Economic crisis blogburst 7: “They’ve blown up the Death Star?”

– To Faisal Islam Ireland is a nation looking for someone to blame… But is very worried of all this talk of renegotiating a budget that has never been a purely domestic production anyway…

Whoever heard of an IMF structural adjustment policy being negotiated in the middle of an election campaign. Yes, it sounds very democratic. But it is fraught with peril.

– And, it seems, demogogic outrage is all the, er, rage

– But Islam may not be accounting for the institutional cutest hoorism of the state’s politics. Michael Lowry in particular has been trying to sell Fine Gael a particularly nasty self serving dummy…  P O’Neill comments:

…having had the leverage of his side-deal with the Coalition for nearly 3 years in return for his vote, runs to the hills at a time of true crisis and declares that it’s up to Fine Gael and Labour — shut out of government by deals with independents and small parties — to help pass the budget.

– Elsewhere, the IMF – who are in for over a third of the cash – are facing questions over their role in the bailout. Not least when the interests of the Eurozone diverge from those of the international markets. But also as Simon Johnson, a former IMF economist, points out:

The key issue is when they recognise that they will seriously have to write down bank debt, and the IMF is likely to be much keener on that than is the EU.

Hmmm we’ve not heard much yet on the detail of the write down of bank debt, or restructuring of the banks themselves.

– Michael Somers, former head of the National Treasury Management Agency, had this to say on Saturday in the Irish Times:

The biggest problem is, of course, the banks. It amazed me that we could have credit growing at 20, 25 or even 30 per cent a year when nominal GNP was growing in single digits. What basic monetary economics I could recall (leaving aside academic complications) indicated that the monetary aggregates should grow more or less in line with nominal GNP, not by a multiple of them.

I got out several Central Bank reports one day to try to understand how this credit was being created. Finding what you want in these reports is, at least for me, quite difficult but I finally came to the conclusion that the Irish banks borrowed from abroad between €100 billion and €200 billion in respect of their Irish business. I was so astonished that I asked one of my colleagues to check this figure and he agreed that it appeared to be correct.

Do read it to the end!!!

– Peter Curran notes that the crisis has little to do with the national independence, but incompetence in government

– Cedar Lounge on the latest poll ratings from Red C… note there are now just 6 points between Sinn Fein and Fianna Fail

– Speaking of which there’s a nice, tightly observed piece from Alex Massie, which examines that poll and asks: could this be the end of Fianna Fail? Answer, probably not:

Since Fianna Fail is nothing if it’s not in power one wonders just how it will behave if fewer than 40 of Dev’s great-grandchildren are returned to the Dail next year. The party – the “movement” (cease your chuckling) – is not bred for opposition. What, then, is the point of Fianna Fail?

Political parties do die. It’s not impossible that this could be the end of Fianna Fail though, if truth be told, this may prove an overly-optimistic view. They are the Irish Undead.

– A *very* thoughful piece on the importance of narrative and the challenge for the opposition if they are to be effective in government, from Jason O’Mahony (do read it all, or you won’t get today’s title):

…we’ve never had a Labour government. Now, I’m not a fan of Labour. I think they are anti-business, in hock to the public sector and the unions, and regard people who actually create jobs and wealth with suspicion.

But I’ll tell you one thing about Labour: they have a story and a direction and maybe even a picture of what it is they want to do. They do not measure themselves as The Not-Fianna Fail Party. And maybe, just maybe, Labour are smart enough to realise that this is an Indiana Jones grab your hat from under the closing stone wall moment to reach out beyond their comfort zone, to entrepreneurs, to employers,  to businessmen and women who can make a profit AND treat their customers and employees decently.

– And Dan replies:

Fine Gael have articulated over the last few years a reasonable set of policies in respect of the public finances and Irish life and has made efforts to address the problems associated with unemployment. Some of those policies are inconsistent, some areas are lacking and I personally disagree with party policy in a number of areas in the short and longer term. Yet unless there is the ME party out there made up of clones of mine that subscribes only to policies that I agree with then I’m never going to find a party that I share 100% congruence with.

– Meanwhile in the financial world, Constantin notes that contagion is already in train in the wake of the bailout…

– And already getting serious for Spain by the looks of it…

– Joe has his usual round up of headlines in the British press…

  • Neil

    See the Shinners have tabled a motion of now confidence in Brian Cowen.

  • John Ó Néill

    Rumblings out of the meeting of MEPs from the Republic with Ollie Rehn suggest that the corporation tax rate is not ring-fenced. There is a no-confidence motion in the government tabled for today (by SF) and Paul Gogarty was ambushed on Newstalk over Mary Hanafin’s criticisms of the Greens (alongside a blatant leadership pitch). Currently the cabinet is meeting where Hanafin’s comment must also be adding some spice. With backbenchers rebelling, the Greens now in a serious huff and the independents all under pressure, there may be more faux drama today as the government cobble together enough votes to win the confidence motion. If not, then all of the election headlines of the last few days can be dusted off again (only to be once again disappointed) …

  • callum

    tumbleweed on slugger these days

  • DC

    Piss up and brewery come to mind, not one party has put forward a constructive collection of ideas on how to go about agreeing or denying a budget with alternatives, neither has any party set out how to make those culpable pay for the problem in proportionate way – I’m thinking mainly the politicians behind this government, should they look to tie the hands of other future governments and exit with government pensions to boot.

    This government should not be allowed to leave under a luxurious government pension, it should be basic state pension if any at all particularly given the poverty-line budget about to be imposed on the taxpayers – who will be pummelled out of pocket for the mistakes of others.

    Where’s Bertie Ahern this weather – still running for president or something else so completely ridiculous:

    ‘Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide because frankly the only thing that motivates me is being able to actively change something,’

  • Archie Noble

    “Piss up and brewery come to mind, not one party has put forward a constructive collection of ideas on how to go about agreeing or denying a budget with alternatives, neither has any party set out how to make those culpable pay for the problem in proportionate way”

    Not so DC it seems SF have come up with some very solid proposals.

    http://www.sinnfein.ie/files/Pre-Budget2010_web.pdf

    I admit to being suprised by this but it is cogent and coherent and more likely to work than the alternatives. I’m impressed.

  • DC

    Trouble is given SF’s history I cant bring myself to look, as a party they tend to thrive of negativity and I’m sure see this as some sort opportunity, cue Adams entering Louth while Ireland is on its knees.

    Besides what is needed is less nationalism/communal/identity politics and more parties in play operating with a proper understanding of market-based economics – parties in tune with capitalism and critical of it and can apply critical thinking and turn this into hard policy outcomes; rather than vote for SF who are generally just antagonistic towards capitalism – and much more besides.

  • callum

    “Besides what is needed is less nationalism/communal/identity politics ”

    Except DC, it is more of this kind of politics the Irish are demanding and less of the ‘beholden to banks, big business and the EU’ they are being served up by FF,FG, and Lab.

    that other forum *ahem* is full of it and as its servers keep going down recently its getting the traffic to prove it

  • Itwas SammyMcNally whatdoneit

    Alex Massie says FF may get less than 40 – but has anyone seen any opinion polls translated into the projected number of seats for the rest. FG and and Labour may get around 40-50 each.

    So FG/Labour probably on 90-100 out of 166?

  • Munsterview

    DC

    It appears what you know of Sinn Fein members or party policies could be written in the back of a postage stamp !

    Outside of the major cities, most of Sinn Fein come from small, successful family business and these business had to be just that as unlike FF connections, no grants aids, supports or bail outs. You just make it work or closed the door. People like Arthur Morgan have a very good grasp of business, not from theoretical MBA but from their own direct experience.

    Even in the Main Urban areas a large section of the Republican Movement was self employed, they had to be as they were victimized for employment. Many were in the building trade and interestingly these small concerns are in the main still operating as they gave a good service.

    Sinn Fein was never anti-business. It was however always anti the rampant uncontrollable, unregulated, greed is good, Charlie McGreevy, Progressive Democratic crony capitalism that brought this country to its knees. Yes the Republican Movement did have a few doctrinaire marxist that defined the left of the party as it also had a few right of centre with views that would have sat very easy with the Conservatives

    The bulk of the membership are centre -left, but far from totally anti enteriprize, business or capital. Historically any time the extreme left tried to force a take over, it is this left rump that had to leave and go elsewhere as they did not have significant numbers to change party ethos. The sticks did get temporary control but when the retired fifty-six men and the forties men came flocking back, they also quickly took back the Movement from the hi-jackers

    In fact having seen what unfettered capitalism and ‘light touch’ regulation can do, much of what Sinn Fein is advocating in business policies is suddenly making a lot of sense. Gerry Adams leadership debate did not do justice to the Gerry I know and have seen in action for whatever reason but the fact remains, his then diagnosed was laughed out of it by the media and other politicians.

    Gerry can no re-visit that analysis and stand over every word he said. Can Bertie ? Can Enda ? People are not fools they remember things like that especially when the politicians that got it wrong and inflicted so much grief on them and their families are still more interested in covering than admitting their mistakes.

  • Itwas SammyMcNally whatdoneit

    MV,

    “Outside of the major cities, most of Sinn Fein come from small, successful family business”

    I think you are somewhat overstating your case there.

  • DC

    Well I think the impression I got from Gerry Adams at the time was that he talked a lot about equality but his party couldn’t cost the health policy on hospital beds, I think the debate was on how to put to better use privately funded hospital wards to accommodate publicly funded patients etc. He looked awkward and not in tune with the issues.

    Ireland has a functioning market economy but what it doesn’t have is a realistic housing market nor a functioning banking sector, which is why it is so unfair to burden the taxpayer and the good economy with global toxic debt, as a result of the mistakes of others working in specific financial lending institutions.

    Perhaps Ireland should agree a budget – with the above in mind re basic state pension for FF/Green government maybe better still just government ministers? – and hope Merkel can supply haircuts in 2013 onwards and write the private debt down?

  • Munsterview

    It was….

    O’K, I should have qualified ths statement whatever of quntatification.

    Price of a few gray hairs, I should have said that I was referring to Sinn Fein pre ceasfire and also Southern Simm Fein. As a former activist (a deleat, cannot leave too many clues for pesky) I know Munster fairly well and the families who were the backbone of the movement.

    Several fishermen with their own boats, farmers everywhere, builders and sub contractors by the new time, etc. In post ceasfire Sinn Fein and in particular among those who came in to the party in the past decade there are more from the professions and working in industry. Third level qulafications are no longer anything exceptional.

    While there is a younger profile and a better educated general membership North and South, party policy is what it says on the can and I still mantain that there is a good pro- small business attidute towards the local and a relistic attitude towards where Ireland stands with regard to International industry and Capital.

  • Munsterview

    Itwas,

    Even in Donegall polls range from 30% right through to high 40’s. for Pierce Doherty and SF. At this remove and having gone through the weekend papers I could not firm up the numbers from the media information.

    I was through the area last weekend and had a few exchanges with the greyheads, but I will not cross the SF players on the ground it is their game and up to them to call the shots with regard to what information they want out there.

    If this close to the election the Media cannot accurately call Donegall %, then it is highly unlikely that any realistic figures can be projected for the various constituencies. The threes, fours and five seaters will all behave differently and projected seat results for the next election at this stage are about as reliable as an Anglo Irish balance sheet !

  • another

    ” note there are now just 6 points between Sinn Fein and Fianna Fail…”

    Was there ever a greater opportunity to create a socialist Republic?

    If Sinn Fein play their cards right; get the people out on the streets; promise an exit from Europe, and agree to allow the bankes to fail (which many economists believe is the only way forward for the country); then at the very least, they can seriously disrupt the contrived script as to where we are all heading politically.

    That they will do some of this; is evidenced by Gerry’s move to louth. Alas one suspects that they do not have the intelligence to go about doing things like allowing the banks to fail; but there may be some hope where they do get an economic heavyweight into their team.

    The old rules are now out the window and all is to play for. The same faces that malign Adams and Co, are the very people that saw none of this current crisis coming.

  • Munsterview

    I would have to see a hell of a lot more evidence and Fianna Failure really coming apart at the seams before I can see them falling under 25 % in a National election. Donegall is not a yardstick for anything, Sinn Fein has an exceptional candidate with a good constituency profile and he will bring in a well above average vote.

    As one of our people said to me up there the weekend. before last,.. ‘The Cope do not want the dope’ !

    If it is accepted by FF that Doherty will win, and the Mainstream FF have to use their votes without voting FF, then in the privacy of the box, then loan votes to Doherty is the most likely result as they will not want to build up FG or Labour.

    It is not just about electing a candidate you know !

  • percy

    no-ojnes talking about a pull-out of the euro, or letting the banks default.
    we’re so in hoc to the markets, and the fear headlines they create.. but its just investors and euro-bankers that stand to lose.
    read this..
    Irish bust better than bailout
    http://gulfnews.com/business/opinion/irish-bust-better-than-bailout-1.717156

  • Greenflag

    The people do not want to live in Albania or North Korea . While it is true that the people have lost confidence in the established parties it does not necessarily follow that they have discovered a new found faith in the political abilities of SF to lead them to the promised land of a ‘socialist ‘ republic . A Social Democratic Republic would be about the most that voters would vote for .

    Mr Doherty will win the seat and SF will win a few extra seats in border consituencies and maybe Dublin but they’ll still troop into the Dail in fourth or even fifth place behind FG, FF, and Labour imo .

    Barring of course any ‘black swan ‘ events between now and polling day .

  • Munsterview

    Well folks this is how Daily Wealth see us to-night. However we are not the only ones in the do-do it seems. Enjoy the read……or not!

    Abstract……..

    But the macro concerns continue to mount, chief among them the EU debt disaster.

    European debt hits home

    After months of pressure, Ireland has been coerced into accepting an aid package. Although, calling it an aid or “rescue” package is a bit of a stretch…

    The Irish people are not the real “rescuees” in this operation; banks are the ones being rescued, as they refuse to take losses on their Irish debt.

    Ireland cannot pay its debts, just as Greece cannot short an economic miracle.

    They should default on their bonds and force the ones who lent the money to take losses.

    Instead, the debt risk will be shuffled around, and generally transferred from banks to Irish citizens. They’ll be paying for it for decades.

    As we know, modern economic theory dictates that bond investors should not be held liable for bad investments. The fact that this violates every principle that makes capitalism work is a moot point, seemingly.

    Unfortunately, there are other (and significant) clouds looming over the world economy…

    Insider trading scandal, bank balance sheets

    Back in the States, that hedge fund insider trading scandal just keeps getting bigger.

    Just today, a number of prominent hedge funds and investment firms announced Federal investigations. If investors start to pull cash from hedge funds, a snowball of withdrawals could cause a cascade of selling in the near term.

    Bank stocks also have been wavering, for a number of reasons…

    There’s foreclosuregate, which won’t go away. Mortgage bond putbacks also threaten banker well-being.

    A “putback” refers to the right given to mortgage bond buyers in the event that the loans go bad.

    So far, investors including Freddie Mac and Pimco have demanded banks buy back faulty mortgage securities, essentially putting them back onto the bank’s balance sheet.

  • John Ó Néill

    I was working and missed PrimeTime, but I gather that the figures bandied around for the state taking on commercial bank-to-bank loans at the behest of the EU and IMF now amount to having a facility to borrow up to 85billion at something like 6% or 7% (not sure if that figure is real but its being said with a certain amount of conviction). This will amount to 10billion interest payments per year (which isn’t remotely feasible). Vincent Browne started his late shift on TV3 by saying that if we thought things were bad yesterday, they are just about to get worse if all that is true.

    If the IMF and ECB are pushing a 6-7% interest rate onto a eurozone state on top of forcing the state to take on commercial loans made by banks to other banks, then that is the end of the Euro project. Portugal and Spain will just default now, don’t know how close Italy and Belgium really are to the edge but they are not going to come to an arrangement at that sort of level.

  • Itwas SammyMcNally whatdoneit

    John,

    “state taking on commercial bank-to-bank loans at the behest of the EU and IMF ”

    Anyone would think the Plain People of Ireland were forced to take out loans to buy apartments in Berlin et al and Irish developers were forced to speculate.

    Ireland underwrote the loans so why should we not meet our obligations?

    ps 6 or 7 % is probably a rumour or if not Adams may be the next tea-shop.

  • John Ó Néill

    If it’s up on the web, I’d suggest you find tonights Vincent Browne show from the tv3 website – apparently 6-7 % is real and the Republic is getting punished by the ECB and IMF.
    Bottom line is that the state is being strong-armed into bailing out loans made by banks to other banks with no proper assessment or insurance of the risk of default. The failure to assess risk in the loans is not seeing an appropriate write-down, as the German and UK banks are putting huge pressure on to have the Republic take on the full liability so that the banks suffer no loss. The guarantee offered by FF has now placed all that on the state’s books and now has, joking apart, bankrupted the state.
    But the mechanism of forcing a Eurozone state to carry loans at punitive interest rates so that German banks don’t make losses will more or less guarantee the collapse of the euro (and probably EU) as the Republic, then Portugal etc default.

  • Itwas SammyMcNally whatdoneit

    John,

    “But the mechanism of forcing a Eurozone state to carry loans at punitive interest rates so that German banks don’t make losses will more or less guarantee the collapse of the euro (and probably EU) as the Republic, then Portugal etc default”

    That is why the report is (probably) wrong.

    Bet you a (borrowed) tenner (sterling) – money to Slugger.

  • John Ó Néill

    If its below 6%, I’d happily give Slugger double. Only condition is that the source is not anyone in FF.

    Now, I’m off to bed and see who the new government is in the morning….

  • wee buns

    The panel on Vincent Browne were in full agreement about the figures: an astronomical 343 billion to be paid back at an interest rate north of 6%. The power of default is all we have left to negociate with.

  • Itwas SammyMcNally whatdoneit

    John,

    You are on – if it is 6 or more I will give £20 to Slugger.

    I suspect (hope) the IMF are talkng up the rate but will drop it.

  • pippakin

    For goodness what is there to debate we cannot pay the amount of debt Vincent Browne and his guests were talking about last night.

    We have to let the banks fail and the bastards at the top take the biggest hit.