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The Troika Knows That Confidence Fairies Don’t Want To Know. It Makes Them Uncomfortable

It isn’t easy being the ECB. For starters, the European Central (ECB) faces so many pesky questions: Blah blah blah bailouts. Blah blah blah we want to see the notes on deliberations. Blah blah blah Freedom of Information Requests. Blah blah blah we’re taking you to court. Etc. How is anyone supposed to have any confidence in the institution’s authority with all of these questions being bandied about?

Being the ECB does have it’s perks though. For starters, if you’re an elite institution in the ever-evolving eurozone, transparency isn’t really an issue:

ECB Withholding Secret Greek Swaps File Keeps Taxpayers in Dark
By Gabi Thesing, Elisa Martinuzzi & Alan Katz – Nov 29, 2012 6:01 PM CT

The European Central Bank’s court victory allowing it to withhold files showing how Greece used derivatives to hide its debt leaves one of the region’s most powerful institutions free from public scrutiny as it assumes even more regulatory power.

The European Union’s General Court in Luxembourg ruled yesterday that the central bank was right to keep secret documents that would reveal how much the ECB knew about the true state of Greece’s accounts before the country needed a 240 billion-euro ($311 billion) taxpayer-funded rescue.

The case brought by Bloomberg News, the first legal challenge to a refusal by the ECB to make public details of its decision-making process, comes a month before the central bank is due to take responsibility for supervising all of the euro- area’s banks. The central bank already sets narrower limits on its disclosures than its U.S. equivalent, the Federal Reserve. The court’s decision shows the ECB has too broad a discretion to reject requests for disclosure, academics and lawyers said.

“It’s a very disturbing ruling,” said Olivier Hoedeman of Corporate Europe Observatory, a Brussels-based research group that challenges lobbying powers in the EU and campaigns for the accountability of EU bodies. “It is such a sweeping, blanket statement that it undermines the right to know.”

Bloomberg sought access to two internal papers drafted for the central bank’s six-member Executive Board. The first document is entitled “The impact on government deficit and debt from off-market swaps: the Greek case.” The second reviews Titlos Plc, a structure that allowed National Bank of Greece SA, the country’s biggest lender, to borrow from the ECB by creating collateral from a securitization of swaps on Greek sovereign debt. The bank loaned 5.4 billion euros to the government.
Mario Draghi

ECB President Mario Draghi said on Oct. 4 that the ECB “is already a very transparent institution,” citing the fact that he holds a monthly press conference after its rate decision, testifies to lawmakers, gives interviews and makes speeches.

In yesterday’s decision, the court upheld the ECB’s opinion that the documents sought by Bloomberg could damage the public interest and aggravate Europe’s financial crisis.

“The ECB must be recognized as enjoying a wide discretion for the purpose of determining whether the disclosure of the documents relating to the fields covered by that exception could undermine the public interest,” the three judges said in their ruling. Exceptions “must be interpreted and applied strictly,” they said. An ECB spokeswoman said the central bank welcomed the court’s decision.

The ECB’s declaration last year that it must enjoy a “wide discretion” over what Greek bailout deliberation notes are made public due to concerns that the information might “inflame” the markets presents quite a conundrum given that such declarations tend to also inflame the public. It’s an example of why it isn’t easy being the ECB.

Anglo Irish Has Many “Interest”-ing Secrets
There are those ECB perks, however. Like the lack of any commitment to democratic accountability. It’s a perk that Greece is has been familiar with with quite a while now. Ireland also knows of this perk quite intimately. The country ended up bailing out a handful of its banks for a massive price tag in late 2010, making Ireland’s public liable for an 85 billion euro bailout. It was a fateful day for Ireland because austerity was price. It’s been a tough slog for Ireland ever since. The renegotiation of those massive bailouts has been goal ever since too. For a country the size of Ireland, the 85 billion euros bailout it had to accept after nationalizing private bank debt was a “death spiral”-league bailout. And death spirals tend to prompt questions. Pesky questions. Blah blah blah bailouts. Blah blah blah we want to see the notes on deliberations. Blah blah blah Freedom of Information Requests. Blah blah blah we’re taking you to court. Fortunately for the ECB, transparency is mostly optional:

Probe into ECB’s refusal to release secret bailout letter

GAVIN SHERIDAN and TOM LYONS – 13 January 2013

THE European Ombudsman has begun a formal investigation into the European Central Bank’s refusal to release the letter that bounced Ireland into the bailout.

Two senior executives from the Ombudsman travelled to the ECB’s headquarters in Frankfurt in December to view the letter which the bank is refusing to allow the citizens of Ireland to see.

The decision to carry out an investigation follows a complaint against the ECB of “maladministration” by journalist Gavin Sheridan. The ECB has refused to release the letter dated November 19, 2010, for over a year on the basis that it claims it is not in the “public interest” for Irish citizens to see “candid communications” between the ECB and national authorities.

This letter is marked “secret”, and its publication has been blocked at the highest levels of the ECB. The European Ombudsman asked Sheridan on Friday to provide it with any additional “observations” before making its critical decision.

The Sunday Independent and Sheridan have appealed the Department of Finance’s decision to refuse this same letter to the Information Commissioner.

In correspondence, Minister for Finance Michael Noonan urged the Sunday Independent to appeal the Department of Finance’s previous decision to refuse the release of the letter.

On doing so, other letters sent between the late Brian Lenihan and Jean-Claude Trichet were released, but the key letter of November 19, 2010, was again withheld.

That still-secret letter between Ireland’s former Minister of Finance, Brian Lenihan, and former head of the ECB Jean-Claude Trichet must hold quite a few juicy secrets. Massive, hastily approved bailouts tend to involve such things. And if the letters between Lenihan and Trichet that have been revealed so far are an indication of what we can expect those still secret letters to contain we can expect those secrets to be especially juicy. Massive, hastily approved bailouts that send nations into debt death spirals tend to involve things like juicy secrets, especially when they’re bailouts agreed to under duress:

Revealed: Full extent of Lenihan’s capitulation to Trichet and Europe

Daniel McConnell – 02 December 2012

The ECB’s hawkish boss laid down the law to a broken and hapless Finance Minister, writes Daniel McConnell

ON December 9, 2010, two days after he had delivered his final-ever Budget, Brian Lenihan was at a low ebb. As the snow fell heavily outside his Merrion Street office window and people outside slipped on the icy pavements, Lenihan, isolated, defeated and in failing health, sat in his office and formally committed Ireland to the penal terms of the bank rescue. It had been ordered by the ECB but the Irish taxpayer would pay for it.

While the overriding narrative that the innocent citizens were screwed into bailing out our toxic banks has long been rehearsed since those dark days of November 2010, for the first time today we reveal how pathetic Lenihan’s capitulation really was.


On that cold December day, following rounds and rounds of bruising meetings and negotiations, Lenihan wrote to the head of the European Central Bank, Jean-Claude Trichet, committing the Irish taxpayer to whatever future bailout of Irish banks would have to take place.

Today, for the first time, we reveal the contents of that letter, which has finally been released to the Sunday Independent and Gavin Sheridan, journalist with thestory.ie, under the Freedom of Information Act – two years after the fact.

Beaten and weary, Lenihan had had no success with his argument that Ireland, by issuing the blanket bank guarantee in September 2008, had come to the rescue of Europe and that – given Ireland’s woes – Europe should now meet some of the cost of that bailout.

Trichet was not for turning. Only five weeks earlier, he had bullied the Finance Minister into the €85bn Troika bailout and he was not about to give an inch on sharing the burden of fixing the broken Irish banking system.

Lenihan’s commitment, contained in the letter, that “any additional capital requirements for restructuring Anglo Irish Bank and Irish Nationwide must be covered with cash injections by the Government”, along with a similar promise for the other “viable banks”, ultimately cost the Irish taxpayer €24bn, as revealed by his successor, Michael Noonan, in late March 2011.

An initial reading of the letter would suggest that this was the Irish minister acting off his own steam, affirming commitments to the troika, when, in truth, the penal commitments signed up to by Lenihan had been agreed following intense dialogue over several weeks.

They illustrate how poorly the Irish team performed in those negotiations.

“The Irish authorities agree the following additional clarification regarding the implementation of the measures agreed [with the troika],” Lenihan wrote.

Paranoid about the impact this letter would have on the financial stability of the Irish State, Lenihan said it was not possible to make the contents of the letter public for fear that it would undermine government authority.

“These clarifications are being provided in respect of a limited number of specific issues, which it is not possible to disclose publicly on account of legal risks, commercial, market and financial-stability considerations, which would undermine the authorities’ ability to implement those measures or render them more costly,” he wrote.

That is certainly some serious but understandable paranoia: Ireland’s Minister of Finance Brian Lenihan was basically forced to agree to terms that would blatantly undermine the long-term solvency of the entire nation. Pretty much any info that you disclose regarding such deals tend to be unhelpful for shoring up market “confidence”, and that would result in a rise in interest rate costs and the overall long-term costs of any such bailout. It’s a problem.

Public disclosure, it’s often argued, can disrupt the free exchange of ideas. But the particular situation where disclosure of information about the rational and negotiations that went into the development of a policy would damage the public by revealing just how damaging the initial policy rational is can become a particularly acute problem. Especially when the policies involve banker bailouts paid for by public austerity.

It also doesn’t help when the “bailout” is really an international loan to a small nation to finance the bailout of foreign private bank bondholders. A relatively high-interest loan.

Skipping down…


The most telling aspect of this letter is that it placed the future burden of bank bailouts on the Irish taxpayer – without any reference to any European institution or bank sharing any of the burden.

This is despite the latter’s continued gamble on Ireland during the boom.

Lenihan, on the direct orders of Jean-Claude Trichet – and despite having saved Europe in 2008 by not allowing Anglo or Irish Nationwide to go to the wall – was at this point in 2010 having to accept the full cost of any future bailout. We later found out that this would be €24bn.

We know from Finance Minister Michael Noonan in early September that Lenihan was directly threatened by Trichet by way of letter that unless Ireland went into a bailout emergency funding from the ECB would be cut off.

Noonan said he had seen the “very direct” letter, which left Mr Lenihan with “little or no option” but to admit defeat.

Since leaving his post, Trichet has also insisted that this letter should remain confidential and not be released, despite the clamour in Ireland for its public disclosure. But whatever the contents of that letter, the contents of what we are publishing today represent the strongest supporting evidence as to why Ireland deserves a deal on its debt.

Following on from Greece’s major debt-reduction deal last week – which amounts to its third default in less than 18 months – time is running out for Noonan and the Government to deliver a major debt reduction. Many are asking what does Greece have that Ireland doesn’t?

While Ireland continues to “bump along the bottom,” the greatest obstacle to growth is the size of our debt. If we can get a deal, then Ireland’s chances of recovery are strong. But if we don’t, then we will be lost for over a decade.

The poor poor ECB. There’s just one particular still-secret 2010 letter where former ECB chief Jean-Claude Trichet directly threatens Ireland’s finance minister that the ECB’s emergency funding to Ireland will get cut off unless Lenihan agrees to bailout terms that places the entire burden of the privatized Irish bank debt on the Irish tax payer without any sort of assistance from Ireland’s much larger eurozone partner. And that pesky public still wants to see that letter even though the ECB and Irish government has released all sort of other documents that clearly indicate that Ireland was given no choice and ordered to accept a deal that was blatantly against the Irish public’s interest and greatly in the interests of foreign private bank creditors. Why can’t the public simply understand that if the Anglo Irish bailout letters were to be made public, that will discredit the Irish government and the ECB, complicating the recent Anglo Irish bailout renegotiations? Why can’t the public just have confidence, without any of the information required to justify that confidence? A lil’ faith in the ECB never hurt anyone.

Information Can Be Dangerous, Past and Present
And please no questions about about that recent renegotation…the details about an ongoing Anglo Irish debt bailout renegotiation could apparently undermine the entire European financial system. And the interest payments on that Ango Irish bailout debt are just starting to kick in this year so renegotations are urgent. So please, no questions. Bad things will happen:

Irish Examiner
ECB refuses to discuss talks on promissory notes

Friday, January 18, 2013

As Irish officials continue to insist there is an imminent deal on the Anglo Irish promissory notes the ECB is claiming that releasing or even commenting on any details of a deal would undermine the entire European financial system.

By Vincent Ryan
In response to a freedom of information request from the Irish Examiner for documents in relation to the ongoing negotiations between the ECB and the Irish authorities. the director general of the ECB secretariat, Pierre van der Hagen, said they could not go beyond acknowledging that negotiations are in train.

“Documents relating to the on going developments surrounding the Anglo Irish promissory notes cannot be disclosed, as even partial disclosure would undermine the protection of the public interest as regards monetary policy of the union and the financial or economic policy of Ireland, and the stability of the financial system in the union and in Ireland.” he said.

The structuring of the deal on the Anglo Irish promissory notes by the previous government means that interest payments would only come into effect from this year. The Taoiseach Enda Kenny has been pushing to try and get a deal on the promissory notes before crippling interest payments kick in, which threaten to derail Ireland’s recovery.

However, Sinn Féin’s finance spokesperson, Pearse Doherty, said it was very much in the public interest that the status of the negotiations be revealed so that the fudge that was orchestrated last year in relation to the payment of the €3.1bn is not repeated.

“We’re less than three months to this note being paid. We went through the same rigmarole last year and it transpired no deal had been achieved. It’s very much in the public interest to know what, if any, negotiations are ongoing and we deserve to be kept informed and for the process to be more transparent,” he said.

The renegotation of that 2010 bailout of Ireland – a bailout necessitated by the 2008 bailout of Anglo Irish and a handful of other major property lenders – has been a major public issue in Ireland for the past couple of years. Last October, Angela Merkel freaked out Ireland by taking a hardline stance against a renegotiation of that crippling bank debt. But everyone also knew that it’s pretty much a given that Ireland’s massive bank debt will somehow be renegotiated to a less onerous level at some point. It’s just absurdly high for a country the size of Ireland. And sure enough, in early last month some debt was indeed renegotiated: The 2008 bailout of Anglo Irish bank, the largest of the Irish property lenders, was scheduled to cost Ireland 47 billion euros over the next 20 years, with 3.1 billion to be paid each year until 2023 and interest payments enough to increase the deficit by a full pergentage. Anglo Irish’s debt repayments were guaranteed to be an albatross hanging around Ireland’s neck for a long time. And the interest on the debt was due to start this year. Things were not looking good for those institutions charged with healing Ireland’s economy or the entire “austerity first” model that the eurozone appears to be developing would be put into question. Ireland is considered one of the relative “success” stories in the eurozone. Somehow that debt burden had to be reduced.

So there was eventually a renegotiation of that Anglo Irish debt. The overall debt wasn’t forgiven, of course. That’s not how the ECB rolls. Instead, the payback period got pushed back 25 years so principle repayment can start in 2038 instead. There will still be interest payments in the interim, but 25 years of inflation (plus interest) should make the crushing nationalized private bank debt somewhat less crushing:

Ireland hails historic debt deal with ECB

By Padraic Halpin and Carmel Crimmins

DUBLIN | Thu Feb 7, 2013 2:14pm EST

(Reuters) – Ireland clinched a long-awaited deal on Thursday to ease the burden of its bank debts, sending its borrowing costs falling to pre-crisis levels and bolstering its chances of ending its reliance on EU-IMF loans this year.

After nearly 18 months of negotiation, Prime Minister Enda Kenny won European Central Bank (ECB) approval to stretch out the cost of bailing out Anglo Irish Bank, slicing billions off the country’s borrowing needs and cutting its budget deficit.

“Today’s outcome is an historic step on the road to economic recovery,” Kenny told a packed parliament in Dublin. “It secures the future financial position of the state.”

The assent of the ECB is a major coup for Kenny, who was forced to call an emergency session of parliament last night to liquidate Anglo Irish, a lender whose casino-style attitude to risk helped precipitate the country’s financial implosion.

“It certainly is unusual in the history of the crisis that we are actually being surprised in a positive way by the scale of the response,” said Austin Hughes, chief economist at KBC Bank. “Normally we have seen underachievement and overpromising.

“The early indications are that this will make a material difference for the outlook on the Irish economy.”

The agreement stretches the cost of bailing out Anglo Irish over 40 years rather than ten and cuts Ireland’s borrowing needs by 20 billion euros over the next decade.

It also gives the government another 1 billion euros to work with in forthcoming budgets.

Technical talks between the ECB and Irish officials had been bogged down by ECB concerns that any deal given to Dublin to ease the 48 billion euros cost of the Anglo promissory notes could set a precedent for other countries, such as Spain, which are also dealing with large bank debts.

But with European leaders keen to offer a success story from the region’s debt crisis to encourage both voters and potential investors, Dublin went back to the drawing board.

In addition to Merkel’s fears that the Irish debt renegotiations would set a precedent that could be applied to other nations receiving their own forms of “special” treatment, there was also a great deal of concern amongst Merkel’s far-right CSU allies that the easing of debt burdens would slow down the pace of “structural reforms”(austerity). Trickle down kindness is apparently bad for business whereas promoting nationally-stratified income inequality is apparently a strategic objective for achieving greater economic harmonization.



The new deal was designed so that the ECB did not have to vote on it, enabling ECB President Mario Draghi to say simply that the Governing Council had simply “taken note” of Dublin’s plan.

“It is positive for funding, and therefore increases Ireland’s chances of leaving its (EU-IMF) loan program and relying more heavily on the capital markets for funding toward the end of this year,” said Fergus McCormick, head of sovereign ratings at DBRS ratings agency.

“However, the swap itself will not affect our A (low) rating or negative trend on Ireland, because swapping the promissory notes for a bond does not reduce the stock of public debt.”


Under the terms of the deal, first reported by Reuters on Wednesday, Anglo’s promissory notes, with an average maturity of between seven and eight years, will be exchanged for government bonds with an average maturity of over 34 years. The first principal repayment will be made in 2038 and the last in 2053.

The finance spokesman for the opposition Sinn Fein party said the agreement would burden future generations.

“This week my youngest son began to crawl. He wasn’t even born at the time the promissory note was issued, yet he’ll be 40 years of age and this state will be paying back the toxic debts of Anglo Irish Bank,” Pearse Doherty told parliament.

Anglo Irish’s near-collapse in 2008 pressured the government into guaranteeing the entire financial sector, sucking it into a downward spiral and in late 2010, a 67.5-billion euro loan from the EU and IMF.

The poor ECB. First people are saying “hey, this nationalized private debt was absurd, we need to renegotiate”, and then when the ECB signs off on a renegotiated deal people are like “OMG, my infant children will be paying for this debt when they’re in their 40s”, and now people want to know the details about this new deal too! It isn’t easy being the ECB. So many questions. So few answers that won’t inflame the public and disrupt the integrity of the financial markets:

Irish Examiner
ECB claims its ‘space to think’ supersedes public interest

Tuesday, February 19, 2013

The ECB claims that maintaining its own “space to think”, is of more importance than citizens’ right to understand how it arrives at decisions that materially affect people’s quality of life.

By Vincent Ryan
In response to an appeal over the ECB’s refusal to release documents relating to the deal the Government struck on the Anglo Irish Bank promissory note, the bank explained that it believed its refusal to release the information was in the public’s own interest.

The president of the ECB, Mario Draghi, responded in writing, claiming that any disclosure could undermine the ECB’s ability to operate.

“The ECB considers that releasing these documents would undermine the possibility of the ECB’s staff freely submit uncensored advice to the ECB’s decision-making bodies, and that it would thus limit the ECB’s ‘space to think’.

“It is, therefore, in the public interest to protect the internal consultations and deliberations,” said Mr Draghi.

Despite the fact that the renegotiation of the promissory notes will have a long-term effect on Ireland’s budget and consequently on the financial prospects of all Irish citizens, Mr Draghi believes that there is nothing in the discussion documents that led to the liquidation of IBRC, the termination of 800 jobs in the bank and knock-on effect that is expected to impact another 30,000 jobs, that are of “public interest.”

“On the basis of the content of these documents, there is no overriding public interest which could justify their disclosure and it is not possible to grant partial access to them without undermining the interest protected,” he said.

The ECB isn’t the Only Institution it isn’t Easy to Be
Pity the poor ECB. They are forced to know those dark truths that would drive the public mad with rage. Dark truths like what ordersadvice” the ECB gave Ireland’s Minister of Finance Brian Lenihan regarding the renegotiation of Anglo Irish Bank’s debt. Shudder the thought. After all, if the public was allowed to see the reasoning used to justify their leaders’ decisions on key affairs of the state, the public might, you know, start asking more questions. Questions like, “hey, what were you thinking?” or “didn’t you realize this would destroy the country?” Unpleasant questions.

That poor poor ECB. And the ECB isn’t the only institution it’s not easy to be

The Telegraph

EU not to blame for austerity, says Jose Manuel Barroso
European Commission President Jose Manuel Barroso has denied that the European Union was behind the tough austerity measures that have swept the continent in recent years.

5:03PM GMT 10 Jan 2013

“I know many parts of our societies attribute the current difficulties to European Union level and this is not fair because it was not the European Union that created the problems,” Mr Barroso told reporters at Dublin Castle.

Mr Barroso was speaking at a joint press conference with Irish Prime Minister Enda Kenny in Dublin to coincide with the beginning of Ireland’s tenure of the six-month rotating EU presidency, AFP reported.

“I want to make this clear because there is a myth that it is the European Union that imposes difficult policies. It’s not true,” Mr Barroso said.

The cause of the difficulties some countries are facing is excessive public debt created by national governments and irresponsible financial behaviour, that also accumulated excessive private debt including financial bubbles that happened under the responsibility of national supervisors, he added.

“This is why now countries have to make painful adjustments. Britain is having a very tough budget and Britain is not a member of the euro.”

Mr Barroso praised the efforts of Ireland, which hopes to become the first eurozone nation to exit a bailout programme this year after years of painful austerity measures.

“I do believe Ireland can send a message of hope to other countries about what can actually be achieved,” Mr Kenny said.

Yes, earlier this year, European Commission president Manuel Barroso blamed Ireland’s financial implosion – which was caused by a giant financial bubble that was heavily financed by foreign banks – entirely on Ireland’s government for its lax financial regulations. The ability to make statements worthy of mockery without actually getting mocked is another EU-elite perk. Ireland, afterall, was routinely hailed as the “Celtic Tiger” and “darlingof the investment community and a model for the rest Europe precisely because of those policies. In fact, not too long ago (2005-ish), Ireland was part of a coalition of the new ‘dynamic'(deregulated) economies that were threatening to overthrow the old Franco/German order that had dominated Europe’s affairs for so long(it’s mostly just a German order nowadays).

Mr. Barroso most likely recalls these facts, just as he probably recalls that, somehow, the normal process of making the big foreign lenders to private Irish banks take a big “hair cut” when the bubble burst somehow didn’t apply to Ireland. Ireland was a “special case”, we recall. Recall of memories when you are representing an international institution, however, is often an option when its regarding a “special case”. “Special cases” are often what happens when lots of “special interest” are at stake and international institutions tend to involve quite a few special interests. Being the EU or the ECB isn’t easy, but it has its special perks:

Vanity Fair
When Irish Eyes Are Crying
First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country—from one another. After which their banks and government really screwed them. So where’s the rage?

By Michael Lewis
March 2011

When I flew to Dublin in early November, the Irish government was busy helping the Irish people come to terms with their loss. It had been two years since a handful of Irish politicians and bankers decided to guarantee all the debts of the country’s biggest banks, but the people were only now getting their minds around what that meant for them. The numbers were breathtaking. A single bank, Anglo Irish, which, two years before, the Irish government had claimed was merely suffering from a “liquidity problem,” faced losses of up to 34 billion euros. To get some sense of how “34 billion euros” sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank. As the sum total of loans made by Anglo Irish, most of it to Irish property developers, was only 72 billion euros, the bank had lost nearly half of every dollar it invested.

Just take a moment and think about the size of this 34 billion euro bailout for the Irish public (for a single bank): In terms of US dollars, that would be around $3.4 trillion. That ain’t chump change.


Yet when I arrived, in early November 2010, Irish politics had a frozen-in-time quality to it. In Iceland, the business-friendly conservative party had been quickly tossed out of power, and the women booted the alpha males out of the banks and government. (Iceland’s new prime minister is a lesbian.) In Greece the business-friendly conservative party was also given the heave-ho, and the new government is attempting to create a sense of collective purpose, or at any rate persuade the citizens to quit cheating on their taxes. (The new Greek prime minister is not merely upstanding, but barely Greek.) Ireland was the first European country to watch its entire banking system fail, and yet its business-friendly conservative party, Fianna Fáil (pronounced “Feena Foil”), would remain in office into 2011. There’s been no Tea Party movement, no Glenn Beck, no serious protests of any kind. The most obvious change in the country’s politics has been the role played by foreigners. The Irish government and Irish banks are crawling with American investment bankers and Australian management consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at night and, through restaurant windows, you see important-looking men in suits, dining alone, studying important-looking papers. In some new and strange way Dublin is now an occupied city: Hanoi, circa 1950. “The problem with Ireland is that you’re not allowed to work with Irish people anymore,” I was told by an Irish property developer, who was finding it difficult to escape the hundreds of millions of euros in debt he owed.

What has occurred in Ireland since then is without precedent in economic history. By the start of the new millennium, the Irish poverty rate was under 6 percent and by 2006 Ireland was one of the richest countries in the world. How did that happen? A bright young Irishman who got himself hired by Bear Stearns in the late 1990s and went off to New York or London for five years returned feeling poor. For the better part of a decade there has been quicker money to be made in Irish real estate than in investment banking. How did that happen?

The Harvard demographers admitted their theory explained only part of what had happened. At the bottom of the success of the Irish there remains, even now, some mystery. “It appeared like a miraculous beast materializing in a forest clearing,” writes the pre-eminent Irish historian R. F. Foster, “and economists are still not entirely sure why.” Not knowing why they were so suddenly so successful, the Irish can perhaps be forgiven for not knowing exactly how successful they were meant to be. They had gone from being abnormally poor to being abnormally rich, without pausing to experience normality. When, in the early 2000s, the financial markets began to offer virtually unlimited credit to all comers—when nations were let into the dark room with the pile of money and asked what they would like to do with it—the Irish were already in a peculiarly vulnerable state of mind. They’d spent the better part of a decade under something very like a magic spell.

Make a special note of this part of the article. It summarizes a BIG part of why the entire eurozone crisis took place:
“When, in the early 2000s, the financial markets began to offer virtually unlimited credit to all comers—when nations were let into the dark room with the pile of money and asked what they would like to do with it…”


Skipping down in the article…

True Love’s First Kiss

Morgan Kelly is a professor of economics at University College Dublin, but he did not, until recently, view it as his business to think much about the economy under his nose. He had written a handful of highly regarded academic papers on topics (such as “The Economic Impact of the Little Ice Age”) considered abstruse even by academic economists. “I only stumbled on this catastrophe by accident,” he says. “I had never been interested in the Irish economy. The Irish economy is tiny and boring.” Kelly saw house prices rising madly and heard young men in Irish finance to whom he had recently taught economics try to explain why the boom didn’t trouble them. And they troubled him. “Around the middle of 2006 all these former students of ours working for the banks started to appear on TV!” he says. “They were now all bank economists, and they were nice guys and all that. And they were all saying the same thing: ‘We’re going to have a soft landing.’ ”

The statement struck him as absurd: real-estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long-term investment real estate has become and flee the market, and the market will crash. It was in the nature of real-estate booms to end with crashes—just as it was perhaps in Morgan Kelly’s nature to assume that, if his former students were cast on Irish TV as financial experts, something was amiss. “I just started Googling things,” he says.

Googling things, Kelly learned that more than a fifth of the Irish workforce was employed building houses. The Irish construction industry had swollen to become nearly a quarter of the country’s G.D.P.—compared with less than 10 percent in a normal economy—and Ireland was building half as many new houses a year as the United Kingdom, which had almost 15 times as many people to house. He learned that since 1994 the average price for a Dublin home had risen more than 500 percent. In parts of the city, rents had fallen to less than 1 percent of the purchase price—that is, you could rent a million-dollar home for less than $833 a month. The investment returns on Irish land were ridiculously low: it made no sense for capital to flow into Ireland to develop more of it. Irish home prices implied an economic growth rate that would leave Ireland, in 25 years, three times as rich as the United States. (“A price/earning ratio above Google’s,” as Kelly put it.) Where would this growth come from? Since 2000, Irish exports had stalled, and the economy had been consumed with building houses and offices and hotels. “Competitiveness didn’t matter,” says Kelly. “From now on we were going to get rich building houses for each other.”

The endless flow of cheap foreign money had teased a new trait out of a nation. “We are sort of a hard, pessimistic people,” says Kelly. “We don’t look on the bright side.” Yet, since the year 2000, a lot of people had behaved as if each day would be sunnier than the last. The Irish had discovered optimism.

Again, note the reality of the “endless flow of cheap foreign money” into Ireland via the purchase of bonds issued by the big Irish property lenders. It’s a critical point in understanding both how Ireland’s housing/credit bubble grew as big as it did and why there are so many foreign interests that are interested in seeing that money paid back in full. Also note that bondholders normally absorb some losses when their lendees go bankrupt, so it’s not as if it’s normal for bondholders to get paid back in full when a bank goes bankrupt.


What the crazy egghead came up with next was the obvious link between Irish real-estate prices and Irish banks. After all, the vast majority of the construction was being funded by Irish banks. If the real-estate market collapsed, they would be on the hook for the losses. “I eventually figured out what was going on,” says Kelly. “The average value and number of new mortgages peaked in summer 2006. But lending standards were clearly falling after this.” The banks continued to make worse loans, but people borrowing the money to buy houses were growing wary. “What was happening,” says Kelly, “is that a lot of people were getting cold feet.” The consequences for Irish banks—and the economy—of the inevitable shift in market sentiment would be catastrophic. The banks’ losses would lead them to slash their lending to actually useful businesses. Irish citizens in hock to their banks would cease to spend. And, perhaps worst of all, new construction, on which the entire economy was now premised, would cease.

As the scope of the Irish losses has grown clearer, private investors have been less and less willing to leave even overnight deposits in Irish banks and are completely uninterested in buying longer-term bonds. The European Central Bank has quietly filled the void: one of the most closely watched numbers in Europe has been the amount the E.C.B. has loaned to the Irish banks. In late 2007, when the markets were still suspending disbelief, the banks borrowed 6.5 billion euros. By December of 2008 the number had jumped to 45 billion. As Burton spoke to me, the number was still rising from a new high of 86 billion. That is, the Irish banks have borrowed 86 billion euros from the European Central Bank to repay private creditors. In September 2010 the last big chunk of money the Irish banks owed the bondholders, 26 billion euros, came due. Once the bondholders were paid off in full, a window of opportunity for the Irish government closed. A default of the banks now would be a default not to private investors but a bill presented directly to European governments. This, by the way, is why there are so many important-looking foreigners in Dublin, dining alone at night. They’re here to make sure someone gets his money back.

Most of the remaining article excerpt describes how the ECB ended up lending so much money to the nationalized big property lenders in the first place. It’s a LONG but very informative article so it’s well worth reading.

**Spoiler alert**:

When the shit hit the fan in September 2008 following the collapse of Lehman Brothers, the growing problems of the big Irish propery lenders like Anglo-Irish hit a crisis point and that threatened the entire Irish economy because so much of it had become dependent on the housing construction boom. So the government nationalizes three of the biggest banks and guarantees the liabilities for the rest of the banks in an attempt to shore up confidence and save the entire system. This would, in “theory”, also save the entire housing-related sector of the Irish economy because those big lenders were such an integral part of the Irish housing sector and they were no longer going to be able to lend if they went bust. So if the Irish public assumed the full liabilities – for both the deposits held by the banks and bonds issued by the banks – the banks would no longer be in trouble and the housing sector could be saved. Once again, that was the “theory” behind the nationalization.

This theory was arrived at by the Merrill Lynch analysts that the Irish government hired to provide recommendations. Merrill Lynch was also a major underwriter of the bonds issued by these banks. Perhaps unsurprisingly, Merrill Lynch’s advise turned out to be great for those bond holders and disastrous to nearly everyone else. Forcing the Irish public to assume such a massive liability made a national default suddenly a possibility. Ireland was facing a bursting housing bubble before, but after the nationalization it faced a bursting housing bubble and the massive liabilities of those lenders that financed that housing bubble. And if Ireland went bankrupt the big bank’s creditors were still at risk.

So the markets got spooked regardless of the nationalization/guarantee scheme and the nationalized banks soon had to start borrowing billions from the ECB to pay back the private senior bondholders 100%. It turns out most of those bondholders were French and German banks and financial institutions. And Goldman Sachs. By November, 2010 the ~85 billion euros in bonds was paid back to the private creditors and Ireland requested an 85 billion euro bailout.
**End Spoiler alert**

Debt Nationalization + Austerity: The Drug-Drug Interaction-Inducement Protocol for Economic Witch Doctors
And, of course, when Manuel Barroso tells his Irish audiences not to blame the EU for the austerity strangling Ireland’s economy, he also forgets that the 85 billion euro public bailout of the private debt of three banks – like Anglo Irish’s debt –came with EU-strings attached:

NY Times
Ireland Unveils Austerity Plan to Help Secure Bailout

Published: November 24, 2010

DUBLIN — Acting to secure a $114 billion international bailout, the Irish government announced plans on Wednesday for steep tax increases and sharp cutbacks in its social welfare state.

The austerity measures, which would slash public spending by $20 billion over four years, would help pay for a severe banking crisis that hasp depleted the country’s finances and led to a dramatic weakening in the government that is likely to see Prime Minister Brian Cowen ousted from office early next year. A crucial, separate 2011 budget is to come to a vote on Dec. 7.

A throng of protesters shouted outside the Finance Ministry as Mr. Cowen and Finance Minister Brian Lenihan unveiled details of how the government planned to slash the deficit to 3 percent of domestic gross product in 2014, from 32 percent. Details of the plan were released as the government prepared to effectively nationalize two troubled banks that have bled the state of money, and as Standard & Poor’s lowered Ireland’s credit rating, citing concerns about how much the government was borrowing and about the vast amounts needed to shore up the country’s banking system.

In a speech Wednesday afternoon aimed at bolstering national morale, Mr. Cowen urged Ireland to “pull together as a people to confront this challenge, and do so in a united way.” He said the four-year plan would raise money mainly by taxing those who earned more, while going easier on those who had less. But he also warned that the “size of the crisis means no one can be sheltered.”

The International Monetary Fund and Ireland’s partners in the European Union insisted on an austerity budget as a condition for the $114 billion bailout, money that Ireland badly needs after it intervened to rescue its banks.

During the economic boom years before 2008, Irish banks borrowed cheaply and pumped out loans on houses and construction projects, helping to fuel an American-style housing bubble that went bust, ravaging their balance sheets.

The austerity plan calls for cuts of nearly 15 percent in Ireland’s social welfare budget, one of Europe’s most generous, saving $4 billion a year. Some 24,750 public jobs — a huge number in a country of about 4 million people — would be eliminated, cutting state payrolls down to about what they were in 2005 and saving about $1.6 billion a year. Child benefits and other social welfare payments would be reduced, and the nation’s minimum wage, now 8.65 euros, or $11.59, an hour, would be cut by 1 euro, or about $1.34, in the hope of promoting job creation.

Mr. Cowen said the sagging economy could recover only if Ireland proved it was cleaning up its act. “Without putting public finances on a sustainable basis, we can’t have confidence from investors to create jobs in Ireland,” he said. He predicted that the deficit reduction plan would help lower unemployment to less than 10 percent, from 13.4 percent currently, within four years.

While voters were angry about the crisis, there was also an acknowledgment that the boom years fueled too many excesses, which must now be reined in. “In a bubble, things get distorted, and after it collapses you need to rebalance the economy,” said Philip R. Lane, a professor of international macroeconomics at Trinity College. “So this plan is not really radically shifting the nature of the welfare state, it’s just returning it to what it was before the crisis.”

Under the measures, Ireland’s tax net would be widened to take in some low-income workers who currently pay no tax, and a series of new taxes would be imposed on certain residential properties, as well as on 120,000 people who receive public sector pensions.

The government also plans to cut spending on health care by over $1.9 billion through measures that are likely to push up the cost of private health insurance.

Capital spending on education will rise, but education programs will nonetheless take a hit starting next year, as more than $66.7 million is cut from the four-year budget. Classroom sizes may also grow if educators cannot find ways to reduce teacher payrolls.

Thousands of young Irish, along with people who have been shut out of the job market, are swelling the ranks of Ireland’s university students as they ride out a difficult economy.

Still, the austerity plan does not touch Ireland’s low corporate tax rate of 12.5 percent, which has helped to lure companies like Microsoft, Intel and Pfizer to set up operations in the country.

Though the country’s political parties are bitterly divided over many aspects of economic policy, they all agree that the low corporate tax rate is one of the few pillars that can allow Ireland to return to economic health. Multinational companies employ about one out of seven working people in Ireland, and their businesses are stoking export growth, even as the latest austerity program is expected to depress consumer demand and touch off a wave of retrenchment and job losses.

The Irish government clearly made a massive blunder in September 2008 when it decided to guarantee the banks’ bonds that were directly tied to a souring property market. A credible maneuver like that would, at a minimum, require a nation that had it’s own central bank and the ability to issue its own currency given the scale of the assumed liabilities. Plus, we had the ECB give Ireland a “bailout” (in the form of a high-interest loan) while simultaneously demanding that new economy-strangling mass austerity policies (and while corporate taxes remained at a low 12.5%). It isn’t easy being the ECB or the EU, but it could be worse…like being their socioeconomic guinea pig. When crappy theory is translated into reality, it tends to become a crappy reality. A lot of guinea pigs experience a lot of crappy realities.

The Confidence Fairies Want Clarity, Even If it’s Clearly Bad
The theory behind the EU/ECB’s policy mandate is the the same theory behind most modern austerity-drives. It’s the “Confidence Fairy” theory: If a nation can prove to the world that it has suddenly become more “productive” by cutting costs (usually in the form of layoffs and wage cuts), the world’s investors will suddenly become so confident about the future prospects of the troubled nation that they’ll flood the nation with new investments and the economic troubles will solve themselves. Yes, there will be a negative impact on the economy from all the austerity measures, but that impact will only be felt in the short-term because investors will be so filled with austerity-induced confidence that they’ll take the plunge anyways and make the required volume of investments necessary to overwhelm the austerity-induced economic downward spiral.

At least, that’s how it’s supposed to happen in theory. It may not be a particularly compelling theory, espcially when it involves bankrupting a nation and triggering an austerity-induced downward spiral to pay back foreign bank bond speculators. And there may not be any actual evidence that it’s working. But the “Confidence Fairy” theory that underlines the push for austerity is still a surprisingly popular one amongst key decision-makers, although that hasn’t always been the case:

We got it wrong on austerity and made things worse – IMF

By Claire Murphy

Tuesday October 09 2012

THE IMF has held up its hands and admitted it got it wrong when calculating the effects of austerity in Ireland.

The organisation said that it completely underestimated how the Irish economy would perform under strict spending rules.

The International Monetary Fund (IMF) said in an academic report that it believed for every €100 of austerity through higher taxes and spending cuts — this would impact €50 in terms of growth and unemployment.

However, the real effect meant that the austerity cut €90 to €150 out of the system.

The admission is likely to make Finance Minister Michael Noonan’s job far more difficult ahead of yet another austerity budget in December.

The IMF said there was an overall drop in incomes due mainly to increases in taxes and austerity measures in Ireland.

This ultimately served to push up poverty levels and squeeze the middle class.

“As the crisis deepened and fiscal consolidation intensified, income inequality started to widen,” the IMF said.

“The magnitude of the economic slowdown in Ireland during the crisis inevitably worsened the country’s poverty and inequality.

“In the early stage of the crisis, inequality in Ireland fell as upper income groups suffered major income losses.

“However, the impact quickly spilled over to the middle income group, with its large share of construction workers who lost their jobs.

“Ireland’s strong social support system has cushioned the impact of the crisis on its at-risk-of-poverty indicators compared to the rest of Europe,” it added.

Three’s a Crowd Troika
It isn’t easy being the ECB, the EU, or the IMF separately given the scope of their domains. When they join together to form the ol’ Troika o’ Doom things become even harder. The Troika o’ Doom only has one weapon and that’s austerity, and austerity tends to piss people off more than pretty much anything else. It’s the the drone warfare of international economic policy: Because it can be used any time unsustainable debts are involved(or sustainable but temporarily scary debts), austerity has an extremely large potential theater of operation. But it’s also kind of creepy and inhumane with lots of potential for collateral damage so it tends to really piss off the locals wherever its used.

At least we can credit one third of the Troika o’ Doom, the IMF, with finally recognizing that austerity hasn’t really worked the way they predicted and suggesting a change in policy. Although then they changed their mind after about 10 days. The ability to change one’s mind about critical policy matter when it becomes clear that it’s really going to piss large swaths of the public may not be a very sustainable perk, but it’s a very handy one:

IMF says pace of Irish austerity remains appropriate

DUBLIN | Sat Oct 20, 2012 10:48am EDT

(Reuters) – The International Monetary Fund (IMF) said on Saturday that the pace of austerity prescribed in Ireland’s bailout program is appropriate and that a number of other factors have also proven to be a drag on growth.

The IMF, one of a trio of lenders overseeing Ireland’s 85 billion euro bailout, said it was restating its position in response to media queries regarding its research on the impact of fiscal adjustment on economic growth.

The IMF issued a similar statement in relation to fellow bailout recipient Portugal last week, urging it to continue a tough budget adjustment that was imperative for the country to return to finance itself in debt markets.

“The pace of consolidation under the program has struck an appropriate balance and continues to do so for the period ahead, enabling Ireland to make steady progress,” Ajai Chopra, the IMF’s deputy director for Europe said in a statement.

The IMF, European Commission and European Central Bank, Ireland’s so-called troika of lenders, will give their latest quarterly bailout assessment next week with few issues foreseen in a period when Ireland resumed borrowing on long-term bond markets and continued to meet its program targets.

Fortunately, the IMF revised its re-revision on the benefits of austerity back towards a more humane stance just a couple of months later. It just wants to see one more year of austerity and if that doesn’t work the country can drop the austerity regime…for one year:

The Telegraph
IMF agrees more aid for Ireland and urges easing of austerity
Ireland should defer additional austerity budgets until 2015 if the bailed-out country misses its economic targets next year, the IMF said

By Denise Roland, and agencies

8:12AM GMT 18 Dec 2012

The International Monetary Fund authorised the release of €890m (£746m) on Monday, the latest batch of an €85bn EU-IMF bailout programme entered in 2010 after the country’s economy collapsed.

Its statement follows a raft of new taxes and spending cuts introduced by finance minister Michael Noonan in the country’s sixth straight austerity budget, which targeted €3.5bn in spending cuts and new taxes.

The 2013 budget, announced on December 6, hit child benefits, imposed higher taxes on pensioner incomes, and introduced new levies on properties, provoking protests outside the Irish parliament buildings.

David Lipton, First Deputy Managing Director of the IMF, said Dublin had strongly implemented the programme and had hit all its targets.

“This baseline outlook is subject to significant risks from any further weakening of growth in Ireland’s trading partners, while the gradual revival of domestic demand could be impeded by high private debts, drag from fiscal consolidation, and banks’ still limited ability to lend,” he said in a statement.

“Nonetheless, if next year’s growth were to disappoint, any additional fiscal consolidation should be deferred to 2015 to protect the recovery,” he added.

Mr Lipton said Ireland’s market access would also be greatly enhanced by “forceful delivery of European pledges” to improve the sustainability of the programme, especially by “breaking the vicious circle between the Irish sovereign and the banks”.

Ireland aims to end its bailout programme next year having already revised down its post-bailout borrowing needs by €10bn through a limited bond market return this year, a move the country’s debt agency plan to repeat this year to cover its 2014 funding requirements.

The Irish government is seeking to transfer the public debt used to rescue Irish banks to the new eurozone bailout fund, the European Stability Mechanism (ESM), but so far EU leaders have failed to sanction such a deal.

A Return to the New Normal Of Austerity Clarity
As noted in the above excerpt, there are plans to actually end Ireland’s special direct financing and return it to the normal financial markets in 2013. To some extent this return to “normalcy” in 2013 isn’t really an option because the 85 billion euro bailout that has been financing Ireland since the 2010 deal is scheduled to run out next year. It’s very unclear whether or not Ireland will be able to avoid requiring a second bailout just keep itself running given the linger damage from the bubble coupled with the massive austerity damage done to its economy. The viability of a post-austerity Ireland remains to be seen. But that uncertain future hasn’t prevented the issuance of awards for bold leadership on this front, like the “Golden Victoria” Prize for European of the Year that Angela Merkel awarded Irish Prime Minister Enda Kenny last year on behalf of a Germany magazine publishers. Yep. Ireland also got its “special terms” during this period early last year. It’s part of what led to the expectation that there would be a renegotiation of the Anglo Irish debt in the first place. Handing out trophies for successfully imposing austerity on a nation that just experienced a financial bubble and then bailed out your nation’s banks that fueled that bubble is one of the many perks Germany’s chancellor gets in the new eurozone:

Merkel rewards Irish frugality with special terms
Date 02.11.2012
Author Andreas Noll / cd
Editor Sonya Diehn

Chancellor Merkel hailed the Irish prime minister and his country as a paragon of fiscal virtue in light of a private award. But Enda Kenny is apparently hoping for more than a statue from Germany and the EU.

Irish Prime Minister Enda Kenny’s November itinerary has the word “Berlin” penciled in twice. He was first invited to the German chancellery to talk politics on November 1, where he had a one-and-a-half hour luncheon with the chancellor. Next week, the German Magazine Publishers Association will award him the “Golden Victoria Prize for European of the Year.”

It’s a prize that Chancellor Angela Merkel believes the Irish minister deserves. In terms of employment rates, social welfare and the national budget, the reforms he has helped push through “absolutely justify the award.”

Note that the IMF-EU-ECB troika’s views on social welfare programs has experienced some revisions.


A model European

The Irish have two trying years behind them. Since November 2010, when Ireland requested and received financial assistance from the European Financial Stability Facility, it has enacted each of the reforms that the European Union, European Central Bank and International Monetary Fund required as conditions for the 85-billion-euro bailout ($109 billion).

The country is being hailed as a “model student” for having fulfilled every condition of the international lenders. As of this past summer, Ireland has once more been able to take on debt through public bond auctions, and by the end of next year the country should be on track for full reintegration into capital markets.

“We should never forget the sacrifices made by the citizens of countries that push through such reforms,” Merkel said. “That’s why I’d simply like to say thank you to Ireland for taking that path. It makes all of us stronger.”

Billions in debts

Still, Ireland has a sluggish economic growth rate of just .5 percent, along with an unemployment rate of 34 percent, and holds gigantic outstanding debts. Most of the latter are a result of the country’s decision to support banks affected by the financial crisis, to the tune of 64 billion euros. The country’s gross national debt now stands at 118 percent of the gross domestic product.

In order to lower debt levels, Prime Minister Kenny would prefer to recapitalize those same Irish banks through the European Stability Mechanism (ESM). But Angela Merkel is among the voices against that proposal. She believes the ESM should never be leveraged for banks with outstanding debts.

Yet Ireland’s call for help may still be heard. It all comes down to the words “special case.” Merkel has categorized Ireland as such, calling Irish public debts a “one-of-a-kind circumstance.”

Prime Minister Kenny allowed that message to be reiterated once more on his recent visit to Berlin. “I told her what we’re doing to further reduce banking sector debts and to rejoin capital markets as soon as possible,” he said. “The chancellor confirmed that Ireland is a special case, which is also why Ireland should be treated differently, as was clearly the case in June.”

“The more clarity we give on how Ireland can return once more to the bond market, the more successful that return can be when it’s carried out,” Kenny said.

The German chancellor countered by pointing to ongoing negotiations between finance ministers. “We’re interested in a sustainable completion of the reforms program,” Merkel said. But work completed by those ministers, she added, “will take some time.”

The message from the ECB, the EU, the IMF(sometimes), and Angela Merkel is clear: when a country like Greece or Ireland suddenly finds itself facing a massive debt crisis, what is required most is “clarity”. Clarity in economic policy will reinstill market confidence and bring about renewed investments and economic growth. Even if that “clarity” includes mandated austerity that is guaranteed to choke off economic growth and investment. At least, that’s the theory. Confidence Fairies aren’t the best theoreticians to begin with and now we have folks like the ECB, the EU, the IMF, and Angela Merkel leaving the Confidence Fairies even more deeply confused than normal. It’s New Normal Confusion: Austerity good. Deficits bad. Austerity raises deficits. Austerity bad? Confused Confidence Fairies can create a lack of clarity:

Wall Street Journal
Updated January 8, 2013, 1:16 p.m. ET

Ireland’s Double-Edged Bond Success


Ireland could hardly have chosen a better way to mark its assumption of the six-month rotating presidency of the European Union. Dublin garnered orders of more than €7 billion ($9.18 billion) for a €2.5 billion five-year bond sale, proof it is regaining access to markets just over two years after its bailout. But while Dublin’s success is a welcome vindication of the euro zone’s crisis response, it also poses a potentially tricky headache that could yet put Ireland and its partners at loggerheads.

The snag is that Ireland’s bond-market success partly reflects investors’ expectations that the euro zone will assume some of the burden of the country’s bank bailout, which cost 40% of GDP but which arguably averted a bigger European banking crisis; senior bondholders were made whole at the cost of Irish taxpayers. Failure to provide such aid could spark a selloff in bonds. But with Irish bond yields now back at precrisis levels, its euro-zone partners may try to dodge further transfers.

Ireland’s first priority is to renegotiate €28.5 billion of expensive debt used to recapitalize banks now being wound down; payments on that debt amount to nearly 1.5% of GDP a year at present. Ireland is hopeful a deal can be struck by March, when the next payment is due. Longer term, it believes the European Stability Mechanism could take over the government’s equity stakes in the banks, breaking the link between them and the sovereign—a deal first floated by euro-zone politicians in a summit declaration last June. The International Monetary Fund, in particular, is arguing strongly for this idea.

That leaves the euro zone with a dilemma: If it supports Ireland, it risks setting a precedent at a time when the jury is still out on whether Spain’s banking bailout is working. On the other hand, fail to support Ireland and investors may question whether the euro zone is once again backsliding on its commitment to bailout countries. That could push up yields not only for Ireland but for others, too. And while Irish debt currently looks sustainable, peaking this year at 122.5% of GDP, it might not take much to reignite fears about sustainability. Dublin still faces bank-sector contingent liabilities of 47.5% of GDP, RBS notes.

The eurozone’s debt renegotiations are one of the austerity-only-intra-currency-union catch-22s we’ve seen arise over the past few years: If you renegotiate the debt, you actually help the economy of the country in need – thus pleasing the Confidence Fairies. But you do so at the expense of admitting that the original austerity policies weren’t actually helpful and something new must be done – thus hurting the Confidence Fairies faith in the austerity myth. Confidence Fairies tend to be deeply religious (a whole theological spectrum), but their faith can be somewhat reactionary. Admitting poor past policy choices weakens their faith in the troika. Practicing their faith in the troika destroys reality. Embracing the faith of the Confidence Fairies can be a particularly confounding catch-22.

Hopefully being caught in a confounding situation provides some comfort for the rest of the eurozone’s austerity guinea pigs, because there’s some proposed “comfort funding” that the troika recently raised as a possibility for Ireland but it isn’t about comfort for people. It’s about weening Ireland off of the rest of that 85 billion bailout fund that Brian Lenihan “accepted” in 2010 (and will be paying out until 2053). That bailout money runs out next year and that’s why Ireland has to return to the normal debt markets soon. It’s financial “comfort funding” to help smooth over state financing for an austerity-stricken state. Part of the troika’s mandate appears to be the creation of deeply uncomfortable situations:

The Irish Times – Friday, January 25, 2013
Troika raises possibility of ‘comfort funding’


The EU-IMF troika has raised the prospect of a new line of “comfort funding” for the Government to ensure there is no disruption to the public finances at the end of the bailout.

Under scrutiny in advance of the 10-day mission, which begins next Tuesday, is whether additional steps should be taken to ensure a smooth exit from the bailout in the autumn.

Credit line

This question centres on the possibility of the troika providing a new line of credit to the Government as it attempts a full return to private debt markets.

Dublin would not necessarily draw down such credit but the fact that it was available might encourage private investment as there would be no risk of a funding shortfall if the Government did not sell enough debt.

An alternative, also being examined by the troika, is for the Government to proceed without the benefit of an additional safety net in order to demonstrate confidence in its debt to potential investors.

Note the two strategies the troika is considering for returning Ireland to the international bond markets: The troika could grant Ireland a credit-line to instill confidence in the bond markets. Or it could try the approach of no credit-line at all since that might make the market even more confident. Confidence Fairies make very important decisions in how our market-driven societies operate, but they also tend to be rather indecisive. Now you know how the troika has to deal with.


Sources close to talks between the troika and the Government said the international lenders are not at this point recommending any particular course of action. A new “technical paper” from the troika on exiting the bailout simply presents these alternatives as options for exploration, the sources said.

The discussions come as talks continue on bank debt relief and an extension of the maturity of bailout loans.

There is concern within the troika to avert any situation in which any Irish or European leaders are seen to be dictating to the European Central Bank to recast the Anglo Irish Bank promissory note scheme.

The troika fears this would undermine the ECB’s independence, threatening the prospect for a deal and raising the risk of a legal challenge.

Yes, the Confidence Fairies don’t simply want to see endless austerity and endless bailouts. They want to see endless austerity coupled to endless financial bailouts coupled to central bank independence including independence from national governments that might want to do something about the bailout-induced austerity. And if you reveal any secrets to the public, secrets like the document containing deliberations and threats between public officials negotiating major bailouts, the Confidence Fairies will freak out and implode the financial system. And, according to the troika’s concerns, the Confidence Fairies are also really really uncomfortable with attempts to renegotiate bailout deals after it becomes clear that the deals are destroying economies. The Confidence Fairies are also deeply opposed to anything that hints at undermining the ECB’s independence. But they’re open to “comfort funding” that will temporarily ease the pain of austerity. “Comfort funding” to ward off complete systemic implosion is fine, but only as long as Ireland is on the path towards no “comfort funding”. Just austere budgets. And lower debts and deficits. Eventually. But first bailouts and austerity. And secrecy. And faith in the system that is delivering bailouts, austerity, and secrecy.

Ireland’s Confidence Fairies, in case you hadn’t noticed, are kind of fascist. At least in theory.

Update 6/27/2013
Oh, this is rich: So there’s a big new scandalous set of “revelations” surrounding the “bailout” of Ireland following the collapse of its housing market. The Irish Independent published a series of recorded phone calls between executives at Anglo-Irish Bank. They’re pretty bad. In one of the recordings the Anglo Irish executives laughingly embrace the money flowing into their bank from foreign sources, especially from Germany, as part of the Irish bank bailout of September 2008. And what really seems to have German politicans’ hackles up is the fact that John Bowe, Angro Irish’s director of treasury, jokingly sings “Deutschland, Deutschland, Uber Alles” while they embrace the money flowing into the bank in one of the recordings on October 2, 2008. This conversation was just days after the Irish bank bailout deal and according to a Merkel ally the recordings are “unbearable”:

The Irish Independent
Merkel ally describes Anglo’s German comments as ‘unbearable’

26 June 2013

German people are disgusted and offended at comments by Anglo executives as revealed by the Irish Independent, according to a leading politician.

Micheal Fuchs, deputy parliamentary leader of the Christian Democratic Union – the party of Chancellor Angela Merkel – said the recordings were “unbearable”.

In a set of phone calls detailed by the Irish Independent, executives at the toxic Anglo Irish Bank laugh about abusing a blanket bank guarantee to beef up the books at the expense of Germany and the UK.

One conversation – taped two days after the fateful September 30, 2008 bank guarantee – hears former chief executive David Drumm giggle while his colleague John Bowe recites lines from ‘Deutschland Uber Alles’.

“We are offended,” Mr Fuchs told RTE earlier today. “If you have a feeding hand you shouldn’t bite into it.”

He added “it’s really dangerous” language as German politicians are trying to convince local taxpayers to support European countries, such as Ireland. “It’s absolutely unbearable that somebody is talking like this,” he said.

Bowe said in a statement that the language used in the taped recordings of internal bank conversations “was imprudent and inappropriate.”

This might be a good time to recall that Ireland’s “bank guarantee” that had been issued days before the now infamous “Deutschland, Deutschland, Uber Alles” phone call completely absolved German banks of billions of liabilities that they would have incurred under normal bankruptcy proceedings and passed those liabilities onto the Irish public even though German banks played a lead role in fueling the Irish housing bubble. So those financial flows into Anglo Irish Bank that were taking place during that phone call on October 2, 2008, may have been flowing in from foreign sources but it was Anglo Irish that was getting bailed out, not “Ireland”. Germany’s banks were under a significant threat of very serious losses if Ireland’s big bank went down until Anglo Irish and its cohorts were bailed out by the Irish public.

So really, Germany’s politicians should have been thanking Ireland’s government on October 2, 2008 – and Anglo Irish in particular – because the Irish public is a lot harder to bankrupt than Irish banks…even really big Irish banks. That’s even the case when transferring the full liabilities of Ireland’s foreign-finance-fueled property-bubble from the banks to the public obviously sends a tiny nation like Ireland into some sort of debtors prison. In other words, Anglo Irish Banks’s executive were primarily abusing the Irish people by abusing the bank guarantee, not foreign-lenders. Maybe Merkel’s Allies might need to recalibrate their sense of what is deemed to be personally “unbearable”. After all:

“Sticks and stones may break my bones
but back-alley national usury pledges will never hurt me predictably wreak havoc on my society and I should also avoid inflicting that situation onto another nation”.


26 comments for “The Troika Knows That Confidence Fairies Don’t Want To Know. It Makes Them Uncomfortable”

  1. @Pterrafractyl–

    Good article!

    I’ve spoken about the Dorothy Thompson article from the New York Herald Tribune often enough.

    We shouldn’t forget where this whole European economic debacle originated, as well as who it serves:

    From Gustav Konigs, Secretary of State for the Third Reich, speaking in 1942:

    “At the moment the so-called “European Economic Community” is not yet fact; there is no pact, no organisation, no council and no General Secretary. However, it is not just a part of our imagination or some dream by a politician – it is very real. The idea lives in the consciousness of Europe‟s people who have been brought together as a result of the English sea blockade and the unnatural alliance of England and Soviet Russia. Presently we have a European military community, made up of troops and volunteers from Italy, Finland, Hungary, Romania, Spain, Slovakia, Croatia, Holland, Norway and Germany, which is fighting against Bolshevism. Its roots are in the economic co-operation of the European nations and it will develop after the war into a permanent European economic community.

    Keep up the great work!

    Dave Emory

    Posted by Dave Emory | March 11, 2013, 6:14 pm
  2. Wonder what will happen if this monkey-wrench gets jammed in the gears-
    Game Changer?


    Germany’s anti-euro party is a nasty shock for Angela Merkel
    Political revolt against the euro construct has spread to Germany.

    “By Ambrose Evans-Pritchard
    5:00PM GMT 10 Mar 2013
    A new party led by economists, jurists, and Christian Democrat rebels will kick off this week, calling for the break-up of monetary union before it can do any more damage.

    “An end to this euro,” is the first line on the webpage of Alternative für Deutschland (AfD). “The introduction of the euro has proved to be a fatal mistake, that threatens the welfare of us all. The old parties are used up. They stubbornly refuse to admit their mistakes.”

    They propose German withdrawl from EMU and return to the D-Mark, or a breakaway currency with the Dutch, Austrians, Finns, and like-minded nations. The French are not among them.
    * The borders run along the ancient line of cleavage dividing Latins from Germanic tribes.*

    The plans draw on work by Hans-Olaf Henkel, former head of Germany’s industry federation (BDI) and a chastened europhile — the “worst error of my professional life”, he told me.

    The appeal of German exit is obvious. It is the least traumatic way to end the 20pc to 30pc misalignment between North and South, the cancer eating Europe. Club Med keeps the euro. It enjoys instant devaluation, while still able to uphold euro debt contracts. The spectre of sovereign defaults recedes.
    The party hopes to contest the federal elections in September, winning enough votes to scramble a tight race. Chancellor Angela Merkel suddenly has a “UKIP problem” on the her right flank.

    Should she sign off on a bail-out out for Cyprus — safeguarding the “dirty funds of Russian oligarchs”, as the AfD puts it — she will be raked by heavy fire.
    Alternative für Deutschland threatens to take votes from the Right. On the other side, the Green resurgence to 16pc makes up for the sluggish Social Democrats. As things stand, the Left is slightly ahead. Angela Merkel is on course to lose office.

    “Merkel will have to be even tougher on Europe, she cannot allow herself to be outflanked,” said David Marsh, author of books on the euro and the Bundesbank. “She will try to keep up a steely facade and hope everything stays calm until September, but the next crisis may come to a head before that.”
    The tragedy for Germany is that the bill for EMU will come due just as the country’s aging crunch hits. Germany will have impoverished itself for no useful purpose, and without winning much love in the process.

    Some say Germany is “winning” because its firms are conquering Club Med markets with a rigged exchange rate, but that is a Pyrrhic triumph. Latins will not tolerate this, once they grasp that the “gains” of their internal devaluations — ie 1930s wage cuts — are dwarfed by the greater losses of a wasted youth.

    There are no winners. Each country is blighted in turn, and in different ways. Like Goethe’s Sorcerer’s Apprentice, they have launched an experiment they cannot control. The broom has a fiendish will of its own.”

    Very, very interesting
    Much more at link

    Posted by Swamp | March 12, 2013, 9:53 am
  3. @Dave:
    The Gustav Konigs quote reminded me of this 2010 speech I recently stumbed across while reading about the EU’s Economic and Monetary Affairs Commissioner Olli Rehn (the “let’s have the IMF ‘coordinate’ global monetary policy” guy). Rehn’s speech was at the European Union’s 2010 “Ludwig Erhard Lecture”. Rehn elaborated on how his policy vision for the EU followed Erhard’s principles (covered in FTR#671). The three areas Rehn laid out for getting the EU’s economy growing again were (1) economic governance, (2) growth-enhancing structural reforms(austerity), and (3) global economic governance. The idea seems to be that if there’s if the EU can set up an aggressive economic surveillance regime with the authority to determine national policies there won’t be any more major crises (and, presumably, such a regime would apply across the globe eventually). Most of the rest of Rehn’s speech is about how the EU’s “reforms” need to be accelerated:

    Olli Rehn European Commissioner for Economic and Monetary Affairs Why EU Policy Co-ordination has failed, and how to fix it The 2010 Ludwig Erhard Lecture Brussels, 26 October 2010
    Reference: SPEECH/10/590 Event Date: 26/10/2010

    The 2010 Ludwig Erhard Lecture

    Brussels, 26 October 2010

    1. Introduction

    Ladies and Gentleman,

    Let me thank you for your kind invitation to address such a distinguished audience, especially as the lecture is named after Ludwig Erhard, the father of the “economic miracle” of the post-war Germany.

    As the late sociologist Ralf Dahrendorf wrote in his marvellous little book Reflections on the Revolution in Europe in 1990, a country in transition needs a constitutionalist leader to guarantee political legitimacy and another leader of ‘normal politics’ to drive necessary economic reforms. Germany had these leaders in Konrad Adenaeur and Ludwig Erhard.

    Even though the economic challenges standing before Mr. Erhard over 60 years ago and before us today may not be comparable, I see some parallels. Quite like the post-war Germany, we need to rebuild our European economy battered by a deep crisis. Much thanks to Ludwig Erhard and his reforms, Germany made it happen against most if not all odds. The foundation of Erhard’s policy was the currency reform in June 1948, a shock therapy that suddenly freed most prices and all rationing. We have come to know the result as “Wirtschaftswunder”.

    Can we hope for another “miracle” to happen – this time in Europe?

    Luckily for us, there is nothing supranatural in Erhard’s “miracle”. The Wirtschaftswunder was a down-to-earth programme of economic reform, built on the principles of monetary stability and free market to encourage entrepreneurship, bring economic efficiency and facilitate job creation.

    2. Stability and growth go hand in hand

    Let me start with a general remark. There is a school of economic thinking which argues that macroeconomic instability is insignificant in the long run and only the rate of growth matters for welfare. This has of course been disputed by many macroeconomists who have underlined the devastation that recessions can create.

    But many of the same macroeconomists were, just a few years ago, convinced that the instability issues have been largely solved. In the pre-crisis period “The Great Moderation” was regarded as evidence of successful macroeconomic policy, based on automatic fiscal stabilizers and on monetary policy aiming at price stability or low inflation.

    Now we know better. Macroeconomic instability can cause large and long-lasting damage, thus remaining a stubborn policy challenge.

    At the same time, there is no denying that the rate of economic growth is essential for our citizens’ wellbeing. This is a very concrete European challenge. The projected 1½ % average annual growth rate in the EU in the coming decade, in the absence of major structural change, is simply inadequate to generate the jobs we need. Neither is it sufficient to redress the consequences of population ageing.

    Therefore, just as in Erhard’s programme, we must focus on both stability and growth. There is not one without the other – they go hand in hand.

    With this in mind, I’ll discuss three sets of issues central for promoting stability and growth in the EU: (1) economic governance, (2) growth-enhancing structural reforms, and (3) global economic governance.

    3. Strengthening economic governance in the euro area

    The findings of the Euro Monitor, which were presented here earlier today, display very clearly the severe problems of fiscal sustainability and the divergences of competitiveness in the euro area. While national policy makers, of course, bear the main responsibility for the situation, it is clear that also our EU framework for policy coordination has failed.

    Stability and Growth Pact was created to ensure that no country would pursue fiscal policy that would endanger financial and economic stability of the other member states and the euro area as a whole. It has not done that, mainly for two reasons.

    For one, because it has not been applied as rigorously as intended. Second, because the Stability and Growth Pact was not sufficient in scope, as it has left non-fiscal economic imbalances outside the scope of surveillance. Ireland and Spain are unfortunate examples of this.

    It is indeed important to keep in mind why we have undertaken the comprehensive exercise of reinforcing economic governance. It is because our policy framework failed to prevent unsustainable fiscal and economic developments in many member states, with devastating consequences for their economies, and risking a financial and economic meltdown of the euro area as a whole. Containing the crisis has been a huge and politically delicate challenge, which has required extraordinary actions by the EU, its member states, the ECB and the IMF.

    The failure is due to our incapacity to intervene early enough to prevent unsustainable developments and to enforce policy recommendations strictly enough when that was warranted according to the rules jointly agreed. In addition, the scope of the surveillance has been too narrow.

    Whatever the precise details of the new coordination mechanism will be, the reform must address these shortcomings. That means in particular that the Member State governments must commit to prudent fiscal policy making – and accept that if they deviate from such path, there will be consequences. This is necessary, if we are seriously aiming at containing the risks to financial and economic stability in the euro area.

    To address these shortcomings and systemic weaknesses, the EU has embarked on a comprehensive programme to strengthen of economic governance. Following two communications earlier this year, the Commission published a package of legislative proposals four weeks ago. Later this week, President Herman Van Rompuy will present the work of the Task Force led by him to the European Council.

    Let me very briefly recap what is in the Commission proposals.

    First, we propose to reinforce the Stability and Growth Pact. We want to introduce a concept “prudent fiscal policy making” to make the adjustment towards a medium term budget objective more operational and binding. Debt sustainability will be monitored more closely by setting a numerical benchmark for a satisfactory pace of debt reduction.

    Second, we propose to broaden economic surveillance to identify and redress macroeconomic imbalances and divergences in competitiveness. This will be based on a scoreboard of economic and financial indicators (probably very similar to the Euro Monitor), and when unsustainable developments are identified, we will carry out in-depth country analysis and issue country-specific recommendations.

    I know some refuseniks doubt the value of this type of surveillance. I wouldn’t be so sceptical. Some of the simulations we have done suggest that such an approach would have signalled unsustainable development in the cases of Ireland and Spain well before the crisis hit.

    Third, we need to effectively enforce economic surveillance through the use of appropriate incentives and sanctions to strengthen the credibility of the EU fiscal framework. These would kick in at an earlier stage of the surveillance process and be gradually tightened, unless corrective action is taken by the member state concerned. Very importantly, we also want to make the consequences of bad behaviour more automatic – i.e. semi-automatic – and thus less subject to political deliberation.

    In principle, there would be an alternative to policy action based on clear rules. It is market discipline. Unfortunately, market discipline alone is not very effective, and can come at very high costs. As we have seen, markets typically have not restrained excessive borrowing by the governments or the private sectors until it has been too late. And when the markets have reacted, the reaction may have been excessive.

    Financial markets tend to be volatile and prone to excesses in ways that one normally does not find in product or labour markets. The inherent instability of financial markets, underlined by John Maynard Keynes and Hyman Minsky, made them call for government intervention, extending from demand management to financial regulation. For a while this message got lost, but few would question its relevance now.

    Therefore, based on empirical experience, I don’t think we can afford to trust that markets alone could take care of guaranteeing financial stability. While the long-run incentive effects are likely to work in the right direction, in the short run the market reactions tend to be destabilising.

    Thus, in my view we must put the first and foremost emphasis on a strong pre-emptive and preventive framework of economic governance, which will have to include a strong and semi-automatic sanctions regime, as proposed by the Commission, so that there would simply be less need for market discipline. However, as it is better to be safe than sorry, we need a crisis resolution mechanism of a permanent kind.

    4. Accelerate policies for sustainable growth

    Fiscal and macroeconomic stability are necessary for long-term sustainable economic growth. However, we need to address the growth challenge directly.

    During the crisis, world GDP saw the first fall ever recorded in national accounts. The EU and the euro area were particularly hard hit, with GDP falling by 4% in 2009. The crisis had a large negative impact on the productive capacity of our economies, and subsequently on employment.

    We thus urgently need to reinvigorate growth. A serious question remains however: Do we get ambitious reforms implemented and implemented early enough to really make a difference? Is there sufficient sense of urgency now that the recovery is underway?

    To reinforce the drive of the Europe 2020 reform agenda and to support fiscal consolidation, we have to act swiftly and strongly by frontloading growth-enhancing reforms. The coming 6 to 9 months will be crucial. In my view, we will not succeed unless we all – in the Member States as well as at the EU level – accelerate the implementation of reforms.

    Member States have already agreed to submit to the Commission their draft National Reform Programmes by mid-November, and include their revised assessment of macro-economic and structural bottlenecks to growth. Member States will be encouraged to commit themselves already in these programmes to accelerated implementation of key structural reforms as part of their strategies for growth and jobs.

    @Swamp: I was struck by just how much anti-euro sentiment was also described in that article:

    “The latest ZDF poll shows that 65pc of Germans think the euro is damaging, and 49pc think Germany would be better outside the EU. This is no doubt “soft”, yet what is clear is that the all-party consensus on EMU gives voters nowhere to turn. ”

    And according to this recent NY Times article about the Bundesbank doubling its reserves to prepare for potential losses on eurozone sovereign bonds there is widespread fear amongst the German public that Germany would pay more than its share if the eurozone dissolves. So it sounds like there’s a sense amongst fairly large chunks of the German electorate of “we would like to leave the euro but that’s one expensive exit.” Situations that arise that make that exit less expensive could become volatile.

    Posted by Pterrafractyl | March 12, 2013, 11:10 pm
  4. There’s a new insolvency regime for Ireland’s proles in need of a debt writedown: Irish homeowners that are applying for debt writedowns are about to be subjected to a new life-style caps, with maximum monthly allowances for food, heating, spending cash, etc. You have to give up your car too if you have access to public transportation. This is the first time Ireland has ever attempted to determine what an acceptable life-style when people declare bankruptcy and, in keeping with the times, the new regime appears to be notably harsher than the traditional rules under English law. Part of the purpose for this policy appears to be to ensure that any debt writedowns don’t create any “moral hazards” associated with giving free money away. Keep in mind that this is a country that bankrupted itself in order to pay back foreign bank bond holders 100% on the loans that were required to fuel the housing bubble in the first place when a 100% payback was in no way expected by law or historic precedent. The Moral Hazard Fairies seem to give the characters of creditors quite a bit of credit:

    Financial Times
    April 18, 2013 7:04 pm
    Ireland picks through debtors’ lifestyles

    By Jamie Smyth in Dublin

    Homeowners applying for debt writedowns will have to give up satellite television, foreign holidays and private school educations for their children under a strict new insolvency law introduced to tackle Ireland’s debt crisis.

    On Thursday the country’s Insolvency Service set out monthly spending limits for people seeking debt deals from their creditors, highlighting the impact austerity is having on Irish spending habits. A single person will be allowed just €247.04 a month for food, €57.31 for heating and €125.97 for “social inclusion and participation”, an expenses category that includes tickets for sporting events and the cinema.

    “A reasonable standard of living does not mean a person should live at luxury level, said Lorcan O’Connor, director of the newly established Insolvency Service of Ireland. “But nor does it mean that people should be punished and live only at subsistence level.”

    In most cases, people seeking debt deals will also have to give up private health insurance and their cars, although they will be able to keep their vehicles if they do not have access to public transport.

    The guidelines mark Ireland’s first attempt to quantify acceptable living standards when people declare bankruptcy or reach an insolvency arrangement with creditors under its new insolvency regime. Banks will also use the guidelines as they begin restructuring tens of thousands of home loans over coming months.

    Under English insolvency law, which is less proscriptive than Ireland’s new guidelines, “reasonable” day-to-day expenses for bankrupts include holidays, mobile phones and video rentals. While gym memberships, private healthcare, gambling, cigarettes and alcohol are considered unreasonable, English debtors do not face monthly cash limits.

    Alan Shatter, Ireland’s minister for justice, warned banks that they could face heavier losses if they did not agree debt deals with struggling mortgage holders, who might instead choose to declare bankruptcy.

    House prices have halved since the Ireland’s property market peaked in 2007, leaving an estimated 400,000 mortgage holders with negative equity. Unlike in some US states, mortgage holders cannot escape debt obligations by surrendering their property to the bank. Irish banks that sell repossessed properties at a loss can pursue homeowners for the difference.

    Last month Dublin ordered banks to provide long-term solutions to struggling mortgage holders, prompting some concerns about the danger of “moral hazard”.

    “We will do write-offs. It is absolutely part of the give-and-take in a restructuring where both sides make concessions and it is not debt forgiveness,” said David Duffy, chief executive of Allied Irish Banks.

    “Anything that is done will be with full respect to the moral hazard that would be created,” he added.

    Posted by Pterrafractyl | May 9, 2013, 2:30 pm
  5. Irish media morons have never been stingy about serving up rich, frosty mugs of golden bullshit. In the article below we read:
    “Many austerity critics tend to claim the high moral ground, stressing the human costs of the deep recession. However, the practical issue is whether better alternatives exist.”
    The better alternative is to dump the euro currency, and recover Monetary Sovereignty: the ultimate power that any government can have (if they actually USE it).
    “While Ireland’s budget deficit has fallen from about 12 per cent of GDP in 2009, it still remains very high, at about 7.5 per cent. As a matter of arithmetic, every euro of a budget deficit implies a corresponding increase in public indebtedness.”
    Yes, because Ireland must borrow all its money. Ireland would not have to borrow if it dumped the euro currency. Ireland could once again create its own money. However, Irish politicians can’t dump the euro currency, since they are on the payroll of Troika bankers and Germany. If they dump the euro currency, then they will have to campaign for votes, like US politicians. Hence, there is no alterative (TINA) but to have more austerity. (Always more.)
    “Assuming continuation of the current austerity plan, even with some pick-up in growth, Ireland’s debt is likely to exceed 120 per cent of GDP in 2015.”
    Yup. Ireland is in a death spiral. Debt leads to austerity, which leads to more debt, which leads to more austerity.
    Irish politicians could not stop this even if they wanted to.

    Posted by bambi | May 10, 2013, 11:47 am
  6. The G7 is a group of finance ministers from the U.S., U.K., France, Germany, Italy, Canada and Japan.
    Friday and Saturday (10 & 11 May) is the G7 conference at a mansion in Buckinghamshire, a county south of London that is home to the Pinewood movie studios.
    The bullshit will fly in all directions, all of it meaningless.
    US officials will call on Berlin to relax its brutal austerity demands, and to stop opposing the proposed banking union across the euro-zone. Germans officials will change the subject. They use austerity and the lack of a banking union to enslave the other euro-zone nations. Why stop now?
    A senior US Treasury official says, “Strengthening European demand is the most important immediate imperative in reviving growth in the advanced economies and thereby global growth.”
    But there can be no strengthening of European demand while there is austerity, and there can be no end to austerity while the euro-zone continues to use the euro, issued by Germany.
    The USA wants Germany to increase its domestic demand, i.e. lower Germany’s trade surplus with Germany’s slaves. Germany refuses. Why ruin a good thing?
    German finance minister Wolfgang Schäuble says it must be the priority for governments to reduce their borrowing to regain confidence.
    But they cannot reduce their borrowing as long as they have austerity, and they cannot end austerity as long as they must borrow all their money from Germany.
    Schäuble says austerity is prosperity. (And it is indeed prosperity…for Germany.) He says austerity means that, “A recovery is gathering pace. Even Greece is achieving remarkable success.”
    Absolute bullshit.
    Meanwhile the masses have no clue why austerity continues to get worse all the time.

    Posted by bambi | May 10, 2013, 11:58 am
  7. See 6/27/2013 update.
    It’s a sad 6/27/2013 update.

    Posted by Pterrafractyl | June 26, 2013, 11:12 pm
  8. http://www.podfeed.net/episode/Interview+with+whistleblower+Zoe+Georganta+English/3780725

    Essential. Zoe Georganta – Greek Statistical Agency. Statistical data was fraudulent. mp3 file

    Posted by Flippery | June 27, 2013, 10:09 pm
  9. Well isn’t that nice: the ECB appears to be willing to shorten the withholding time on the public release of the ECB’s minutes after each rate decision. Even the ECB’s Governing Council seems to think that 30 years might be overdoing it a bit. Well, at least some of the Council:

    Draghi Signals Worst Is Over as ECB Reiterates Low Rates
    By John Fraher & Jeff Black – Aug 1, 2013 10:15 AM CT

    European Central Bank President Mario Draghi said economic indicators signal the euro region is past the worst of its longest-ever recession, while reiterating that interest rates will stay low for the foreseeable future.

    “Confidence indicators have shown some further improvement from low levels and tentatively confirm the expectation of a stabilization in economic activity,” Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark rate at 0.5 percent. “The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.”

    Draghi said that even as the economy improves, money-market prices signaling that rates will rise are “unwarranted.” The ECB head is trying to assure investors that the central bank won’t tighten policy too soon, as it did in 2011. While euro-area manufacturing expanded for the first time in two years in July and business confidence improved for a third month, lending to companies and households fell the most on record in June.

    Draghi also said that ECB officials are considering the earlier publication of the minutes from its monthly meetings and that the Executive Board will present a proposal to the Governing Council in the fall. Minutes are currently scheduled to be published 30 years after each rate decision.

    Executive Board members Benoit Coeure and Joerg Asmussen voiced support for earlier publication on July 29. Draghi backed the idea in comments in Germany’s Sueddeutsche Zeitung yesterday. Governing Council member Jens Weidmann, the Bundesbank president, said he would welcome a timely release of transcripts to make the ECB’s decisions more comprehensible, Handelsblatt reported today.

    Governing Council member Ewald Nowotny, the head of Austria’s central bank, said last year he is wary of publication soon after the meetings as it may prompt governors to act more in their own national interest. He stands by that view, the bank said today.

    “Discussion on minutes is at an early stage,” Draghi said. “It’s especially important that any communication we introduce should not put at risk the independence of the members of the Governing Council.”

    Posted by Pterrafractyl | August 1, 2013, 10:37 am
  10. You have to appreciate the persuasive nature of EU Commission President Barroso’s argument for the continuation of the European Project: If this fails war is inevitable:

    The Commentator
    Barroso’s scare tactics show an EU consumed with fear
    The Europhiles are frightened and they’re weak. And they’re frightened because, at some level, even they know just how weak their arguments are

    Robin Shepherd, Owner / Publisher
    On 11 September 2013 12:28

    Unless you’ve spent a decent amount of time living in continental Europe, it can be hard to appreciate the sheer poverty of the debate about the European Union. Bread and butter issues such as the structural flaws of the Euro, the gaping hole in the EU’s democratic legitimacy or the manifest failure of the EU’s much vaunted Common Foreign and Security Policy, go largely undiscussed.

    And I’m not just talking about the narratives pushed by the pro-EU politicians. I’ve met professors at leading European universities who, when I raised the problem of a lack of a demos — the core pre-requisite to a democratic polity — looked at me as though I’d addressed them in the ancient Greek language from which that term ultimately derives. That utter inability to address the most important issues trickles down into the media. Hence the mess Europe is in.

    But there’s a reason for this, and in his State of the Union speech — if you can bear the mental torture, see the pre-prepared version in full here — to the European Parliament on Wednesday, Commission President Jose Manuel Barroso laid it out for anyone who has eyes to see:

    “Next year, it will be one century after the start of the First World War. A war that tore Europe apart, from Sarajevo to the Somme. We must never take peace for granted.”

    “Let me say this to all those who rejoice in Europe’s difficulties and who want to roll back our integration and go back to isolation: the pre-integrated Europe of the divisions, the war, the trenches, is not what people desire and deserve. The European continent has never in its history known such a long period of peace as since the creation of the European Community. It is our duty to preserve it and deepen it.”

    What you have just read is what now passes for the underlying, legitimising narrative of the European Union: You either go with us towards a more deeply integrated and politically unified Europe, or it’s back to war.

    Angela Merkel, Chancellor of Germany, said something similar a while back about what would happen if the Euro was allowed to fail. I cannot even count the number of times I have heard the same theme at conferences hosted by supposedly respectable think tanks around Europe.

    It is a narrative of fear. It is designed to frighten people against asking all the serious and necessary questions. And it comes from the most fundamental of misunderstandings about why war consumed Europe in the first half of the 20th century. For it assumes that it was the presence of nationalism rather than the absence of democracy that caused Europe’s problems.

    And that means that as more and more power is taken away from the nation states — the only place where democratic peoplehood has genuine resonance — European democracy dies a death of a thousand cuts.

    Barroso and company tore decades of growing democratic precedents to pieces with the shameful repeat referendums of the last decade. When Ireland said no, it was told to vote again until it said yes. When France and the Netherlands said no, they were trampled on, ignored.

    The Lisbon Treaty for which the EU fought, regardless of conscience and procedure, is the legal basis of the European Union. If it had been a business transaction, people would have gone to jail for fraud.

    Jose Manuel Barroso, and the whole motley crew, are the enemies of European democracy. Their actions threaten to destroy everything they so falsely and so weakly claim to uphold.

    That is why you are being told that, if you think matters through, you’re sending us back to the killing fields of the Somme. These people are frightened and they’re weak. And they’re frightened because, at some level, even they know just how weak they are.

    Posted by Pterrafractyl | September 11, 2013, 2:47 pm
  11. @Pterrafractyl: I kinda hate to say this, though, unfortunately, having done some thinking over these past months, I fear that Barroso may just be correct in some way, though not quite in the way he thinks.

    The E.U., as terribly imperfect as it has become, is actually the far lesser of two evils: the other one that I speak of is the scenario in which ultra-nationalist regimes sweep up power in many, if not most, of the nations in continental Europe. It’s already happened in Hungary, and Greece may very well be next. And should two opposing blocs develop, one socialist/democratic and the other Fascist/nationalist…..I do fear that Europe might eventually once again indeed turn into a battleground.

    And rather unfortunately, this scenario may be far more likely in the event of a EU collapse/fracturing than some might think.

    As much as I would like to sincerely think that ALL of the talk of national sovereignty is noble in intention, there are, sadly, those that have issued the issue to promote and further the cause of TPTB, including the Underground Reich(again, look at Hungary)…..all I’m saying is, is that people need to really look at these issues carefully & thoughtfully, something that the Right-Wing in particular has consistently failed and refused to do.

    So for all the talk about how screwed up the E.U. is, and some of that IS justified, TBH…..there are much worse arrangements that could occur instead, like the one I’ve described.

    Again, just to summarize, the E.U. is far from perfect and has LOADS of problems. But getting rid of the concept of a unified Europe may not necessarily make things any better and could actually make things worse. Frankly, the best option I can think of(and this would be the VERY LAST thing any of The Criminal Powers That Be woul EVER want in this regard), is that the E.U. should be replaced with something better: something that really does genuinely preserve national sovereignty, while keeping the continent stable and safe and harmonious. It certainly can be done, but WILL it be? That’s the question.

    Posted by Steven L. | September 11, 2013, 4:45 pm
  12. @Steven L.: I’d agree that making the EU or any international agreement actually work to the benefit of all the people is in virtually everyone’s interest. Like you say, war really could break out in Europe again and nationalism poses a very real threat when it veers into the far-right variety of nationalism. And for all we know, maybe the dissolution of the EU and a subsequent war is one of the plans (Plan B, perhaps?) In a lot of ways, the EU experiment is giving the world a preview of the types of challenges that the future EU-analogues that will inevitably pop up elsewhere in the world. So let’s hope Europe can figure out how to avoid turning the continent into a collection of increasingly-toothless vassal-states. Because we really don’t know yet how many more additions to the EU-superstate are going to be made during, say, the next decade five years from now. But at some point, the “silent revolution” of major constitutional overhauls rapidly taking place in Europe is going to have to end. And at THAT point it’s going to be really hard to change things without ANOTHER crisis. Remember how almost every EU member passed constitutional amendments to impose the radical “Fiscal Compact” Treaty? That was an AMAZING feat to get 25 out of 27 countries to ratify that a fiscal straightjacket so rapidly and with such little debate. It was especially amazing when you consider that the debt crises were primary brought about by national governments nationalizing private-sector financial losses. But it also might have been a really stupid feat that just sets up the EU for endless future replays of the austerity-induced death-spiral we’ve been seeing across the eurozone. That’s just one example of why the future of the EU seems so ominous: this once in generation collective freakout over EU debt has prompted an unprecedented drive to constitutionally enshrine a whole slew of new laws and institutions that are potentially going to be impacting the EU for decades to come.

    And no one really seems to know what the new EU is going to look like going forward or if they do have a vision they sure aren’t very keen on sharing it except that Europe must become more “competitive” (which she defines as a reduction in social benefits) and that eventually there should be a political union of some sort. But in the mean time, we need to actually be stripping member states of their sovereignty and handing it over to new EU institutions in order to make the Fiscal Compact treaty work. That’s quite a plan! And this is seriously our collective understanding of what critical policy-makers like Merkel are thinking right now with the German elections just weeks away. If ever there was a time to learn about her vision for the future, you’d think this would be it. Nope:

    Six things you didn’t know about Angela Merkel

    Angela Merkel stands on the verge of becoming Europe’s most successful elected female politician yet she remains an enigma

    Stefan Kornelius in Munich
    The Guardian, Monday 9 September 2013

    6. Euro plan

    So, how does Merkel really want to get out of the euro mess? Does Germany have to pay for it? Get rid of Greece? More power to Brussels? Definitely not. Merkel is famous for her step-by-step tactics. She never would give a speech outlining a vision for Europe or at least a two year plan. This woman is not for benchmarking. She doesn’t want to leave any traces of her political game plan since this would only help her opponents. But she has a plan, written down in summer 2011 by one of her advisors, a scribble on a single sheet of paper. In this plan she accepts that key policies within the EU member states have to be watched, governed and controlled more closely and jointly in order to keep the currency alive: budgets, spending, education and research, retirement, social benefits. After all a joint currency will not work without a joint fiscal and economic policy. Will that mean more Brussels? The opposite is true. Merkel is aware of the European public being tired of the commission and the lack of accountability. So for the time being, she’d prefer national governments writing the rules and sticking to them. If someone wants more Europe, they have to come up with a pretty good idea. Merkel might even be willing to talk about a new architecture for all this coordinating – but certainly not before the German elections. And probably not even before the European elections next May.

    Notice the trickery at work there: Merkel’s vision for the future of the eurozone (and presumably the rest of the EU at some point) is to create a system where member states are “watched, governed and controlled more closely and jointly”, but it won’t be Brussels that does all watching, governing and controlling? No, each member nation will stick the rules independently. WTF? So every nation will be free to act as it wants…as long as it doesn’t break any of the growing number of rules laid down by the increasingly undemocratic european superstate (that we all know will be dominated by Berlin). That’s some awesome sovereignty.

    And yes, eventually this vision includes a democratically elected European president. But it’s still very unclear how democratic the rest of that envisioned superstate government will be. We do know, however, that the calls for a “political union” that Merkel has been floating for years will probably require a major round of constitution overhauling. So at some point in the future we’re going to have to see another round of major constitutional overhauls. Let’s hope it doesn’t major financial crisis to pass. And let’s hope there’s the political will to fix any of the mistakes made during the current crisis. But, realistically, it’s looking like the EU’s democracy crisis will probably just get worse:

    Project Europe clears legal hurdle but Merkel holds key to political union

    A new European federation with common fiscal, economic, and budget policies effectively requires a new constitution, triggering referendums in some countries

    Ian Traynor, Europe editor
    theguardian.com, Wednesday 12 September 2012 11.42 EDT

    Germany’s political elite is relieved. The Karlsruhe court ruling on the constitutionality of the euro bailout fund unties chancellor Angela Merkel’s hands in the longrunning effort to save the single currency.

    But it also highlights the curbs on any German government’s freedom to make policy, particularly on arguably the most pressing issue in Merkel’s in-tray — what to do about Europe?

    Merkel’s mantra in recent weeks is that she wants “more Europe”. Her Christian Democratic party has passed a motion calling for greater European integration. On Wednesday in his state of the union speech to the European parliament, José Manuel Barroso, president of the European commission, lined up behind Merkel for the first time with a radical rallying call.

    “Let’s not be afraid of the words. We will need to move towards a federation of nation states. This is what we need. This is our political horizon,” he declared.

    A new European federation with common fiscal, economic, and budget policies stripping national parliaments and governments of the most fundamental powers, a directly elected president of Europe with the main European political party groupings putting up candidates at the next European parliament elections in 2014 for Barroso’s job — head of the European executive.

    All of this effectively requires a new European constitution or at the very least a renegotiation of the Lisbon treaty, triggering referendums in some countries, including Britain and in all likelihood a UK exit from the EU.

    It’s not a new, but a nonetheless radical federalist blueprint re-energised by the EU’s worst ever crisis, the euro meltdown. Much of this vision is not only shared but originates in Berlin.

    But it would never get past the eight judges in Karlsruhe.

    Is Merkel serious about her European “political union”?

    “It might be a distraction from the immediate crisis, but yes, they’re serious,” said Katinka Barysch, a German economist at the Centre for European Reform. “You can still convince most Germans that more Europe is a good thing. And they’re doing this out of political necessity, to show the public they’re not panicking blindly because of market pressure.”

    The problem for the politicians is the constitutional court. “The Grundgesetz [basic law] is a constraint,” added Barysch.

    The proposals from Barroso on Wednesday and the kind of EU quantum leap being mulled in Berlin require vast transfers of sovereignty to EU institutions from national parliaments and governments.

    Karlsruhe already set firm limits on this in its verdict on the Lisbon treaty a couple of years ago. Andreas Vosskuhle, the judge who read out Wednesday’s verdict, has said previously that the scope for further European integration is already exhausted under the terms of Germany’s constitution.

    In short, Germany as well as the EU needs a new constitution for the Merkel-Barroso vision to be more than a mirage. And that means a referendum.

    National referendums are banned in Germany because of the plebiscitary abuse performed during the Third Reich. The sole grounds for a referendum is to change the constitution. This is already shaping up to be a major issue on the assumption that Merkel wins a third term a year from now. If, as often predicted, she forms a “grand coalition” with the opposition social democrats, the two big pro-EU parties will have a thumping majority to push constitutional change.

    “Everything will depend on what coalition she forms next year,” said Ulrike Guerot of the European Council on Foreign Relations in Berlin.

    “The pressure on the constitution has become so high that you cannot make the big game-shift.”

    All of this is treacherous political territory where Merkel has to perform two formidable and parallel tasks — persuade German public opinion, fed up with the euro crisis and revering the big independent institutions, the court in Karlsruhe and the Bundesbank in Frankfurt, that the Basic Law needs to be changed, while also coaxing the rest of the leaders of Europe into backing what Barroso is describing as a “new deal.”

    No French president has ever assented to the federalist plot. Will François Hollande be any different? While supporting German hawkishness on the euro crisis, the Dutch don’t want to transfer any more powers to Brussels. Another Irish referendum could wreck the gameplan. No British government would take part.

    At which point the Germans and Barroso will lower their sights and settle for a eurozone rather than a full EU federation. Berlin will tell Paris and everyone else that if they want to use German credit cards to guarantee or redeem their debt, the federation is the price they will have to pay.

    Much of the eurozone is keen on pooling liability, but not on giving up sovereignty, Merkel is fond of complaining.

    That article is almost exactly a year old. Now flash forward to last week and we’re finding that Merkel might be receptive to calls by the UK for a large repatriation of powers currently held by the EU Commission back to the member state capitals (David Cameron wants to cut welfare payments to children, amongst other things, and the EU Commission took the UK to court). So will she follow through with Cameron’s proposals? Maybe. Maybe not. As with all questions of this nature, We’ll find after the German elections:

    Social Europe EU
    Is Mrs Merkel About To Sign Up to David Cameron’s EU Dreams?
    06/09/2013 by Denis McShane

    Wishful thinking over Angela Merkel’s policy on Europe and David Cameron’s 2017 In-Out referendum still continues to surface pushed by anti-EU political forces in London.

    Two weeks ago, Mrs Merkel’s spokesman declared the “astonishment” of her office at the interpretation UK Eurosceptics placed in an anodyne summer interview. She said, as she always says, that more Europe does not mean more power for the EU Commission and that more could be done by national governments coordinating their policies.

    Open Europe, Britain’s main City-financed Eurosceptic think tank, and anti-EU Conservatives briefed that Mrs Merkel’s interview was a massive change of policy in favour of Cameron’s renegotiation and repatriation policy aimed at helping the British prime minister.

    Naturally the Eurosceptic press picked this up but it was a story in London and appeared nowhere in Germany save in the Frankfurter Allgemeine Zeitung which comprehensively rubbished the report. The FAZ is leading the German charge in favour of the AfD (Alternative for Germany) and its anti-Euro line. But FAZ is too good a paper to buy London Eurosceptic spin in favour of the Tory hardline anti-Europeans.

    Now the story has been repackaged in a Bloomberg story. It contains a quote from an FDP junior minister and one CSU spokesman as well as Open Europe, a Cameron press officer, and one of the leading anti-EU British Tory MPs. The story is perfectly accurate in terms of quotes cited and underlines Bloomberg’s reputation as a first class news agency.

    But a quick check on the German media for what appears like a very major new German policy – namely Mrs Merkel putting her weight behind Cameron’s renegotiation and repatriation demands – shows it doesn’t feature. Try Google.de, type in Merkel, Cameron, EU and all the stories are from British Eurosceptic press outlets. Indeed with just two weeks before the German election it is unlikely that Mrs Merkel would want to start such Euroscpetic hares running.

    So what is going on? What Mrs Merkel is saying is that she wants no NEW powers for the EU Commission. That is not the same as the massive repatriation of powers Tory MPs and UKIP are demanding.

    Mrs Merkel is keen on the EU Commission having more power to pull into line what Berlin sees as recalcitrant spendthrift southern EU member states. But she does not want EU supervision of Germany’s shaky regional banks with their close ties to local politicians. She got cross with EU proposals on ecological grounds that would change the coolant systems in high power 250 kph German automobiles.

    So Nein Danke to more EU interference in the German way of doing things but Ja Bitte to the Commission and ECB dictating German terms to Greece, Spain or Portugal.

    Of course Mrs Merkel wants the UK to stay in the EU. So do all EU member states. But not at any price.

    It is easy to find an FDP spokesperson to utter vague statements calling for Brussels to be curbed. But if – as may well be the case – Mrs Merkel enters a Grand Coalition with the social democratic SPD the hopes of Open Europe, Conservatives and UKIP for a massive repatriation of EU powers will evaporate.

    A further factor that should feature in any of these stories is that the repatriation of powers London Eurosceptics seek would mean re-writing EU rules which are set as legally binding in an international treaty. Any new treaty would have to be submitted to a referendum in France, Ireland, Denmark with even German voices calling for referendums on future EU treaties, especially any that might involve admitting Turkey – a declared policy objective of the Cameron administration.

    So it looks like we might be looking at a curbing of powers for the EU superstate, but it could be a selective curbing of power: nations with high deficits will still be subject to oversight by Brussels, but the wealthier nations like Germany, the Netherlands, and maybe the UK would maintain much more de facto sovereignty. That will no doubt sound like a fair plan to a lot of people (where a nation is only punished with losses in sovereignty when they get into financial trouble), but as we’ve seen with the eurozone crisis, once a nation gets into trouble in the eurozone the automatic austerity rules ensure they never get out of that economic hole (at least, it hasn’t happened yet).

    Anyway, that’s all part of why I’m still not very optimistic about the prospects for the EU and especially the eurozone. The shared vision that appears to be emerging is still some sort of rube-goldberg bureaucracy that’s designed to create a quasi-sovereign Northern Europe managing its Southern neighbors. That’s just not going to work in the long run. And even though there’s this implicit promise that a political union will eventually follow the economic union, but there’s no reason to assume that will ever happen. Why not just keep the economic union and ditch the plans for the eventual political union? The eurozone in its current form means that member states have to give up sovereignty over their economic and fiscal policies in order to maintain the integrity of the shared currency. But if there was a matching political union the loss of sovereignty might no longer be necessary because, hopefully, the political union would allow democratic representation to be channeled through a new unified eurozone federal government structure. It’s not hard to see how the architects of the current mess wouldn’t prefer the current structure. I wouldn’t mind seeing the eurozone go because it’s riddled with systemic flaws that are threatening democracy across the continent. But it will be incredibly sad for the whole world if the EU can’t somehow be made to work in way that’s fair for everyone. Making mutually beneficial social contracts is just something humans should be able to do. If we can’t, we’re all fucked.

    Posted by Pterrafractyl | September 12, 2013, 11:01 pm
  13. From the department of “better late than never”, the European Commission just published a paper that concluded that – much like digging a ditch – austerity policies helped deepen and lengthen the eurozone’s recession:

    European Commission’s Own Economist Argues Austerity Made Things Worse

    By Alan Pyke on October 23, 2013 at 4:03 pm

    A new paper from European Commission (EC) economist Jan in ‘t Veld argues that the region’s commitment to deficit reduction over economic investment helped deepen and lengthen the Eurozone’s record-long recession.

    According to in ‘t Veld’s analysis, the international officials who urged austerity have sharply underestimated the costs of those policies. Austerity imposes two or three times as much economic drag as International Monetary Fund (IMF) and other pro-austerity officials have been assuming in the process of forming policy recommendations, he found.

    The economic pain the IMF, EC, and others forced on bailed-out Eurozone countries was exacerbated by the choice to cut spending in healthier economies like Germany’s. Since a common currency links the German economy to the others in the region, keeping spending level there could have helped curb the pain of austerity elsewhere. Instead, Germany cut spending, creating what in ‘t Veld calls “negative spillovers [that] made adjustment in the periphery harder” and helped drive the most perverse outcome of austerity: increasing debt-to-GDP ratios rather than decreasing ones.

    According to the Wall Street Journal, the paper appeared online briefly on Monday via an official EC twitter account, and was later taken down. Ultimately the Commission re-published in ‘t Veld’s work.

    The paper also finds that spending cuts bring sharper economic pain than do tax increases. Austerity packages recommended by the EC and IMF have tended to rely more on spending cuts than on tax increases. While the IMF has already acknowledged that it underestimated the pain of austerity in the case of Greece, it has shown no sign of a general walk-back in its policy recommendations. The Greek economy has shrunk by a full quarter under the austerity measures international powers have imposed on the southern European nation.

    In related news, the President of the European Commission, Jose ‘don’t blame me for austerity‘ Barroso has some great pro-growth advice for Merkel’s presumed coalition partners: don’t stop digging that ditch:

    The Local Germany edition
    Barroso warns Germany against less austerity

    Published: 23 Oct 2013 09:26 CET
    The President of the European Commission has advised Germany to maintain the austerity programme in Europe as negotiations between Angela Merkel’s conservatives and the Social Democrats begin in earnest.

    In an interview on Wednesday with the Bild newspaper, José Manuel Barroso said: “It would not be wise to abandon the current path of balancing budgets, structural reforms and direct investment.”

    But he added that at the same time Europe should focus on “building confidence, growth and creating new jobs”.

    Barroso belongs to the same conservative European bloc as Merkel’s CDU – the European People’s Party but his call is likely to be directed to Germany’s Social Democrats, news site Spiegel said.

    The centre-left party, who are in negotiations with the CDU and their Bavarian allies, the CSU, to form a new government in Germany, believe some of Merkel’s austerity policies have worsened the problems of struggling southern European economies.

    Posted by Pterrafractyl | October 25, 2013, 12:53 pm
  14. Portugal’s government decided to, once again, try to improve its economy by pleasing the Confidence Fairies via strict austerity measures. This is supposed to create a virtuous, self-reinforcing cycle of prosperity where bond investors are so impressed with Portugal’s commitment to gutting wages that they buy a bunch of Portuguese bonds, driving down the interest rates and fueling the economic recovery. According to Portugal’s central bank, this may not be the best approach:

    The Wall Street Journal
    Bank of Portugal Warns of Austerity Impact on Banks
    But Banks Have Set Aside Enough Money to Cover Rising Corporate Defaults

    Bank of Portugal said the country’s banks had set aside enough money to cover rising corporate defaults, but it warned the cushion could wear thin if a nascent economic recovery failed to take hold.

    Updated Nov. 26, 2013 1:41 p.m. ET

    By Patricia Kowsmann

    LISBON—Portugal’s central bank said the country’s financial system had set aside enough money to cover rising corporate defaults, but it warned that the cushion could wear thin if a nascent recovery of the overall economy failed to take hold.

    The semiannual report Tuesday on the country’s financial stability spelled out the government’s biggest challenge—to cut its budget deficit enough to entice investors to buy its bonds while ensuring that austerity measures don’t thwart the recovery. Portugal’s gross domestic product began growing in the second quarter of this year, ending 2-1/2 years of recession.

    The Bank of Portugal issued the report as parliament approved a budget for 2014 that will maintain tax increases levied this year while slashing pensions and public workers’ wages. The government said this would enable the country, which got a €78 billion ($105.5 billion) international bailout loan in 2011, to regain access to financial markets next year. Opposition parties said the budget measures would sink the economy.

    The central bank said the outcome was uncertain.

    “The concrete impact of the budget measures that will be adopted, both in the short and medium term, over private spending and economy growth is uncertain,” the report said. “A break in economic activity would increase defaults, with a special impact on financial results and the asset quality of the banking system.”

    The central bank said Portugal’s financial stability faces other risks—a highly indebted private sector that is struggling with losses and uncertainties about the global economy, and the exposure of banks to Portugal’s sovereign debt, which accounts for 7% of total assets.

    Under terms of the bailout loan, the government has lowered a budget deficit that was nearly 10% of gross domestic product in 2010 to an expected 5.5% this year and has promised to push it down to 3% by 2015.

    Banks have been hard hit by the cuts, which have caused rising unemployment and falling consumption. The central bank report said about 30% of the companies with debt were in default in June, up from 15% in early 2008. Credit at risk of default is 11% of total credit outstanding, although the level is stabilizing, the bank said.

    As a result of soured consumer credit and corporate loans, Portugal’s three largest lenders have posted losses this year. While an important capital ratio called Core Tier 1 continues above 9% of all Portuguese lenders’ risk-adjusted assets, as required by the European Banking Authority, their capital could deteriorate, as banks face many quarters of losses.

    Posted by Pterrafractyl | November 27, 2013, 12:19 pm
  15. Well here’s some possibly positive news for the Greek economy: Greece just had a record number of international tourists in October. It’s one of the reasons the Greek government is forecasting a 1.6% before-interest government surplus for 2014, exceeding the 1.5% surplus mandated by the troika (Yes, while the Greek youth unemployment is currently around 62%, the troika is mandating budget surpluses, along with all the other austerity measures, in return for the next round of bailout funds). And it’s especially fortunate for the Greeks that they’ve managed to exceed the troika’s demands by actually growing the economy instead of endless austerity. Maybe there’s a lesson there for the troika about the efficacy of socioeconomic blood-letting as a form of national therapy. Or not:

    UPDATE 2-Greece sees higher budget surplus, still at odds with lenders

    Thu Nov 21, 2013 7:34am EST

    By George Georgiopoulos and Renee Maltezou

    Nov 21 (Reuters) – Greece more than doubled its forecast for a budget surplus before interest payments this year, hinting at light at the end of the tunnel for its battered economy and boosting its chances of securing more leeway on its debts to the EU and IMF.

    After nearly going bankrupt and almost crashing out of the euro zone last year, Greece has been buoyed by more positive economic news in recent months including a bumper season for tourism and progress in bringing its finances back on track.

    In a revised budget plan for 2014, Athens confirmed it would emerge from a six-year recession with growth of 0.6 percent next year. The economy has shrunk by nearly a quarter since 2008 as it grappled with a deep financial crisis.

    Athens also predicted a primary budget surplus of 812 million euros this year thanks to higher than expected tax revenues, compared to a previous forecast of 344 million euros.

    A difference in opinion on the forecasts for next year, however, is one of the key barriers to its gaining more debt relief from the European Union and International Monetary Fund next year.

    Posting a primary surplus would open the way for Greece to pursue debt relief with the EU and IMF but the lenders also doubt it will meet the budget target set in the bailout.

    Greece forecasts the 2014 budget surplus will reach 1.6 percent of GDP – or about 2.96 billion euros. The bailout programme provided for a surplus of 1.5 percent of GDP, or 2.75 billion euros, but the lenders say Athens may fall short of that target by as much as 2 billion euros.


    Inspectors from the lenders are in the middle of their latest review, also crucial to the release of Greece’s next tranche of bailout funds. They left Athens on Thursday and plan to return in early December to continue discussions.

    Greek newspaper Ta Nea on Thursday quoted Jeroen Dijsselbloem, the head of euro zone finance ministers, as saying the review must be completed quickly.

    “Many eurozone finance ministers have started losing patience,” he told the newspaper. “Talks continue in Athens at this time about the country’s progress – or rather lack of progress – in fulfilling its obligations.”

    Athens’ budget plan on Wednesday also maintained the target of raising 3.56 billion euros from privatisations next year and that unemployment would start to decline next year after peaking this year.

    Greece has signed privatisation deals worth 3.8 billion euros since June 2011, about 2.6 billion euros of which have been cashed. This is far below the 22 billion the country was supposed to have raised by the end of 2013 under the terms of its first bailout three years ago.

    In the search for a new model of how to generate enough growth and tax revenue to pay for state spending, of more assistance will be a predicted 13 percent rise in tourism receipts next year to a record 13 billion euros. The industry, which employs one in five Greeks and generates 17 percent of national output, has gained market share against its international competitors for the first time in years.

    Yes, the doctors are growing impatient with their patient’s refusal to respond quickly enough to the treatment. More aggressive treatments will be required:

    EU-IMF postpone visit to Athens in dispute over reforms

    By John O’Donnell, Luke Baker and Harry Papachristou

    BRUSSELS/ATHENS Fri Nov 29, 2013 4:47pm EST

    (Reuters) – Inspectors from the EU and IMF have postponed a planned visit to Greece, officials told Reuters on Friday, a move that marks a new low in relations between the parties and could delay aid payments to Athens.

    The Greek government said it still expects differences with the troika to be bridged.

    The decision to postpone the visit may be an attempt by the European Central Bank, European Commission and International Monetary Fund – together known as the ‘troika’ – to try to bring Athens to heel as frustration grows over Greece’s failure to complete the reforms it has promised in return for aid.

    It is a potential embarrassment for the Greek government, which wants to be able to show it is hitting its targets and bouncing back before it takes over the rotating presidency of the European Union for six months from the start of next year.

    The troika visits Athens regularly to check on progress on its bailout commitments and take decisions on whether to release further installments of loans, with frequent standoffs over whether Greece is meeting its obligations.

    The inspectors had been due to assess Greece’s progress before the Eurogroup of euro zone finance ministers meets on December 9. That meeting will decide whether to approve the disbursement of the next tranche of aid.

    “It has to be clear that there is a chance of reaching agreement with Athens about reforms before the troika goes over there,” said one official.

    He and a second euro zone official said the postponement could delay the approval of the next tranche, although the announcement may also spur Athens into action.

    Greece’s finance minister Yannis Stournaras said late on Friday that junior staff of the troika would return to Athens next week, as planned, and its heads would arrive after the Eurogroup meeting, aiming to complete talks by the end of the year.

    “This (the postponement) isn’t troubling me,” he told reporters according to a finance ministry statement. “The troika will come after the Eurogroup with the aim to conclude (an agreement) by the end of the year.”

    Greek Prime Minister Antonis Samaras said last week he wanted the review to finish before Athens assumes the Presidency.

    A spokesman for the European Commission said discussions with Athens would continue. “We have not yet taken a decision on precisely when the mission will return,” he said.


    While it’s possible the differences will be bridged in the coming days, Greece has no immediate funding pressures and can probably delay on reforms for a while longer.

    Athens is due to receive up to 5.9 billion euros ($8 billion) of loans by the end of the year, according to the latest schedule published by its creditors.

    About 1.85 billion euros of Greek bonds mature on January 11, according to Thomson Reuters data. The next big bond maturities, worth about 9.3 billion euros, are in May next year.

    Stournaras said on Friday he would focus on resolving issues that would release 1 billion euros of that money, which are mainly linked to the partial or entire closure of three loss-making state companies and plans to transfer or dismiss thousands of underperforming or unneeded civil servants.

    The troika’s current review has been dragging on since September and has already been interrupted twice, due to the reluctance of Greece’s fragile, austerity-weary coalition government to adopt any more unpopular measures to satisfy lenders.

    Eurogroup chief Jeroen Dijsselbloem said earlier this month that some European finance ministers are “losing patience”.

    By contrast, Ireland has met all its obligations and is about to emerge from its rescue program.

    The troika is also pushing Greece to soften restrictions on large-scale corporate firings, as well as on bank foreclosures of first homes. Many government lawmakers have vowed to block or water down these reforms.

    If only Greece could follow the troika’s healing advice more closely – like making mass firings and home foreclosures easier in the middle of a record unemployment crisis – if only Greece followed such with greater enthusiasm it could experience the same awesome results seen in Ireland:

    EU Observer
    Debunking the Troika’s ‘success’ in Ireland
    22.11.13 @ 09:20

    By Valentina Pop

    Dublin – As Ireland’s three-year bailout programme is coming to an end, its lenders are keen to present the exit as proof that austerity policies can work – but economists and social activists are sceptical.

    “It is very good to be back to Dublin as a normal visitor. Ireland is having a very successful exit from the EU-IMF programme,” said Istvan Szekely of the European Commission, part of the country’s troika of creditors.

    For the past three years Szekely has been coming to Dublin every three month together with his colleagues from the International Monetary Fund and the European Central Bank to assess “compliance” with the reforms and budget cuts required for each tranche of Ireland’s €85 billion bailout.

    Ireland had to seek financial assistance in 2010 because its decision to guarantee all banks – under pressure from other eurozone countries and the European Central Bank – overwhelmed the state’s coffers.

    Pension funds were raided, welfare benefits cut back, hospitals closed, while the country’s debt rose to 123 percent of GDP, four times higher than before the banks were bailed out.

    According to Irish trade unionists, economists and opposition politicians who met the troika team, Szekely and his ECB counterpart, Klaus Masuch, were the most stubborn on austerity policies.

    The IMF representative in the first two years of the programme, Ashoka Mody, earlier this year admitted that the emphasis on austerity was wrong and that part of Ireland’s debt should have been written off.

    “All our demands fell on deaf ears within the troika, except for the IMF, with whom we had a reasonable bilateral relation,” David Begg, head of the Irish Congress of Trade Unions, told this website.

    Asked if he saw any errors regarding the commission’s stance within the troika, Szekely said: “Yes, we are very critical of our own activity.”

    He suggested that improved advice will come in the future as part of the strengthened macro-economic surveillance powers the commission now has.

    “As an economist I am always very humble,” the Hungarian-born EU official said.
    Highest emigration in Europe

    He said the biggest challenge facing the Irish government is unemployment and mass emigration.

    Statistics released Thursday (21 November) by Eurostat show that Ireland tops the European list of countries where the number of people leaving the country is higher than the ones coming in – by 35,000.

    Ireland also saw a dramatic shift over a relatively short period of time. It went from the highest net immigration levels in Europe to the highest emigration in just six years, overtaking the Baltic states and Kosovo.

    Economists and campaigners says that the one-percent drop in the Irish unemployment figures (to 13.5%) over the past year can also be explained by the high emigration rates, particularly among youngsters.

    A group of students in Dublin meanwhile has launched a campaign called “We are not leaving” after the Irish government sent out letters encouraging young people to seek jobs abroad.

    “There is a very clear message from the government that young people should leave. Obviously an attempt to hide youth unemployment figures. They have also massively reduced unemployment benefits for people under 26,” says Tommy Gavin, one of the campaign organisers.

    Housing crisis

    With most of the Irish financial crisis due to property speculation and a construction boom gone bust, trouble may be brewing as next year the banks’ books will be scrutinised for bad loans and mortgages, as part of a eurozone exercise by the ECB.

    Data from the Irish finance ministry shows that 17 percent of mortgage payers are falling behind the payment calendar. However, scenes such in Spain where people are fighting evictions are not seen yet in Ireland, where banks tend to shun this measure for historical reasons.

    Before Ireland’s independence from the UK, British landlords often evicted Irish “serfs” who could not pay their dues. But despite this taboo, the Irish central bank is increasing pressure on the commercial banks to “repossess” houses where mortgages are not paid.

    For social housing, the situation is even more dire. Some 113,000 people are on waiting lists that can take up to 10-15 years before a subsidised flat is granted, says John Bissett, a community worker.

    “What has happened is that inequality has increased. There are people living on 50 euro or less after paying their bills. We have had eight austerity budgets since 2008, in the community sector there have been about 35-40 percent in cuts,” Bissett said.

    Yet despite the widespread sense of injustice of people paying for rich bankers who escaped unpunished, Ireland has not seen social unrest like in Greece or Spain.

    “There is a profound sense of injustice, but also a feeling we can’t do anything about it. We’re a small country on the periphery of the EU, powerless against the European Commission, the ECB, the IMF,” said Michael Taft.

    “There is a profound sense of injustice, but also a feeling we can’t do anything about it”. Success!

    Posted by Pterrafractyl | November 30, 2013, 3:35 pm
  16. The vultures are still hungry, but don’t expect to see a flock of them hunched over a carcass anytime soon. They prefer to dine in private:

    Lone Star Said to Purchase Most of Anglo Irish’s U.K. Loans
    By Joe Brennan Feb 26, 2014 5:36 AM CT

    Lone Star Funds, a U.S. private-equity firm, won an auction to purchase almost all of the former Anglo Irish Bank Corp.’s 6.3 billion-pound ($10.5 billion) U.K. loan book, two people with knowledge of the matter said.

    Lone Star bought about 85 percent of two U.K. portfolios, called Project Rock and Project Salt, from the failed Irish lender’s liquidators for about 65 percent of the par value, said one of the people, who asked not to be identified because the details are private. The liquidators at KPMG LLP in Dublin confirmed that Lone Star bought part of the loans, with a group comprised of Sankaty Advisors LLC and Canyon Capital Advisors LLC acquiring another portion.

    “The special liquidators are very pleased with the successful conclusion of loan sales,” they said in a statement, which didn’t give details of how much of the portfolio Lone Star bought. Officials from Lone Star declined to comment.

    The deal is the biggest since Anglo Irish was nationalized in 2009. The company later merged with smaller, failed lender Irish Nationwide Building Society and was renamed Irish Bank Resolution Corp. The government put the commercial real estate-focused institutions into liquidation a year ago as part of an accord to restructure its 34.7 billion-euro ($47.7 billion) bailout cost.

    Noonan’s Announcement

    Irish Finance Minister Michael Noonan said on Jan. 16 that the liquidators were set to sell “more than half” of a 22 billion-euro loan portfolio without incurring additional losses to taxpayers. IBRC’s liquidators said in December they had agreed to sell 84 percent of 2.5 billion euros of par-value Irish corporate loans.

    Lone Star Chairman and founder John Grayken has been scouring Ireland in the wake of western Europe’s biggest real estate crash in 2008. The firm has sought assets being sold by Allied Irish Banks Plc (ALBK) and Lloyds Banking Group Plc and was among three companies that won the bidding for $9.2 billion of U.S. loans sold by IBRC in 2011.

    Note that, while Lone Star is the leading buyer of bad debt from the Anglo Irish implosion, it’s certainly not the only fund giant with a big appetite for “bad bank” assets. Massive discounts are a great appetizer everyone loves:

    Irish Times
    Pimco seeks Nama’s €4bn Northern Ireland property portfolio
    Robinson believed to be supportive of private equity bid for loan book

    Thu, Feb 13, 2014, 01:00

    First published: Thu, Feb 13, 2014, 01:00

    Pimco, the global asset management giant with close to $2 trillion under management, has approached the National Asset Management Agency to buy its entire €4 billion loan portfolio in Northern Ireland.

    The international investment giant is also understood to have made it known to senior politicians in the North in recent months that it was interested in acquiring outright Nama’s northern portfolio.

    The approach, which has been quietly in the works since before Christmas, could trigger a bidding war for Nama’s NI property portfolio among a select number of the world’s largest property funds.

    Although Nama’s loans have a face-value of €4 billion it is thought likely only to be worth around €1 billion if put on the market in part because of the amount of development land in its portfolio. Pimco appointed Laurent Luccioni as head of commercial real-estate portfolio management Europe last year.

    Mr Luccioni did not return calls for comment.

    Pimco has previously acquired a number of assets in the Republic, including 25 properties developed by Liam Carroll in a joint venture with Brehon Capital Partners, which it acquired from Lloyds bank.

    In a statement Nama said: “Nama constantly reviews its portfolio to assess opportunities for maximising returns from loans or assets within the portfolio.

    “In addition, it frequently receives approaches from investors expressing interest in acquiring loans or assets in its portfolio and reviews such approaches on an ongoing basis.” It declined to respond further.

    Northern Ireland’s First Minister Peter Robinson is believed to be supportive off a private equity bid for Nama’s Northern Ireland loan book. “The creation of Nama and its implications for Northern Ireland have been far reaching,” he said at a DUP event last September.

    “Holding on to assets to realise their value in their long term does little to boost our economy right now,” he added.

    “If these assets could be liberated then there is no doubt that they could play a major role in creating jobs in the construction sector and getting our economy moving.”

    Ah, so the government of Ireland is intentionally planning on selling off their distressed portfolios and throwing away those potential long-term returns in rising property values in the hopes that by handing off that long-term profit potential to the vulture funds a short-term economic stimulus in the construction sector (of Northern Ireland, which is part of the UK and wouldn’t have had the same tax-payer involvement in the Anglo-Irish bailout) might get the economy moving again, thus realizing the conditions for the long-term recovery (Because heaven forbid that the ECB might actually provide the credit in the interim to allow Ireland to realize those gains). That makes sense. For Pimco Cerberus:

    CoStar’s Finance Blog
    Cerberus beats PIMCO to win NAMA’s Project Eagle
    Posted on April 4, 2014 9:40 am by James Wallace

    Cerberus Capital Management has beaten PIMCO to win NAMA’s entire loan book of Northern Irish borrowers, in the biggest single loan portfolio trade agreed by Ireland’s bad bank.

    CoStar News understands that Cerberus has agreed to acquire the £4.5bn nominally valued Project Eagle loan portfolio for above £1bn in cash, in line with previous reports estimations.

    Project Eagle is secured by approximately 850 properties across Northern Ireland, the rest of the UK and the Republic of Ireland with all borrowers originating from Northern Ireland.

    NAMA’s agreement with Cerberus to close a clean trade, rather than broker a joint venture arrangement like the bad bank’s Project Aspen loan portfolio sale to Starwood Capital, is notable.

    While the deal prevents Ireland’s bad bank from benefiting from any of the upside created through Cerberus’ varied business plans across Project Eagle, NAMA has unlocked the stagnant Northern Ireland real estate market in a single trade which will trigger subsequent future transactional activity in the months and years ahead.

    Ooooo…”NAMA has unlocked the stagnant Northern Ireland real estate market in a single trade which will trigger subsequent future transactional activity in the months and years ahead”. Translation: this fire sale will trigger future fire sales. Get excited folks! The Golden Age is just around the corner!

    Posted by Pterrafractyl | April 9, 2014, 10:00 am
  17. Austerity addiction destroys lives. Just ask the ex addicts at the IMF:

    The Week
    Austerity junkies are murdering Europe — and it might not be worth saving
    The European Union is looking pretty doomed
    By Ryan Cooper | June 3, 2014

    The shared currency of the Euro was supposed to be part of a new European fabric uniting the continent in economic prosperity and liberal-democratic values. It has turned out to be an economic straitjacket.

    The problem with the Eurozone is that the nations thereof ceded their monetary sovereignty to a central bureaucracy over which they have no democratic influence, and which has no policy responsibility other than to keep inflation low. In the United States, by contrast, we have a fiscal union (a single tax-collecting and spending authority) and a banking union, in addition to a single currency. This greatly helps cushion shocks and ameliorate the conditions of depressed regions.

    The Eurozone has neither of these things, but their economic elite has chosen much worse policy than one would have predicted from optimal currency area theory. Who are we talking about here? Mostly the top leadership of the European Central Bank, the European Commission, and their political handlers in the inflation-crazed German government. The International Monetary Fund, on the other hand, which while it has been part of the dread “Troika” enforcing austerity across the continent, has become increasingly alarmed at the overall failures of Eurozone policy. This recent report by Kevin O’Rourke in an IMF quarterly puts the situation in dramatically stark terms:

    First, crisis management since 2010 has been shockingly poor, which raises the question of whether it is sensible for any country, especially a small one, to place itself at the mercy of decision makers in Brussels, Frankfurt, or Berlin. It is not just a question of hard-money ideology on the part of key players, although that is destructive enough. It is a question of outright incompetence…

    There are serious legal, political, and ethical questions that must be asked about how the ECB has behaved during this crisis —for example, the 2010 threat that if Dublin did not repay private creditors of private banks, the ECB would effectively blow up the Irish banking system (or, if you prefer, force Ireland out of the euro area)…it is not legitimate for an unelected central banker in Frankfurt to try to influence inherently political debates in countries like Italy or Spain, because the central banker is both unelected and in Frankfurt. [Finance and Development]

    The evolution of the IMF — which used to be, basically, the leg-breakers of international capital — has been a grim indication of just how jaw-droppingly awful Eurozone economic policy has been. It’s as if Pete Peterson joined the Socialist Party. Since the crisis of 2008, the Eurozone has been in one long and grim process of defining failure downward.

    “It’s as if Pete Peterson joined the Socialist Party”. You gotta dream.


    That an anti-Europe backlash should take root in France and the UK, both nations which are doing well compared to wrecked Spain and Greece, is perhaps not so surprising. Democracy is dead in the Eurozone periphery in many important respects. It’s now widely understood that these nations will not be allowed to deviate from preferred German/ECB economic policy; attempts otherwise will be met with a coup d’etat. France, by contrast, is still enfranchised, and the UK isn’t even on the Euro at all.

    That’s only part of the story, of course. Attachment to the Euro has proven unbelievably persistent, even in Greece. That combination of apocalyptically bad but hard-to-understand effects make poorly-integrated international currency areas, in my opinion, one of the worst ideas in history.

    In any case, as O’Rourke points out, the question now is whether the Euro is even worth saving at all. So far Eurozone elites have managed to muddle through on just about the worst of all possible courses, one which just barely prevents total collapse, but ensures a generation or more of utter economic misery in the periphery.

    …it is becoming increasingly clear that a meaningful banking union, let alone a fiscal union or a safe euro area asset, is not coming anytime soon. For years economists have argued that Europe must make up its mind: move in a more federal direction, as seems required by the logic of a single currency, or move backward?…The longer this crisis continues, the greater the anti-European political backlash will be, and understandably so: waiting will not help the federalists. We should give the new German government a few months to surprise us all, and when it doesn’t, draw the logical conclusion. With forward movement excluded, retreat from the EMU may become both inevitable and desirable. [Finance and Development]

    If “the leg-breakers of international capital” at the IMF have already rejected the very austerity policies that the IMF was instrumental in implementing, you have to wonder how much support the austerians have in the broader financial community these days. You also have to wonder how long the IMF can avoid temptation and stay on the wagon. It’s a bumpy ride

    Posted by Pterrafractyl | June 9, 2014, 8:19 am
  18. Well this is potentially significant: Remember how the ECB had been putting a refusing to release the notes on its meetings for 30 years but then eventually suggested that 30 years might be a bit extreme? It looks like that policy is about to change, although it won’t be the only change:

    European Central Bank to hold fewer meetings, publish minutes in bid for transparency
    Associated Press July 3, 2014 | 11:28 a.m. EDT

    By PAN PYLAS, Associated Press

    The European Central Bank is taking a leaf out of the Federal Reserve’s book and will, starting next year, set monetary policy every six weeks instead of every month and publish minutes to its deliberations.

    After the bank decided to keep its interest rates on hold Thursday, ECB President Mario Draghi told a press briefing the new timetable was not a sign the bank’s job in getting the 18-country eurozone back on track was done.

    He said a meeting every month can cause excess volatility in the markets as traders look for action that is not always merited by economic fundamentals such as growth and inflation.

    “Maybe we should move to a 6-month schedule,” he quipped.

    Though Draghi insisted that the ECB would not be synchronizing its meetings with the Fed, their timetables are now very similar. The Fed meets eight times a year, usually every six weeks.

    The minutes are also a big development, as they will shed more light on policymakers’ thinking and bring the ECB in line with most other major central banks. More transparency from the ECB has been a demand of many in the financial markets over the past few crisis-filled years.

    Marc Ostwald, a senior strategist at ADM Investor Services International, noted that the publication of the minutes may however undermine Draghi’s aim to have less market volatility around the ECB.

    “With 8 meetings a year and an additional 8 meeting minutes release dates, the fact is that there will in principle be more, rather than less ‘event risk’ surrounding ECB policy,” he said.

    Since the ECB is in “wait and see before we do QE”-mode for the rest of the year, moving to meeting every 6 weeks probably won’t make much of a difference. But that “Maybe we should move to a 6-month schedule” comment? Presumably that was a joke…unless…

    Another question remains over whether or not the past meetings that haven’t been release yet will also get released on a sped up schedule. And what about the release of secret deliberations that didn’t necessarily take place at the scheduled meetings. That could be helpful too. Oh so helpful.

    Posted by Pterrafractyl | July 3, 2014, 10:09 am
  19. More beatings are clearly the solution:

    Irish Poster Child Turns Rebel Defying IMF Austerity Cuts
    By Dara Doyle Jul 14, 2014 6:00 PM CT

    For Ireland, the model of European austerity measures, the pain is almost over, at least as far the government is concerned.

    Finance Minister Michael Noonan penciled in another 2 billion euros ($2.7 billion) of tax increases and spending cuts next year as he narrows the budget deficit to below 3 percent of gross domestic product, a criterion for European Union members. Defying International Monetary Fund advice to stick with the plan, Noonan now says that target can be reached by doing less.

    The Irish have endured 30 billion euros of austerity since 2008. With bond yields plunging, economic growth accelerating and two years until the next election, Noonan is facing political pressure to take his foot off the pedal. This month, he urged the EU to ease budget rules, while the government laid out plans to cut income taxes.

    “An end to austerity is in sight,” said Fiona Hayes, an analyst at Cantor Fitzgerald LLP, a Dublin-based primary dealer in Irish debt. She expects budget measures will be about half of what was planned, or 1 billion euros.

    On July 11, as the government sought to arrest a slide in its support, Prime Minister Enda Kenny promised to cut the 52 percent tax rate on “low- and middle- income earners” over a number of budgets, increase access to subsidized childcare and eliminate doctor’s fees for the elderly.

    A day before, Ireland sold 500 million euros of 10-year bonds, even as banking stocks and the bonds of Europe’s most indebted nations extended declines after a parent of Portugal’s Banco Espirito Santo SA missed payments on some securities. The Irish bonds yielded 2.32 percent, down from 2.73 percent at a similar auction in May and a peak of 14.2 percent in July 2011.

    Buffer Zone

    Last month, Craig Beaumont, the IMF’s mission chief to Ireland, said the Washington-based fund favors sticking with the planned cuts to protect the country’s “hard-won” credibility, regardless of the nation’s growth prospects.

    “If growth turns out to be very strong, the deficit will come in under ceiling, so there is a healthy buffer helping to get closer to the medium term goal of budget balance,” he told reporters on June 18. “If growth turns out to be very weak, it may be the case that the deficit ceiling is not quite met.”

    Accelerating economic growth is giving Noonan some breathing room. Gross domestic product rose 2.7 percent in the first quarter, the most since the end of 2012, the country’s statistics office said this month. The economy grew 4.1 percent from the year earlier.

    Creating Jobs

    With companies ranging from Airbnb Inc. to PayPal Inc. creating jobs in Ireland, employment is growing and the government’s finances are improving. In the first six months of the year, the deficit shrank to 4.9 billion euros from 6.6 billion euros a year earlier.

    “Irish budget execution has been solid throughout the country’s troika program,” Lefteris Farmakis and Pooja Kumra, analysts at Nomura International in London wrote in a note. “2014 is no exception.”

    Noonan took the fight to Europe last week, calling for some flexibility in fiscal rules. German Finance Minister Wolfgang Schaeuble said that “structural reform is not an excuse or an alternative for ongoing fiscal consolidation.”

    “Unsurprisingly, the idea of budgetary flexibility is meeting resistance particularly from the core European countries,” said Juliet Tennent, an economist at Goodbody Stockbrokers in Dublin. “However, the growth versus austerity debate looks set to continue.”

    Yes, the “growth versus austerity debate” looks set to continue. But not for Ireland. Merkel’s economics spokesman, Joachim Pfeiffer, just announced that it is unlikely that Ireland will be allowed to write off any of the bad debt the country acquired when it nationalized Ireland’s largest private lenders. He also announced that any easing up on the austerity (although he says he doesn’t like that word), should be avoided.

    In addition, in a surprise move, Pfeiffer announced that he’s actually quite fine with Ireland’s extremely low corporate tax and that he’s not really interested in the goal of tax policy “harmonization” anymore, which is a major reversal from Merkel’s past stances on this topic. Instead, he’s in favor of tax “competition”. While the timing of “harmonizing” Ireland’s low taxes corporate taxes with the eurozone was always going to be tricky, the idea that you shouldn’t have tax-haven members in your new super-state is probably one of the better ideas in Merkel’s vision for a United States of Europe. But it looks like that might have been excised from the vision over. So it’s looking like the prescription from Team Merkel is, as usual, more austerity, but now with a tax-base race to the bottom too:

    Irish Independent
    ‘Anstrengen’ – more cuts says Merkel’s economist
    Sarah McCabe

    Published 27/07/2014|00:00

    Ireland must continue to impose austerity policies, one of Germany’s most powerful politicians has urged.

    Dr Joachim Pfeiffer, economics spokesman for Angela Merkel’s ruling Christian Democrat party, rejected assertions that Ireland can avoid one last austerity budget.

    He said the country “still has work to do”.

    Mr Pfeiffer was in Dublin last week for a brief visit hosted by the German-Irish Chamber of Commerce, in which he met Taoiseach Enda Kenny, senior executives from Nama and also with Bank of Ireland chief executive officer Richie Boucher.

    EU fiscal targets require another €2bn of cuts in Budget 2015, but debate is growing as to whether ?these are really necessary. Many Opposition politicians have argued that the country’s economic recovery is strong enough to meet the targets without cuts, that improving tax returns will bring the budget deficit below the required 3pc without the need to curtail spending.

    “I’m not going to advise other governments on ?what to do – but we all signed the Stability and Growth pact and said we wanted to balance our budgets,” says Dr Pfeiffer. “Your deficit is still at around 5pc so I think it is necessary to keep on track to reach the 3pc.”

    “We should not only write it on paper, we should follow it. I think there is still work to do on this 3pc.”

    While he says he does not like the word “austerity”, Mr Pfeiffer said balancing budgets and reducing debt is a pillar of Europe’s economic reform.

    “Our main goal in Germany is always to stop and reduce debt. All expenditure is related to this” he said.

    “I encourage you to keep on track, not to stop too early because things are going well. I urge you to anstrengen,” he said, using a German word which means ‘to exert oneself’ or try very hard.

    Mr Pfeiffer hit the headlines on Friday when he similarly poured cold water on hopes that Ireland will get some or all of its legacy bank debt covered by the new European Stability Mechanism.

    “The European Stability Mechanism was created to resolve the problems of the future, not the past,” he said.

    In a surprise move, Germany’s most influential economist added that he did not have a problem with Ireland’s controversial 12.5pc corporation tax regime.

    “I don’t think it’s a good idea to harmonise taxes across Europe” he said. “I’m always in favour of competition”.

    But Ireland can better defend its tax regime if it resolves its debt problem without outside intervention, he said.

    “If you say you are going to clean up the mess and resolve your problems yourself, it is absolutely right to insist on keeping a competitive edge on the tax side,” he said.

    Ireland has chosen to raise tax revenues in other ways, he added, such as introducing a property and water tax.

    Reflecting on Europe’s position on the global stage, he urged European solidarity and warned against nationalism.

    “If we want to play a key role in the 21st Century it needs to be as Europe – not as Ireland or as Germany”.

    Notice how Pfeiffer continues to employ the bizarro-world discredited reasoning that cutting spending in the face of deep recession is the only possible path to dealing with Ireland’s deficits.

    EU fiscal targets require another €2bn of cuts in Budget 2015, but debate is growing as to whether ?these are really necessary. Many Opposition politicians have argued that the country’s economic recovery is strong enough to meet the targets without cuts, that improving tax returns will bring the budget deficit below the required 3pc without the need to curtail spending.

    “I’m not going to advise other governments on ?what to do – but we all signed the Stability and Growth pact and said we wanted to balance our budgets,” says Dr Pfeiffer. “Your deficit is still at around 5pc so I think it is necessary to keep on track to reach the 3pc.”

    While he says he does not like the word “austerity”, Mr Pfeiffer said balancing budgets and reducing debt is a pillar of Europe’s economic reform.

    “Our main goal in Germany is always to stop and reduce debt. All expenditure is related to this” he said.

    All expenditure cuts assist in stopping in reducing debting. This is still the inviolate stance taken by Berlin years into this crisis even after major austerity fetishist like the IMF rebuked the idea they once championed. If the IMF wasn’t still advising Ireland to stick to the austerity, it would be pretty pretty amazing to see this position still being put forth by major policy-makers like Preiffer with a straight face. Instead, it’s just depressing.

    In other news, check out the fun tax/deficit debate in Spain between the government and the IMF: Lowering corporate and income taxes vs raising the consumption taxes for everyone else. Or how about both.

    Posted by Pterrafractyl | July 26, 2014, 7:43 pm
  20. The more the merrier? Not in the eurozone:

    Outrage as we lose our ECB automatic voting rights
    It marks further loss of sovereignty

    Daniel McConnell

    Published 10/08/2014 | 00:00

    Ireland will lose its automatic voting rights at the Governing Council of the European Central Bank (ECB), the Sunday Independent can reveal. The Central Bank has confirmed that the loss of our permanent vote at ECB council level is imminent as a result of a change in voting structures caused by the entry of Lithuania into the Eurozone from January 1 next year.

    From the beginning of next year Ireland will be relegated to the second tier of smaller Eurozone countries, which will have less voting rights than the five biggest countries sitting on the council.

    Fianna Fail last night described the move, which represents a further loss of sovereignty, as a “bad day for Ireland” and said it “nails the myth” that all Eurozone countries are equal.

    The council, on which Irish Central Bank Governor Patrick Honohan represents Ireland, dictates an enormous amount of our fiscal and economic policy.

    The arrival of Lithuania will bring the number of Eurozone countries to 19. As there can only be 15 votes the Eurozone will move to a two-tier system. Five of the largest countries will form Group One and the remaining 14 countries, including Ireland, will form Group Two. Group ?One will share five votes in rotation while Group Two will share 11 votes in rotation.

    Fine Gael MEP Brian Hayes, who is Ireland’s only representative on the powerful Economic Committee of the European Parliament, has written to ECB President Mario Draghi seeking assurances that Ireland’s status will not be diminished.

    Mr Hayes told the Sunday Independent: “It is very important that we do not create a second-class membership of the ECB under the new system. It is important for all countries big and small to have an input into the decision-making process.

    “We have to be cautious and ensure that smaller countries, like Ireland, don’t lose out in any way and that our influence is maintained.”

    Mr Hayes said Ireland could find itself on the “wrong side” of the ECB’s monthly decisions on key monetary decisions, such as interest rates He also warned Ireland could be excluded from ECB voting for four months a year if the Eurozone expanded further.

    Mr Hayes added: “I have written to Mario Draghi seeking assurances that in no way will Ireland’s influence be reduced because of this. We have to manage this and it is up to me and other MEPs to ensure this doesn’t happen.”

    Opposition parties last night condemned the latest blow to Ireland’s sovereignty.

    Fianna Fail finance spokesman Michael McGrath told the Sunday Independent: “This move nails the myth that all Eurozone members are equal. It has been clear for quite a number of years that the ECB’s policy has been dictated by the economic needs of France and Germany. That position has now been formalised. This represents a diminution in Ireland’s voice at the ECB Governing Council table. It can have ramifications when decisions are being taken on interest rates to suit the larger economies in Europe.”

    Mr McGrath said the new rules formalised the position that members of the Eurozone are not equal and our influence at ECB level was now being diminished.

    “It is a sad day for Ireland and could have lasting negative consequences,” he said.

    “It does open the appalling vista that when important decisions are being made concerning Ireland we will not have a vote.

    “It represents a further departure from the spirit of the EU model that all states are equal. That fundamental principle has been breached and is now being formally enshrined in the ECB’s practices. I do not see why each Eurozone country can’t remain equal having a vote on each decision.”

    Posted by Pterrafractyl | August 9, 2014, 6:05 pm
  21. Regarding the reduced ECB voting rights that a set to kick in with the joining of Lithuania as the 19th eurozone member, it’s worth noting that the rights get reduced once again with a third, lower tier of eurozone set to be created once the number of members exceeds 22. And given the planned joining of Romania in 2019 along with a number of other nations still aspiring to join in the future, it would seem that a three-tier ECB governing council is just a matter of time:

    Irish Times
    ECB voting rights change is democracy, but not quite as we know it
    Insecure about the Republic’s reduced voting rights? Get used to it

    Tue, Aug 12, 2014, 01:00

    It is democracy at the ECB, but not quite as we know it, or perhaps as we would like it to be. From January, the Republic will be among a group of 14 smaller euro zone states to vote on interest rate decisions less often than a group of five bigger states.

    The idea is that as the euro area expands, the ECB needs to maintain some kind of order in how it agrees its key policies, so it can’t let everybody vote all the time. The principle makes sense, as does the fact that it will kick in when Lithuania brings the number of euro zone states to 19 at the start of next year.

    The ECB makes no pretence about the issue, baldly stating that “euro-area countries are divided into groups according to the size of their economies and their financial sectors”. No prizes then, for guessing that the Republic falls outside the top five states including Germany that will share four votes between them.

    Instead, we get to share 11 votes between ourselves and 13 of our pals, including Lithuania. Don’t worry though, the ECB promises that we will still get to speak and be heard at meetings and points out that most decisions are made by consensus anyway. Hmmm – given that holding an actual vote has rarely got us the interest rate the Irish economy has needed, it is hard to see how making a speech might manage it.

    Then there is the matter of what happens if and when more countries join the euro. After Lithuania, Romania is due to sign up in 2019, with other states including Croatia, the Czech Republic, Hungary and Poland waiting in the wings. If the total membership exceeds 22, smaller countries will get squeezed even more as member states are divided into three groups with diminishing voting rights.

    Feeling monetarily insecure? It might be a good idea to get used to it.

    And here’s a bit more on what that three-tier structure will look like:

    A voting rotation system by groups

    As from the date on which the number of members of the Governing Council exceeds 21, the voting arrangements will be adjusted.

    The total number of voting rights is thus limited to 21. The six members of the Executive Board will continue to have permanent voting rights. The governors will share the remaining 15 voting rights, which will rotate among them.

    Governors are therefore allocated to groups which will differ with respect to the frequency with which their members have voting rights. The groups will be formed in accordance with a ranking of Member States and national central banks. This ranking will be based on:

    * the share in the aggregate gross domestic product at market prices (GDP mp) of the Member States in the euro area;
    * the share in the total aggregated balance sheet of the monetary financial institutions of the Member States in the euro area.

    These indicators will ensure objectivity since they are the most objective reflection of the size of the overall economy and recognise the specific relevance of the financial sector of the participating Member States.

    Furthermore, this Decision provides for the voting rotation system to be implemented in two stages.

    Stage one: Voting rights when the number of governors exceeds 15

    As from the date on which the number of governors exceeds 15, and until it reaches 22, the governors will be allocated to two groups. The first group will be composed of the five governors of the national central banks of the Member States with the biggest shares in the euro area total according to the indicators described above. The second group will be composed of all the other governors.

    The five governors in the first group will share four voting rights and the remaining governors in the second group will share 11. The governors in the first group cannot have lower voting frequencies than those in the second group.

    Stage two: Voting rights when the number of governors exceeds 22

    As from the date on which the number of governors exceeds 22, the governors will be allocated to three groups. The first group will be composed of the five governors of the national central banks of the Member States with the biggest shares in the euro area total. The second group will be composed of half the total number of governors. Governors in this group will come from the national central banks of the Member States holding the subsequent positions in the country ranking based on the above criteria. The third group will be composed of all the other governors.

    Four voting rights will then be assigned to the first group, eight to the second and three to the third. When there are 27 euro area Member States, the voting frequency of the first group will be 80 %, that of the second 57 % and that of the third 38 %.

    Within each group, the governors will have their voting rights for equal amounts of time. The Governing Council will take the operational measures necessary for the implementation of this principle.

    Adjustment to economic developments and future changes

    Whenever the number of governors increases, or at each adjustment of aggregate GDP mp (required every five years), the composition of the groups will be adjusted in line with any changes. Any such adjustments will apply as from the day on which the governor(s) join the Governing Council.

    Any decision which is necessary to implement the operational details of the rotation system will, with the exception of the new voting arrangements, be adopted by all members of the Governing Council, irrespective of whether or not they hold a voting right at the time of the decision, by a two-thirds majority.

    Posted by Pterrafractyl | August 12, 2014, 1:59 pm
  22. Here’s a fun riddle: If you can borrow for free, but aren’t free to borrow, where are you?

    Here’s a hint: It’s the same place where bad news is good news.

    The answer: You’re in the eurozone!

    Draghi’s Bond Rally Means Bailed-Out Ireland Can Borrow for Free
    By Lucy Meakin and Eshe Nelson Sep 5, 2014 4:09 AM CT

    Four years ago, Ireland had to be bailed out by its European Union partners. Today investors are paying to lend it money.

    Ireland joined nations from Germany to Austria and Finland as its two-year note yield dropped below zero for the first time. Irish 10-year bond rates also dropped to record lows along with Italy’s after European Central Bank policy makers yesterday cut their key interest rate and signaled at least 700 billion euros ($906 billion) of aid to support the flagging euro-zone economy. A report today confirmed the region’s economic recovery ground to a halt in the second quarter.

    Negative yields reflect “ECB policy but also reflect a mounting belief in the lack of positive prospect for the European economy,” said Luca Jellinek, head of European rates strategy at Credit Agricole SA’s investment banking unit in London. “This is good news for the periphery.”

    Ireland’s two-year yield fell two basis points, or 0.02 percentage point, to 0.004 percent at 10:04 a.m. London time after dropping to minus 0.004 percent, the least since Bloomberg began collecting the data in 2003. The 4.6 percent note due April 2016 rose 0.015, or 15 euro cents per 1,000-euro face amount, to 107.365.

    A negative yield means investors buying the securities will get less back than they paid when the debt matures.

    Yield Surge

    The two-year yield surged to as high as 23.503 percent in July 2011, less than a year after the nation sought a 67.5 billion-euro bailout as its banks came close to collapse in the wake of western Europe’s worst real-estate market bust.

    Two-year rates are also negative in Austria, Belgium, Finland, France, Germany and the Netherlands, as well as non-euro nations Denmark and Switzerland, according to data compiled by Bloomberg.

    Ok, the question wasn’t really much of a riddle. The answer, on the other hand…

    Posted by Pterrafractyl | September 5, 2014, 7:22 pm
  23. Woah, is that economic good news emerging from Ireland? <a href="http://www.irishexaminer.com/business/rise-of-up-to-20-in-manufacturing-output-forecast-285263.html"That's what the numbers say:

    Irish Examiner
    Rise of up to 20% in manufacturing output forecast
    Saturday, September 06, 2014

    By Geoff Percival

    Production from Ireland’s manufacturing industries is expected to rise by as much as 20% this year, on the back of the strongest monthly growth data for 15 years.

    Such a strong annual rise would follow on from a 2.1% decline in 2013.

    Latest industrial production figures from the CSO, published yesterday, show a near 13% month-by- month rise in July and an almost 20% increase on a year-on-year basis.

    “Based on the figures up to July and on the strong PMI [purchasing managers’ index] data, we are now looking for manufacturing output for the year as a whole to be around 20% higher than 2013, following a decline of 2.1% last year,” Alan McQuaid, chief economist with Merrion Stockbrokers commented.

    Predictably, the pharmaceutical, hi-tech, multinational-led “modern sector” led the way, with a monthly increase in production of 11.4%.

    However, the domestic -led “traditional sector” also saw a 4.7% month- on-month output rise and was up 6.5% on a year-on- year basis — its fourth consecutive annual rise.

    “The improvement in the UK economy and recovery in sterling are clearly a positive development on this front. And the good news is that the outlook for the UK economy over the next 12 to 18 months looks very strong,” according to Mr McQuaid.

    The “modern sector” is still likely to drive Irish manufacturing growth for the foreseeable future and this sector’s prospects look good, he stated.

    “With the global economy set to gather speed, demand for Irish goods in general should start to pick up. Ireland is better placed than most to take advantage of an upturn in the world economy.

    Good news indeed! With this spike in manufacturing and tax revenues Ireland’s austerity regime might ease up a bit. It’s interesting, though, that Ireland’s economy is picking up right when the rest of the eurozone is once again falling into stagnation and near deflation. The relatively strong trading ties to North America is certainly a factor. But when your read things like

    Predictably, the pharmaceutical, hi-tech, multinational-led “modern sector” led the way, with a monthly increase in production of 11.4%”…

    The “modern sector” is still likely to drive Irish manufacturing growth for the foreseeable future and this sector’s prospects look good, he stated.

    it’s difficult to avoiding concluding that maybe that sudden economic uptick involves a race to the bottom. Not the austerity-driven race to the bottom that elites love to champion as the cure-all for everything but a different kind of race to the bottom that elites also love to embrace as the other cure-all for everything:

    Finfacts Ireland
    The idiot/ eejit’s guide to distorted Irish national economic data
    By Michael Hennigan, Finfacts founder and editor
    Sep 5, 2014 – 6:16 AM

    “What the experience of the last two years shows is that the standard EU harmonised national accounts are not a satisfactory framework for understanding what is happening in the Irish economy,” Prof John Fitzgerald of the Economic and Social Research Institute (ESRI) wrote last April. Our idiot/ eejit’s guide covers such technical issues but also the collateral damage in a system addicted to spin and an economic crash that followed a period when delusions of Irish policy makers were sustained by foolish international observers who lauded Ireland for its miracle economy.

    Foreign-owned firms, mainly American, are responsible for about 90% of Ireland’s headline tradeable exports while Ireland’s national accounts for 2014 will incorporate the financials of mainly American brass-plate companies that have become “Irish” for tax purposes in a process known as a “tax inversion”– – their payrolls exceed 600,000, almost quadruple direct employment in exporting FDI (foreign direct investment) firms – – US-Ireland Tax Inversions 600,000+ staff: Kenny, Noonan met with top US corporate lawyers

    The distortions caused by the foreign-owned exporting sector (FDI – foreign direct investment) including massive tax avoidance, are not only used for political effect when it suits at home but also data that are provided to international bodies such as the European Commission, Organisation for Economic Co-operation and Development and the International Monetary Fund, or misunderstood by them, are in turn used with the apparent international validation.

    This week a newspaper reader would have encountered reports that 1) Irish manufacturing is back to the period of surging growth in 1999; 2) services activity is back to February 2007, the month when Irish bank shares hit all-time record highs; 3) Google Ireland was declared ‘Exporter of the Year’ by the Irish Exporters Association which said: “Google’s export turnover increased by 36.5%, from €12.5bn in 2013 to €17bn in 2014” (should be 2012 to 2013).

    Google Ireland’s revenues amounted to 39% of global revenues and payroll numbers in Ireland and UK were respectively at 2,368 up from 2,200 in 2012 and 1,835 in 2013, up from 1,613 in 2012 – – Google Inc. had a global payroll of 43,862 (ex-Motorola) at end 2013.

    This is fairytale economics: Most of Google’s Irish exports result from accounting transactions at its headquarters in Mountain View, California.

    The following are some of the durable economic fairytales:

    1) GDP per capita: The Irish are among the wealthiest in the EU 28 (European Union) with the fifth highest per capita gross domestic product – – the data are true but in the real world, we are among the poorest with the Italians and Spanish in the 18-member country Eurozone;

    2) PMI surveys: The purchasing managers index (PMI) anecdotal surveys get media attention as they are available in advance of official data, which has been more muted compared with the PMI headlines. We cover the issue in more depth below but the surveys relate to one month’s level of sentiment not on the actual level of activity over time.

    Is manufacturing back to the 1999 level?

    According to the CSO (Central Statistics Office) employment in industry was at 310,000 in late 1999; 320,000 in 2000, 285,000 in 2007 and 236,000 in Q2 2014 – – and down 2,000 in 12 months.

    The orders of the biggest services companies e.g. Google, are booked in Ireland for tax purposes. So when they report a 36% rise in business in a year, it messes up the data.

    3) Productivity/Unit labour costs: In April 2013 in a speech in Amsterdam, Mario Draghi, ECB president, said on the reduction in unit labour costs: “Ireland has seen an 18 percentage point improvement relative to the euro area average.”

    The Department of Finance’s claim here [pdf; page 11] that a “continued competitiveness boost through reduction in unit labour costs with a 21% relative improvement forecast against the Eurozone average,” is hugely misleading – – the average hourly labour cost covering all sectors of the economy other than ‘Agriculture, forestry and fishing’ was €25.03 in the first quarter (Q1) of 2008 and €24.89 in Q2 2014.

    Tax-related fake output reduces unit labour costs and 700 workers at Microsoft can produce 25% of its global revenues while the other almost 100,000 workers produce 75%.

    In 2010, Patrick Honohan, Central Bank governor and a former professor of economics, warned about the use of Irish unit labour costs by “superficial analysts”:

    There are knock-on effects of the distinctive globalized structure of the Irish economy on other accounting measures of performance. With the structural shift towards high-productivity sectors during the 1990s and again since 2007, unit labour costs tend to fall even if wage costs for any individual firm or industry are increasing. Because of this shifting composition effect, as has been well-known for decades, but is routinely forgotten by superficial analysts, unit labour costs are a false friend in judging competitiveness developments for Ireland.”

    4) Exports: Ministers commonly conflate exports by foreign firms into global supply chains with indigenous exports to customers that have to be won, to gloss up the narrative but this posturing from Dublin makes the hard slog of developing export markets seem relatively easy.

    We estimate that almost half the €92bn in 2013 services exports were tax-related or fake. However, the official position is that rising computer services exports reflect improved “competitiveness.”

    Irish Economy: Ireland’s ephemeral services export boom (the CSO made some slight adjustments to the 2013 data in late June)

    Forty American firms account for two-thirds of Irish exports

    Well, at least Ireland’s austerity might ease up a bit, but we shouldn’t kid ourselves about whether or not Ireland’s uptick represents a validation of racing to the socioeconomic bottom as a policy for national renewal or a model for long-term prosperity. Just as the whole world can’t become export-heavy high-tech powerhouses unless we start exporting to E.T., the whole world can’t all become international tax-havens either unless, of course, E.T. needs somewhere to park its cash from the Intergalactic Revenue Service. Maybe the planet should develop an economic paradigm that doesn’t require an alien intervention.

    Posted by Pterrafractyl | September 6, 2014, 5:36 pm
  24. “At the time, the eurozone authorities were determined to protect senior bondholders from losses in order to preserve confidence in the European banking system, a policy that was reversed in other cases as the debt crisis wore on.

    But the handling of the crisis by eurozone officials remains highly contentious. Simon Tilford, deputy director of the Center for European Reform in London, said it was “shocking” to see so little acknowledgment from the president of the E.C.B. that the eurozone creditors who financed Ireland’s property bubble bore some responsibility for the crash.”

    That pretty much summarizes the following article:

    The New York Times
    E.C.B. Threatened to End Funding Unless Ireland Took Bailout, Letters Show


    LONDON — Newly released documents suggest that Ireland was pressured into a controversial 67.5 billion euro bailout that left taxpayers rescuing crippled banks, reigniting a fierce debate about the international aid that Dublin accepted after the financial crash.

    An exchange of letters, released by the European Central Bank after one was published by The Irish Times, show how Ireland’s government was left with little alternative but to apply for the bailout, which amounted to $84.5 billion and led to sweeping cuts in public spending and years of austerity.

    The documents, dating from 2010, also show the European Central Bank’s role in determining the scope of the aid program. One indicates that the central bank, based in Frankfurt, threatened to cut off emergency support for Ireland’s failing banks unless the country applied for an international rescue.

    At the time, the eurozone authorities were determined to protect senior bondholders from losses in order to preserve confidence in the European banking system, a policy that was reversed in other cases as the debt crisis wore on. That specific issue was not referred to directly in a letter written by Jean-Claude Trichet, who was then the president of the European Central Bank, to Brian Lenihan, who was the Irish finance minister at the time and died in 2011. The letter was sent two days before Ireland sought its bailout from the European Union and the International Monetary Fund.

    Mr. Trichet wrote that the position of the central bank’s governing council was that it was “only if we receive in writing a commitment from the Irish government” to seek international assistance “that we can authorize further provisions of E.L.A. to Irish financial institutions.” He was referring to Emergency Liquidity Assistance.

    Ireland’s request should include a commitment to undertake “decisive actions in the areas of fiscal consolidation, structural reforms and financial sector restructuring” in agreement with international partners, the letter added.

    An earlier letter from Mr. Trichet referred to the “extraordinarily large provision of liquidity by the Eurosystem to Irish banks in recent weeks.”

    Mario Draghi, Mr. Trichet’s successor at the central bank, defended its actions at a news conference on Thursday.

    “The decision to ask for a program was the government’s,” Mr. Draghi said. “It was not the E.C.B. forcing the government to do this.”

    Brian M. Lucey, professor of finance at Trinity College, Dublin, said the letter showed that the European Central Bank was more involved in the details of the bailout than he expected and that “they were trying to make things up as they went along — there were no clear rules.”

    The fact the bank was “throwing its weight around” did not help the image of the bailout, Professor Lucey said, adding that while most Irish citizens accept that Ireland made big mistakes, they resented the shape of the rescue.

    The European Central Bank or the bondholders of crashed Irish banks should have borne some of the financial pain, Mr. Lucey added.

    “History will judge this as having been the wrong decision,” he said. “At some point, the burden should have been spread and it wasn’t.”

    In a statement on Thursday, the E.C.B. defended its actions.

    “It was not the letter that ‘pushed Ireland into a program’ as is sometimes claimed,” the statement said. “It was the scale of the domestic crisis that made it necessary for Ireland to apply for an E.U./I.M.F. adjustment program.”

    But the handling of the crisis by eurozone officials remains highly contentious. Simon Tilford, deputy director of the Center for European Reform in London, said it was “shocking” to see so little acknowledgment from the president of the E.C.B. that the eurozone creditors who financed Ireland’s property bubble bore some responsibility for the crash.

    “Most people that think objectively about the eurozone crisis now fully appreciate that the handling of this was deeply flawed, and that the Irish crisis could have been handled with less damage to the Irish economy,” he said.

    The Irish government said little on Thursday about the release of the letters, though Finance Minister Michael Noonan said they would be reviewed by a parliamentary committee looking into the banking crisis.

    Posted by Pterrafractyl | November 7, 2014, 11:54 am
  25. Ireland’s Agriculture Minister Simon Coveney recently caused a stir when he suggested that Ireland would seek a similar bailout renegotiation if Greece gets one. He also suggested that Greece should be allowed allowed to renegotiate its debt. A few days later, Ireland’s Minister of Finance, Michael Noonan, announced that the government hasn’t made a decided whether or not it will seek a renegotiation. The eurogroup flatly dismissed the idea.

    So will Ireland call for its own renegotiation if Greece is shown leniency? When you factor in the history of Ireland’s history of debt renegotiation requests in recent years coupled with the number of times Dublin has caved to Troika demands, the answer is a solid ‘maybe’:

    The Irish Times

    Ireland ‘will insist on similar deal’ if any secured by Greece
    Coveney says same rules must apply to Greece as to all other European Union countries

    Pamela Newenham, Suzanne Lynch

    Mon, Feb 9, 2015, 10:06
    First published: Mon, Feb 9, 2015, 09:38

    Ireland will insist that any new or better deal secured by Greece will also apply to Ireland, Minister for Agriculture Simon Coveney has said.

    Greek prime minister Alexis Tsipras yesterday ruled out requesting an extension of the Greek bailout when meeting his European counterparts at a summit in Brussels this week.

    Rather than an extension of the bailout when it expires on February 28th, Mr Tsipras reiterated his demand for a bridge programme to tide the country over until June, when a more long-standing loan arrangement can be established.

    He expressed confidence that agreement could be reached between Greece and its international lenders.

    Mr Coveney said the same rules must apply to Greece as to all other European Union countries.

    “What we would encourage Greece to do is exactly what Ireland has done. Which is to restructure and change the way that their debt is to be repaid so they can reduce that debt burden,” Mr Coveney said.

    “Ireland and other European countries will be looking for ways in which we can help Greece do that. But we have to make sure that the same rules apply to Greece as to everyone else”.

    Mr Coveney told RTE Radio One’s Morning Ireland programme that Ireland had shown there were ways to dramatically reduce debt burdens.

    “If there is anything else on offer for Greece well then Ireland is open to look at that but we will insist that any new or better deal applies to Ireland as well as Greece”.

    Around 80 per cent of Greece’s outstanding debt due to official creditors, mainly other euro zone countries. So member states, including Ireland, are unlikely to back any bid for a debt writedown.

    “If there is anything else on offer for Greece well then Ireland is open to look at that but we will insist that any new or better deal applies to Ireland as well as Greece”.
    Since a renegotiation of both Greece’s and Ireland’s debt would be fabulous to see, let’s hope Dublin can muster the strength to stand by Greece, as it sounds like Coveney is generally calling for. Although since Michael Noonan has already been accused of ‘stabbbing Greece in the back’ for his decision to ‘change tack’ and not support Greece’s requests for debt renegotiations, it’s not looking like Greece can depend on Dublin.

    It’s really too bad, and kind of sad:

    Irish Examiner
    Our debt burden is too onerous

    Friday, February 13, 2015

    By Jim Power

    Nearly three weeks after the election of the Syriza government in Greece, we are still no closer to understanding how the Greek situation is going to unfold, writes Jim Power.

    Last week, the ECB threw a spanner in the works when it declared that it would no longer be prepared to lend money to the Greek banks in return for the security of bonds backed by the Greek government.

    Strictly speaking, the ECB should not be allowed accept bonds that are below a certain credit rating as collateral for lending. Given that Greek bonds have junk bond status, this should certainly rule them out. However, the ECB has been prepared to accept Greek bonds because the government signed up to the terms of the bailout, just as we did back in 2011.

    Now, however, the ECB assumes that the new Greek government is not prepared to abide by the agreed terms, hence its dramatic actions last week. The Greek banks will still be able to borrow at higher interest rates from their own central bank under the emergency liquidity assistance arrangement, but the risk will not be borne by the ECB.

    Given the very justifiable loss of deposits in the Greek banking system in recent months, the banks certainly do need to borrow. Greek depositors remember what happened in Cyprus two years ago and are sensibly not prepared to take any undue risks with their money. This is a huge problem for Greece, whose bailout is due to end on February 28.

    That’s a good point: while we would expect a flight of deposits from Greek banks, just how much of the current flight is a consequence of the EU’s ‘Cyprus Surprise‘.


    If it is not able to borrow again, or more precisely, if it is not willing to borrow again, then it would appear to have little option than to default.

    Perhaps the ECB and its political masters will be prepared to swap Greek debt for debt that will be based on certain growth rates being achieved in the economy, but acceptance of this sensible scheme is far from certain, not least because if Greece gets such concessions, then every other country with unsustainable/dangerous levels of debt should be entitled to something similar.

    Simon Coveney was correct in his assertion that different standards should not be applied to Greece than to countries such as Ireland and Portugal who have gone through not too dissimilar economic and financial difficulties. It is a total mess, and logic would suggest that Greece’s time in the euro is limited.

    Greece would be better off exiting the system and allowing its exchange rate to depreciate sharply. It could then seek to rebuild a sustainable economic model based on sound principles. Finance minister Yanis Varoufakis should understand what this would entail. For the eurozone, getting rid of by far its weakest link would in theory be no bad thing. In reality it could be very dangerous.

    The whole euro project was a victory for politics over economics and it has been kept together by amazing political resilience and a belief in its irreversible nature. If Greece were to leave, this notion of irreversibility would be fundamentally altered and the future of the European Monetary Union could be nasty, brutish, and short.

    Meanwhile, the powers that be in the EU have explicitly ruled out any debt deal for Ireland. This is stupid.

    A recent report from McKinsey Global Institute showed that at 390% of GDP, Ireland has the second-highest level of debt of the 47 countries considered.

    Between 2007 and 2014, Ireland’s debt expanded by 172 percentage points, the highest growth rates of the countries considered. Government debt increased by 93 percentage points as a result of our generosity to bondholders; corporate debt increased by 90 percentage points; financial sector debt declined by 25 percentage points; and household debt fell by 11 percentage points.

    This deleveraging of household debt is obviously a factor depressing consumer spending. However, these statistics highlight the dangerously onerous debt burden that still afflicts the economy.

    However, our European partners do not appear to care. And as long as we are prepared to accept onerous personal taxes and quasi- Third World public services, why should they care?

    That’s a good question at the end: Why exactly should Ireland’s EU partners care about the insane debt burden imposed on Ireland as a result of the massive transfer of private debt (owed to foreign banks) onto the public as part of Ireland’s bailout when Ireland’s own government opposes any renegotiation of Greece’s debt or says any renegotiation must come with offsetting austerity string attached. It’s especially hard to know why Ireland’s Troika masters should care when you consider that insanity generally abounds in Ireland as elsewhere:

    The Irish Times
    Banking inquiry told guarantee decision was ‘insane’
    US expert William Black says penalties ‘must include jail’

    Tim O’Brien

    Thu, Feb 5, 2015, 20:03

    First published: Thu, Feb 5, 2015, 11:00

    Ireland made “an insane decision” in providing the bank guarantee in 2008, a US expert on the industry has told the banking inquiry.

    Professor William Black a former director of the Institute for Fraud Prevention the United States said bankers believed “not much of anything happens” by way of consequence for their actions. He said this was unlikely to change “until the next bubble happens”.

    Professor Black said the Irish Bank guarantee had been “the worst possible decision that could have been made” and “an attempt to bail out the German banks and that was never going to happen”. It was “the most destructive own goal in history” he said.

    He said the Government was essentially bullied into the guarantee on the bailout which was made on September 30 2008. “If the banks are lying to you and the regulators are utterly incapable” and the message is that “tomorrow the world ends unless you take this action, then you take that action”, he told TDs and senators.

    The academic from the University of Missouri – Kansas City also said banks should not be allowed to choose their own auditors.

    He said banks internationally had engaged in a “dog and pony show” in which audit firms would be brought in to bid for the work. Without being explicit, the auditors would show they were “the right kind” of firm.

    The expression in the auditing community when firms were appointed by a big bank, was that they “had caught a whale” he said.

    Professor Black said banks had engaged in essentially a “Ponzi system”. They would lend to a high risk applicant, setting a premium on the interest rate..

    So if the cost of a bank loan was 4 per cent, it could lend at 9 per cent, allowing the bank to report a profit or “spread” of 5 per cent, which amounted to 500 base points.

    The “right” auditing firm would view the spread as a “big, big, positive spread” and give the bank a “clean opinion”. When the borrower ran into difficulty the loan would be “rolled over”, or remortgaged, so starting a new loan.

    Professor Black said “if banks could choose” they would choose conservative auditors. But he said the auditors “were chosen by bankers who wanted a clean opinion” and could report large profits even if the loans should have been treated as a bad debt.

    The reported large profits would allow the senior executive bankers to “cash out” taking payments in the form of bonuses which were based on the volume of the banks business, rather than the quality of that business.

    But he said lower down workers in banks who made the actual deals over mortgages were often paid subsistence rates, with bonuses as little as five hundred dollars per year. When a dealer failed to make loans they were often humiliated by a cabbage being placed on their desks, he said..

    In response to questions from committee chairman Ciarán Lynch Professor Black said “you only get deterrents when you affect the senior executives who make the decisions”. He said his experience in the United Stated had shown “penalties have to include jail sentences for criminality”.

    As we can see, insanity abounds, and has abounded since the the crisis response first began back in 2008 the the ‘insane’ attempt to bailout German banks which the the Troika ‘bullied’ the government into doing. And now we have Dublin resisting any Greece’s calls for a relaxation of its austerity schedule (a schedule which is slated to make things much, much worse for Greece in the near future) because austerity was apparently so healthy for Ireland, while potentially calling, once again, for an easing of Ireland’s own debt burden that is still massively higher than before the Troika-mandated “bailout”.

    The particular circumstances that led to nations like Greece, Ireland, and Cyprus take on crisis-inducing amounts of public debt may have differed significantly, but all three share key factors: it was all done with the public having no meaningful say along with the complicity (and then eventual bullying) of the international community. Elite corruption and policy madness was used to justify right-wing policies after the predictable crisis. That’s what happened in all three cases.

    With Ireland we saw massive private debt (mostly real estate bubble debt) getting transferred onto the public and enforced by international community and it’s been pointed out that the private investors in the original real estate securities should have taken a haircut instead of the Irish public. Ireland is still screwed by its ongoing bailout terms but that can’t be admitted even when requests for Ireland’s own debt renegotiations are snuck into Dublin’s anti-alleviation policy stance.

    For Greece, it was crisis in public debt triggered by revelations that past debts were systematically hidden via Goldman Sachs’s helpful hidden actions.

    And in Cyprus’s case, it was large amounts of Greek debt held by Cyprus’s banks that went sour during the 2013 Greek debt crisis that led to the haircut on big depositors in Cyprus’s banks(which happened because of all the austerity). And, as suggested above, that big ‘haircut’ on big depositors might now being part of what’s driving the current run on Greek banks.

    As we can see, sometimes a haircut is in order, as was the case with Ireland’s private creditors before it was nationalized. Or, in the case of Cyprus, the haircut could have long-term repercussions that exacerbate a bad situation and is far more questionable in general since it was triggered by the 50% haircut imposed on Greek creditors. Not all haircuts are equal, and with Greece in the middle of a convincing game of chicken with the rest of the EU, we could end up seeing another very big Greek haircut. A haircut that could become extremely popular across South Europe and Ireland too.

    This new progressive hairstyle almost certainly won’t be allowed in the anti-hippie EU, but let’s hope the hippies pull through somehow. It’ll be a lot better than the current fad.

    Posted by Pterrafractyl | February 15, 2015, 2:27 am
  26. LOL! This was a real article:

    The Wall Street Journal
    ECB Deputy Denies Stimulus Was Delayed by German Opposition
    Eurozone Suffers from Demand Shortfall, ECB Vice President Vitor Constancio Says
    Paul Hannon
    Updated Jan. 31, 2015 10:02 a.m. ET

    CAMBRIDGE, England—The European Central Bank’s decision to launch a program of large-scale government bond purchases wasn’t delayed by opposition from Germany, ECB Vice President Vitor Constancio said Saturday.

    Speaking to Cambridge University students, Mr. Constancio also said that even if the Greek government fails to secure the support of the European Union and the International Monetary Fund for its economic policies, the ECB could still provide help to Greek banks.

    The ECB on Jan. 22 said it would start to buy €60 billion ($73 billion) of government bonds and other securities each month, starting in March and likely ending in September 2016.

    However, its decision to launch quantitative easing came long after its counterparts in the U.S., the U.K. and Japan had embarked on similar policies. The two German members of the ECB’s governing council are opposed to the use of QE, as are large swaths of the German public.

    In response to a question during a speech to a Cambridge University student society, Mr. Constancio denied the ECB had been late to launch QE because of opposition in one of the eurozone’s 19 members.

    “I don’t agree with…the assumption that we were in any way delayed as a result of divergences in regard to that policy,” Mr. Constancio said. “The fact that we took the decision is proof of our independence.”

    In his speech to students, Mr. Constancio laid out the ECB’s reasons for launching QE. He identified a shortage of demand as the key reason for the currency area’s low rates of economic growth and inflation.

    Mr. Constancio said the eurozone may have an output gap—or a level of actual production below the full potential of the economy—until 2019.

    “This requires a more expansionary monetary policy stance, that by reducing economic slack, will ensure price stability,” he said.

    Mr. Constancio added that in the current situation, the goal of boosting economic growth over the short term “converges” with the ECB’s objective of ensuring inflation is just below 2% over the medium term.

    Mr. Constancio’s emphasis on closing the output gap and boosting economic growth, rather than hitting a particular monetary target such as the size of the central bank’s balance sheet, suggests the program could be increased at a later date.

    In deciding to launch QE, Mr. Constancio said the ECB was partly motivated by a “significant decline in long-term inflation expectations,” which he said was “a very risky situation for any central bank to face.”

    He said it had become clear that stimulus measures announced in June and September weren’t having the desired effect. But he added that the governing council has been “encouraged” by the initial response to QE, although it remained to be seen whether the changes in asset prices that followed its launch will be sustained.

    Bwahaha! Yeah, QE wasn’t delayed over Berlin’s objections….suuure. And keep in mind that this denial was uttered by ECB Vice President Vitor Constancio on Saturday, January 31.

    Now let’s take a look at the ECB governing council meeting minutes that were just released from the January 22 ECB meeting. Yes, the ECB has finally started releasing its minutes after it ended its 30 year embargo policy. And that January 22 meeting is the first one ever that we get to take a peek at, although information is limited and we don’t get to know really who said what. But still, it gives a general idea of what went down. Let’s take a look:

    REFILE-UPDATE 2-Top ECB official warned of risks of delaying QE

    Thu Feb 19, 2015 2:17pm EST

    * First record of ECB meeting shows path to QE

    * Central bank chiefs ‘broadly’ agreed on bond-buying

    * Dissenters said such a move only for emergencies

    By Marc Jones

    FRANKFURT, Feb 19 (Reuters) – The ECB’s chief economist warned central bankers from around the euro zone of the perils of delaying quantitative easing, according to records of a January meeting that shed light on how policy makers ‘broadly’ agreed to launch the scheme.

    Speaking to the Jan. 22 gathering of the ECB’s Governing Council, which sets policy, Peter Praet addressed the risks of waiting before launching a programme of quantitative easing, or QE — effectively printing money to buy government bonds.

    The minutes of the meeting give a bare-bones account of the discussion, but they do provide a glimpse of the pressure and tension involved in ECB decision making, which seeks to forge consensus among 19 different countries from Germany to Greece.

    Praet’s presentation and the discussion afterwards convinced most of those present of the need for immediate action. Some argued that such a step should only be taken in ‘contingency’ situations.

    The minutes, which give the clearest picture yet of how governors launched the scheme, show Praet told the meeting: “Due account would also need to be taken of the risks stemming from not acting at the present meeting, which might be higher than the risks stemming from acting.”

    “A reversal of recent financial market developments could be expected if no further policy measures were announced,” officials wrote. “The associated positive impact … could be unwound and a higher degree of volatility or instability in the financial markets could create additional risks.”

    In the end, most agreed: “There was a broadly shared view that the conditions were fully in place for taking additional monetary policy action at the current meeting.”

    The pockets of resistance, widely seen as led by Germany’s Bundesbank, did gain some concessions. Only a fraction of the risk would be borne by the ECB; most would remain with the euro bloc’s 19 central banks.

    That group also argued the buying corporate bonds would be a better tactic, although it was “widely judged” the effect would be limited, since that market is so small.

    “At the same time, the remark was made that this asset class should not be excluded from future consideration, if needed,” it was added.


    This is the first time the ECB has published details of its discussions and brings it more in line with other major central banks, such as the U.S. Federal Reserve, Bank of England and Bank of Japan. But the exercise is sensitive, and none of the national central bank governors who attend are identified.

    Perhaps a little surprising given the objections of banks like the Bundesbank, it was decided to front load the purchases, so that 60 billion euros will be spent in the earlier months rather than the 50 billion suggested by Praet.

    Huh, so in addition to all the previous Bundesbank opposition to QE by the Bundesbank, the minutes for the January 22 meeting reveal that:

    In the end, most agreed: “There was a broadly shared view that the conditions were fully in place for taking additional monetary policy action at the current meeting.”

    The pockets of resistance, widely seen as led by Germany’s Bundesbank, did gain some concessions. Only a fraction of the risk would be borne by the ECB; most would remain with the euro bloc’s 19 central banks.

    That group also argued the buying corporate bonds would be a better tactic, although it was “widely judged” the effect would be limited, since that market is so small.

    That, uh, sure sounds like the Bundesbank-led faction of the ECB governing council was calling for QE delays even on January 22 and their efforts managed to achieve the critical concession that only a small fraction of the QE risk be borne by the ECB, thus ensuring the financially weakest members get the smallest relative QE boost and the strongest get the most benefits (It happens).

    aybe ECB Vice President Vitor Constancio missed those less harmonious parts of the January 22 meeting. And the reports right after the meeting about how Bundesbank President Jesn Weidmann opposed the QE approval. And most of the last three years.

    And probably most of 2010 and 2011 too. As the governor of Portugal’s central bank from 2000-2010, Vitor Constancio couldn’t have had a fun time watching what followed his tenure, unless he hated Portugal:

    International New York Times
    Op-Ed Contributor

    Portugal’s Unnecessary Bailout

    Published: April 12, 2011

    South Bend, Ind.

    PORTUGAL’S plea for help with its debts from the International Monetary Fund and the European Union last week should be a warning to democracies everywhere.

    The crisis that began with the bailouts of Greece and Ireland last year has taken an ugly turn. However, this third national request for a bailout is not really about debt. Portugal had strong economic performance in the 1990s and was managing its recovery from the global recession better than several other countries in Europe, but it has come under unfair and arbitrary pressure from bond traders, speculators and credit rating analysts who, for short-sighted or ideological reasons, have now managed to drive out one democratically elected administration and potentially tie the hands of the next one.

    If left unregulated, these market forces threaten to eclipse the capacity of democratic governments — perhaps even America’s — to make their own choices about taxes and spending.

    Portugal’s difficulties admittedly resemble those of Greece and Ireland: for all three countries, adoption of the euro a decade ago meant they had to cede control over their monetary policy, and a sudden increase in the risk premiums that bond markets assigned to their sovereign debt was the immediate trigger for the bailout requests.

    But in Greece and Ireland the verdict of the markets reflected deep and easily identifiable economic problems. Portugal’s crisis is thoroughly different; there was not a genuine underlying crisis. The economic institutions and policies in Portugal that some financial analysts see as hopelessly flawed had achieved notable successes before this Iberian nation of 10 million was subjected to successive waves of attack by bond traders.

    Market contagion and rating downgrades, starting when the magnitude of Greece’s difficulties surfaced in early 2010, have become a self-fulfilling prophecy: by raising Portugal’s borrowing costs to unsustainable levels, the rating agencies forced it to seek a bailout. The bailout has empowered those “rescuing” Portugal to push for unpopular austerity policies affecting recipients of student loans, retirement pensions, poverty relief and public salaries of all kinds.

    The crisis is not of Portugal’s doing. Its accumulated debt is well below the level of nations like Italy that have not been subject to such devastating assessments. Its budget deficit is lower than that of several other European countries and has been falling quickly as a result of government efforts.

    And what of the country’s growth prospects, which analysts conventionally assume to be dismal? In the first quarter of 2010, before markets pushed the interest rates on Portuguese bonds upward, the country had one of the best rates of economic recovery in the European Union. On a number of measures — industrial orders, entrepreneurial innovation, high-school achievement and export growth — Portugal has matched or even outpaced its neighbors in Southern and even Western Europe.

    Why, then, has Portugal’s debt been downgraded and its economy pushed to the brink? There are two possible explanations. One is ideological skepticism of Portugal’s mixed-economy model, with its publicly supported loans to small businesses, alongside a few big state-owned companies and a robust welfare state. Market fundamentalists detest the Keynesian-style interventions in areas from Portugal’s housing policy — which averted a bubble and preserved the availability of low-cost urban rentals — to its income assistance for the poor.

    A lack of historical perspective is another explanation. Portuguese living standards increased greatly in the 25 years after the democratic revolution of April 1974. In the 1990s labor productivity increased rapidly, private enterprises deepened capital investment with help from the government, and parties from both the center-right and center-left supported increases in social spending. By the century’s end the country had one of Europe’s lowest unemployment rates.

    In fairness, the optimism of the 1990s gave rise to economic imbalances and excessive spending; skeptics of Portugal’s economic health point to its relative stagnation from 2000 to 2006. Even so, by the onset of the global financial crisis in 2007, the economy was again growing and joblessness was falling. The recession ended that recovery, but growth resumed in the second quarter of 2009, earlier than in other countries.

    Could Europe have averted this bailout? The European Central Bank could have bought Portuguese bonds aggressively and headed off the latest panic. Regulation by the European Union and the United States of the process used by credit rating agencies to assess the creditworthiness of a country’s debt is also essential. By distorting market perceptions of Portugal’s stability, the rating agencies — whose role in fostering the subprime mortgage crisis in the United States has been amply documented — have undermined both its economic recovery and its political freedom.

    In Portugal’s fate there lies a clear warning for other countries, the United States included. Portugal’s 1974 revolution inaugurated a wave of democratization that swept the globe. It is quite possible that 2011 will mark the start of a wave of encroachment on democracy by unregulated markets, with Spain, Italy or Belgium as the next potential victims.

    Americans wouldn’t much like it if international institutions tried to tell New York City, or any other American municipality, to jettison rent-control laws. But that is precisely the sort of interference now befalling Portugal — just as it has Ireland and Greece, though they bore more responsibility for their fate.

    Only elected governments and their leaders can ensure that this crisis does not end up undermining democratic processes. So far they seem to have left everything up to the vagaries of bond markets and rating agencies.

    “In Portugal’s fate there lies a clear warning for other countries, the United States included. Portugal’s 1974 revolution inaugurated a wave of democratization that swept the globe. It is quite possible that 2011 will mark the start of a wave of encroachment on democracy by unregulated markets, with Spain, Italy or Belgium as the next potential victims.”

    That was the view from 2011, and when you look at the current situation across Euorope it’s hard to argue that we haven’t seen one example after another where markets and financial concerns of international creditors take precedent over even basic social spending. That was quite a prescient warning (At least Belgium did relatively ok). And as the following article points out, not only is the EU calling for a doubling down of ‘exporting-friendly’ “structural reforms” as the official response to ta study that found the current strategy hasn’t worked, but there’s talk of creating a system for eurozone fiscal transfers (where the wealthier nations basically compensate the poorer members) but with much more losses of sovereignty involved. So if trends continue Vitor Constancio is going to have plenty of more recent history to mentally block out. And you can’t blame him. Memory loss is a natural result of blunt trauma and this isn’t going to be pretty:

    The Irish Times
    Varoufakis highlights battle between rules and macroeconomics at the euro group table
    ‘The success of macroeconomists such as Varoufakis will be judged by the precedents they set in inspiring others over that longer term’

    Paul Gillespie
    Sat, Feb 28, 2015, 01:00

    That was a nice remark about macroeconomics by Yanis Varoufakis, the Greek finance minister, in his interview with this newspaper on Thursday. Together with the outcome of negotiations on Greece’s short-term indebtedness, in which he gained some limited political space to implement immediate domestic reforms, it contains the key to a longer-term evaluation of Greece’s radical-left Syriza government.

    “My colleagues in the eurogroup were disconcerted that one of their members insisted on talking macroeconomics. One of the great ironies of the eurogroup is that there is no macroeconomic discussion. It’s all rule-based, as if the rules are God-given and as if the rules can go against the rules of macroeconomics. I insisted on talking macroeconomics.”

    Big picture vs rules

    At European level, the debate on macroeconomics versus rules overlaps with that of Keynesian economics favouring investment-led growth and a deeper redistributive euro zone versus the ordo- or neoliberal economics of structural reforms intended to enhance mainly export-led growth. The Keynesians say these create austerity and depression because such reforms destroy growth, especially in peripheral or weaker economies, without compensating transfers.

    That fixation on rules echoes Varoufakis’s response to Michael Noonan and others who say that academic economists such as him are fine in theory but not in practice. If such rules lead in reality to humanitarian catastrophe, as in his country, they must be confronted politically he says. And of course this latest crisis over Greece, while ostensibly about those rules, is actually highly political, precisely because Syriza challenges them on both economic and political grounds and sets precedents.

    A kindred distinction between analytical and operational economics is made by the European Commission president Jean-Claude Juncker, with the heads of the euro zone, the European Central Bank and the European Council in a note for the informal European Council on February 12th. It explores the next steps towards better governance in the euro zone, following up on a previous document from the four presidents in 2012.

    Concerning the nature of economic and monetary union, the document says upfront: “The euro is more than a currency. It is also a political project.” The single currency has created a “community of destiny” between its 19 members which “requires both solidarity in times of crisis and respect by all for commonly agreed rules”. The note reviews the euro zone’s experience of crisis since 2007, the measures taken to strengthen it since 2010 and examines where it now stands.

    That yields a very mixed and mostly poor assessment: of some rebalancing but persisting unemployment, high public and private debt and indifferent competitiveness due to continuing rigidities. The paper goes on to say more effective commitments to growth-enhancing structural reform and greater labour and capital mobility in the EU’s single market are needed in the short term. But, looking ahead, “It remains necessary, for citizens and markets alike, to develop a long-term perspective” on how economic and monetary union should develop.

    To that end, it asks a series of questions. They include how to ensure sound fiscal and economic positions in all euro states and better implement existing rules; and whether new institutions are needed and the negative links between banks and sovereign debt have been broken. Three significant questions are posed: is existing sovereignty-sharing adequate for the euro’s economic and financial needs? Is more fiscal risk-sharing desirable and what would be its preconditions? And how can the euro’s accountability and legitimacy be best achieved?

    Deeper integration
    This brings us out of rules and back to macroeconomics – and to the politics of deeper integration, EU fiscal capacity and debt mutualisation. High officials in this process along with political leaders ask whether Germany is willing to do transfers and mutualisation, whether France can contemplate the treaty change needed and whether the euro’s political leaders have yet got used to existing intrusive rules, much less taking on even more highly conditional ones.

    So while the single currency needs to be strengthened, this may not be politically feasible. Macroeconomists such as Varoufakis bring a new politics to bear on this question. Their success will be judged by the precedents they set in inspiring others over that longer term. The euro will not achieve accountability and legitimacy unless its systemic needs and socio-political bases are more closely linked . This requires a solidarity capable of creating closer political identities. Otherwise how can it survive?

    As the author points out:

    This brings us out of rules and back to macroeconomics – and to the politics of deeper integration, EU fiscal capacity and debt mutualisation. High officials in this process along with political leaders ask whether Germany is willing to do transfers and mutualisation, whether France can contemplate the treaty change needed and whether the euro’s political leaders have yet got used to existing intrusive rules, much less taking on even more highly conditional ones.

    So while the single currency needs to be strengthened, this may not be politically feasible. Macroeconomists such as Varoufakis bring a new politics to bear on this question. Their success will be judged by the precedents they set in inspiring others over that longer term. The euro will not achieve accountability and legitimacy unless its systemic needs and socio-political bases are more closely linked . This requires a solidarity capable of creating closer political identities. Otherwise how can it survive?

    Yes, the kind of reasonable macroeconomic adjustments Varafoukis is calling for includes a element of both deeper political and economic integration and there appears to already be talk of how a more deeply integrated eurozone would operate, with “high officials” asking whether Germany is willing to do transfers and mutualisation, and whether France can contemplate the treaty change needed and whether the euro’s political leaders have yet got used to existing intrusive rules, much less taking on even more highly conditional ones.

    It’s all a reminder that one of the basic choices facing Portugal at this point is either standing with Greece and demanding a eurozone New Deal or sticking with the current power-sharing structure and getting even more highly conditional budgetary rules in the future as a price of fiscal transfers from Germany and the other creditor nations (so turning the periphery into vassal states). And reminders are important these days. Vitor, for instance, could use reminders.

    Posted by Pterrafractyl | March 2, 2015, 12:26 am

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