Monday, May 28, 2012

Shane Ross TD: Irish politician advocates No and Yes vote on EU Fiscal Treaty

Shane Ross TD, a non-party right-wing member of the Dáil (Irish Parliament) has taken a brave step that is consistent with the rare evidence of courage among Irish legislators. He has come off the fence on the May 31, 2012 referendum on the EU's Fiscal Treaty. Ross advocates a no and a yes vote.

He said in yesterday's Sunday Independent: "Many of us, passionately pro-European, want to support the European project. We want to vote 'Yes'. We cannot because we are being compelled to vote in a twilight zone."

Stephen Collins, political editor of 'The Irish Times' wrote in April 2011 in reference to people such as Shane Ross who were cheerleaders of the most reckless bankers of the bubble: FitzPatrick of Anglo Irish Bank and Fingleton of Irish Nationwide Building Society: "It is probably no accident that some of the cheerleaders of the boom have now turned into leading prophets of doom. The same reckless, gambling instinct that fuelled admiration for Seán Fitzpatrick also underpins the 'burn the bondholders and damn the consequences' philosophy."

"I sometimes had to act against the preconceived opinions and first impressions of my constituents...I value solid popularity - - the esteem of good men for good actions. I despise the bubble popularity that is won without merit and lost without crime" -- Thomas Hart Benton, US senator of Missouri, 1850.

We are in an age where telling the truth can evoke outrage and it's reported that the Facebook page of Christine Lagarde, IMF chief, was bombarded with 10,000 messages in response to daring to point to extensive tax evasion in Greece.

In Ireland, it's rare for politicians to tell home truths to the public. Public pandering is the default route but is often against the public interest.

Senator Benton took an unpopular stand in his home state saying the "incurability of the evil is the greatest objection to the extension of slavery" to new federal states. A colleague on one occasion pulled a gun on him on the floor of the US Senate.

Uncommon valour is not expected of Irish legislators but they should reflect on the words of Irishman Edmund Burke to the electors of Bristol in 1774:

"You choose a member, indeed; but when you have chosen him, he is not a member of Bristol, but he is a member of Parliament. If the local constituent should have an interest or should form a hasty opinion, evidently opposite to the real good of the rest of the community, the member for that place ought to be as far, as any other, from any endeavour to give it effect."

... finally back to Greece and the truth:

"In a study done last year, the OECD described government-run Greek hospitals as deeply corrupt. It concluded that we could save 30 percent of the costs, which is enormous. The hospitals generated a deficit of €7 billion last year. Imagine what an unbelievably large amount of money we could save by simply introducing computers into hospitals. Until now, there has been far too little control over the purchasing of medications and equipment. In Germany, a stent for heart operations costs about €500. In Greece it costs €2,000 to €2,500. The fault lies with corruption" - - George Papandreou, Greek prime minister, Feb 2010.

Monday, May 21, 2012

Irish economy outlook to 2020: The figures and the real world

The Irish Department of Finance has published updated projections for the public finances. The current deficit reduction plan rests on relatively small additional budgetary adjustments (€7.8bn) through 2013-2015 compared with the €25.0bn of expenditure cuts and tax rises since July 2008. However, the plan also rests on a robust pick-up in the nominal growth of GDP (gross domestic product) to 3-4% by 2013. Should Irish nominal GDP growth disappoint by just 1 percentage point (pp) per annum, the ratio of gross government debt to GDP could  be 10pp higher than expected by 2015.

Last month, the Department of Finance said that while taxation receipts in 2012 are projected to be just above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at an estimated €56bn, is projected to be 37% above the level it was in 2004, despite the very significant adjustments to both revenues and expenditure since mid-2008.

The Department said [pdf] that while the gap between the State’s revenues and expenditure is clearly on a downward trajectory, it remains at an elevated level and it will need to continue to be addressed by economic and fiscal policy over the coming years.

A report from Davy Stockbrokers [pdf] published on Thursday says the important figure is "net debt," after allowing for assets held by the government, such as the pension fund, and Ireland's favourable net position is often ignored.

Our current Davy forecast is for the debt/GDP ratio to rise to 122% in 2013, a little higher than the official projections for debt to peak at 120%.

Prof John McHale of NUI Galway and chairman of the Irish fiscal council, which is an independent body which issues reports on government budgetary policy.

On the Irish Economy blog, Prof McHale presented a scenario on the outlook to 2020 for the Irish economy.

Michael Hennigan's posts:

Post 1
I think it would be wiser to focus on real world scenarios rather than metrics for the EU and the markets. 
This is comparable with an Excel template for a business plan and the tweaking can produce the desired result but it may not be a realistic one.
The Department of Finance says in its Stability Update last month that while taxation receipts in 2012 are projected to be just above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at an estimated €56bn, "is projected to be 37% above the level it was in 2004, despite the very significant adjustments to both revenues and expenditure since mid-2008." 
The DOF projects a fall of  €5bn in gross voted expenditure between 2012 and 2015: from where will these cuts come from? 
Minister Howlin has touted cuts in the central government paybill by 2015 (note pensions excluded). If 2006 is the benchmark and public staff pensions are included, there will be ZERO savings compared with 2006, the peak year of the boom. 
Conall Mac Coille of Davy says a 1% annual shortfall in the nominal GDP to 2015 would add 10% to the gross debt/GDP ratio. 
You assume spending rising at half the rate of nominal GDP but there are no reforms to suggest that this outcome is credible. 
There is no obvious jobs engine and unemployment will remain very high for years; how realistic is annual capital expenditure of just €3bn in the remainder of the decade? 
There is a growing young population coupled an expanding dependent population. 

In an internal debate, GNP growth and the debt/GNP ratio should be used even though GNP also reflects MNC accounting manipulations.
Post  2
We will have 8 years of cuts by the time the ‘fiscal consolidation’ works! 
A 40% cut in the public procurement budget — legal firms, DPP contractors, IT contractors, doctors, health insurance payments, severance payments and in respect of pay, that percentage would apply above a threshold for current and former civil servants — should have been introduced in the first year of the crisis. 
That would have required ministers in giving up scandalous bonanzas — too much to expect.
Was life that bad in the late 1990s that we could not use it as a base? 
During the bubble, the outsize gains in private sector areas were in business sectors where public contracts were available. 
The State pays half a billion euros annually to lawyers. Does it have to? Is there such a market demand to justify the current rates? 
We need to get real about what can be afforded in order to build a sustainable economy.
Ireland: GDP or GNP? Which is the better measure of economic performance?

Irish Economy 2012: At least a third of value of Irish services exports is overstated

Thursday, May 10, 2012

Irish Department of Finance: Empty new 'strategy' for grim times

John Moran, the new Secretary General of the Irish Department of Finance has issued a revision of a  'strategy' document for the period 2011-2014.

Moran is an outsider but it would be hard to detect that from the document which is very light on strategy and is just a set of aspirations. He says: 'Since 2008 pay and non-pay costs have fallen significantly reflecting a fall in staffing and associated supports. This fall in investment in the Department makes it impossible for us to achieve our overriding strategic goals set by ourselves and by the Government.'

He is seeking more staff even though the 600+ total during the boom were mainly fragile flower type Trappist monks who went with the flow. There is no real evidence of change now.

The document can be accessed from a thread on the Irish economy blog

The following are two posts from Michael Hennigan:

Post 1:

I wish I didn’t have to be negative but this is a pathetic little document that says virtually nothing about the operations of an organisation that failed when tested by fire but lists 54 mainly budget commitments and details other national policy goals.

Performance measures will include among others: Per capita income; International surveys of standards of living; Distribution of income; Levels of employment.

- - as if anyone will be held to account.

There is a reference to staffing but I cannot find the actual number and the Irish Times didn’t report it earlier in its story.

A figure of 636 was used in another document for 2011 which included Howlin’s offshoot. Together with the CSO that is a staff of 1,500.

The 600+ are not gathering data but analysing, forecasting, budget preparation, EU liaison etc

‘Impossible’ indeed. This seems excessive for the finance function in a small country.

The argument is that boomtime staff levels and pay/pensions are needed to do the job well…

…a different world for some

In December 2005, 30 members of the European Parliament (MEPs) flew to Hong Kong to “monitor” progress in the Doha trade talks, where they demanded almost daily updates from Peter Mandelson, EU trade commissioner, despite the fact that as parliamentarians they had no role in the negotiations. The total of trips by official parliamentary delegations in 2005 was 43.

Three Irish ministers brought an entourage of 21 civil servants to the same meeting.

The 24 Irish officials were joined by 16 other Irish freeloaders from lobby groups such as IFA (farmers) and IBEC (business) and representatives from groups on behalf of the world’s poor.

If every one of the then 149 WTO countries brought numbers at the same population ratio as the Irish, it would have been some barney!

Dipak Patel, Zambian Minister of Commerce, Trade & Industry in 2005, who was the Chair-Co-ordinator for the Least Developed Countries at WTO negotiations Jan-Dec 2005 said: “…the Financial Times has a bigger trade team than our entire trade division.”
Post 2:

It’s striking that given the crushing of internal dissent during the bubble that an outsider doesn’t make it clear that internal and external dissent is welcome.

Of course the old culture still prevails.

So anyone angling for a quango or state board appointment or membership of those odd contraptions known as taskforces, steering or review groups, steer clear of this thread.

Any negativity is bound to be noted and you will forfeit a handy earner and the honour of being dubbed an ‘expert’ by RTÉ, or a ‘person of standing’ by David Begg, former central banker.

Just to forestall some vested interest calling me be a begrudger, I have never asked for anything for myself from an department or politician, irrespective of party.

When I was at UCC, I did draft a letter to the DoJ for an illiterate neighbour who wanted to become a peace commissioner. He did get the position.

Wednesday, May 09, 2012

EU Fiscal Compact Treaty: Victimhood and belated outrage

These are posts to two threads on the Irish economy blog:

A Guest Post By Gavin Barrett: The Zero Impact Treaty? Some Observations About the Debt and Deficit Rules in the Fiscal Treaty

Michael Hennigan:
It’s likely that most people who will vote no will be motivated by factors beyond the clauses of the treaty.
California illustrates why economic or financial policy should not be made by plebiscite and before anyone mentions Switzerland, check how recent women were given the vote at federal level. It was dependent on men giving their consent.
I was among the minority sailing against the headwinds of conventional wisdom and self-interest during the bubble. I did ask where was the outrage but most of the public returned from Rip van Winkle land after the crash. 
Now, everyone is outraged including the insiders. 
A semi-detached membership and Greece on the way out, would hardly be good for those without State guaranteed jobs and lavish pensions, in the struggling indigenous sector. 
The EMU will survive long- term with a more cohesive group of countries. 
Do people naively expect eurobonds as another no-strings charity item in a CAP size begging bowl? 
Some twitter about neoliberalism and globalisation, 
How richer than Albania would we be without the system of free trade and it came about because leaders were able to agree decisions that had a long-term benefit?  
Is Ireland’s Fiscal Adjustment Failing? by Prof. John McHale

Paul Krugman in The New York Times: "What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills?

One answer is that the confidence fairy doesn’t exist – that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper. Moreover, there seems to be little if any gain in return for the pain."

Michael Hennigan:

Post 1
Most foreign commentary on Ireland take misleading headline data at face value and in 2000, Antoin Murphy in a paper took Krugman to task for buying the yarn of an Irish productivity miracle. 
I assume that Krugman these days doesn’t spend too much time on the Irish issue. 
The export data since the crash, aided by official spinning, is also regularly misinterpreted. 
As for bond yields, the reference to bund yields is odd because, no matter how the bailout program is progressing, yields of countries like Ireland are not going to replicate the trend around the time of the euro launch.
Post 2
Lagarde says austerity vs growth is a false choice; Daniel Gros says Europe swings from austerity to growth but never gets around to addressing the factors that hinder growth - - it maybe boring for some of you folks here but this is reality and like it or not, it’s only Germany’s trade with emerging markets that has made European data look somewhat respectable in recent years. 
In the mid 1990s, in Spain, the unemployment rate then was as high as it is now, and in Italy, it was higher in 1996 than it is today. France’s world export market share fell 20% and its Eurozone market share fell 9% between 2005-2010. 
In the UK, Nick Clegg said yesterday that both Coalition parties’ local election setbacks in Scotland, Wales and northern England owed much to the absence of government subsidies, which were no longer possible to deliver. “For the past 10, 15, 20 years they have been reliant on subsidies from governments in Whitehall pumping money up the M1 farmed by explosive growth in the City of London,” he said. 
As for the auld sod, European welfare has supported farm income for forty years and in recent years it has been 94% (not a typo) of average farm income. Besides, price supports also were European subsidies. 
American firms are responsible for 90% of headline tradeable exports but would it be a shock if half the value of exports was smoke? 
We shouldn’t be a poster child as we fooled outsiders during the bubble as to how good things were and we’re doing the same today with dodgy data. 
There appears to be a lot of alienation in the country, including no doubt among people who are an easy market for outrage now but were immutable to reason during the bubble. 
Most commentators in the mainstream media play to the belated outrage while radicalism is hard to detect in academe. 
If the politicians are not willing to junk spin, then some credible group should provide realistic scenarios of the decade ahead.
People legitimately make the point that debt isn’t sustainable while forecasts of growth a few years out are not credible. 
Where is the growth engine? Spend more on the failed ’smart economy’ project? If the MNC sector can raise industrial production over 70% since 2000 and produce no jobs, it is easy to be fooled. 
At best, the unemployment rate will remain at a high single digit level for many years.
The bubble standard of living cannot be maintained; what should tax and spending be in an economy without any windfalls? 
Pre-2008 is not coming back and despite the odd positive smoke signal from the Croke Park implementation conclave, anyone who believes that this is the way to introduce reform in a large organisation, is to put it kindly, a fool.
Post 3
Some of you should overwrite the conventional wisdom on your braindisk: 
German exports unexpectedly rose for a third month in March as demand from outside Europe offset weaker regional sales. Exports and imports hit new monthly records while trade with other Eurozone countries was almost in balance.