double its corporate tax rates. Ireland’s government deficit will worsen: capital is mobile and, without a large domestic market, Ireland will attract less capital here than otherwise. The wider Irish economy will lose out, with fewer jobs for Irish people living here and fewer jobs to attract skilled migrants to here… and the government finances lose out yet again through lost income tax and VAT receipts.

–  Gavin who’s been across a lot of the detail during much of this crisis lays on the ‘we told you so’ with a massive trowel (and lots of unmissable detail):

We questioned just how much nonsense Finance Minister Brian Lenihan spoke in September 2009, where he argued that Ireland had neared the floor in the housing market. Of course, NAMA set its floor in November 2009, and prices have fallen ever since – leading to yet more losses for the taxpayer.

P O’Neill at A Fistful of Euros on Ireland’s two stories, one for domestic consumption (ie, we’ve been bad people, must embrace new austerity); and one for the markets, Sovereign Debt, good, Bank debt BAAADDDD…. He winds up with his own series of questions:

…why the fixations with having an Irish-owned banking sector and avoidance of restructuring of insolvent banks; why the assumption that the 2007 total level of tax revenue is gone forever, and most of all, why the assumption that an unreformed political economy (i.e. the constellation of institutions and interest groups) is still somehow fit for purpose in getting the economy out of its current mess?

– And thinking about how recovery will come, Michael Taft sounds a warning on the largely postive balance of trade story currently being offered as government’s garlic and crucifix combo to ward off the nasty markets:

…production increases and jobs are lost. Of course, we shouldn’t expect this pattern to continue. There is considerable slack in these sectors. Ramping up production may not immediately generate jobs but as production continues to climb, jobs should come on-stream. That’s the theory.

But the main driver is the modern sector, in particular the chemical/pharmaceutical sector. These are capital-intensive. Job creation will be minimal compared to what is needed.

The recession was not caused by a collapse in external demand; our net exports have held up reasonable well. So we shouldn’t fall into the trap of ‘export-led recovery’ thinking. This sector will not lead the recovery. That will come from domestic sectors.

– Rob Kitchen at After Nama on the idiocy of running an economy where mass emigration is a key element of survival:

The next budget and the four year plan are partly predicated on emigration (40,000 in 2011, 100,000 over the next 4 years).  Instead of trying to retain of best and brightest, our policy is to hope they leave!  And they go disillusioned and resentful, feeling that they are not only paying the price for other people’s mistakes but if they stayed that they are expected to carry the burden of debt and woes into the future; hardly the best sentiments for encouraging later return.

Constantin deconstructs the contagion problem now consuming Ireland’s EU partners…

– Gekko says flirting with ‘mortgage forgiveness’ will only force more taxpayer’s Euros down another bottomless Nama like flue

More tomorrow…


  • “Instead of trying to retain of best and brightest, our policy is to hope they leave!”

    Therein lies the single consistently repeated public policy failure that has haunted the Republic since its inception. The crime of treating immigration as means of ameliorating risk – coupled with the fact that Irish immigrants are a fine gift to give to your neighbours – they’ve always fuelled British growth and I suspect that they’ll be doing it again unless the Tories *really* get their way and we end up in the same boat as Ireland…..

  • Mack

    I do see your point but…

    Ireland is a very small country. Even during the boom large numbers left (and I think btw, Britain has the highest out flows in the EU) – it’s just that during the boom there was a net inflow (more new comers).

    People move between states in the USA all the time. As long as we create opportunities for them to move back, a few years in Britain when things are bad isn’t the end of the world.

  • alanmaskey

    Countries in distress have to comply so, yes, they have to do their dirty washing in the open. South Korea was no different.
    Emigration helped in the past to keep the lid off revolution. Roads traditionally lead to the centre. Dublin is not a centre.
    The leaders of the main parties are each going to get 10 minutes in Leinster House today to speak of the crisis, which is good. So too is Sinn Fein which is bad as it sends out the message that these characters have something to contribute.
    Emigration, remittances, were once of the mainstays of the 1950s. It is still key to countries like Bangladesh and the Philippines.
    Capital instensive is the only choice unless you can match the lagbour costs of China and India.
    Have any bloggers anything intelligent or prescriptive to ay or are they all, like Gerry Adams., econ0omic illiterates?

    Much of the British outflow is white pension flight: heading to climes where it does not rain 400 days a year. And, of course, the more spirited Brits go in search of better gae.

  • HeinzGuderian

    A failed State,whose people desreve better !! Come and join us,once again,in the United Kingdom. On second thought………maybe not 😉

  • aquifer

    “So we shouldn’t fall into the trap of ‘export-led recovery’ thinking.”

    Trap? Ireland was increasing exports but then lost competitiveness as the building industry boomed.

    There is nothing wrong with Ireland’s stance as a low tax English speaking export base into the Eurozone.

  • alanmaskey

    Heinz: You nameed yourself after a failed general. Be careful in wishing what you want for then the gloves may come off.

  • alanmaskey

    The Economist has quite a bit on this side story to Will&Kate.
    I think Biffo should use the crisis as an excuse to declare martial law and round up the Provos and the Tiger kidnappers.

  • barnshee

    Ireland north and south has too many people for the countries natural resources and associated economic activity levels. This is just another example example of a general tendency of the human race (whether India Ireland or Ethiopia) to excess propagation and subsequent strain on resources as finite resources are stretched

  • Alias

    As others are doing there “I told you so” thing, I’d like to point out that I have been 100% accurate about the consequences from within 1 hour of when the unlimited government guarantee was introduced back in October 2008, at a time when the europhile government and its media muppets had convinced their victims – the taxpayers – that the bail-out wouldn’t cost them a penny and, by the time that NAMA had entered the picture, that it would even make them a huge profit!

    Indeed, this other chap “Dave” had calculated that the true cost of bailing-out the eurosystem would be “in the high hundreds of billions” back in February 2009.

    Dave has it right, of course, and I’d put the final cost at over 400 billion, excluding the indirect costs which will be substantially higher.

    Dave says:12 February 2009 at 2:39 pm

    I think we should rename the country ‘Wonderland’ and then rename the government ‘Alice’.

    You can’t solve a debt problem by transferring the debt from the private to the public sector. The debt remains, and the only difference is that good money is then removed from the economy (because taxpayers have considerably less disposable income due to the higher taxes required to repay the debt) and bad business is absolved of it debt and left to continue as a bad business.

    This €7 billion of taxpayers’ money will vanish when the first write-down of asset value by the banks occur. Naturally, those banks have sweet FA intention of writing down their assets until after they get the taxpayers cash. Then – give it about 3 or 4 months – they’ll be back for more cash. By the time their assets are properly written down, the losses will be in the high hundreds of billions.

    Kids, property is virtually worthless and property is what these banks have injected their money into. All of the entrepreneurs you would have relied on to get you out of this mess don’t exist: they’ll all committed to injecting their disposable income into repaying the mortgages on vacant properties that are worth a fraction of what they paid for them. Your entrepreneurial types – an entire generation – were squandered on a racket created by cheap credit from the ECB.

    There is no magic solution to this, and given the vast amount of debt that banks and other financial institutions have accrued, your government will bankrupt you on worse terms than Iceland if you allow them to make you responsible for the debts of these private businesses. If a bank manager lent money to a business without bothering to read the due diligence report and thereby exposed the bank to a reckless risk (as the inept and risible moron Lenihan has done), we’d all be demanding his resignation. Yet, with Lenihan, we actually trust this ape and the Cowen ape who oversaw and chearled this crisis to handle a situation that presents Ireland with the greatest danger it has ever faced.

    So where is the due diligence of the citizen in all of this? The citizen is satisfied with meaningless rhetoric not supported by facts and figures along the lines of “systemic risk” and “the government is acting on advice from the Regulator/Central Bank” ect as if those phrases are acceptable substitutes for due diligence on the part of the citizen.

    The smartest thing to do at this point is to emigrate. Wonderland indeed.

  • Alias

    That’s an interesting article from Ronan Lyons but I can’t feel any sympathy for seeing a europhile such as Mr Lyons feeling a tad sore that his latent patriotism should conflict with his europhilia since he abandoned patriotism when he embraced the EU.

    When the European Commissioner for Economic and Monetary Affairs, Olli Rehn, said that “Ireland will not continue as a low tax country, rather it will become a normal tax country in the context of the European Union” he was like simply ‘following orders’ and doing what the EU is designed to do: harmonise its member states.

    The europhile government isn’t going to put the Irish national interest before the EU interest, so it would be more than happy to destroy the last remnants of the Irish economy by destroying its only remaining competitive advantage if their masters deemed that it served the EU interest to do so, but they just haven’t had enough advance notice to sell the treachery to others yet without destroying their own political careers so they’re like rats invited to sink with the ship when their own preference is to abandon it.

    Ireland’s exports have collapsed to less than half the level in real terms that they were before it joined the eurozone. It isn’t even a case that exports have stood still in the last 10 years, never mind advanced but that they are less now then what they were back then, so the last 10 years was just wiped out. Given that 94% of them are foreign-owned and that the new member states that have since joined the EU have significantly lower wage costs and a higher number of graduates than we have, the only factor that still keeps them here is a competitive corporate tax regime. All that cheap credit that the ECB flooded eurosystem consumers created an over-supply of money that forced up wages and other production costs.

    It’s simply sad to see Ronan write his little impotent letter to Olli Rehn pleading with him to put the interests of the Irish nation before the interests of the EU as if he and other europhiles didn’t reduce himself and his nation to that…

  • Munsterview

    “…….The leaders of the main parties are each going to get 10 minutes in Leinster House today to speak of the crisis, which is good. So too is Sinn Fein which is bad as it sends out the message that these characters have something to contribute…….” Maskey unmasked

    And the mask slips yet again !

    Maskey in his spleen against Sinn Fein and obsession to have Sinn Fein silenced would also have those other voters not associated with the party, but who voted for it left without a voice in parliament.

    Some Democrat indeed !

  • the future’sbright, the future’s orange

    well said munsterman – let the shinners speak: we all need a good laugh in these dark times… Perhaps they could bail out the Northern?

  • Mack

    That is complete and utter nonsense 🙂