Prom night

This post has been written in 4 goes, each time adding a new bit to the end as things change. Sorry about the lack of coherent style.

According to the movies, it is that amazing time in every teenagers life. The dorky boy asks the shy girl to the dance, they both turn into beautiful swans and the cheerleader falls into the punch bowl in a fight with her quarterback boyfriend. Prom night - it's awesome. Except in Ireland when it refers to the overnight emergency legislation to appoint a liquidator to IBRC, that wonder financial institution that used to be called Anglo.

I got home last night just in time to watch the stage 2 "debate" in the Dáil and ended up not getting to bed until the committee stage was complete and the bill went down the corridor and up the stairs to the Seanad. While it may not have been high drama, you certainly got the feeling at times that you were watching something important. I'm not going to go into the details of the IBRC bill, as there are many more qualified finance and legal people out there. However I do want to make some observations about the events.

The biggest question is why did it happen last night? Well it seems as though our friends in the ECB couldn't keep their gobs shut and let it out that the Government might be about to liquidate IBRC. With so many other creditors, it became crucial that we got to appoint the liquidator rather than have an application heard from, say, Sean Quinn in the High Court this morning appointing a liquidator more amenable to him. So in that sense the government got the tactics right and just played the nuclear option of emergency legislation. But it does question how good friends we really have in Frankfurt.

Another surprise to me was the length and detail of the bill. This has obviously been sitting in a drawer for a while waiting to be dusted off at the right time. You can't announce a liquidation until it is already happening, otherwise people will panic and run to the hills or courts. But the fact that it hadn't leaked from Dept of Finance or AG's office is testament to the tight ship being run there at the highest levels.

On the debate itself, Noonan, Doherty and Donnelly all performed well. Poor contributions from both Taoiseach and Tánaiste and some pretty awful stuff from parts of the technical group. On that, the technical group would actually have been best served by giving all their time to Donnelly as he has the best grasp on the issue and some really pertinent questions and lines of attack on the bill. For example the issue of temporary interference with the property rights of people is a potential pandora's box. This seemed an unacceptable idea when it came to upward only rent reviews but now seems to be fair game.

The worst part of the debate was the continued heckling and jeering at both Sinn Féin speakers by senior members of the government side. Both Pat Rabbitte and Brendan Howlin did themselves no favours by their carry on. I found it quite embarrassing that seemingly intelligent ministers resorted to school yard behavior just because they didn't like what was being said across the chamber.

Then at lunchtime today we had Mario Draghi's non event of a press conference. In his 15 minute speech he didn't mention Ireland or the Pro Notes once. When asked about them he just said that the council had unanimously noted the events in Ireland. I guess that means tacit approval because the deal still lets the ECB get all it's money back, just quicker than they thought.

I missed Enda's announcement as I was in a meeting this afternoon, but the deal seems to be a reasonable one. We get to turn the pro-notes and their 3.1B every year into an interest only loan at about 4% for 25 years and then start paying down the capital. This reduces our annual cost by over a billion and we get the benefit of 25 years of inflation to turn the capital sum into something a bit less daunting. It is still really annoying that we have crystallized privately generate debt into fully fledged sovereign debt and that not a single bondholder has been burned. But given all that, it's probably as good a deal as we can expect. It will certainly make next December's budget easier and/or allow for additional investment in growth strategies.

I'll let the dust settle now and come back to this in a day or so once things are clearer.

A scan of the fiscal compact

Yesterday, following advice from the AG, the government has decided that it needs to hold a referendum to ratify the Fiscal Compact, or to give it the more correct name the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. That is quite the mouthful so I'm going to stick with the Compact from here on.

As I have repeatedly pointed out, I am no economist. In fact I'm fairly economically illiterate. But it came as a bit of a surprise to me that the Compact itself only runs to about 24 pages, mostly whitespace, written in fairly straightforward English. I would recommend that everyone grab a copy of the treaty and have a read of it. I'll hang on while you do that .... ok, are we done downloading? If so let's have a quick skim through.

Like all good documents, there are a lot of pre-amble qualifying clauses before we even get to Article 1. They set the scene for the treaty and also, like all good overtures, give us hints of the main themes that will crop up in the main text. For example page 1 mentions the "balanced budget rule" and at the top of page 2 we get the key point, the 3% limit of deficit and overall debt limit of 60% of GDP. Many of the "NOTING" and "RECALLING" clauses provide pointers to the legislation and treaties already in place that permit the implementation of the Compact. On page 6, we get an explicit statement that the Compact will have no impact on existing funding arrangements in place for Ireland and Portugal through the ESF, so our current bailout will remain in place.
Eventually, on page 11, we get to Article 3 which is the first important stopping point on our tour. Here we are told that by default countries will have to run balanced or surplus budgets or at most run a deficit of 0.5%. That's pretty stringent by any stretch of the imagination and it almost immediately rules out any Keynesian activity of spending money to make money. Section 1.c provides some respite, where due to external influences an economy is in shock, it can temporarily go beyond a 0.5% deficit. Of course, no definition is given of what temporary means - is it on a quantum or geological timescale?
The second major part of the Compact appears in section 1.d which defines the long term goal of a debt to GDP ratio of less than 60%. Dangling in front of us as a carrot to reach this goal, is the permission to run a 1% deficit if our ratio is below the target, so assuming growth of 2% we would still be reducing our ratio even in carrying out this deficit spending. Then the stick of section 1.e kicks in and forces automatic corrections if we deviate much from the plan outlined in sections 1.a through 1.d.
Section 2 is obviously the one that scared the AG into recommending the referendum. It forces countries to enact legislation "of binding an permanent character, preferably constitutional" enabling the terms of the Compact. Now to my mind the word constitutional can only be in there to force a vote in Ireland. After desperately trying for months to come up with a wording that wouldn't invoke a referendum, you'd think the smart people in the EU would have managed to avoid that phrase. But there it is in black and white and so we're having a vote.
Article 4 is our next port of call. This short little paragraph provides the timescale for reaching the requirements of 3.1.d (60% debt-GDP ratio). It says it should be reduced by 5% per year. Given that Irish debt is about €170B (and expected to reach €200B by 2015)  and our GDP is about €150B, our current ratio is about 115% and even allowing for some economic growth (say 2.5% pa) will top out about 120%. Reducing this by 5% per annum to the magic 60% will take a further 12 years, bringing us right the way out to 2027. That's 15 years of austerity and cuts ahead of us, unless the state discovers huge quantities of gold or oil somewhere in Laois.
Article 7 is a real doozy. Articles 5 and 6 outline how the Commission shall have oversight and the power to recommend actions for countries who break the pact. Then in Article 7 we have the get out of jail free card for the big four - Germany, France, Spain and Italy. Any recommendation can be rejected by a qualified majority vote and considering the big four pretty much have a qualified majority between them that effectively turns the Compact into a stick for the large countries to beat the little ones. So much for a union of equal sovereign states! We only have to think back to who were the first two countries to breach the previous attempt at a financial stability pact to see how this will play out.
In Article 8, the countries agree that the Court of Justice will be the final arbiter in disputes concerning the Compact which is probably a good thing. This article also quantifies the size of fines that can be issued to countries for breaking the Compact, putting an upper limit of 0.1% of GDP. It is not clear how often a country can be fined because sometimes it might just be easier to break the rules and be fined than to have to slash welfare or raise taxes.
The next few articles are somewhat housekeeping in nature as the put in place terms of reference for co-ordination of economic policy between the countries and how the Euro will be governed. These make sense if you agree that signing up to the Compact is a good idea - if you are tied to each other then you had best make sure you're all pulling in the same direction.
The treaty comes in to effect under terms outlined in article 14. This is 1st January 2013 assuming more than 12 countries have ratified it. Otherwise it will come in to effect as soon as the 12th country ratifies it. This means that Ireland's referendum does not hold a veto over the Compact so we can't do our usual Nice/Lisbon trick of demanding extra concessions. The core of the Eurozone can continue leaving up to five periphery countries behind. However, with only Ireland holding a referendum, it is most likely to be 16 countries driving ahead with the Compact if we vote no.
So that's it. We've covered the entire Compact. Where's the downside in voting no I hear you ask. Well that's hidden away in a different treaty that we've already signed up to covering the operation of the ESM. That is a very murky document that I might go through some other time, but the key point for now is that any state that doesn't sign up to the Compact will not be allowed access new funds from the ESM. If you believe the government that we are meeting all the troika's requirements and that we'll be back in the bond markets in 2014 then we shouldn't care about the ESM. But it would be a precarious position to be in without the ESM safety net below us.

Labour members forum

Over the weekend I attended a meeting organized by Labour grassroots members entitled "What can Labour do in Government". With two panel sessions and a lot of time allocated for contributions from the floor, the event promised to allow a lot of disgruntled members to get things off their chest. Over the course of the day I would estimate that about 80-100 people attended, mainly from the Dublin area but with some from as far as Leitrim and Galway.
I was somewhat wary of attending for several reasons. Firstly, events like this can often turn into a forum for people to rant without being constructive. Secondly, specific issues (eg local hospital, septic tanks) can hijack the event and send if off on a tangent. Thirdly, there is the fear that those attending are seen as being seditious and trying to split the party or worse, join the SWP or Socialists. A couple of McCarthy-esque jokes were cracked at the event about spying on ourselves. Finally, there is the perverse situation at these sorts of events where everyone wants to watch and listen, but nobody wants to contribute. I was at such a meeting once and it was one of the most painful hours of my life.

The morning panel was badged as a "descriptive session" where the current state of play would be outlined. Speakers from Unite, ICTU and the Women's Council set the scene with brief presentations and then the debate was opened up. The key theme was obviously the economy and the failure of the austerity regime being implemented. Other topics included youth unemployment, IBRC promissory notes and the demise of the JLC system. I'm always a bit wary of the Trade Unions preaching at the Labour Party after their continued sucking up to Bertie throughout the boom and the farce of social partnership. But unions and the party are working towards the same ends and so we have to learn to get along again.

After a quick break for tea and sandwiches (no champagne or prawns!) we settled in for the afternoon's "proscriptive" session. It featured a panel of Mags Murphy from SIPTU, Michael Taft from Unite and Mary Murphy from NUIM. Between them the presented an alternative strategy to austerity, based on targeted state investment and a re-balancing of the tax burden. A long discussion followed with many detailed and comprehensive contributions from party members.

Towards the end, the debate moved towards what could be done to bring these ideas forward. The big problem is that if, like at the Irish Economy Conference, no policy makers are there to listen, what is the point in having a discussion. Unless a concrete proposal can be drafted and then accepted by the party leadership then the effort may be in vain. Several backbench TDs attended various parts of the day, and to be fair to them, they sat quietly and listened rather than dominating the discourse. Perhaps they will report at the next PLP meeting and a constructive dialogue can begin between the top and the bottom of the party. There are plans to hold further such events and I will certainly attend if at all possible.

It's the economy, stupid!

One of Bill Clinton's greatest contributions to language, apart from defining what sexual relations may or may not mean, was the phrase "it's the economy, stupid!". So as a stupid person, I spent last Friday in the conference centre in Croke Park being educated on all things economic and fiscal. The conference was organized by Stephen Kinsella, Liam Delaney and Colm Harmon and had in excess of 200 people attending over the course of the day. What follows is a rundown on the sessions I attended and what nuggets of information I picked up from them. I understand that videos of the day will be posted on the Irish Economy blog.

Property Market

After a very welcome cup of tea and having my name ticked off on the attendance list, I plumped for the Property Market session as I felt I might at least understand the topic compared to the meta-debate on how to make good policy that went on in the parallel session. First up was Ronan Lyons who presented his proposal for a site-valuation tax to replace the current property taxes and, perhaps eventually rates. In principle it seems like a good idea to encourage productive, high density use of land zoned for residential use. However, based on his plan I still don't see how the tax would work and provide a sustainable base of taxation for local government spending without large financial transfers from urban to rural dwellers. I tackled him on this in the Q&A session and at lunchtime and we agreed that the plan could do with some refinement.

Next up was Michelle Norris from UCD who presented a paper on the realities of mortgage arrears in Ireland. Despite the low number of repossessions, the stresses that many mortgage holders are put under by both prime and sub-prime lenders is huge. Her presentation really put a human face on the current mortgage crisis. The session finished with Rob Kitchen from NUIM outlining his thoughts on the future of the property market. A lot of his material has already been posted on his Ireland After NAMA blog but it was good to put it all in the one place. He doesn't see a recovery to peak prices for a long time to come yet.

Unemployment

Following a brief coffee-break, and the arrival of Minister Joan Burton with RTE in tow, I headed in to the session that she was chairing on unemployment. Not surprisingly, this was very well attended with standing room only at the back of the hall for a time during the session. First up was unemployment expert David Bell, from Scotland, who outlined the nature of our unemployment problem and compared out situation to that of other European countries. Next to speak was Aedin Doris from NUIM who gave one of the two best presentations of the day. Her mantra was that unemployment was a demand side problem and that no amount of badgering the unemployed can make them get jobs that don't exist. Finally Philip O'Connell from the ERSI examined all the data on state training and concluded that most of the budget was being targeted in the wrong areas. Just as well FAS is being restructured/closed! Due to the interest in the subject this session ran over by about half an hour, and so a much shortened lunch-break followed.

Banking and the Euro

On reading the conference programme, this session immediately jumped out as the headline acts. Brian Lucey, Karl Whelan and Frank Barry speaking with Constantin Gurdgiev chairing was just like an episode of Vincent Browne but without the haranguing and pointless government spokesperson (Coveney and Donohue I'm looking at you!). And it did not disappoint.

After a brief introduction from Constantin where he outlined the topics and the ground rules, the floor was yielded to Brian. During his half hour presentation he discussed the implications of the impending duopoly in the Irish banking system and touched on the likelyhood of co-operative or mutual banks (just like the old building societies) setting up and the possibility of a foreign bank entering the market. From what I took from the talk, we are unlikely to see much in the way of innovation in Irish banking for the foreseeable future with BOI and AIB continuing to dominated the market.

Following Brian was Karl who gave the best talk of the day. He explained in words of one syllable the funding mechanism for the rump of Anglo, why burning bondholders is now old hat, why the interest rate on the Prommissory Notes is a red herring and how the Central Bank could just write off the notes if it could convince 2/3 of the other central banks in the Eurozone that doing so is a good idea. This is a talk that should be watched by every back-bencher who comes out with the "there is no other way" mantra.

After Karl's magnum opus, Frank was always going to have a tough act to follow but he coped admirably and gave a very interesting talk on the problems with the Euro. His premise that unless there is some sort of federal funding mechanism to buffer the impact, the peripheral Euro countries will be at risk of external shock to their economy. Ireland due to it's reliance on the US and UK is particularly susceptible. Another talk that I look forward to watching again once posted online.

Fiscal Policy

I will have to admit that either due to the subject matter or my lack of mental stamina, both Philip Lane's and John McHale's papers went over my head. They seemed to be suggesting that in the new Euro deal that may or may not require a referendum there will be stricter controls over deficit spending and overall debt to GDP ratios than are currently in place. I'm not sure how the Eurozone countries will get to the target 60% in any reasonably time-frame but the plan seems like a reasonable one.

The final two talks by Seamus Coffey (UCC) and Colm McCarthy (UCD) tackled the issue of capital vs recurrent spending. The first presentation was right up my street with a relentless series of graphs outlining the collapse in capital spending through the recession. The implication was that we are now underspending on capital and that future cuts should come from the recurrent side of the budget. The pertinent question is this: Is the 94th euro spent on recurrent providing a better return on investment than a potential 7th euro spent on capital.

The master of Bord Snip then promptly stood up and demolished all of what had gone before. He suggested that we had splurged on capital during the boom, often driving up prices on ourselves, and that having built one motorway to Cork there was no need to build another. Of course this neatly sidestepped the fact that we still have schools housed in prefabs, Dickensian conditions in hospitals and even in a huge recession, gridlock in Dublin on a daily basis. However, his presentation brought the conference to an end in a lighthearted manner and was just what was required after a heavy day's thinking.

General Thoughts

Overall the day was very enjoyable and very enlightening. From an organizational perspective some of the major positives were the free entry cost, working wifi, good chat on the conference hashtag (#ieconf), roughly sticking to schedule and a large turnout. The downsides include some issues with microphones, spam overload on twitter during the afternoon, running out of sandwiches at lunchtime and the lack of attendance by politicians and senior policy makers with a few notable exceptions. If, as has been suggested, these conferences become a regular event I will certainly try to attend. Congratulations to all involved in the event as I would deem it a great success.

What a difference a night makes

There was a little girl who had a little curl,
Right in the middle of her forehead.
And when she was good, she was very, very good,
And when she was bad, she was horrid.

While Vincent Browne is neither a girl (fully grown man) nor has a little curl (lots of curls), this little ditty could easily have been penned about his late night show on TV3. Since the show started I have been quite the fan, but of late I have become less enamoured of my late night political gossip. Too many shows end up with the same old faces making the same old points and so since the start of the Presidential Election campaign I have actually given up watching except for odd occasions.

However, the last few weeks have seen my schedule become more regimented and I find myself sitting on the couch waiting for 1AM to roll around so I can give Ailbhe her final feed and then go to bed. This has led to my getting back into the swing of JML ads, snippets of Family Guy on BBC3 and relentless frustration from Vincent with all of his guests. And like the poem, some of the shows have been amazing and some awful.

Take for example the day that Sinn Féin produced their budget proposal (16th November). Joining Vincent were Pearse Doherty from SF and Simon Coveney from FG who spent the entire show tearing strips off each other. Coveney was shown to be either completely clueless, completely unbriefed or else told to fall on his sword to avoid letting any pre-budget strategy be revealed. It also helped that Marie Sherlock from SIPTU was on the panel and she made some particularly insightful contributions attacking both the SF and FG positions as required.

On the other hand the following evening Aodhán Ó'Ríordáin was part of the panel discussing the number of election promises that had been broken by the government since taking office in March. This was the most mind numblingly boring episode I'd seen in a long time. There was no real debate between the panelists and despite his best efforts, Vincent couldn't get the deputy to admit to any broken promises at all.

Last night was another doozy, where Constantin Gurdgiev destroyed Damien English on the potential collapse of the Euro. While I don't think the doomsday scenario outlined by Gurdgiev, he had the figures and the expertise to back up his position. English didn't want to even engage in a what-if scenario and could only repeat the mantra claiming the ECB would do the right thing this time. Again, maybe he was badly briefed, but English came out of the show very badly. One wonders why FG continue to send out people like him and Paschal Donohue rather than some of the heavy hitters like Shatter, Bruton, Noonan or Reilly. I guess it's the same reason Conor Lenihan was such a regular on #vinb before the election - plausible deniability for the government.

I'll keep on watching and hope for more fireworks in the next few weeks as the budget appears and the Eurozone continues to flounder from crisis to crisis.

PS - there's a really good piece written by Stephen Kinsella posted on Irish Economy. Definitely worth a read.

Taking a break

I've decided to take a bit of a break from blogging. The last 6 months have been fairly hectic what with the general election and then my own shenanigans with the Seanad election. I've partially burned out on politics and so need to charge up the batteries again. Luckily I'm off on holidays for a few weeks soon which should get me back in the zone. We'll pick up at some point during the silly season.

Just a few minor thoughts on recent topics before I go.

David Norris

The current smear campaign being waged against David Norris is disgusting. When people like John Waters and David Quinn come out supporting the attacks it only makes me more sure that it is a load of dirty tricks. While I will be voting for Michael D Higgins in the Presidential election I am now more certain than ever that Norris will be getting my number 2.

We the Citizens

I went to the We the Citizens event on Wednesday night in Tallaght. While skeptical about anything of great import coming from the events it was good to have a round table discussion with a group of strangers. The event was well organized with a facilitator at each table to keep the conversation on track and make sure it wasn't dominated by a few loud voices.

One thing I think has worked in their favour is the timing. Initially they had hoped to report before the general election in early 2012 but obviously that didn't come to pass. However, with the election there was a sense of the air being cleared and we didn't spend hours giving out about Cowen, Lenihan and the banks. A lot more positive and constructive than it might have been on the original timetable.

Tweet Up

The politics twonks also held a tweetup last Thursday night. As usual, great fun was had debating the ills of the country. It was a bit weird not being on the offensive against the government. Was also nice to meet a few new people as well as the old regulars and there are plans to hold another session towards the end of the summer.

Ignite

On Wednesday this week I'll be giving a talk at the Ignite Dublin session being held in the Science Gallery. These talks are on any topic, last for 5 minutes and have 20 slides that advance every 15 seconds. Considering my lecture overheads normally proceed at the rate of one every 5-8 minutes this is quite a challenge. I have about 10 of the slides done but amn't sure what else to cover. If all else fails I can always repeat! Oh, and the title of my talk is something like "How to (un)successfully run a Seanad election campaign on no money and even less planning" so it is somewhat politically focused.

Water Charges

Phil Hogan has put water charges firmly back on the agenda. As usual Nama Wine Lake were well ahead of the curve with their fairytale. But it is true that water charges, like most consumption and flat taxes, are regressive and in this case particularly expensive to gear up for. Another sop to the building industry?

JLCs

The other major bit of right-wing kite flying being done by the blue side of the coalition is the carry-on by Richard Bruton with the JLCs. Again the work has been done Michael Taft and others on the figures but attacking, yet again, those on extremely low levels of pay is daft. All it does is further reduce domestic demand which has a knock on effect of laying off even more people who's jobs are on the minimum wage or a rate agreed in a JLC. People at the bottom spend to survive - reducing their disposable income just continues the cycle of depression and cuts.


Think that's about it. See you all in a little while. I'll still be hanging out on Twitter if you need to find me.

Another thought on the Doom

Last night, watching Vincent Browne on TV and Twitter, a thought came to me about the financing problems that Morgan Kelly's article highlight. As outlined yesterday the theory goes that if we dump the banks back on the ECB and ditch the bailout that we immediately have to balance the books as we will have no credit. But is that true?

According to Kelly, in the run up to the bailout, the EU and the IMF had strongly different views as to how the bank debt should be treated. The IMF were all in favour of hair cuts for bank debts, the EU not so as the ECB would be the one taking the hair cut in the long run. In this discussion it also appears that the UK were generally on the IMF side with the US lined up alongside the EU.

The composition of the bailout fund is as follows: €22.5B from the IMF, €45B from the EU through EFSM and EFSF and €17.5B from our own funds (how this gets counted as part of the bailout I'm not really sure since it is already our money, probably borrowed on the market). I'm also not sure whether the roughly €4B in the bilateral loan from the UK is included in the EU funds but it probably isn't.

Now my proposition is that if we followed the Morgan Kelly route, would the UK and IMF money still be on the table? Obviously the EU would withdraw as the ECB would be left holding Irish bank debt but the other two seemed to indicate last November that pushing debts back on the private banks was the preferred route. Now Kelly is suggesting a complete ditching of the banks rather than haircuts but I wonder how far apart the two really are.

If this is possible, then assuming we have already drawn down 1/3 of the bailout (€28B) and that our own resources were burned first, then we have probably only taken about €3.5B of the IMF's funds. That may leave us with a line of €23B in credit, €19B of IMF funding and the &euro4B from the UK. That might allow us take an 18 month adjustment period rather than chopping the €20B overnight.

Obviously any such plan would need to be approved by Mr Chopra and his band of merry men, but is it even feasible? Again, like Kelly's plan, probably not but it might be worth investigating.

We're still all doomed

The purveyor of all things doomy, Morgan Kelly, was back at the weekend. Following on from his November article (blogged here) he paints a none too rosy picture of Ireland's economic future or the road taken to get us to our current position. He is particularly scathing of Patrick Honohan and his missed opportunity to cancel the bank guarantee when he was appointed.

Kelly does put forward a solution to the current mess that comes as a two-parter. Firstly Ireland walks away from the entire EU/IMF deal and foist the bank debts back on the ECB and secondly (or more specifically as a consequence of the first) Ireland immediately balances its budget.

The first part of the solution is easy. We stop drawing down any additional money from the EU/IMF, tear up the draft MOU that was circulated last week, close down NAMA and turn the ECB into the effective owners of the Irish banks. So far so good. This gets our debt back to a "reasonable" figure a bit north of €100B.

Now comes the hard bit. Because we will have cut off our line of credit from the EU/IMF and due to the outrageous margins the bond markets are demanding on Irish debt, we would have to immediately slash our expenditure to match our income. That means an overnight correction of about €20B give or take. This equates to about a 30% cut in all social welfare payments, public sector pay and pensions and a huge number of canceled procurements and service contracts with the private sector, not to mention a massive bonfire of quangos.

Ignoring the mantra of "The ATMs will stop working", which I seriously doubt would happen, the scale of the adjustment is massive: cutting job seekers benefit to around €135, child benefit to €100 and the contributory old-age pension to €160. It would also cut about €6B off the annual wage bill for the public sector, but assuming an average tax/levy rate of 20% (probably a low estimate) that would come back to less than €5B in savings. The knock effect of these cuts is further reductions in spending in the economy, thereby reducing even more the taxes raised through VAT and private sector employment which could end up in a further negative spiral of cutbacks.

Could the Irish economy survive such a shock? I don't think so but it is the only result possible if we ditch the bailout. Certainly the Irish people would find it very hard to swallow. But if given the choice between a lot of medicine now or a long, drawn out illness it is certainly worth weighing up.

The big question that remains unanswered, at least to me, is what way the bond market would react. At the moment it seems as though an Irish default is already priced into our yields. We are out of the market because they won't lend to us. The government line is that if we default then the market won't lend to us in the future either. So if we're frozen out anyway, then does a default matter? Won't there be some enterprising hedge fund that will see an opportunity in lending to Ireland in the future once our spending is roughly back in line? Obviously this lending would have to be prudent and for serious capital investments such as rail, schools and hospitals rather than re-inflating wages. But it certainly seems like such lending would be likely in the medium term.

The other question is how a default would affect the Euro in general, and Ireland's participation in it. On that I have no clue. Perhaps someone could enlighten me a bit on the topic. Can we realistically move to the Punt Nua and is that even an advisable thing to do unless we peg to Sterling? And if Greece jumps should we follow or is the game over?

Protest time again

This coming Saturday, ICTU are holding a protest march from Wood Quay to the GPO. This comes almost a year after the last major incident where I spent a day in the pub North doing Xmas shopping cold picketing a building site on Pearse Street. The upcoming demonstration, while nominally about Congress' alternative to the austerity measures, is really the best opportunity for the general public to register their disgust with the decisions and plans of the current government.

Over the last 10 years, the Unions, both public and private sector, have not exactly covered themselves in glory. The fiasco of benchmarking and partnership along with lightning strikes and blue flus have not endeared the organisations to the general public. At this point the sight of Jack O'Connor, David Begg and Blair Horan on the TV has most people either reaching for the remote or throwing something at the screen.

However, this protest has to be about more than the Unions. These organisations are the only groups who are able to mobilize large numbers of people to form the core of a protest. Compare this Saturday's events with the Right to Work events last May and June where there was never more than 1,000 people in attendance and in may cases substantially less. The involvement of fringe groups such as SWP, Eirigí and Anarchists only puts people off attending. The Unions, despite all their faults, give some level of legitimacy to the event.

So turn up on Saturday. Bring a sign and feel free to put an anti-Union slogan - you won't be alone. Together the masses can have a say and hopefully put an end to this disastrous government and their failed policies.

Green Flags and Crocodile Tears

I really don't know where to start on this one. Yes, the EU-IMF bailout that we all thought was going to happen has come to pass. Yes, the banks and our governments (mis)handling of them over the last 3 years or so has dug us into a hole. Yes, people are emigrating in droves not seen since the 1980s and it government policy seems to rely on this continuing. In short, Ireland is banjaxed.

But would people ever give up with the maudlin appeals to Yeats, 1916, Wolfe Tone, Brian Boru and Diarmuid Ua Duibhne. Wrapping the green flag around you, while somewhat cathartic, does nothing for you, for Ireland or in fact pretty much anyone. We the people have landed the country in its current state through a decade or more of gorging on the supply of cheap credit made available since the introduction of the Euro. Government policy encouraged this mass orgy of financial decadence through various tax breaks, hair-brained schemes such as the SSIA and Decentralization, and pro-cyclical spending but we have to also take some level of personal responsibility.

It is a disgrace that a relatively wealthy, 1st world country such as Ireland has need of the services of an organization such as the IMF. It is a disgrace that such an organization needs to exist at all in the first place. But people are people and greed is greed and the world keeps turning. The crocodile tears of the booms greatest cheerleaders should not make us loose sight of the fact that we are still in a far better place than probably 90%+ of the worlds population.

The End

In 1967 The Doors released their debut album featuring the hits "Break on Through" and "Light My Fire". During the late 80s and early 90s I went through my Doors phase and became quite the fan of the album and especially the final track, the epic "The End". On the bus into work today the song popped back into my head and I noticed how prophetic Jim Morrison had been in that song with regard to the Irish economy in 2010 and it could be interpreted as a lament being sung by Lenihan and his Fianna Fáil comrades.

This is the end, beautiful friend
Fairly obvious opening line on the current state of chassis.

This is the end, my only friend, the end
So who is this only friend? At this point the public have turned on FF as have the bond markets. Who is left? The EU, the ECB, the IMF? Or is it just the Irish bankers and developers?

Of our elaborate plans, the end
Plans to dump €60B+ of additional debt on the shoulders of the Irish tax payers without a whimper from the coping classes.

Of everything that stands, the end
From a FF point of view, the only thing that counts is being in charge. Here Morrison/Lenihan is lamenting the imminent destruction of the party. The trappings of power will come crumbling down as the deFFification of society begins starting at the top with the TDs.

No safety or surprise, the end
No surprise, we've known for a long time how banjaxed the country is but we've decided to keep the populace in the dark and there is no safe route back to prosperity. It's the EU, the IMF or default and darkness.

I'll never look into your eyes again
Cowardice from those FF TDs who will decide to retire before the next election rather than face the wrath of the electorate.

Can you picture what will be
So limitless and free
Limitless national debt as billions are pumped into banks while schools and hospitals are left rotting. Perhaps a touch of irony with the use of the word free.

Desperately in need of some stranger's hand
In a desperate land
Again a reference to the strangers of the IMF coming in to this desperate land to sort out the mess left behind.

After this point, the song meanders into various psychedelic images of Roman wildernesses, highways, snakes and a blue bus. Not really sure how this fits with my chosen narrative so I'll just skip on ahead. The Oedipal section is even more open to interpretation but I'm just going to say the role of the Father is played by the Irish economy and the Mother is the Irish people. Morrison/Lenihan winds up the song with a return to the main theme - this is the end of the Republic of Ireland in its current state.

The end of laughter and soft lies
The end of nights we tried to die
This is the end

This analysis probably makes it clear that I wasn't so good at the old English poetry for the Leaving Cert. Best stick to facts and figures in future!

We're all doomed!

As a kid I probably watched a few more episodes of Dad's Army than I should have. One of the characters had a catchphrase of "we're all doomed" every time a crisis of some sort arose. Well Prof. Morgan Kelly from UCD is a bit like Private Fraser except that in most cases Kelly is right when he utters the magical phrase. He is the person who has been proven most accurate in his forecasting of the downfall of the Irish economy in the last number of years. So when I read his article in today's Irish Times I was half tempted to just give up trying and emigrate. In it he reveals a few items that I had not noticed before and paints an extremely bleak outlook for the country for the next decade.

For instance, I hadn't realized that €55B in bank bonds were repaid in September with cash from the ECB. This item of news seems to have been kept fairly quiet for as Kelly says, now that the investors have been repaid we have no leverage over them any more. No wonder they feel they can get away with demanding 7%+ yields on our debt when they see what a pushover the Irish government is.

The most damning part of the article is where Kelly states: "every cent of income tax that you pay for the next two to three years will go to repay Anglo’s losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others". That's six years of blood, sweat and tears by Irish workers being flushed down the toilet to rescue banks from the folly of their actions. It really does make you weep.

His future of an extremist right-wing party rising from the ashes of FF and FG is worrying. An Irish Tea Party movement, or worse an equivalent to the BNP, would not leave us in a nice place. The ongoing alienation of the poor through frontline cutbacks and high levels on long term unemployment will only speed this process up. As has been shown time and again throughout Europe and beyond, hordes of disillusioned young males will end up taking extreme positions.

The one vague positive, and it really depends on how you look at the issue, is that he predicts a complete collapse in property prices in the next few years as mortgages dry up entirely and we are left with a cash only market. As someone who owes the guts of a quarter million on an ex corpo house in Dublin 5 that is not good, but at the same time with the few shekels I have managed to put aside since purchasing about 7 years ago, I'm looking good for buying a mansion in Foxrock by 2013.

I'm currently reading Animal Spirits by George Akerlof (who shared the Nobel Prize with Joseph Stiglitz, friend of NAMA developers, in 2001) and Robert Shiller about psychology and the economy. So far I'm only a couple of chapters in but they focus on fairness and confidence as being two key traits to economic recovery. Kelly's article certainly outlines how unfair the system has been to many people, and will continue to be into the future. Unfortunately the article is low on the confidence generating stakes as well but in a basket case like the Irish economy at present, that is actually fair as well.

I wonder if Morgan Kelly sings an updated "Who do you think you are kidding, Mr Trichet?" on his way to work every morning.

Unions Capitulate

Well it was always going to end this way. Despite the early results from the frontline groups such as teachers and the lower paid clerical staff, the vast swathes of mid-grade pen-pushers in the larger unions carried the Croke Park deal. So now we're in for a few years of the reform agenda with the promise of no further cuts (subject to national finances).

The gap in the public finances should be tackled from both ends - costs need to be reduced, but at the same time putting more people back to work reduces Welfare costs and increases tax revenues. Agreeing to hold public sector pay static until 2014 and rely on natural wastage in the system is not going to help close the gap much. It is also landing the next government with a time-bomb. By 2012/13 the agreement will more than likely need to be broken and FF will start playing politics again blaming FG/Lab/whoever for stabbing the public sector workers.

Of course the really interesting part is what will happen with the teachers and other groups that rejected the deal. Will they go along with the majority vote in ICTU or will they continue their actions against the cutbacks? If the disputes continue, will the government declare the unions as rogue and start implementing forced redundancies and cuts on their members? There will be some heated debates within the teachers' unions over the summer break to come up with a workable strategy that protects their and the students' interests without alienating an already hostile private sector.

Just for the record, as a SIPTU member in higher education, I voted against the deal.

The Rise of Quanglo

This country and specifically the inbred circle at the top of the financial world gets worse by the day. After years with effectively no supervision, the first time the new financial regulator steps up to the plate and actually does his job by protecting the interests of the public he is asked to back down. The anger of the Quinn employees is wrongly directed - the regulator isn't their enemy, the man at the top of the firm who led them over the edge of the cliff is.

I am at a complete loss understanding why the tax payer, through Anglo Irish, the bank we already own and have pumped billions into, is to underwrite any outstanding debts that might be incurred by the Quinn group. This is a private company that made bad decisions and should not be protected from itself. Live by the market, die by the market should be the motto, not privatizing profits and socialising losses. I'm sure that Quinn is a wonderful employer up in the Cavan area, but the future of a few FF TDs in the region should not saddle the rest of the tax payers in the state with another massive debt.

How can an institution that has just been bailed out by the tax payer now turn around and use that money to bail out yet another corporation? Of course the links between Anglo and Quinn are well known with the magic 10 who were given unsecured loans to buy out Quinn's CFDs a while back. Any surprise that the FF gombeenarchy is rowing in behind these shenanigans to protect the Galway tenters? Makes me sick.

Recession is over

According to the CSO, GDP grew by 0.3% in Q3 this year so technically Brian Lenihan was correct when he said we had turned the corner and were on the road to recovery again. Of course, if we're on a double dip, then come April we could be back in recession if Q4 09 and Q1 2010 report further contraction of GDP.

As someone who knows next to nothing about economics, I've often wondered if GDP is a useful figure to determine recessions, depressions and booms. It seems like a very unwieldy stick in a field where a certain amount of finesse is required. Also in a small, open economy *DRINK* like ours, GNP might actually be a better measure of the state of play as it would ignore the impact of companies like Microsoft or Intel who could decide to book a lot of business in a quarter which would have a large impact on Irish GDP.

Either which way, this news won't be much comfort to those who are out of work and facing benefit cuts in January. They're still going to find it tough going even if the economic indicators are showing a recovery.