Is the Greek crisis running an important political counterfactual on Ireland’s ‘nightmare bailout’?

I have to say that I take a rather different view from Paul on Ireland and the current phase of the Eurocrisis. Like all wicked problems, it is one replete with all sorts of layers and the Grexit issue is only one in a long line of thorny issues that will have to be dealt with.

If there is a value in the comparison with Thatcher it might be between Tspiras and Arthur Scargill. You cannot fail to sympathise with the invidious position the Greek people find themselves in, but their opponents have not been idle in their preparations for such a day.

First, back to the domestic situation in the south. I haven’t quite given up tracking the polls, but there’s not much play. Over time, even the slightest shifts appear  to have proven temporary.

Millward Brown for the Sunday Independent runs: Fine Gael 29 (+4); Fianna Fáil 23 (+4); Sinn Fein 21 (-3); Labour 6 (-2); Socialist 2; Greens 1 (-2); Renua 1; PBPA 1; Ind. 16 (-).

Whilst the Sunday Business Post/Red C poll stands: Fine Gael 28 (-); Fianna Fáil 20 (+1); Sinn Fein 18 (-3); Labour 7 (-3); Greens 2; Renua 1; Others 1; Ind. 23 (+5).

The only fixed aspect, Labour seem to be in line for a Lib Dem style thrashing. There’s no real movement for either FG or FF in the Red C poll. And Renua will be disappointed with just 1 point.

ECB PiperI suspect World by Storm has it right, that every cut in benefit is another nail in mainstream social democracy in Ireland. I would add too that they are suffering from over promising at the 2011 General Election. Frankfurt has had the definitive and final say over how the Irish recovery would shape up.

The three per cent loss for Sinn Fein comes on the heels of that odd controversy in East Cork (for which no real explanation has yet been offered). As Padraig Mac Lochlainn was quick to point out there has been some overwrought readings of their ‘virtual’ losses:

If you believe opinion polls at all. Yet the party’s close and public association with Syriza may expose them further on the domestic front this week, as Greece faces bankruptcy and a hastily called (somewhat indecipherable) referendum.

Indeed on Thursday, former Taoiseach Brian Cowen faces the Oireachtas Banking Enquiry with a living counterfactual of what could have happened had he rejected the humiliating bailout (and attendant €6 billion worth of cuts in a pre election budget) which ended his political career and almost took his party with it.

Greece now has the near cashless ATMs which people only speculated about in late 2010. At the time, Sinn Fein’s newest elected TD, Pearse Doherty, was advocating default and energetically pointing to Argentina and Iceland as exemplars for way the Ireland should go.

The problem then as it is now is that that ignores the underlying problems which caused the soaring rates of debt in the first place. The case of Greece, as British Labour MEP Richard Corbett points out is very different from that of Ireland:

Deficits and debts of this magnitude are not a matter of Keynesian fine-tuning or counter-cyclical balancing. And there was little choice but to address them: this would have had to be done whether Greece was in the euro or not, in the EU or not.

I recently travelled from Bulgaria to Greece. Crossing the border was to go to a country with a visibly higher standard of living. But too much of that differential was engineered by the government borrowing money to pay higher salaries, and not for investment. Over the first decade of this century, unit labour costs rose by over 30% in Greece (compared to 5% in Germany).

For public employees, this was even more striking: up 117%! It is not surprising that, as a result, prices in Greece rose by 30% above the eurozone median — a massive divergence of competitiveness. By 2011, Greece had a current account (trade) deficit of 9% of GDP.

Continuing to finance this by borrowing meant Greek public debt was well over 100% of GDP even before the world financial crisis hit Europe in 2008. By 2011, it had shot up to 170% of GDP (€355.141 billion). On the markets, no-one would lend to Greece at normal rates as the perceived risk of default rose. [Emphasis added]

You don’t have to be a rigid advocate of sound money policies to see the underlying problem. And we don’t have an indulgent Fed to bail out a creative California everytime it fails to add up the huge sums of money it is NOT collecting to pay for its substantial public service infrastructure.

Ireland, by contrast, had a reasonably low public debt to GDP ratio. What caned the Irish economy was its reliance on building and construction and a bubbling housing market fueled by poor to, erm, non existing regulation of the banking sector, and a painfully narrow tax raising base.

The scissoring out of €6 Billion identified by the appropriately named An Bord Snip from the Irish public accounts in one budget sitting was a deep cut from which the then Fianna Fail led government would never recover.

As I’ve noted on today’s #SluggerReport, the medicine was harsh, yet not compulsory. Ireland could have dragged its heels and try to dump into that famous Somebody Else’s Problem Field so beloved of Irish politicians.

Meanwhile the independents are fast becoming interdependent. The onrush of an election date is forcing them into all manner of odd combinations. Social welfare champion John Halligan in with the Sindo’s long time Business Editor and former stockbroker, Shane Ross for one.

As Cowen gets a serendipitous day in the sun (which his opponents had hoped would be another hanging), there are other indications in the poll that Fianna Fail may be turning finally a corner. Jody Corcoran shares what could be the most telling detail

Asked which party or political grouping they would not vote for in the election, those polled said: Fine Gael (32pc) down eight points; Labour (30pc) down two points; Fianna Fail (24pc) down six points; Sinn Fein (37pc) up five points; Socialist Party (18pc) up two points; People Before Profit (15pc) unchanged and Renua (13pc) down one point.

Today’s SluggerReport:

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  • Chris Jones

    Oh Mick…how dare you again! A balanced article analyzing SFs position – amongst otehr things., They will be on before 5pm denouncing you as a dangerous unionist lackey and lick-spittle

  • Chris Jones

    You are right Mick that Ireland was a a different problem than Greece. It also had the advantages of having an effective and relatively corruption free tax raising base and being able to produce honest national accounts that kept the confidence of funders

    I think that history will judge Cowan and co harshly for the run up to the crash but positively for the way they managed it. That may not dull the pain but its fair

  • Kevin Breslin

    Does anyone have the Pearce Doherty quote?

  • mickfealty

    Been looking, but the one reference to it was from a David McWilliams interview with Ray Darcy which has been subsequently removed from YouTube.

    I suspect it was an impetuous response to a series of pieces David wrote at the time, this being one of them: http://goo.gl/uBLqFm. McW is more interesting on the matter with Argentina today: http://goo.gl/bwkZoJ.

  • chrisjones2

    Arent the Sponsor’s even bigger suckers?

    What we really need is the US to declare FIFA as RICO and watch the major US Corporations run to avoid being caught in the net of allegations and the money trails.

  • kensei

    Piece needs a little tighter focus. But the answer is no in any case.

    2015 is not 2008. The chance of spillover effects was much greater in 2008, so a more hardline strategy looking for debt reduction might have a higher chance of succeeding – the costs on the other side make the calculation significantly different. The bank debt was also private at various points and guarantees at least in theory temporary, so the optics, sequencing could have been handled very differently. Also, the story isn’t over here. Even if Greece tumbles out of the Euro, they might well be better off in 5 or 10 years. How long is enough to judge?

    Secondly – default is one option for dealing with debts that cannot be fine tuned. If Greece was a company creditors would have accepted a percentage in the pound long ago, rather than risk getting nothing. Greece’s creditors haven’t for their own political reasons. That this was going to end in default or write off was predicted widely in 2010. The first decade of this century is sunk cost. Greece has taken remarkable pain the last 5 years – they were running a big primary surplus! – and pointing out the various mistakes then is to feed a “greedy and lazy” greeks line that helps no one.

    Finally, and this is flipping important for those that want to make this into a morality play, but Irish debts are, by definition Someone Else’s Problem. Or more accurately, someone else’s problem too. that is how debt works. The reason that Ireland and Greece’s bonds are priced higher than Germany’s is to compensate for higher risk. That would the higher risk of default, full or partial. The privatisation of profits with the socialisation of losses is an absolutely toxic combination that we need to collectively figure out how to stop.

  • Korhomme

    This long drawn saga reminds me of the last illness of King Charles II. When he became ill, his physicians recommended venesection, and drew off a pint or two of blood. The King didn’t improve; more physicians came, and suggested the same remedy. the King was bled again and again. He didn’t improve, and died despite all this treatment—but not, of course—because of it.

    Austerity clearly hasn’t worked in Greece, whatever the causes of that nation’s ills. And the remedy? More of the same.

    And add in a hefty dose of moralising; Frau Dr Merkel is the daughter of a Lutheran pastor, and the Greeks are southern Europeans, idle, feckless and spendthrift sun-worshipping hedonists.

  • “Asked which party or political grouping they would not vote for in the election, those polled said: Fine Gael (32pc) down eight points; Labour (30pc) down two points; Fianna Fail (24pc) down six points; Sinn Fein (37pc) up five points; Socialist Party (18pc) up two points; People Before Profit (15pc) unchanged and Renua (13pc) down one point.”

    Is this meant to add up to 100%?

  • It also had the advantage of a near neighbour, which is its largest trading partner, outside the Euro and bunging money into the economy and more recently growing faster than Euroland. Whereas Greece hasn’t.

  • mickfealty

    Six Billion would not have gone a long way with Greece. I venture to say the trade was more significant than the dig out at the time.

  • Kevin Breslin

    Ah the punk economics guy.

  • mickfealty

    I guess they weren’t restricted to just one party, which would have been strange, arbitrary and misleading, if mathematically satisfying… 😉

  • Kevin Breslin

    Greece has Russia and Turkey. Luxembourg has to go through another Euro country to get to water or to Switzerland.

    Luxembourg doesn’t have the Greek’s sovereign debt crisis.

  • Zeno

    No, say the turnout was 400,000 to make it easy.
    100,000 vote FG so that’s 75% that didn’t vote for them.
    Say 100,000 vote FF that’s 75% that didn’t vote for them.
    The negative makes it confusing.

  • Reader

    kensei: Secondly – default is one option for dealing with debts that cannot be fine tuned. If Greece was a company creditors would have accepted a percentage in the pound long ago, rather than risk getting nothing.
    Greece’s creditors have *already* ‘taken a haircut’, as the saying goes. Didn’t you know? Worse still, when a company winds up, they do actually pay a percentage. Greece has negotiated a percentage, but that is still in the future.
    kensei: The reason that Ireland and Greece’s bonds are priced higher than Germany’s is to compensate for higher risk. That would the higher risk of default, full or partial.
    Which is why the troika stepped in with huge loans at miniscule rates of interest and easy-start terms. Greece had already reached the point where it couldn’t raise money on the open market, and is now arguing with the people who provide the best and cheapest credit on the planet.

  • mrstilton

    Greece is in its unenviable position today in large measure because it winked at its richer citizens’ tax evasion. Luxembourg, the Caymans of the EU, is in its enviable position today in large measure because it winks at the tax evasion of other countries’ richer citizens.

  • kensei

    You are right and I did know that. However it doesn’t really matter if the haircut isn’t enough to be sustainable, as per today’s Guardian.

    Similarly with the second point, all debt is always someone else’s problem from the debtors. In many ways it is the creditors first, which we see every time there is a panic. That was my point, somewhat clumsily made.

  • I was referring to the QE programme in UK, not the loan to Ireland. Sweden also provided a loan. So to make that point would have been a bit dim. The trade element in a stable (albeit troubled) UK far more significant.

  • barnshee

    “Greece has Russia and Turkey. Luxembourg has to go through another Euro country to get to water or to Switzerland.”

    I could have sworn Greece was at the sea when I was there -just shows you

  • mickfealty

    Last time I look there was no mechanism for dealing with countries that go bankrupt in the same way that companies do Ken.

    Besides, debt is not the only issue here. It’s the very presence of Greece within the EZ that’s a poser. Few want them to leave, but since it’s not a fiscal union there are no enforceable rules to keep everyone on the same level.

    The minute a generous (and as you point out, it has to be incredibly generous for it to work) haircut for Greece is proffered, there are a dozen indebted nations who will take the opportunity to look for similar terms.

    It shows up the limitations of multilateral actions. Greece cannot democratically force other sovereign nations to give them that debt haircut. I think Germany decided quite some time ago that losing Greece was the lesser of two evils.

  • mickfealty

    Mrs T!!! Great to have you back after all these years!!

  • kensei

    It’s principle rather the practicality, the difference in the two situations is really politics.

    It may be Europe as a whole is better off if all indebted nations are given similar terms, or a system is worked out to accomodate it – Europe as a whole, Germany and Finland and the rest included are suffering from poor economics. The problem is German ordoliberalism sees debt as moral obligation – the German word for “guilt” and “debt” is the same. The moral implications of Europe allowing Greece in unprepared, or irresponsible lending is not considered.

    The fundamental problem is that apparently Greece is unprepared to believe that losing the Euro is the lessor of two evils – see the apparent row back today (and if true, the government really is a disaster – if you aren’t committed and prepared for exit as a live possibility, getting this far is insane). It’s that mismatch that is generating the crisis. If both sides were aligned an orderly exit could be negotiated if other negotiations failed.

    I still think Germany is too flippant though – a Grexit has second and third order impacts that won’t be apparent for a decade, maybe more. And you look a think – what the hell happens the next major crisis hits?

  • Barneyt

    There is a case to suggest that the investors are trying to instigate regime change within Greece. I can see why, as the present government runs contrary do their capitalist ideology. This perhaps triggered the referendum.

    Many people, parties and nations will be looking to see how this pans out, and if we are honest, many of us would take a voyeuristic interest in seeing Greece exit the stage on all fronts. We are surely curious to see how the EU takes this, how it moves forward and if it will breed contagion and as some say, mark the end for Europe.

    I feel there are many potential allies our there for Greece if they are jettisoned, as well as dangerous predators.

  • Kev Hughes

    ‘Over the first decade of this century, unit labour costs rose by over 30% in Greece (compared to 5% in Germany).

    For
    public employees, this was even more striking: up 117%! It is not
    surprising that, as a result, prices in Greece rose by 30% above the
    eurozone median — a massive divergence of competitiveness. By 2011,
    Greece had a current account (trade) deficit of 9% of GDP.’

    Mick, are you not ignoring the fact that monetary conditions for fringe EZ countries demanded higher interest rates, as opposed to the lower interest rates required by Deutschland to get them out of that pickle they had at the turn of the millenium?

    When countries are awash with cash, as was obviously the case in the likes of Greece, Ireland and Spain, for instance, you will have inflationary pressure on wages, whether public or private, owing to the flow of cheap funds coming into an economy, which then make there way to government coffers and as public employees don’t live in a bubble (I await some sarcy comment on this) in relation to the economy in general, you will of course see wage inflation.

    Essentially, I think the statement above that I believe you’ve relied on a few times now (I could be mistaken) is really putting the cart before the horse; prices rise long before wages do.

  • mickfealty

    Huge assumptions there ken. The Greek people are being asked to cover for a failed negotiation. I suspect fear of consequences will colour their vote rather than free will if it’s a yes. If it’s a no in the face of the hardships of this week you will have a strong case.

  • kensei

    Well German Ordoliberalism is a well documented thing, and Europe’s current economic stagnation – which impacts the North as well as South is a thing. There is certainly a case that a more forgiving debt regime would be better all round. That may be true generally – I read something a fair while back that suggested that one of the strengths of the US economy was that it was relatively forgiving on debt – handing back the keys to your house is an option. There is probably a sweet spot of making default hard and damaging but not too hard and damaging.

    There is also a case that reckless lending is more dangerous and more morally sound than reckless borrowing. The housing bubble literally couldn’t have inflated without easy access to credit, and we live in a system that says people respond to financial incentives. There was mass anger at the banks for a reason, though they got off nearly scot free – and it wasn’t the only option out there. It’s not that I think Germany are baddies here – this is not a morality play, again – it’s just people are liable to believe stuff that confirms their own view (me included!)

    Finally on Greece, to some extent the paradox of Syriza is the paradox of the country. That isn’t assumption: the country voted for them based on the idea they could end, or at least ease, austerity while remaining in the Euro.

    Reading the 100 views from Greece in the Guardian, there is a strong theme on the No votes of preferring dignity over the Euro even in the face of hardship. Whether the No vote passes I think depends on how deep that current really runs, and whether Germany is currently stoking it or not. It’s a key question going forward as well I think. If another technocratic government is instituted that allows that feeling to grow and you end up with a population that prefers dignity over dinner, it seems like that could go anywhere. Assumption but everything is speculation at the moment. We’re off the chart.

    The other question for the referendum is how many people really feel it can’t get worse anyway, and to what extent groups have built what Paul Mason called “structures you can’t default on” where the state has pulled back.

    Whatever happens, this definitely hasn’t been Europe’s finest hour.

  • Kevin Breslin

    They could tax evade outside the EU relatively easy. Monaco, Liechenstine, Switzerland, heck even Macedonia where tax collection has been worse than Greece. The Caymans and Luxembourg will be dosed with the same regulations that Northern Ireland has to obey to lower its corporation tax.

  • Kev Hughes

    hi Kevin (this could become confusing) but sorry, as someone who has worked in at least one of the jurisdictions you’ve raised above, you’re showing either a naivety or a fundamental lack of understanding as to what takes place in certain jurisdictions.

    Switzerland, Monaco and Lichtenstein = trust funds and private banking.

    Cayman and Lux = corporate, funds, private equity.

    Greeks, and a whole host of other nationalities, use the first three but are facing lots of problems on compliance, aml and tax due diligence, making it costlier.

    The latter 2, I think you’ll have greater difficulty telling all what they’re actually doing wrong.

    Greek industry will have great difficulty getting off its knees with the expertise of private bankers who won’t touch such work any way.

  • kensei

    So, have you finally admitted I’m right about something, then 😉

    It already feels like no one knows what the hell is going to happen. France seems conciliatory, other people seem to be taking a hard line, there are conflicting views out of Germany. Letting Greece go in this sort of atmosphere is madness, IMO, and there is probably a clock now with the banks.

    That line about people wanting dignity over Euro membership came through again on ITV news last night – it was put to a woman that this would mean the drachma and she said she something along the lines of she could live with it if it meant making their own choices.

  • mickfealty

    Even a stopped clock is right twice a day (or once, if it’s 24hr)…

  • kensei

    Well, at least that is something. Bagpipes never tell the time…