Sunday, December 16, 2012

Irish Austerity: Many critics but few if any alternatives proposed

Herbert Hoover, US president (1929-1933), came up with the term ‘depression’ because it was more soothing than panic or bust. The term ‘austerity’ wasn’t promoted by a marketing type.

The reviewer in the Times of Gene Kerrigan’s new book, ‘The Big Lie: Who Profits from Ireland’s Austerity?,’ says : “It doesn’t purport to explain where we are going next, or how to get there, but it gives a lucid account of why we are where we are.”

Whether right or wrong, Gene Kerrigan writing on the Irish crisis has more credibility than for example Shane Ross.

There is the European dimension but also the local one where for example in Ireland, the people without countervailing vested interest power are unfairly targeted.

So after a 20-year credit binge, credible alternatives to some form of fiscal adjustment in Europe, are seldom aired. In Ireland, those who are the victims of the crash are seldom heard from. Excluding the property boom, there was no growth in Ireland in the past decade. However, bubbletime gains and pensions are still available in the public sector. The British Empire's guarantee of employment in the civil service which dates from that 1850s continues to exist in the Irish civil service alongside premium pay and pension benefits. Meanwhile, Labour Party TDs hypocritically protest against welfare cuts, while senior civil servants can get retirement bonanzas worth several million euros.

The Federal Reserve has been the most active central bank among developed countries but last month, the broad measure of US unemployment was 14.4%, down from 15% in Nov 2011. Nevada, like Ireland had a big housing bust, and its rate is 21%.

Banks have done well from the low central bank lending rates.

Mario Draghi, ECB president, does deserve credit for stabilising the euro.

Europe’s 3 biggest economies, Germany, France and the UK, are projected by the IMF to have gross debt to GDP ratios of 81.5%, 92.1% and 93.3% in 2013.

What level of stimulus would be required to return the continent to 2007 growth?

Michael Hasenstab of Franklin Templeton who has purchased €8.5bn holding in Irish bonds, is quoted as saying: “Ireland is now the second fastest if not the fastest growing economy in Europe, along with Germany. The PMI (Purchasing Managers' Index) numbers in Ireland are in fact better than in Germany.”

The first part of the quote isn’t true; the second part is but if he really understood the Irish economy, he wouldn’t be quoting PMI data.

Estonia is projected to grow by 2.1% this year and 3.1% in 2013 — this is another small economy where headline data is misleading.

Some 20% of Estonia’s 2012 budget comprises EU transfers, which will start running out in 2015. As regards exports, a small number of firms are part of European supply chains while re-exports are also significant (goods imported via Estonia by Russian firms, from third countries).