LETS GET LOGICAL ON THE EURO: DMcW (FEB 21 2010)
Let’s assume that the government is not going to hand out conversion calculators, so the switch back to ta New Punt has to be a simple €2.00 = NP 1.00. Of course the markets will shortly devalue the NP towards parity with the Euro, nominally halving our debts. However as night follows day, devaluation causes inflation both of prices and interest rates and we’ll quickly be back to square one again. After that, if the world economy doesn’t improve, we will experience hyperinflation on the Reichmark or Zimbabwe scale. Any takers for this chamber of horrors?
“The truth is that Ireland doesn’t have a recovery strategy aimed at reigniting economic growth and employment. We have a debt management strategy aimed at pleasing the bond market.”
Ireland needs to be free of the Euro. Exports will increase and people will buy more locally. Yes there will be inflation because of oil prices etc, but it’s the only option to get and keep people in employment and for the Irish economy to get back on its feet
I would not be so confident about the Gordon and Alistair double act fixing British economy. Conditions in Britain are also dreadful. The entire asset base of Britain has been hammered because the banks have lost more than half of their value. Effectively Britain has to print of money, to make up for the scale of the losses, and the follow on deflationary results. Simply put, the volume of virtual money under Brown went way out of whack with the real economy. And then it responded on the downside. And the way to deal with this was to devalue the Pound.
COncerning your post at 6 ref to UK print roll,. can i add that, the UK can back their bonds up with real asset wealth,. they keep it quiet but it is the case.
i.e UK will start pumpimg oil outta the seas near falkland islands next week. 6 billion barrels of it.
It’s not that simple. This would be only true if Ireland produced nothing, had no goods to export and no services to render; Had no competitive educated workforce to hire and generate a profit etc. Price of currency is always dictated by how much demand there is to do business in the area that governs the currency.
A new Punt would fall to a level that matches the demand for trade in Ireland and for Irish services; which is currently much less than the demand to trade with Germany. Any value over the real demand would be quickly wiped off. The bad side of this is the punt would be worth less but the good side would be that Ireland would quickly become a cheap place to do business. This would give the currency upward pressure at some point.
Zimbabwe’s currency problems are not because it has its own currency; They are because the economy does not have sufficient reason to invest and therefore no foreign demand to deal with them. If reasons to invest, such as a cheap educated workforce, or cheap goods etc then demand for the currency will rise because investors will quickly see the bargain that can be found there.
There is a second advantage of control of a currency. Governments can use the strength in demand to print more of it and stimulate further investment. It is very similar to how start-up companies on the stock market issue shares; diluting the base but ultimately reinvesting for future growth and therefore benefiting the whole. This may seem counter intuitive but it is actually the main idea behind currency.
Obviously a company who inflates the base with no real assets will just end up with worthless shares; but this will be because it had no assets of value in the first place. The problem is that Ireland is in the process of losing one of its most valuable assets. Its young educated workforce.
“A new Punt would fall to a level that matches the demand for trade in Ireland and for Irish services;”
“but the good side would be that Ireland would quickly become a cheap place to do business”.
Without strong reserves, (which we don’t have) it would be impossible to maintain a fixed exchange rate with the Euro. Therefore neither foreign businesses in Ireland nor businesses abroad would accept letters of credit in unstable NPs, so the Irish banks would still have to operate a dual system.
What would happen in these circumstances is that the poor Irish punter would have to deal with the banks using an official exchange rate, whilst a black-market rate thrived for foreign transactions. If anyone thinks that the present situation favours the financial spivs, just wait until there is a black market in Euros. and Sterling.
Ireland would be a cheap place to do business for the oligarchs but for the rest, every vestige of financial responsibility would quickly evaporate and earnings would be spent as quickly as possible in the local pub.
how about this one …. stay in the euro but let the guarantee run out and let the banks go bust. obviously we must guarantee our citizen’s deposits(up to a limit) but why should we pay for bondholders idiocy. set up a new state bankfor us and screw the international markets. Tap up Chavez in Venezuela for 50 or so billion at low interest to help us break free from the globalist elite. sound good??
Then, arise the Punt Nua, it will be gas to see the premium the bond markets put on buying debt denominated with a jacksroll currency, by a jurisdiction hooked on overpaying their population, and sponsoring every hairbrain scheme they can think of. The scramble to bring spending back in line with expenditure to convince our creditors-to-be would be interesting to observe, and it wouldn’t be the softly softly approach we are currently witnessing. Jack O’Connor, and the thousands hanging on his coat-tails will suddenly sing a different tune.
But my logical analysis tells me that the Euro is not the problem. The problem is the cost of production across the private and public sector, and this is high because we have a lifestyle that would make poor old James Howard Kunstler cough up his locally produced muesli. Apart altogether from Kunstler’s critique of modern suburban conspicuous consumerism as being an never-ending chase of “something-for-nothing”.
We need to get our costs in line. We need to all work much harder for less money. And we need to live within our everyday incomes, and pay down the enormous debts.
We have found the problem and the problem is us. Saying we need to quit the Euro is an admission that we are not able to fix the problem. In addition we will have to pay back these enormous debts in Euros, or else British pounds. Paying back debt in British pounds is easy if you have Euros to do it. But if we have Punt 2.0, then paying that debt will be an astronomical objective.
The first thing that will happen when the Punt 2.0 is declared, is that the Euros will flow out of the country completely undermining what is left of the capital base of the economy. You will see a flood of people switching money into German banks in particular. Because let’s face it the first thing that will happen to Punt 2.0 is that it will dive downwards. Great for exports, but real wages will be forced down. And that is the only way out of this mess. Real wages need to drop. The solution whether we stay inside the Euro or outside the effect is the same. The minimum wage and the Irish dole are going to be dropped. Not by Kildare Street, but at the insistence of the ECB. Both are functioning as impediments to the hiring of young people who have no experience and lower economic output per cost input.
There is another question about this whole debacle that concerns me. It was put to me like this by a member of the agricultural community. It is the theory of “when you dig a hole, the clay has to end up somewhere”. Ireland is in an enormous debt hole. Where is the clay that was dug out? A lot of it was spent propping up the extravangent lifestyle and the consumerist excess. And that amounted to an awful lot of the waste.
But there has to be some of it in bank accounts in Lichtenstein or somewhere also. We had a scenario where there were enormous profits being made from rezoning, and property development. Yet the profits from these two activities are supposedly gone in the squeeze. I get the feeling that the accounting and legal professions are hiding a ton of deceit. And we should expect this deceit to be at it’s most extreme once in Dublin where the profiteering was the most extreme. The main dvelopers in the city controlled land banks to keep them going for years. They did not need to borrow to buy more land like some of these small scale operators in the Midlands. Operations like McInerney Construction might be loss making now, but they should have enormous cash reserves. Perhaps an analysis of their accounts might tell us more about the real state of the construction barons ?
The debt will be Euros, and the money to repay will be in Punt 2.0. And actual process of paying the debt will weaken the Punt. There is nothing wrong with a hard currency, provided you have the discipline to operate it. We don’t seem to have the discipline. Neither does Portugual, Greece or Spain.
By the way, the argument that the ECB facilitated the excesses has enormous validity.
1) Interest rates were far too low for Ireland in the period 2002 – 2007.
2) The transnational flow of Euros into the Irish economy was never questioned by the ECB, or the CBoI. The ECB badly slipped up, especially in respect to the flow of capital into the Spanish banking system during the Spanish property boom. The EU enthusiasts in the Irish Times and various pro-Brussels quangos here will not admit this.
To survive the boom, you had to know this. Your documentaries provided advice to people to help them survive.
Deco, that’s a really good and important point; David’s idea is predicated upon a logical approach to economics and how it can and should be used to serve the people in a society; but we do not live in a normal and logical society. Our leaders are not interested in using a logical approach to serve the citizens.
The govt/banking/IBEC/ISME axis is only interested in the illogic of attempting to preserve the status quo at the expense of our society-at-large.
In such a country, even the most logical, tried-and-tested solutions that succeeded elsewhere, could well be disastrous for the Irish people.
Without,first, a clear-out of the above-mentioned culprits who caused the mess, David’s solution cannot work; but, remember, if we do not take this article in isolation but, rather, take it in conjunction with all of the others, we can see that DMcW has advocated the removal of those who caused the problem and stated clearly, that they cannot be the ones to solve the problem they caused.
Change of government, prosecution of bankers and regulators, as well as manipulators in IBEC of all of the afore-mentioned is an awful lot to achieve PRIOR to switching currency.
It may be impossible.
Too right. They are trying to preserve their own power. We need to scrap the mandatory charges to find out what is going on in quangos, semi-states, institutions, etc…
I am not attached to the Euro for the usual idelogical attachment to centralization that comes from the chattering classes. For pragmatic reasons. I doubt that the Euro will end up becomming another Weimar currency-simply put the Germans, the Dutch and the Finns would not allow it. I think that anything is possible if the Straffan Clique take control. And we can be sure that the cliques that control Ireland will get even more control.
On the ‘we must exit the euro’ to save the situation I reckon this idea is merely the surface narrative of a deeper problem.
A hidden structure of crony networks and elites operating the levers of powers with pinky and the brain imagineering think tanks dreaming up of new fiat paper money scams and focusing in on the euro is missing the point.
Exiting the euro will not make the under lying problem which caused the credit crunch to go away.
As long as the medium of exchange is weaponized and used to pollaxe citizens into debt bondage the socio economic system we all live and do business in will continue to move in its boom and bust cycles, will continu to move in and out of its POnzi scams, will continue to service a corrupt political over class and it will continue to preserve the mercantilist framework in which the free market enterprise system is imprisoned in putting it into the service of financial technocrats and oligopolistic moguls and pirate hedge funds and keeping a jailor system tight shut locked under pad lock and key holding the ‘outsiders ‘ prisoners.
Leaving the Euro? … all liquid assets will flee the currently instantly at the first mention of it. There will be serious inflation. People think the cost of living is high now? Wait until the Punt Nua, coupled with the pressure to keep wages down, which after all is the whole point of the exercise in increased competitiveness. All we will see is the actual busted nature of our economy and the degree to which we have been living beyond our means. We shouldn’t need to leave the Euro to find that out.
Plus, leaving the Euro is of value only if we are a major exporter. Most of our exports are just accounting tricks to allow American exporters to avail of Irish corporate tax rates. There’s no other reason why the US would have such a crazy trade imbalance with Ireland. If those multinationals are rattled by our switching to some new funny-money we are “hosed”, as they say in American.
Let the banks fold? Sounds like a good idea in principle — why should we carry the can for corporate malfeasance. (Especially since the idea that we are somhow going to restore the banks to functioning, lending entities is the biggest lie our government is circulating right now). On the other hand, consider a few of the creditors who will be more than a little peaved. The UK is into the Irish banks for $200 billion. Remember that little spat with Iceland, where the UK threatened to deal with Icelandic assets in the UK under terrorist laws if the Icelandic banks didn’t honour UK deposits? Folks, this is the country with which we do a third of our export trade, and against whom we hope to increase our competitiveness. How do you think we will look when we scupper their pension funds etc., and their newspapers start reporting that we are economic terrorists? Let’s just say that a “Buy Irish” campaign might not go down so well.
Someone else suggested creating import tarriffs. To do that we would have to leave the EU, not just the Euro. We’d be kicked out of the WTO as well. That would not be so good for international trade, no matter how wage competitive we were. Total non-runner.
Build roads and schools while prices are cheap? Might create some temporary stimulus. But the public debt chickens that have already come home to roost are pretty terrifying. And we’d be relying on foreign loans to do it, which might not be very forthcoming once we show that we are intending to be economically isolationist.
Green jobs? This is another red herring created by socialist tree-huggers. There will certainly be some sort of green economy as fossil energy prices increase. But it will be against a background of overall increasing energy prices — people talk about wind and solar becoming more viable and that’s true, but only because the general energy supply situation will be deteriorating, not because those sources are intrinsically good ideas. The general economy will be hit hard by rising energy prices. Ireland is in a particularly bad situation in this regard.
To the person who suggested nationalising resources and seeing Shell in court:- have a look at how that’s worked out for Hugo Chavez. He reaped a windfall for two years of high energy prices. Now he’s stuck without the technology to further improve Venezuelan resources and the international oil companies won’t touch him with a barge pole. Perhaps we can play hardball with any future resources, but honouring the deal with Shell is a good idea. Small countries tend to overestimate the value of their national resources. The New Zealanders have been moaning about theirs, forgetting that they are so marginal that it took thirty years before anyone would take an exploration lease for nothing. And to the idea of having a new currency backed by energy:- good idea … if we HAD any energy to back it up with. We are a net importer of energy, in fact we are more heavily reliant on fossil fuel imports than most countries in Europe, having high car commuting rates, and nothing much in the way of hydro or nuclear resources. Without wanting to state the obvious — an energy-backed currency must actually have fungible energy to back it, otherwise it might as well be backed by leprechaun gold.
Export-oriented job creation sounds like the most sensible idea, but how do we do it? All our potential trading partners are in financial messes of their own. And there has to be serious doubt over whether Ireland has the entrepreneurial spirit to do it anyway. Our current right-of-centre government is more nepotistic and cronyist than truly “business-friendly”. And at the other end of the spectrum are socialists like SF whose manifesto lists employers only third (behind the unions!) in a list of four parties who could contribute to job creation. Is there anyone credible in the middle? My vote is certainly up for grabs to any credible party, but I doubt if I’ll find one come election time.
I’m trying to think of a reason for a scintilla of optimism … but I think we’re fokked.
As much as Day follows Night so should normal economic trade follow a recession.Economics will not solve anything neither will logic so just stop trying to bite your tail .
To understand the solution you must understand that banking is not about money stupid.
Banking is about TIME .
What we all need is TIME .
So what is Time .What causes the full moon every month , what causes that day follows night , what causes winter and summer etc etc
Where does this lead us to then! We as a people decided one day a long time ago to measure time uniformly and part of that process required the invention of a ‘watch’.
Some Day Some Time we will have to Stop TIME .
At that moment we agree that we dont exist anymore .
Then we start Time again from the beginning with nothing and start again.
A lot of mistakes were made during the boom years in both economic and social realms. We were responsible, and we are paying the economic price in unemployment and the social price in drug fueled gang warfare. But things could get far worse if the the fiscal belt tightens too severely.
Public servants may still be over-paid by international comparisons but they provide a much-needed skeleton of stability throughout the nation. That role used to be fulfilled by the church but it will take many years and real vision, to restore its house to acceptable levels of widespread public confidence.
It is hard for young people to accept that they may have to wait several years for green shoots of recovery to improve their standard of life. It is harder still to convince them of the simple pleasures of living within limited means, after years of hedonistic excess. But talented and educated people within and out of public service can show them how to make the most of inhabiting and understanding their home communities. Giving young people the role of becoming community improvers and helping them achieve what they think needs to be done locally will improve the quality of life for us all.
We have all failed, but we can still help the younger generation to repair our failures.
Certainly many people gained from the bubble and having been obliged to sell up 14 months ago I have gained an insight into how they will react. They will be want to protect their windfall gains (“savings”) at all costs and to that end they will insist on remaining in the euro. They’ll settle for the bird in the hand (unless I’m underestimating them).
I see my own “savings” as being partly made up of economies, delayed gratification and work and partly (mostly) sheer good luck (ie windfall). There’s an illicit whiff about them. I discussed this with another colleague in the same boat and he had the same feelings.
I think people, not all perhaps but maybe a majority, have an idea of natural value in their heads, as part of a wider value system including justice and fairness. (To go ‘all psychological’, a subject of which I am quite ignorant, I’d guess that these are mainly the introvert half, the extraverts by their nature tending to accept any given situation and just working with it.) So on occasion I have simply refused to pay for things because the price was unreasonable, even if it was easily affordable, and I know many others have done the same. However, in a bubble these values are put to the test as there is no obvious rational argument for earning something by honest labour when you could earn multiples by property speculation. Then, to quote Andrew Mooney, you are convulsed in cognitive dissonance. Logic no longer ties in with reason.
I’m off on a tangent here by now in terms of responding to your post, of course. David’s devaluation idea is a means of restoring the balance and is proposed because the alternative of waiting for costs to come into line would take years. It also has the virtue of social levelling so that everyone is obliged to enjoy “the simple pleasures of living within limited means”, and I’m not being smart at your expense here. You wake up one day, hear the news and discover that your savings have halved.
It is now obvious that the govt and state see their role (as they have always done) as defending the sacrosanctity of wealth and debt and not the well being of the tribe as a whole (to borrow your own term). The youth on last night’s Frontline have clearly cottoned on to that. If the status quo cannot be shamed into reform what will it take?
Finally in my original comment I was hard on economists. I hadn’t set out to do that, it just came out! Now I follow the debate on the Irish Economy site as well as I can and I find them all clever, informed, witty and articulate, so I don’t know why I said it. I think it must be a vague feeling that while they are doing their best they are operating within a discipline that by its nature tends to uphold and justify the status quo. It recalls your remark some weeks ago when you were in the company of movers and shakers and found them all capable and well-intentioned. Maybe, but I still wouldn’t trust ‘em, I really wouldn’t. I know Crotty maintained that classes as a rule operate for their own advantage whatever other impression they choose to give or whatever individual exceptions might be found within their ranks. (or maybe it’s just sour grapes…)
One thing will hutton knows though is UK can issue and print run paper money more than anyone else due to their access to wealth in the ground.
Example. Off coast of falklands they are drilling for oil starting today and they aint drilling if it aint there which apparently is 6 bilion barrels thats aloada dosh one can print run on the back of those numbers.
UK are the supreme money lenders and changers and know expertly how paper money fraud works and they never show their hand at the table and will hutton know this been an english man himself.
UK elites know exactly how they are playing this paper money ponzi scam and know exactly how much money runs out of thin air they can do in relation to wealth of the crown back up.
For them they are playing a different game than ireland europe and usa.
Currency speculators can only devalue a currency where there is no demand at that price. There is always upward pressure at some point if there is any demand to trade in that State.
So Ireland should stay in the Euro to pay the debt? Well the problem is not solved because the payments will have to come from somewhere. New Punt or Euro – take your pick. At least States with control of the currency have the fall back of devaluing and printing to stimulate; inflating the debts away. Ireland and other troubled EU states have given up this right. David makes the point that by stimulating new growth Ireland could at least have a chance to pay off these debts from a growing economy.
This may sound radical but look at the alternative. Ireland cannot cut, tax and debt-laden itself into economic activity. As many have said here; the money needs to come from somewhere. So which is better? The current policy is leading to a debt servicing country, eventually grinding poverty on the massive scale, before eventual economic collapse and default.
Where is the money to pay the debt going to come from? If not in new Punts then it will need to be in Euros. Right now, the NTMA’s own forecast is for interest payments of 15% of tax revenue in 2010. The current national debt of 76 billion. NAMA (SPV or not) will need a further 54 billion, plus the State will need recapitalization cost (est 20-25 billion). All of this is just to pay for loss to private investors who gambled and recklessly feed a bubble that has the entire nation in hock. These banks cannot sell these assets privately at 30% of the book value so how much do you really think the tax payer will end up paying?
If we ignore loss on NAMA and just look at interest payments; National debt plus NAMA bonds Ireland is in the region of 30% of the tax revenue; just for interest!
The current scenario is a deflationary spiral of cuts and lower wages, higher taxes etc; all the while making the tax revenues smaller; making existing bubble debts harder to service for both taxpayer and State, leading to increasing mortgage defaults and ultimately more bailouts and more NAMA’s. This is the danger of the current policy.
Alf – you can only inflate away new debt denominated in New Punts. Existing debt denominated in Euro or other currencies will rise relative to a devalued Punt. The only positive effect of a new lower value currency is that we inflate away the wages of the working population, effectively cutting wages without the wage-earners noticing quite so much, like the proverbial frog in the slowly heating pot of water. This would certainly stimulate the consumption of domestically produced goods, but we import so much that inflation would be horrific. It’s a big price to pay just because we don’t have the political backbone to reduce wages and costs to realistic levels without leaving the Euro.
ps200306. I agree. This is true for existing Euro debts but would not for new debt. But even so, if Ireland had the Punt it would have a constantly quoted exchange rate to the Euro and Euros could be bought to pay debts. If the economy improves and the devaluing and stimulus worked the currency may even get stronger as trade demand picks up.
Ultimately David’s point is that Ireland is stuck between a rock and a hard place. We don’t have many good choices left. Everything comes with good and bad. The current path is a very high price just to keep a fixed exchange rate with Euro nations. Any changeover would have to be handled carefully. Dual currency bank accounts would be needed until people got familiar with spending and pricing in any new currency.
Big misconception about ‘consumption’ is it been invoked into action by paper money.
All consumption is derived from internal desire and impulse and physical need and utility function.
wills – if it costs a Euro to produce a cabbage, and a Punt Nua which is introduced at parity with the Euro devalues to half that value, then an imported cabbage costs two Punts and a domestically produced one costs one Punt. Which cabbage are YOU going to buy???
I know that yep. Thing is, idea of inflating debts away is inherently false. The debts are always with the monetary system either way.
All paper money into the system is put in there through the banks making debt.
So, more print runs is more debt and more bondage and more tyranny and more death and destruction and decay.
Now, dont get me wrong but for alorra people this dynamic is Ok cos they are sitting back preferring death and destruction and instant gratification over the ground hog day of living for real doing the pain and suffering the reality of it entails.
So, there is an excellent reason to run a debt based monetary system, it sits very well with been laizy and taking a cushdee approach on things.
I don’t think we’re disagreeing here. We cannot inflate away our current debts. What we can do, perhaps, and this was Alf’s suggestion above, is to try to grow our economy by increasing output. One proposed route to this is to introduce a new currency that would make us more competitive in Euro markets. This would eventually earn the Euros to allow us to pay off debt. I’m not convinced of this approach because I don’t see why we can’t be more competitive without leaving the Euro. However, I wouldn’t argue this too strenuously because we DO need to worry about Euro strength against Sterling and the dollar. On the other hand, the Euro’s structural problems (which we are part of, along with Greece etc.) seem to be resetting the exchange rate with the dollar and Sterling somewhat anyway.
Spending money in the pursuit of ‘instant gratification” is propping up the debt / slave monetary system.
Spending money in the pursuit of ‘delaying gratification’ is not propping up the debt / slave monetary system.
wills – I think you’re overcomplicating things. Money is simply a medium of exchange, and a store of value. You can accumulate capital through your productivity, and you need money to exchange it for other things. Or you can borrow against your future productivity, which is rarely a wise thing to do, but unavoidable for most people for certain “big ticket” items like homes.
When you do this latter, you are banking on two things: your continued productivity, and the long term value of the asset you bought. The people of this country got those two things horribly, disastrously wrong. They were aided and abetted by an all-too-willing banking industry who effectively lent non-existent money against non-existent value. Now the only thing which is not non-existent is the resultant debt.
From todays IT,
AIB will move €23 billion in loans and possibly less into Nama, compared with a previous estimate of €24.2 billion.
Bank of Ireland’s loan transfers may total less than €14 billion compared with the €16 billion first estimate..
State-owned Anglo Irish Bank is now expected to transfer between €30 billion and €35 billion – higher than the original €28 billion estimate .
23+14+35= 72 Thousand Million reasons why the next generation should consider their long term future and prospects. And why anyone dependant on an Irish State pension should be very worried.
There isn’t a cats chance in hell that this money can be repaid by the NTMA under the way things stand at present.
So if we don’t leave the Euro and devalue(even if that worked), our remaining hope is a form of haircut agreement with the ECB paymasters. In otherwords, convince Brussels of our “Systemic” value to the EU Project and Lisbon, then do a NAMA on our borrowings. A “nice” kind of default, so to speak.
Furrylugs: I try to remain positive, because I grew up to believe in progressivism. However logic and history are beginning to persuade me that there are more than just bumps along the road ahead– we may be approaching a landslide.
What do you think of this American analysis?
It is said that history doesn’t repeat itself — but it rhymes.
A lot of the EU sovereign debt is backed by Repo arrangements but since collateral assets in many cases were placed multiple times (illegally) then any default will cascade quickly.
As The Fourth Turning suggests, we need to consider the downside of all this: “The unsustainable entitlement promises made by politicians over decades would have guaranteed a dollar collapse by 2030 anyway, so we will just arrive sooner. Not one politician from either political party has the courage to stand in front of the American people and tell them they will not receive the Social Security and Medicare benefits they were promised. Not one politician from either party is even willing to discuss the fact these promises cannot be honored. “
It is normal that the discussion in this forum should focus on the implications of the Euro for Ireland, but the real issue arising from the post-Lehman crisis is the implications of the Euro and EU membership for all member states.
The Euro was launched on the basis that sovereign states could constitute a single currency area while being subject to no real constraints on their domestic economic policy. That was a major mistake.
The Euro, like EU membership, can provide, and has provided, massive benefits for its member states but especially in times of low economic growth the implications of that membership need to be understood.
In a single market and currency area, it is normal that some parts of the area are in deficit with other parts – perhaps structurally in deficit. Many US states or Canadian provinces are structurally in deficit with others.
The important thing is that there exist accepted mechanisms for dealing with those deficits. That includes financial transfers to the deficit areas and also movements of resources (capital – and people) to the surplus areas. That , in turn, requires a central political authority strong enough to ensure that the necessary financial transfers occur – and the necessary movements of resources. In federal states, the power of the federal authority is essential for these purposes.
For both these things (financial transfers and movement of resources) to happen in the EU, member states have to give up the powers they possess to interfere with these processes, in particular their ability to fix or influence conditions in the large parts of the economy which can be shielded from outside competition – and their ability to use their tax sovereignty to interfere with or attempt to direct the movement of resources.
In today´s EU, national sovereignty has allowed price differnces to continue to exist in what should be a single market and tax systems to be used essentially to create artificial transfers of resources. As a correpondent to this forum noted, Ireland´s low corporate tax rate has done a lot more for transfer pricing by multinational corporations (artificially locating profits in Ireland) than it has done for Irish jobs.
The way foward, for Ireland, and for the EU as a whole, is to face squarely and honestly the implications of the objectives of the single market and the single currency. Those implications are the transfer of regulatory power over the financial sector to exclusively European institutions and making real progress towards the creation of a real European political authority which can ensure (like the US or Canadian federal governments) that the necessary financial and resource transfers take place between those parts of the union which are necessarily in deficit and those which are in surplus.
When that happens, it will not be possible for one part of the Union to deviate (as Ireland and Greece did) from the overall economic model of the Union and Irish taxpayers (who will no longer exist – only European taxpayers) will not be left on their own to shoulder the consequences of the errors of rogue governments.
IT TOOK EUROPE TO REIN IN NAMA: DMcW (Feb 28 2010)
In order to make sense of the antics of the political and economic elite in Ireland in the current situation, I think that you need to look further back to at least the 1930s and then refer to Fintain O’Tooles recent history and analysis. One can only then conclude that they are as dissolute a bunch as any corrupt republic in the developing world not excluding Zaire under Mobuto. Why would they need to care? If the country fails to develop,or worse moves backwards they still have their capital stashed, their overseas investments and their Dail and EU pensions, connections for their families and cronies and to quote the late Dr. Noel Browne – ‘a politically illiterate electorate’ . There is no guillotine, metaphorical or otherwise casting a shadow over them
t’s all about saying what the other fella wants to hear so that he gets screwed more cheaply for a bigger profit. It’s a disease, a sickness for pathologically greedy people completely devoid of any conscience.
And if no mercy is what they understand, then no mercy is what they should be shown.
Of the estimated 200bn printed to save the UK, an estimated 8bn has found it’s way back into the economy. The Irish banks are soaking the social life blood, our taxes, and returning nothing.
Not only that, they’re behaving as though they have a God Given right to salvation.
And they’re propped up in this by complicit people in grey suits masquerading as Civil Servants, Self Servants really, who remain unidentifiable and unaccountable.
I lived through Thatcher and it was scary at times, but she was accountable. There was only so far she could go, though that was far enough at times.
This is worse, far worse.
There is disdain, hubris, aloofness and subliminal threats, all the hallmarks of a far right jurisdiction retaining power.
They are not hanging on to power, they are not on a knife edge nor even under the slightest pressure, though they promote this because it would, under normal circumstances, be true.
They hold all the cards because they have infested everywhere, even to the highest levels of Europe.
They will retain power by whatever means because to fail would mean destruction. There are too many skeletons in the closet and too many murky deals to allow the ceding of power.
It seems on the surface as if NAMA has morphed into a bail-out for certain favoured professional classes. But it’s hard to read into their (the governing classes) intentions because these people venerate a culture of cunning, deviousness, lying and spin. I wonder when we are going to stand up and demand that this insidious culture and the institiutions that propagate it be turned around on their heads.
NAMA is a fudge/coverups. The Irish concept of authority must be preserved – at whatever costs, so that the Irish Establishment can be preserved. The problem is that the establishment in Ireland prefers oligopoly to competition in it’s own sectors, and competition in all other sectors.
It is a form of capitalism for the poor and socialism for the rich. Competition for the disconnected, and oligopoly for the well connected. The problem is that it is the complete antithesis of EU Competition Law And Official Ireland is an entire establishment on the fudge. NAMA. Anglo. Nepoto (INBS). The Duopoly. The ISEQ – which is an extension of the commercial interests of the Duopoly. The auctioneers. The legal profession. The media. Our advertising sponsors. IBEC. The KClub. ICTU. The political parties who are aligned to the above interests in various ways via various connections.
Another question. Can we have a proper examination of the developers who are in default ? It seems that even though they are declaring bankruptcy, many of them still have considerable assets in the names of relatives or companies that are registered in places like Lichtenstein, Bermuda, etc… And then we have the likes of David Drumm(ex Anglo) and Mr. Quinlan Private who decide to flee the jurisdiction and live in mansions elsewhere, even though they are in dire straits here.
Are we the taxpayers just left carrying the can for the liberal laxity that exists in Irish company law where assets and liabilities can be seperated from each other, and the speculator class can sucker us with and the banking system with companies that are rotten with liabilities ? While they run off with the assets.
If this is the case, then we can expect the legal profession to be extremely protective of flawed legal codes that ensure that they clients are allowed to stick the bill to the rest of us. I don’t see any commentators in the media, some of whom have decided to exploit this crisis, saying anything about this….If this could be sorted out, then it might put a very quick end to this entire NAMA debacle. The builders/speculators would be forced to repay their loans. The banks solvency issues would be resulved, and we could get back to applying pressure to reform authority in Ireland.
I always, (possibly naively) thought that booms and busts it could be argued, are simply different modes of wealth redistribution. People who get rich in booms can lose their shirts in a bust. Nama from its very inception was intended to ensure that the latter did not happen, as those losing their shirts are plugged directly in to the governing elite, and in fact includes members of the Oireachtas, including the Taoiseach.
The competition commission’s provisional announcement is here: http://ec.europa.eu/ireland/press_office/news_of_the_day/commission-approves-nama_en.htm
“The Commission has found that the establishment of NAMA constitutes state aid to the participating institutions pursuant to Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), but that this aid is compatible by virtue of Article 107(3)(b).”
The full adjudication will be published when confidentiality issues have been resolved.
As I wrote yesterday, “What the EC is doing seems to be reviewing NAMA under the provisions of Articles 107 and 108 in http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:115:0047:0199:EN:PDF
Strangely, they don’t mention Article 108, which requires that ” the Council may, acting unanimously, decide that aid which that State is granting or intends to grant shall be considered to be compatible with the internal market, in derogation from the provisions of Article 107 …..”
David says “Closer reading of the press release suggests there is considerable unease in the European Commission about our latest ill-advised adventure.”
Question: was the Competition Commission acting unanimously in making this announcement?
I think we should be told.
It’s a very interesting question as to why the European Commission are taking a double take look at NAMA.
The Lisbon Treaty plus the gathering together of positions from member states on how to manage meltdown within member states is focusing on how best practice solutions can be formulated.
So NAMA is being looked at in terms of its
1. unfair advantage distortion of the market place eg hotel industry
2. unfair advantage distortion of the banking sector.
Private gain against public expense generates more pressure on a total meltdown or bankruptcy of states like ours. Failed solutions like NAMA increase the risk of this.
NAMA is certainly see thread last article in breach of A45 of our constitution because of unfair advantage it gives to banks at expense of taxpayers.
It is in its original incarnation in breach of the Lisbon Treaty breaching all those articles re competition and the rights of taxpayers.
But what the Commission really worries about is that it is a failed entity that instead of relieving the meltdown and danger to the euro, NAMA is a potential earthquake/timebomb that will bust not only taxpayers in Ireland, economic life in this country, but will have profoundly damaging consequences for the rest of member countries, if its negative effects have a domino effect.
Its not so much the damage NAMA creates for Ireland, its rather the potential damage for Europe if it fails
that is getting Commission attention.
Basically they worry the bailout money for NAMA is money down the shore they might not get back!
Folks, ANGLO in news today:
“ANGLO IRISH BANK WILL REPORT LOSSES OF UP TO €12 BILLION – State-owned Anglo Irish Bank is preparing to post losses of between €10 billion and €12 billion – the largest in Irish corporate history – when it announces its financial results over the coming weeks, writes the Irish Times. The bank is expected to write off the record amount for the 15-month period to December 31st, 2009 as it faces an estimated discount of 35% on €30 billion-€35 billion in loans being moved to the National Asset Management Agency (Nama). Anglo’s new management team is taking an aggressive yet realistic view of the bank’s exposure to the collapsing property sector and wider economy. The bank plans to recognise higher losses on business loans. The losses will deplete the bank’s capital reserves, triggering the need for more cash from the Government, which has so far invested €4 billion. Anglo is estimated to need a further €6 billion – and possibly more – depending on regulatory capital requirements and whether its restructuring plan is approved by the EU. This will bring the running total on the Government’s bank recapitalisations to €17 billion, with a further €2.4 billion needed at Irish Nationwide and EBS building societies. AIB and Bank of Ireland need capital of about €7 billion, analysts estimate, in addition to the €7 billion already invested by the State.”
“5 Things the Individual Can do to Stop NAMA:”
1. Become well informed
2. Lobby when you can
3,4,5 Same as 1 and 2
““5 Things the Collective Can do to Stop NAMA:”
1. Persuade someone like Michael Moore to do an expose, fly-on-the- wall documentary similar to Enron documentary, ‘Enron Smartest guys in the room’
2. Challenge NAMA in the courts under Lisbon Treaty legislation on competition and protection of the taxpayer, also article 45 of our constitution
3. Focus on the relationships, meetings, minutes of, times of, personnel involved in, connections between senior bankers and government ministers over the past five years in a banking inquiry.
In particular, ask Mr Cowen to account for his contribution to the view that Anglo Irish Bank an €11 billion black hole for taxpayers should be made part of the bank guarantee. Weigh up how partisan FF are to bankers or to taxpayers?
4. Examine the relationships between government ministers and so-called leading property developers over the past five years.
5. Consider a topological study of the effect of NAMA on economic life in Ireland as it is rolled out with particular emphasis on sectors of economic life that claim to suffer because of NAMA.
6. Generate an analysis of the cost of NAMA over time to the Irish taxpayer. That includes the cost of servicing debt, debt rising to in excess of €150 billion over the next two years.
7. Do a complete audit of the workings of NAMA – sorry, top secret, you can’t go there, they won’t let that out.
8. Expose the lie that NAMA will get credit going in our economy
9. OK, take one of the 10 largest toxic loans and ask for a write up of the methodology used to rewire/transfer the toxic loan to the taxpayer – oops top secret again.
10 Look at its evaluation LTEV methodology. Look at the haircut given to individual toxic loan accounts and ask why one evaluation differs to another?
9. Ok, ask for a short excel sheet on how the Irish taxpayer will make a profit from NAMA, oops you won’t get that either.
10. OK, ask how NAMA is going to launder the 200 hotel properties with excess of 15000 hotel rooms in Ireland, that need to be taken out of the market. Or same for ghost estates etc? We’re all watching that!
11 How will ongoing and future losses be managed by NAMA in regard to assets eg K Club losses held now by us taxpayers?
12 What is NAMA’s plan to offload its commercial and property portfolio held against toxic debt of errant bankers/developers/politicians, oops, don’t think you’ll get that either!
Sorry, its hard to answer your question. Pick five of the above q’s for starters and add your own, tons of questions need to be asked!
Unfortunately, a mixture of propaganda and lies and secrecy make it difficult to stop NAMA.
But you can watch it crumble and fail from within or witness slowly blindfolds coming off as it slowly exacts its punishment of our economy.
11. You get to see how its working maybe by the end of March, April 1, when the first lot of toxic loans get transferred over to the taxpayer.
Then do the math, a better picture of how your taxes are being siphoned off to banks will emerge. Basically, the whole thing is a complete mess.
If you gain reasonable information you think useful in regard to the above or related to it, let us know.
NAMA keeps us all in the dark! The more light you can shine on it the better!
In all of the above, keep scientific, objectivity to the fore. Its also essential to be of good heart and cheer.
If Anglo went bankrupt, then all the documentation concerning what was going on in Anglo would go into the public domain. And the people who realise that these rogues were not bankrupt. David Drumm, ex-CEO of Anglo living in a mansion in New England. Quinlan living in Switzerland. What about the solicitors that are on the run.
The people of this country need to get out of the Bread and Circuses routine of filling their empty heads with pointless minutae and superficial mush – and see what see what is going happening in this country.
Power Elite – A power elite, in political and sociological theory, is a small group of people who control a disproportionate amount of wealth, privilege, and access to decision-making of global consequence. The term was coined by Charles Wright Mills in his 1956 book, The Power Elite, which describes the relationship between individuals at the pinnacles of political, military, and economic institutions, noting that these people share a common world view.
We’re told that we’re going to be told the methodology by which the “haircut” on loans will be decided, based on “long term economic value”. But the LTEV, even allowing that it is going to be different in each case, must be subject to certain assumptions about the performance of the economy, national demographics and a host of other variables. Faced with such unknowns, a scientific approach would not be to guess at the LTEV and pray for the best, but to create models in which a range of possible scenarios are used to set the values for each variable. An honest attempt would be made to assign a probability to the likelihood of each scenarion. So where are the NAMA models, and the best, worst, and most likely outcomes?
The incubus / succubus of US/UK Wall St / The City is watching, waiting and smirking, ever ready to ensnare the delusions of Old Europe in its’ own trap. USUK: United States of the United Kingdom. Divided by a common language and history. To be re-unified by the ‘discovery’ of The Malvinhas Gahwar……
‘Scientific reports say the Falklands’ waters may hold up to 60 billion barrels of oil equivalent in hydrocarbons, making it the second largest oil province after the Ghawar field in Saudi Arabia, which contains 80 billion barrels of oil equivalent.’
It’s double that estimate. The ‘voices’ tell me so. Aka: The Muses. Of course, the Falklands Basin is only the prelude to the real deal in Antarctica, where Pandora lies….
All of this renders the whole ‘Sea To Shell’ episode rendundant. A pointless squabble about how a previous generation sold its’ Nation out for cash money, whilst the current one does exactly the same but with compounded egregiousness.
I wouldnt give the EU Commission that much of a clap on the back. The facts are that they have condoned state aid across the EU to the banks as the financial ‘crisis’ hit, and country after country competed with each other to save ‘their institutions’. Neelie Kroes is in fact investogating if the saving of ABN AMRO/Fortis form the abyss was a step far to far as well, so Ireland with its NAMA is not alone. Its all a question of degrees and so far the EU countries have not come together and agreed on the level of state support that they will allow, which after all is a breach of their own EU rules. There should be NO STATE AID. NONE. Its a bit like your 7-5, zero is 0, right, thats the amount of state aid. Zero rugby players!
‘money is created out of debt, therefore the richer the economy, the greater the debt’.
There’s nothing wrong with debt per se. Debt is a borrowing against future productivty. The alternative is organic growth, using only profit from prior trade to grow. That’s fine, but it’s orders of magnitude slower than debt … as evidenced by the stalling of western economies in the absence of credit.
You’re spitting out the word “debt” as if it is the root of all evil, but you’re not saying what your problem with it is. What’s your beef?
Take it as read that I know what fiat currencies and fractional reserve banking are, and that swapping goods for cash represents a statement of faith in the US (or other) economy. So what? My alternative is barter for goods and zero access to credit. That’s effectively one of the major differences between living in the modern world and living in the stone age.
The Emergency is that the insiders have followed an american model that was designed to start a war against the euro at the center of it, and they lost all their bets, and their marbles at the same time I might add.
F.E.A.R. is now the order of the minute, let Fear rule amongst the people, but do not even let them know what to be afraid of, this is more efficient.
Only, fear has a unique quality, if you dish that out in vast quantities, it comes back to haunt you. May be this is why now electronic card access is required to government buildings? I think so, and it is just the beginning of a drama that has much wider implications than only in Ireland alone.
Keep in mind that there is NO functioning banking system in Ireland since 20 months, so, there is nothing to be really afraid about a not functioning banking system that is operating in super slow motion, and collecting the stolen money the government robs from the taxpayers, the children, sick, pensioners, elderly , everyone, to horde it and pay themselves a big bonus again, and of course, continue their gambles with dodgy derivate products. This is Ireland, this is the Reality in Ireland March 2010.
Do you remember when the deposit transfer of 7 billion from Irish Life and Permanent into Anglo Irish accounts happened, to cover up the real state of affairs in anglo irish, this triggered a PWC report that was sent from department of Finance to the Financial Regulator in October 2008, Lenihan did not even read this report and admitted that with the words,
“Newstalk’s Breakfast Show, Brian Lenihan says at the time, this transaction wasn’t out of the ordinary, and he has complete faith in how the issue has been handled.”
This may be old news,
but not forgotten, and the List of fundamental contradictions of this Minister is longer than my Rant above in deed.
Yes, I am not able to see how his approach can help us, but neither is he or the European Commission on that matter!
Q: Do you think it’s acceptable that they should lose all their money?
A: Yes. People are responsible for their own financial decisions. You can’t leave a steak in a dog’s mouth and then whine after the dog eats it.
Q: What I’m really getting at is that in a no-NAMA scenario in which the banks inevitably become insolvent, will depositors fare any better than bondholders?
A: Until Sept 2010, depositors are covered by the State ( & “Most deposits will continue to be guaranteed under the existing statutory €100,000 Deposit Guarantee Scheme (the “DGS”) which cover 100% of retail deposits with all credit institutions authorised in Ireland (including credit unions) up to a maximum of €100,000 per qualifying depositor per institution. The DGS does not have an end-date.”).
Q: Would it even be legal for the government to indemnify depositors and not bondholders, since both are creditors of the bank and the bondholders probably have a contract which gives them first call on assets. N.B. I don’t know this for sure — I’m hoping someone here can tell me
A: Have the govt not already temporarily protected depositors?
And the reply to the question is a no brainer.
Take AIB. Worth say 800 million, depending on what time of the day you get up.
AIB have lost a declared 2600,000,000 million. Thats before the businesses who can’t get credit or the customers who can’t pay their mortgages default. Bear in mind that the figures today allowed for customers in excess of 90 days arrears who had entered into formal arrangements but omitted those who had entered into involuntary agreements. Neither can realistically pay their bills let alone service their mortgages or loans.
The figures from AIB also allowed for Irish and UK property writedowns on assets to be transferred to NAMA which may well be scrutinised by the EU and disallowed as illegal State Aid.
AIB is dead. Get over it.
Eventually, it would appear that “We are where we are” despite ad nauseum warnings.
Armageddon is a bad place to be, to lose everything but the truth is, most Irish people won’t lose anything if the banks fail. If they’re clever and face reality.
If you have a few pound, stick it the credit union. And you’ll get 21% over 5.5 years from the post office savings account.
They’re all Govt backed for now.
If that fails, we’re all in the doghouse.
Life always goes on though.
ps200306> Take it as read that I know what fiat currencies and fractional reserve banking are ….. I still don’t get what the fuss is about.
The whole thing about our economic system is that it is based on trust and money is created out of nothing. Thats what central banks provide, new money, and out of nothing.
The fractional banking system allows banks to provide credit, but what levels of capital adequacy are correct to keep the system up and the trust there? Basle I had it at 12%, Basle II about 8%, and banks that were tading and not regulated properly indeed dipped below that.
So, yes, in an economic system credit is like an oil that allows people to work, create, etc. But when there is too much credit given out, it becomes an end unto itself, a monster, and bubbles ensue. Humans are the fault in the system.
So, its all about control. There is nothing wrong with alcohol, indeed I’m partial to a Corona served at 1C, preferrably in Mexico, but if I am an alcoholic, I may not perform as a human, I break down. That is what has happened with the financial systems of the world.
Too much credit plus too much credit based on assets that were not really assets, whilst central banks ‘race’ and compete with each other to create more money out of nothing.
Economics is not a science and us mere humans are at the begining if learning how to deal with it in a world that has become more and more interconnected and volatile.
Money (paper, electronic) may collapse at some point, whether in 2080, 20,080 or 200,080 !
ps200306> What I’m really getting at is that in a no-NAMA scenario in which the banks inevitably become insolvent, will depositors fare any better than bondholders? Would it even be legal for the government to indemnify depositors and not bondholders
You responded something similar elswhere.
The answer is that depositors will fare better, of course, deposits are held up by the financial system, the ECB central bank in this case, as the ‘lender of last resort’. Lets say they decide to close AnIB.
Depositors will get their money under the Gov guarantee system, who in turn get their money from the ECB. Depositors put their money into a new bank and off it goes.
The system works IF people keep their trust and keep their money in banks (ECB backed ones preferrably). Fractional banking is maintained. Only IF all the people (deposit holders) take out all their money at once, does the system fall down, but even then there is an escape chute as the ECB or other central bank just creates more of the stuff.