Ireland Unemployment: 188,000 unemployed continuously for 12 months or more in Oct 2012

Ireland Unemployment: 188,000 were unemployed continuously for 12 months or more in Oct 2012.

The following was a contribution to a thread on the Irish Economy blog:

As regards the lack of part time data on public sector staff, it maybe be a state secret to avoid a focus on full time equivalent numbers — down 5,406 since 2007 - - which looks less impressive than the claimed reduction in numbers.

Wonder how many former staff have been given nixers as consultants?

The Irish Times reported on Saturday on the bonanza for the former head of Aer Rianta International, the DDA (Dublin Airport Authority) unit.

“exit package comprised a lump sum of €437,000 and a payment of €68,000 annually for 6.3 years to bridge the gap to retirement.

The DAA confirmed yesterday that Mr Foley now worked as a paid external consultant with ARI and served on the boards of certain subsidiaries.

People who want to retire should be left go with no strings attached.

Have your cake and eat it elsewhere! The country is banjaxed!

“The graveyards are full of indispensable men,” is a quote attributed to General Charles De Gaulle.

The Wall Street Journal reports today:

When Samuel J. Palmisano retires next month, he’ll enjoy a generous goodbye present: The former IBM chief will earn $20,000 for any day he spends four hours advising his longtime employer.

That means hypothetically he could pocket $400,000 a year for 20 half-days of work—twice what his predecessor, Louis V. Gerstner Jr., makes per day under a similar consulting arrangement. Mr. Palmisano’s contract is open-ended and doesn’t specify the number of days he will work. Mr. Gerstner’s 10-year consulting contract expires in March.

This is simply a shakedown for the super-rich.

As regards the Irish self-employed, many are freelancers, not by choice and of course, they lack political clout.

Modern work……

Apple the most valuable company in the world has the best of both worlds — Foxconn’s battery-hen army in China costing as little to assemble an iPhone 5 ($8) as it recently forced HTC of Taiwan to pay per smartphone sold in respect of disputed patents and another army of apps developers lured by the prospect of winning a lottery but slaving for very little return — even for those who earn a few crumbs, Apple takes 30%:

http://www.nytimes.com/2012/11/18/business/as-boom-lures-app-creators-tough-part-is-making-a-living.html

Irish average earnings fell to €35,905 in 2011

Average annual earnings fell to €35,905 in 2011 from €36,117 in 2010, a decrease of 0.6%. This compares with a revised fall of 1.9% between 2010 and 2009, according to the Central Statistics Office.

Irish Economy: Average annual earnings at €35,905 in 2011

The comment below was made on a thread on the Irish Economy blog:

In 2001 the Exchequer net pay and pensions bill (ex local authorities) was €10.2bn; it was €16.2bn in 2006 (the peak year of the bubble); €17.6bn in 2007; €18.7 in 2008 and is estimated to be €16.9bn in 2012.

These figures are net of pension contributions (normal and emergency).

So to compare with 2007 when it was clear to those of us who weren’t afflicted with Walter Mitty syndrome, that the game was up, there is a saving of €700m. However, we don’t know how much the current cost of the €1.5bn in allowances has risen in the period.

Let’s say €300m. That leaves €400m and then just note that in 2009, the State assumed direct responsibility (a bail-in or bail-out?) for the Trinity College pensions’ deficit of €315m!

The pay and pensions bill takes 42% of net current spending of €40.5bn which has risen by €3.5bn since 2007.

It’s one of several issues of importance in seeking to develop a sustainable economy.

I do cover the others as well!

I have yet to see a justification for the continuation in modern times, of the 1850s era British Empire guarantee of employment.

Irish Economy 2012: Howlin lauds sham cost savings in Croke Park public service agreement

EU-comparison of labour costs and non-wage costs

Among EU Member States, in 2010 the mean (average) gross annual earnings of full-time employees in enterprises employing ten employees or more were highest in Denmark (€58 840), followed by Luxembourg (€49 316), the Netherlands (€45 215), Ireland (€45 207, in 2009), Belgium (€43 423) and Germany (€ 42 400). On the other hand, the lowest mean gross annual earnings were registered in Romania (€5,891) and Bulgaria (€4,396) – see Table 1.

In 2006, median annual earnings showed a broadly similar ranking across the Member States (see Figure 1), with mean earnings higher than median earnings in 2006 for all countries (as very high earners exert a greater influence on the mean than the median). The proportion of employees considered to be low wage earners in 2006 was highest in Latvia, at 30.9 %, while more than one in four employees were also considered as low wage earners in Lithuania, Bulgaria and Romania

Eurostat: Wages and labour costs

Irish Economy: All solutions are not in Brussels, Frankfurt or Berlin

Irish Economy:  Sir Mervyn King, governor of the Bank of England, gave a speech last night in which he said: "Such is the scale of the global adjustment required that the generation we hope to inspire may live under its shadow for a long time to come."

Many look to Brussels, Frankfurt or Berlin for solutions and the 'more qualified' (as used by a contributor on another thread or what David Begg might term 'people of standing' - - Jim Larkin had a point: "The great are only great because the rest of us are on our knees") tend to eschew radical solutions for what is under our control, while young people are targeted to bear the adjustments.

The recent report on food deprivation highlighted an issue I alluded to yesterday. Ireland does not have the English allotment tradition and what is striking are the current very high subsidies for farming for even watching the grass grow, which has resulted in a big change from the 1970s when most farmers grew vegetables. Ireland produces 5% of the Dutch output of potatoes.

Today, staples are likely to be imported and pricy while the tradition of the country cousins bringing produce to their urban relatives no longer applies.

On a bigger scale, the fact that 5% of Americans are responsible for almost 40% of consumer outlays (including consumer spending, interest payments on installment debt and transfer payments) while the bottom 80% by income account for another 40%, shows the level of dependence on a small number in an economy where consumer spending accounts for almost 70% of GDP.

In his 1776 book, 'An Inquiry into the Nature and Causes of the Wealth of Nations,' Adam Smith, a social democrat of his times, noted: "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable."

It's strange that a plutocrat has an excellent chance of becoming the next president.

The heartland used be radical and the death this week of George McGovern, former US senator of South Dakota, highlights this change which Thomas Frank discussed in his 2004 book, 'What's the Matter with Kansas?' - -  why relatively poor folk vote against their economic interests.

In 1896, the 36-year old William Jennings Bryan of Nebraska captured the Democratic Party's presidential nomination with his 'Cross of Gold' speech arguing for a bimetallic currency standard to help rural residents who had endured 3 decades of deflation [in 1925, Bryan made a fool of himself when he  was the prosecutor in the trial of a Tennessee teacher, for teaching evolution. See the impressive Spencer Tracy as the defending lawyer in 'Inherit the Wind' (1960)]

Finally on austerity again, this is from the latest Stability Programme Update, produced by Ireland's Department of Finance:

"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 €56 billon, 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. 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."

The foregoing is a contribution to a thread on the Irish economy blog.

Note how that specie known as the “rural TD” is much more identified with the wish lists of the IFA and vintner groups than desperate urban dwellers they represent; note how a charge for septic tank inspection to ensure safe water became a cause célèbre while the 30% increase in average farm income in 2011 was an unmentionable. Public welfare comprised 73% of average family farm income in 2011 - - a reduction from 97% in 2010. National Irish Farm Income Survey 2011 [pdf]

Ireland: Howlin -- Minister for Status Quo - - gives up on reform

Colm McCarthy, UCD economist, wrote in The Sunday Independent yesterday: "Spare a thought for Clare County Council. On Monday, it emerged that the council was seeking confirmation that the €100 household charge had been paid by families seeking student maintenance grants.

Their lead was being followed by other counties. The typical maintenance grant for a student studying more than 30 miles away from home is €3,025 per annum. In addition, students at colleges in Ireland face fees which are only a fraction of the full cost of third-level education, so there is a double-subsidy for those receiving the maintenance grant.

Yet the council was roundly denounced by several TDs for checking whether the €100 due from each household had been paid. It is truly remarkable that politicians, including representatives of supposedly progressive political parties, can countenance the sheer chutzpah of applying for a €3,025 grant while dodging a €100 charge that is legally due."

Finfacts article: Irish Economy: Minister for Status Quo again targets future workers

The following are 3 comments I made on the Irish Economy blog thread on the article:

1. The argument about the impact that cuts in public spending could have on consumer spending is self-serving as is the one trotted out about a payoff for industrial peace.

So Anglo Irish Bank (IBRC) should remain one of Ireland’s biggest indigenous firms on that basis with 1,000 employed when 100-150 at most should be able to handle the ‘business’ of a shuttered bank? It’s out of business.

Read the Croke Park implementation body’s claimed ’savings’ from bubble levels while the Minister for the Status Quo gets away with stressing pay savings while ignoring rising pension costs.

It’s not only the PS are part of the continued misgovernance but sheltered professionals are continuing to make a killing from the wreckage of the collapse.

GPs who are also drawing from the public trough, have jacked up fees since the crash for private clients.

Up to now, the unemployed and tens of thousands of self-employed (many not by choice in the modern economy) are struggling at subsistence level and those who want to maintain the status quo, are in effect telling them to eat cake.

You are weak; you’re not organised and you have not the muscle of the IFA to put the frighteners on that specie known as the ‘rural TD.’ So be happy with your lot.

It will soon 6 years since the onset of the US subprime crisis; many are clueless as to where significant numbers of new jobs will come from.

Force majeure should have been declared on public spending across the board. Drip, drip drip as hope is drained from those in the private sector who should be given the opportunity to see some hope and set up startups.

Most new net jobs in a modern economy are created by firms up to 5 years old. Surviving firms more than offset the high level of failures.

2. At the Fianna Fáil Ard-Fheis in 1970, Seán Flanagan (1922 – 1993), minister for lands, who was captain of the Mayo All-Ireland football winning teams in 1950 and 1951, did a rare thing in Irish politics. He called publicly for his department to be abolished.

It was indeed rare for an insider to put the public interest above his own and this month, The Sunday Independent reported:

The president of University College Cork, Dr Michael Murphy, who is paid €232,000 a year, has described how the heads of Irish universities “are as challenged at paying their bills as anyone else”.

He continued: “Many people won’t understand this because of the scale difference. But the stress on people is the same.“

This man’s background is in medicine.

The politicians are unfit for purpose and so many others at the trough are either in denial or see self-interest in keeping the trap shut.

James Downey wrote in the Irish Independent on Saturday:

If the Government had come into office promising to slash and burn and started slashing and burning straight away, people would have accepted it on two conditions.

The first is called, not quite accurately, fairness. People are not so foolish as to expect perfect fairness, merely the perception of a government doing its best.

Secondly, a reason to believe in the possibility of recovery. In the last 18 months the population has felt it has seen that possibility receding instead of coming closer.

Irish long-term unemployment - - at least a year or more — is at 60% of the total. Along with Slovakia, this is among the highest rates of the 34 mainly developed member countries of the OECD.

The think-tank estimates that Ireland would need to create 307,000 jobs to return to boom time levels of employment..

“What crisis?”

The lack of urgency is striking. Slow-motion remains the default mode.

Last year the OECD said the Irish school system is characterised by limited accountability mechanisms. It said the inspection of the work of individual teachers falls almost exclusively on primary teachers on probation, and that limited data on comparative school performance is made available to the public.

The OECD said the authorities should set up mechanisms to systematically evaluate teachers’ and schools’ performance, and make the results public when adjusted for social-economic background. It added evaluation results should have implications for career progression, and inform any needed corrective action in relevant areas - notably extra teacher training at primary and secondary level, especially in maths.

How dare they run down our fine systems!

3. Sweden and Finland reformed when they had to. In conservative Ireland, the tide will have to rise higher to imperil the thresholds of the comfortable.

A lost decade or more is going to be the cost of a failed governance system and a parish-pump electorate.

A lot of things can be tedious. Getting to the 100th rejected job application must be the threshold of motivation for some. Nevertheless, high unemployment is going to be a reality for years.

Ireland produces little wealth itself. Excess payments made on the froth of a housing bubble are a rent on the rest of society — medical consultants, PS, lawyers.

State guarantees of employment come at a high cost like banking guarantees.

There is little general interest in reforming failed systems. Many want bizarrely named ‘centres of excellence’ on their door steps, as long as someone else pays.

Productivity data is faked because of MNC distortions.

A small number of people account for the bulk of exports. So where will hundreds of thousands of new jobs materialise from to support bubbletime costs including future pensions?

Ireland: How long will economic turmoil last?

Eamon Gilmore, Ireland's Tánaiste (deputy prime minister) this week told an international audience via CNBC, that Ireland has emerged successfully from the EU-IMF bailout because it faced up to the crisis including making quick decisions on bank recapitalisation.

There has been some progress but apart from demands by the so-called bailout Troika, there have been no significant reforms and there is unlikely to be as Gilmore, the junior partner in the governing coalition and leader of the Labour Party, will not challenge public sector trade unions that have made common cause with counterparts in the professional trade unions (medical consultants, lawyers etc.)  in resisting change.

Irish Economy 2012: Howlin lauds sham cost savings in Croke Park public service agreement

Irish Times: Sept 07, 2012; Government should act and ditch Croke Park deal

The following is a response to a question on the Irish Economy blog on when the euro crisis will end?

In the grim summer of 1932, John Maynard Keynes, the most renowned economist of the twentieth century, was asked by a pressman when on a visit to Washington DC, whether there had ever been anything before like the Great Depression and he replied: “Yes, it was called the Dark Ages, and it lasted four hundred years.”

Next February, it will be 6 years since HSBC announced multibillion dollar losses on US subprime mortgages.

There is at least a decade of angst and turmoil ahead - - despite a likely improvement from the current situation in coming years.

Global growth may improve but from recent evidence, the Chinese will be cautious about the switch of the balance from investment to consumer spending. Stagnant US middle class incomes will continue and there will be no house equity to boost consumer spending.

The big successful companies employ a fraction of their counterparts in the past.

General Motors had over 618,000 employed in the US in 1979 - - in well-paid jobs; today, General Electric employs 133,000 and Apple 47,000.

The French newspaper ‘Ouest-France’ this week chided the government for presenting an unrealistic outlook of times ahead.

John Shoven, director of the Stanford Institute for Economic Policy Research (SIEPR), recently said: “People cannot expect to finance 20-25-year retirements with 35-year careers. Not in Greece [or] the United States.” 

The credit boom masked the reality of a growth crisis in Europe.

The turmoil will be in response to inevitable change because countries will have to adjust to paying their way without the aid of fast rising debt.

The insiders will fight to retain their priviliges but at some point in a country like Ireland, the collective power of the sans-culottes will get the attention of political leaders.

It happened in 1979 after the Government cravenly gave in to farmer demands to rescind a planned tax levy. PAYE income tax reform followed one of the biggest street protests in the history of the State.

There is a reason why there is seldom serious attention given to the issue of job creation.

Politicians tend to keep their fingers crossed with the next election in mind. Nevertheless, the speed in which François Hollande dropped his growth agenda is surprising.

However, a country that is close to the end of the road soon finds that the cliff beckons.

Spain and the allure of returning to the peseta

The Irish Economy blog has a thread on a comment article today in the Financial Times by two Spanish academics, who call on the prime minister to take radical action.

This is my comment:

The most alluring solutions are often ones that cannot be credibly implemented, at least in the short-term.

In 1994, Spain also had an unemployment rate of 24%+ In Andalucía, the rate exceeded 30%.

The peseta wasn't able to provide magic solutions and the unemployment rate was 21% in 1997.

According to the IMF, high unemployment was persistent in some regions because of centralised wage setting, giving business no incentive to move to areas, where inevitably there would be a shortage of skilled workers. Collective bargaining dating from the Franco regime mostly takes place at the industry or province level and collective agreements have the status of a law, affecting all workers and firms in the relevant area. This leaves little scope for small firms to adjust wages. Temporary jobs represent on average one third of employees because of the high cost of cutting permanent staff .

The construction boom began and unemployment fell to a record low of 8% in March 2007.

Excluding construction, Ireland had no real growth in the past decade; Italy only managed 3% in 2001/2010  - - 0.3% per year; US 16% (worst since 1945); UK 15%; France 12%; Germany and Japan 8%. Japan had a per capita annual GDP of 1.6%; US 0.7%; France 0.6% and Germany 0.8%.

In Italy, household incomes are lower than they were ten years ago. The public debt is larger. In the US, the inflation-adjusted median wage of the full-time American male worker is at the 1969 level.

John Authers of the Financial Times has written that Spain enjoyed a construction splurge in the middle of the last decade, egged on by low interest rates that were appropriate for the German economy (sluggish at the time), but not for a country where credit was growing fast. Just as the US credit bubble was helped by low rates driven by Chinese demand for US Treasury bonds, so Spain’s domestic property bubble had its roots abroad.

He asks why is Spain now in crisis, while the US is not?

Because its banks have not yet admitted the scale of the writedowns they must take in the wake of the bubble. In terms of their book value (the value of assets minus liabilities on balance sheets), have multiplied eightfold since 1998, according to an analysis of MSCI data by David Morris of Global Wealth Allocation in London. That is twice the growth for the rest of Europe, and 80% more than in the US.

The FT reported last week that Spanish and Italian commercial property markets have virtually collapsed with only three property transactions registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy just two buildings were traded during the period, down from 56, according to data from Real Capital Analytics.

The total value of transactions for offices, shops and industrial property in Spain was €67m for the second quarter, down 74% from €260m in the first quarter. The inactivity meant Spanish property transactions were below those of neighbouring Portugal for the first time.

Ireland broken governance system

In early 2009, I compared the broken governance systems in Japan and Ireland even though both countries have got new governments after long-dominant crony parties were turfed out of office, little has changed.

There is little appetite for change in Ireland despite the crash.
 
University College Dublin has published research on governance systems and the content below is my contribution to a thread on the issue in the Irish Economy blog:

A culture changes very slowly and issues such as reform are not a priority in a conservative society.
Process is boring and cannot match the level of interest when there are perceived nefarious foreign forces to blame. We love to talk but the record of running things is poor.

The level of transparency is also very poor; the available useful data on  public spending is primitive and conflict of interest remains a strange concept in Ireland.

RTÉ, Ireland's State broadcaster, sees no problem in board members pitching for work to former colleagues: "It would not be in the interest of any public broadcaster, nor the public, for independent producers of experience and skill . . . to be either barred from board service or, if appointed to a board, to be barred from seeking to maintain their business and livelihood by being disallowed from competing for programme commissions."

When it was disclosed in 2010 by The Irish Independent that  the wife of Eamonn Gilmore, Labour Party leader, had sold a two-and-a-half acre site in Galway for €525,000 to the Department of Education, a LP spokesperson said: "She is a private citizen and it is her money, not his."

The planning tribunal wound up after 15 years, lawyers became multimillionaires and the corrupt land-rezoning system remains untouched.

Changing the power balance in the Oireachtas would help over coming decades but the main interest of members will remain at the parish-pump level for the foreseeable future.

Research resources have been improved in recent years, TDs have been given additional staff (more opportunities for family jobs) but there is no evidence of improvement in teh standard of output.  37,397 Parliamentary Questions (PQs) were tabled in 2011 and Dáil Éireann registered second highest out of 18 Parliaments. The Irish figure is approximately three times the average number of questions tabled of 12,515.

As for civil servants standing up to ministers, again unlikely to happen and there are specialists in the area of science in enterprise agencies and in the Enterprise Department, but it doesn't seem to matter.

The enterprise agency heads when they speak in public, it's usually babble supporting the official line.

To borrow from 'The Irish Mind' fairytale, it permeates the 'eco-system.'

How likely is it in UCD that an insider would even question a pet project of a professor that is wasting public funds?

Look no further than the public science budget over 10 years of €23bn to wonder about governance: Oireachtas (houses of parliament) committee members not interested because it's over their heads; university presidents vying for funds but showing no interest in value for money issues; State agencies supporting ministerial delusion that Ireland could clone a Silicon Valley where so many others have failed; tech companies and IBEC welcoming lavish funds and captured journalists dazzled by stories of Facebook, Apple etc.

Irish Economy 2012: Are house prices bouncing back or just an illusion for delsuionists?

Irish Economy 2012: Daft.ie reports today that while the average asking price in the capital did fall in Q2 (by 1.2%), taking the first half of the year as a whole, list prices in Dublin fell by less than 1%, compared with a fall of 10% in the second half of 2011.

The following are 2 posts to a thread on Irish house prices on the Irish economy blog.

2) During the bubble, Irish land became the most expensive in Europe partly because of the very low supply.

Farmers on CAP welfare were able to supplement their income by working in construction etc. while via the IFA, the farmers were also able to arrange a shakedown of the State in respect of land for roadbuilding, grabbing almost 25% of the national roadbuilding budget.

In the current market, mortgages approvals were at about a 1968 year low in the first quarter of 2012 while the evidence from auctions shows that cash buyers can get discounts of 25% or more from what are regarded as current official price levels.

What was typical of our ’slightly constitutional’ governance system was a tribunal sitting all through the bubble period, investigating planning corruption, while local poltroons continued to create an artificial scarcity of land for development, in a country that was 4% urbanised.

Has anything really changed? — a corrupt system eventually becomes endemic and every development spawned Sunday morning craw-thumpers, whited sepulchres and many more, seeking to squeeze what they could from the system.

This is from the Irish Independent in May 2000:

The strategic planning guidelines constitute a mandate for continuing urban sprawl which will create an ever expanding metropolis around Dublin at lower density than any comparable urban area in Europe, DKM Economic Consultants warns in its report.

According to Colm McCarthy, of Davy Kelleher McCarthy, the predicted number of new dwellings will require that development occurs over an area more than twice the size contained within the M25 around London, which has a population of eight million.

He maintains that suburban development at six units to the acre would accommodate the required 165,000 dwellings in an area of 118 sq kilometers, or seven miles square.

“The process of urban sprawl around Dublin has already spread throughout north and mid Leinster, beyond even the large area envisaged by the Strategic Planning Guidelines”, he warns. Due to speak at the Irish Homes Builders’ Association convention in Edinburgh this morning, Mr. McCarthy suggests an alternative policy by aggressively zoning and servicing all undeveloped land within ten miles of the city centre for housing and mixed-use development.

Irish Economy 2012: Home mortgage approvals in first quarter 2012 sink to levels not seen since 1960s

Irish house price fall from 2007 peak maybe as high as 68%; Prices back to fair value

2) In 2001, the Irish State agency, the National Roads Authority (NRA), said in relation to a campaign for an increase in compensation for land acquired by Compulsory Purchase Order, which was led by Tom Parlon, then president of the Irish Farmers Association (IFA) that pronouncements by senior IFA officials, including Parlon, had claimed that:

1) the State, through the actions of local authorities, has no right to appropriate farmland;
2) the compulsory acquisition of farmland for the national roads building programme is unjust, inequitable and seriously damages the livelihood and viability of 8,000 farm families;
3) CPO legislation is outdated and compensation paid to farmers is inadequate;
4) compensation should be paid at development land prices given the intended use of land for road schemes and not at market value for agriculture land

The demands of the farmers were met  - - nothing strange in that.

The amount the State was forced to pay out for land compensation was described as "disturbing" by the head of the National Roads Authority in 2006.

It accounted for 23% of the cost of roads projects in Ireland, but just 12% in England, 10% in Denmark, 9.4% in Greece and 1% in Iceland. A further 2% of the €18.5bn provided in the Government's Transport 21 for road building over the decade was go to archaeologists.

RTÉ’s Prime Time programme in November 2007 disclosed statistics about the involvement of elected representatives in the land development and property business.

A total of 22% of councillors dealt in or developed land through their day jobs as estate agents, landowners and builders. In Mayo, that figure rose as high as 45%, in Offaly it was 44% and in eight other counties it was 33% or more.

Prime Time found that in Clare, declarations of interest showed that 97% of elected members have no beneficial interest even in their family home. In ten counties, two-thirds or more of the councillors have not declared an interest in the family home.

Economist Jerome Casey, who was editor of the 'Building Industry Bulletin' in a report in 2003, said that site costs accounted for 42.5% of the cost of a house nationwide. Casey said that typically in the mid 1990s, Durkan Brothers sold apartments off O'Connell Street for £35,000 to £40,000 (€44,440 to €50,790) for which the site cost was £5,000. A decade later, both the Irish Council for Social Housing and private house builders were reporting city house site costs at up to 50% of the house price. Outside the cities, site costs amounted to up to 40% of the house price. For the country as a whole, site costs in 2003 were about 42.5% of the house price, an increase of almost 30 percentage points on the pre-boom position. In Dublin that increased to 50%.

In the US land accounted for 20% of the total cost of a house. In Denmark the figure is similar while in Portugal the land factor drops to 15%.

The Irish Times reported in March 2012 that the State spent €30m  goodwill payments to landowners for not obstructing agricultural land sales for road projects between 2007 and 2011.

Payments for not obstructing - - shakedown is surely an apt term.

A so-called goodwill payment of €5,000 for every acre of agricultural land sold for road projects was made as part of a deal to ensure farmers co-operated with compulsory land purchases under the second National Development Plan (NDP).

An estimated €30m was added to the €1.4bn cost to the State for land purchase under the second NDP because of the goodwill payment. The fee applied to the purchase of approximately 6,000 acres of land.

Irish Inequality: Lavish public staff pensions and decimated private ones

Ireland is among countries where private sector workers face huge falls in pensions income. In the period 2001-10 in the 34 mainly OECD developed countries, real (inflation adjusted) pension fund performance was a paltry 0.1% yearly on average. Where public pensions are relatively low and private pensions voluntary, such as Germany, Ireland, Korea, Japan and the United States, large segments of the population can expect major falls in income upon retirement.

Meanwhile, Irish politicians who have one of the world's best pension schemes, linked to earnings, are presiding over the accelerated death of defined benefit (where there is a guaranteed payout related to earnings) schemes for the minority of private sector workers who have an occupational pension.

The Irish Pensions Board says that 80% of Irish defined benefit schemes are in deficit and it has set new minimum funding standard (MFS) rules which require pension schemes to have enough assets in place to secure pensioner liabilities and other accrued benefits if the scheme were to be wound up.

In 2010, Irish pension funds still held average equity allocations of 50% compared with Netherlands pension funds, which held an average equity allocation of 26% and in Switzerland 30%.

In the UK, average allocations to domestic and non domestic equities fell by 4% (from 47% to 43%) in 2011. In Ireland the current average allocation to equities is 44%, down 6% from last year and down over 20% since 2008 (Finfacts Premium).

Irish pension fund returns May 2012

Meanwhile, the Irish Government has a 40-year plan to reform public pensions that are unfunded but the annual cash cost is heading for  €3bn. Read more here.

This week, John McManus, business editor of The Irish Times wrote on plans to hoover up private pension funds that will increase the risks for funds that will struggle to produce returns in teh coming decade.

The following was my comment:

Ireland is among countries where private sector workers face huge falls in pensions income. In the period 2001-10 in the 34 mainly OECD developed countries, real (inflation adjusted) pension fund performance was a paltry 0.1% yearly. Meanwhile, Irish politicians who have one of the world's best pension schemes, linked to earnings, are presiding over the accelerated death of defined benefit (where there is a guaranteed payout related to earnings) schemes for the minority of private sector workers who have an occupational pension.

It has been official policy to keep employer social security low but the politicians have feathered their own pensions nest well and those of public sector staff.

In 2010, Irish pension funds still held average equity allocations of 50% compared with Netherlands pension funds, which held an average equity allocation of 26% and in Switzerland 30%.

Almost 2 weeks after HSBC Bank revealed huge losses on subprime mortgages in the US, Irish bank shares hit an all-time record on Feb 21, 2007. How many well-paid fund managers bet with others savings that the

The Irish free lunch fairytale was going to continue?

Responsibility for semi-State and university pensions was assumed directly under the Financial Measures (Misc. Provisions) Bill which was rushed through the Dáil in just three days in 2009. The National Pensions Reserve Fund is now responsible for these funds and the deficit in the funds exceeded €1bn according to a 2010 response to a  Dáil question by the then Minister for Finance, Brian Lenihan.

The university deficits amounted to about €630m led by Trinity College at €315m.

While the majority of Irish private sector workers have no occupational pensions and those who do face the prospect of meagre payouts, it has been an exception in universities for both academic and non-academic staff  to retire without additional pensions years allocated.

This is an expensive perk and of course coming from the public treasury, there wasn't much to worry about.

In  a report, the Comptroller & Auditor General said additional years had become a feature of pension awards in universities. By way of example, in UCD 78% of staff retiring between October 2007 and September 2008 had years added to their service for pension purposes.

Similar provisions apply in other universities - - Trinity College stated that since 1972, on the basis of custom and practice the award of added years has become a legitimate de facto entitlement under its Master Pension Scheme and that Scheme members were advised that they had been granted added years.

How can a civil servant in a bankrupt state retire at the age of 57 with a lump sum payment of €428,011, a special top-up of €142,670 (for senior civil servants who retire early) and an annual pension of €142,670?

Brian Cowen, former taoiseach, retired at 51 and his ministerial and TD's pensions gives him about €150,000 per year. Cowen also received a tax-free pension lump sum of around €150,000 (three times the value of his TD's pension) and a termination lump sum of around €16,000.

The net cash cost of public pensions (after an employee's normal deductions) was €876m in 2001; €1.4bn in 2006; €2.0bn in 2009 and €2.3bn in 2011 and will rise to €2.7bn in 2015.

I was recently informed that the Irish unit of Atlas Copco, a Swedish multinational, was winding up its existing pension scheme and cutting benefits. I worked in AC for 12 years. The group is in fine shape but it suits under Irish law to claim poverty and screw potential pensioners like me.

So private sector workers who are lucky to have pensions, take a hit while the shortfall in university pensions is borne by the taxpayer and of course that has coincided with academics calling for the burning of bondholders and maybe consequently also some private sector pensions.

Germany cannot alone bring a return to economic growth in struggling European economies

An article by Derek Scally, German correspondent of The Irish Times, on Chancellor Merkel, was published on June 02, 2012.

This was my comment:

It's ironic that it was France that pushed Germany to support the creation of the euro as a quid pro quo for support for German unification but despite the euro in existence since 1999, it has not balanced its budget in any year since 1974 and its national debt to GDP (gross domestic product) ratio rose from 22% in 1975 to 90% in 2010. In addition, it has had a trade deficit in every year of the last decade.

France in 2011 had a deficit of €70bn compared with Germany's surplus of €158bn - - only 12% of the latter related to the Eurozone and two-thirds was ex-EU27. In effect, Europe would have been poorer without the global success of Germany's world class companies.

"Did I mention that -- after unification -- the Germans tried (against their will, they had to) more than a decade of massive fiscal stimulus, and subsidization of consumption, starting with well under full employment, and yet with mediocre results? That wasn't long ago," Tyler Cowen, a US economist, commented in 2010. "And yet somehow it is a mystery, or a strange annal in some long book of Dogmengeschichte, that the Germans are not more interested in Keynesian economics."

Despite massive public spending since 1991, GDP per capita in the former East Germany is about 70% of the level in the former Federal Republic. Convergence within Germany or in the Eurozone, is a very long process.

Even if the weakest German regions were to grow a steady 4 percentage points faster than the strongest regions, it would them take more than 45 years to catch up.

In Europe, without checking the facts, commentators and economists can wrongly assume that the Germans are Europe's biggest savers and have no memory of the fact that as recently as 2003, Prof. Hans-Werner Sinn of the Ifo institute, had a book published: 'Ist Deutschland noch zu retten?' (Can Germany Be Saved?) - - Its blurb read:

“Taxes keep rising, the pension and health insurance systems are ailing. More and more companies are going bankrupt or are leaving the country. Unemployment has reached alarming levels. Germany is outperformed by its neighbours. It’s growth rates are in the cellar, and it can’t keep up with Austria, the Netherlands, Britain or France. Germany has become the sick man of Europe. “

The sick man of Europe!

The benefits of reforms with flexible wage agreements were seen during the recession and up to 1.5m people were kept at work with the help of public subsidies. It's not all roses and in the services sector, there are too many on low pay dependent on public top-ups.

In France, President Chirac ventured into the minefield of reform in 1995 but he soon threw in the towel.

The UK's gross debt/GDP ratio is expected to be 88% this year compared with 145% in 1956.

Sir Samuel Brittan, veteran economics columnist of The Financial Times has commented: "The second world war was financed in the UK with a 0.5% bank rate. Why should it be more alarming for governments to get into debt to put people into useful work satisfying human needs than to borrow for guns and tanks whose only aim is to kill other human beings?"

Governments tend to do a lot more these days and a French male typically retires at 59 - say entering the workforce at 24 and living until 80 - - - 45 years of dependency. The French have a social security tax on wages of an average 40% (30% paid by the employer) and no country can now afford cradle to grave 'socialism' - - and in China, unlike France, most people have to purchase health services.

In countries such as France, Spain and Ireland, some groups have disproportionate benefits while young workers maybe lucky to get temporary work. In Ireland, the majority of private sector workers have no occupational pension while public sector workers have pay premia; guaranteed employment and a pensions scheme linked with earnings.

It all adds up and in 2011, the public pay and pensions bill (ex-local authorities) was over €17bn -- compared with €16bn in 2006 -- the peak year of the boom - - and €10bn in 2001. The social protection budget was €8bn in 2001 and €21bn in 2011.

There is need for reform because the global market is no longer Western Europe, US, Canada and Japan.

What is often ignored in Europe is that the growth crisis is not new and pre-dates the euro. Until the bitter truth is faced, the remedies will not match the challenge.

Eurozone countries like Italy, Spain and Greece have had trade deficits with Germany since at least 1980 -- 20 years before the euro launch. The International Monetary Fund (IMF) says the euro is a continuation rather than a structural break and the Fund's statistics show that since 1999, Germany's trade surplus with the rest of the world has grown faster than its surplus with the other Eurozone countries -- and faster still with European nations that have not adopted the euro.

Marco Annunziata, an Italian economist, says that implausible as it sounds, Italian voters have put up with an average youth unemployment rate of 30% for the last 40 years; Spanish voters with a rate of 32%. Italy experienced “strong” economic growth during 1994-2000, with GDP rising at an annual average of 2%. During this boom period, the youth unemployment rate still averaged 33%. In other words, one young person in three was unemployed when the economy was at its strongest. The rate never dropped below 20%.

Spain’s economy grew at an average of 3.6% between 1995 and 2007. During this impressive run, the youth unemployment rate averaged 28%; it was below 20% for just three years, with a “best performance” of 18% in 2006.

In 1994, Spain's total jobless rate was over 24% in 1994, 21% in 1997 and 8% in 2007 and back to 24% in 2012. Italy's jobless rate was higher in 1996 than it is now.

Italy's economy grew at an annual rate of 0.3% in the last decade. Ex-property booms in Spain and Ireland and a credit boom in Greece, there would have been no growth.

Much of UK growth was an illusion powered by public spending and the financial services boom.

Ireland's jobs in the internationally traded goods and services are below the 1999 level. In the period 2000-2007 -- the bubble years -- no jobs were added as employment grew in other sectors by 430,000.

Indigenous trading firms typically export about 35% of output and the sector added 10,000 jobs but the FDI sector lost 10,000 net jobs.

More on the Irish jobless exports surge here:

http://www.finfacts.ie/irishfinancenews/article_10...

Reform is a dirty word in many countries in Europe because vested interests rightly fear change.

The World Bank's 'Doing Business 2012' rankings of the ease of doing business in 183 countries puts Greece at 100, behind Yemen and Vietnam and just ahead of Papua New Guinea. This compares with Italy at 87, just behind the former communist ruled Mongolia; Spain is at 44; Portugal at 30 and Ireland at 10.

There can be a case for long-term investment in current times. However, EU funds have supported significant improvements already in Greece, Ireland, Spain and Portugal.

Despite superior infrastructure, inward FDI as a percentage of Greece’s GDP averaged only about 1% from 2004 through 2010, compared with an average of 8.1% in Bulgaria, Turkey and Romania.

A solution will have to be a two-way street.

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.

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

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.

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. 

http://www.finfacts.ie/irishfinancenews/article_1024313.shtml

Open Yale Courses: Financial Markets

Robert J. Shiller is Arthur M. Okun professor of economics at Yale University and a Fellow at the International Center for Finance at the Yale School of Management. Specialising in behavioural finance and property. He is the co-developer of the Case-Shiller US home prices indices which tracks prices in 20 top US metropolitan areas.

Here he presents a free online course on Financial Markets, which was recently updated.

Bird and Fortune on subprime mortgages and the Financial crisis

Bird & Fortune - Financial crisis - Silly Money, Nov 08:

Part 2/2 Bird Fortune - Financial crisis - Silly Money, Nov 08:

Eurozone Fiscal Compact Treaty: Any lessons from Japan's huge debt?

Irish Times columnist Fintan O'Toole writes today on the Eurozone Fiscal Compact treaty and the Irish referendum.

He says banning Keynesianism after the great crash of 2007 is like reacting to a mass shooting by banning body armour. Ireland is a case in point. "Keynes’s  idea was that governments should operate counter-cyclical policies, running deficits to boost flagging economies and cutting spending to cool over-heating economies."

A small economy that is dependent on American firms for 90% of its tradeable exports and having joined the euro system is without the dubious panacea of the Central Bank printing money, and has limited options.

O'Toole wrote:

Japan has public debt of 230% of GDP – almost four times the euro zone limit. The markets, whose judgment we are all supposed to treat as gospel, don’t seem too bothered: Japanese 10-year bond yields are below 1%.

It is true that the 3% of GDP annual budget limit and the 60% debt ceilings are arbitrary limits but what's important is the plan to give attention to other indicators. For example during the Irish bubble, there were many other indicators besides the two official ones that were flashing red including annual credit growth of up to 30%.

The EU isn't a dictatorship and a country that is prudently run is not going to be crucified during a recession period. The evidence of stimulus measures from 2008 in several countries shows that.

As for Japan, its net debt after offsetting public pension funds is 139% and the gross ratio has risen almost every year since 1991.

The low yield of 1% does not imply market confidence in an economy hit by persistent inflation. Last January, the yield on British 10-year gilts fell to the lowest since 1703 but that doesn't mean the UK economy is in good health.

The US also has a low yield and as with Japan, it has been helped by central bank purchases (when the value of a bond with a fixed interest rate rises, its yield falls).

A key aspect of Japan's debt is that 95% is held locally; in the case of Ireland, Greece and Portugal, more than 70% of public debt was held by foreigners when they each got international support.

As regards the left-right issue, France last had an annual budget surplus in 1974 and whether left or right every year in almost four decades, the debt rose.

The debt ratio rose from 22% in 1975 to 82% in 2010 and is expected to be close to 90% in 2012 - -  the net debt ratio will be 84%.

An economy eventually ends up with a high interest rate burden and when it needs to spend in a recession period, it has to pay a high rate for borrowings or the investors go on strike.

Finland like Ireland has been in the euro system from the start. Instead of SSIA bonanzas, it set aside a lot of funds for the rainy day. Twenty years after its collapse in the aftermath of the breakup of the Soviet Union, it has no net debt.

This year it will have surplus funds of 57% of GDP. It doesn't have to blame the euro.

EU fiscal compact treaty and Ireland

Philip R Lane, a professor of international macroeconomics at Trinity College Dublin, wrote in today's Irish Times on the fiscal compact treaty that was agreed by leaders of 25 EU countries last week.

Here is my contribution to a thread on the Irish economy blog.

This is a good article focusing on the big picture of what is the start of a process towards a better designed euro system -- better not perfect and for sometime ahead, in for example China's interest to have a second global reserve currency, currently at 26% of total world reserves.

It's good that pressure from Europe helps to improve Irish water standards, forces some action on septic tanks just as a European Court of Justice deadline is about to kick in and eventually maybe will be a catalyst for a credible waste management system.

Twice in a generation, the Irish economy was wrecked and the underlying culture remains the same despite the crash. More intrusive European intervention is a positive development.

There are 101 or more other issues that can be raised and some regard their particular interest as the main issue. The agreement provides a framework to move forward and with 25 countries involved there will be operational changes as time goes on.

German mercantilism is seen as a problem but where we gain, at least in cash terms from the Common Agricultural Policy as does France -- should radical reform be welcome? Why should American multinational companies be able to pay Ireland corporation tax on the sales that are made in for example the UK (e.g. Google)?

Much of the 'whataboutery' can divert attention from the main priority of policy.

Individual countries have to take the initiative to radically modernise their economies over the next decade or else they will remain in the doldrums for much longer.

No amount of German consumption will make a difference if there is nothing to sell. 

Some talk about transfers as if money should be provided for corrupt systems without question. The US federal union is sometimes cited. However, for example West Virginia produces a lot of black stuff but it has not a black economy like Italy's where the national statistics agency Istat says is worth €255bn and €275bn a year, or 16.3% to 17.5% of GDP.

In 1980, Germany had trade surpluses with Italy, Spain and Greece.

In Jan 2010, George Provopoulos, governor of the Bank of Greece, wrote in the FT:

"During the 1980s, Greece had another twin-deficit problem (large and unsustainable fiscal and external imbalances) and its own national currency, the drachma. It waved the magic wand twice, with large devaluations of the drachma in 1983 and in 1985, but in the absence of long-lasting structural adjustment and sustained fiscal contraction. The devaluations were followed by higher wage growth and inflation, with no sustained improvement in competitiveness. Speculative attacks against the drachma were avoided only because of strict controls on capital flows, an option that is no longer feasible or desirable. The twin-deficit problem remained. So much for the magic wand of currency devaluation.”

Problems predated the euro while credit and property booms masked them in recent times.

Spain and Ireland headed the 1993 unemployment rankings of the member countries of the OECD. Spain's rate was at 22.4% and Ireland's was at 15.8%. In December 2011, Spanish unemployment was at a rate of 22.8%; Ireland's was at 14.3% and in October 2011 Greece's rate was 19.2%. Of the 34 member countries (mainly rich countries) of the OECD in 2011, Spain, Greece and Ireland headed the rankings.

Greece can do much better. Its neighbour Turkey was also regarded a basket case a decade ago.

No economy is Utopia but Turkey's budget deficit is now about 1.5% of GNP, but it runs a primary surplus. A decade ago, Turkey's budget deficit was 12% of GDP. In 2002, government debt was 74% of GNP, now it's 39%. A decade ago, Turkey's per capita income was US $3,300. Now it is about $10,500.

As for Italy, the estimate of tax evasion in 2009 was €119.6bn - - almost four times the value of the Prime Minister Mario Monti's recent austerity budget and 28% of the amount  that was collected in taxes - - according to calculations reported last month by the Rome daily 'La Repubblica.'

Irish 'commercial sensitivity' excuse a relic from Victorian times

Ireland is a very conservative place and the cocktail of inertia and an attitude resistance to change, often powered by vested interests, invariably trumps the public interest. The Irish excuse of 'commercial sensitivity' to keep information on public spending hidden from the public is a durable relic from Victorian times.

Prof Richard Tol, the environmental economist, who recently left the ESRI (Economic and Social Research Institute) and joined the staff of the University of Surrey, has commented on the public consultation on the establishment of Irish Water, the planned state agency.

He has argued that charging for water and waste water is right and proper; and doing so through a state-owned, tightly regulated monopoly is a reasonable solution (although you can argue for a mutual company instead).

A report commissioned from PWC, the Big 4 accounting firm, says:

“For the Public Utility Model a high level assessment was undertaken in relation to what the financial position of the business might be and in particular the likely funding requirements, based upon a number of assumptions made and sensitivities chosen. Given the commercially sensitive nature of aspects of this assessment, some of the specific assumptions and the detailed findings have been redacted from this section of report.”

Prof. Tol in a thread on the Irish Economy website says: "Ireland is an unwilling party to the Aarhus Convention, which grants access to data except 'where such confidentiality [of commercial and industrial information] is protected by law in order to protect a legitimate economic interest'. As Irish Water will be a monopoly, I do not think there is a 'legitimate' economic interest in hiding data.

Unfortunately, state-owned companies have made a habit of hiding behind 'commercial sensitivity' when there is none."

I have added this comment:

The state guarantee of employment for the public service and the secrecy that protects insiders in the €15bn public procurement system dates from the reign of Queen Victoria.

In recent years the Empire Day holiday has been on the agenda of the crew of the slow boat to China.

The conservative instinct is still very strong (note how lawyers on the left and right of the spectrum over the decades never saw reason for reform of the archaic British system.)

I wonder if the problem is more than just conservatism and self-interest.

We appear to have a big share of both dim and timid people in the country.

We have had ideas competitions but it would be strange to find the people who could implement change propose ideas that would gain public attention.

Irish have little interest in reform despite economic crash

The Irish appear to have little interest in reform despite economic crash and any changes in colonial era systems depend on continuing pressure from the European Commission-European Central Bank-International Monetary Fund troika.

Colm McCarthy, UCD economist, opened a thread on the issue on the Irish Economy blog.

The following are 2 post contributions:

Post 1: Put a cross on the mantelpiece! We begin the year on the subject of reform.

For decades, political inertia/the slow boat to China/slow motion, have been the default modes at governance level and there was little evidence of acceleration post the early Aug 2007 onset of the credit crunch and after the issue of the bank guarantee in Sept 2008.

Politicians can be slammed but is there a real public appetite for change/reform?

Eureka above left the cat out of the bag, lamenting why other issues such as German banks are not on the agenda. The truth is that it’s much more exciting feeling outraged about the shortcomings of the likes of Germans than addressing shortcomings at home.

The auld victims’ cross provides a lot of comfort and even in the small number of the population that contributes to this blog, a subject like this can never match the interest evoked by ones on banks and Europe.

This should trigger the question about the chicken and the egg.

There are consequences when we do not accept the principal responsibility for this feast and famine crisis. Forgive us our debts and pray for us!

Conservatism reigns from left to right on the political spectrum and traditional trade unions are as mute about change as their richer counterparts representing the sheltered professions.

It’s always easy to oppose change and we had a bizarre intervention in recent months from 8 former attorney generals who warned about referenda proposals but they are mute about the colonial era legal system that made them all rich and is a burden both directly on the State and citizens.

The excess earnings of the legal and medical professions do also have consequences other than direct costs - - the State spends about €500m annually on legal fees.

We do have a template of an economy that introduced reforms in response to an economic collapse; its net debt as a ratio of GDP is now a negative of more than 50%; it has no private schools and no league tables where playing rugby can give a lift for a job, as there is little variation in the standards of schools; it has no private universities and no tuition fees; teachers are required to have a minimum of a master’s degree and competition for university places are highest for teaching-related degrees not medicine and law; the equivalent of the Leaving Certificate is the only standardised exam; teachers have a lot of autonomy and the level of homework required is low; in the past decade it has been among the countries with the highest achievements in maths, science and literacy.

Finland radically reformed its educational system following the collapse of its economy in the aftermath of the disintegration of the Soviet Union in 1991.

It pays its teachers well as they are comparable with earnings of medics and lawyers - - but still lower than levels in Ireland.

In 2009, the rate for a primary teacher after 15 years was €50k in Finland and €68k in Ireland according to the OECD. It was €61k at upper secondary level and €68k in Ireland.

In Finland in 2009, a Finnish GP’s pay was 1.8 times the average wage and 3.5 times in Ireland; a salaried specialist earned 2.6 times the average wage in Finland and 4.5 times in Ireland.

According to the OECD’s Education at a Glance 2011, Finland spent 5.8% of GDP on education in 2008; Ireland spent 5.6% (Ireland’s GDP is inflated by the profits of foreign multinationals and GNP is about 20% lower. So effectively Ireland spends more on education than Finland). The United States spent 7.2%; South Korea 7.6% and Norway 7.3%.

Oil-rich Norway compares poorly compared with Finland and it has teamed up with Statoil, the state oil company, to recruit maths and science teachers.

Teachers pay in Norway is low compared with that of other graduates.

So Ireland’s university chiefs want more money from the public but fear not that there will be any hint of radicalism at this time of crisis.

The late American historian Daniel Boorstin, wrote in an essay, ‘The Amateur Spirit and its Enemies,’ published in his book ‘Hidden History’: “In the United States today there is hardly an institution or a daily activity where we are not ruled by the bureaucratic frame of mind — caution, concern for regularity of procedures, avoidance of the need for decision” — all of which, Boorstin suggested, was best summed up “on a sign over the desk of a French civil servant: ‘Never do anything for the first time’.”

I did think once that the Irish only responded to a serious problem when it had transmuted into a dire crisis. Now, I’m even having doubts about that.

Post 2: The OECD’s latest education data published last year shows that in respect of 2008, Irish per capita education spending per student exceeded Finland’s in primary, secondary and tertiary (Ex R&D spending).

http://dx.doi.org/10.1787/888932463593 (Excel)

There is little evidence of long-term thinking at policy level. While it’s said that it suited Seán Lemass and Jim Ryan, the finance minister, to have Ken Whitaker publicly associated with the proposals in ‘Economic Development’ in 1958, it’s unlikely that he would have remained as an anonymous adviser. However since he retired, there has been no senior civil servant who has publicly lifted the Victorian veil.

Enterprise agency chiefs in public waffle in bullshit and spin, rarely if ever saying anything of consequence that is not in line with the ministerial position and one can only wonder if that is the only interface that the minister for enterprise and jobs has with the market.

No wonder Bruton and his sidekick Seán Sherlock so resemble the O’Keeffe/Lenihan double act.

China’s recent rise has been remarkable and will continue to be so. However, it is building on a deep base.

According to the late eminent economic historian, Angus Maddison, until 1800, about three fifths of the world’s commerce and production took place in and around China and India. So did much of the world’s scientific and technological progress, including the Chinese invention of paper, explosives, and printing, and medieval India’s launch of modern mathematics. In the early 1830s, when President Andrew Jackson sent the first US envoy across the Pacific to Siam (Thailand), Asia still accounted for over half of global GDP.
China, a vast unified country over a span of two thousand years, overwhelmingly dominated by one ethnic group, the Han, was a pioneer in bureaucratic modes of governance. Maddison says that in the tenth century, it was already recruiting professionally trained public servants on a meritocratic basis. The economic impact of the bureaucracy was very positive for agriculture.

They nurtured it with hydraulic works; printing enabled the distribution of illustrated agricultural handbooks; farmers settled in promising new regions; a public granary system to mitigate famines was established. They fostered innovation by introducing early ripening seeds which  permitted double or triple cropping. New crops were introduced  - - tea in the T’ang dynasty, cotton in the Sung, sorghum in the Yuan, and new world crops such as maize, potatoes, sweet potatoes, peanuts and tobacco in the Ming.

The science of champagne

As the minutes tick toward midnight on Saturday and you are running out of conversation topics, why not bust out some trivia about the science of champagne to impress your friends.

The Discovery Channel says they may already know about French law, which decrees that grapes must be grown in the region of Champagne in order for sparkling wine to qualify as true champagne. But your companions might not know about Henry’s Law, explains a New Year’s themed video produced by the American Chemical Society.

This law of physics states that the pressure of a gas above a solution is proportional to the concentration of the gas within the solution. For champagne, carbon dioxide is the gas that forms those delightful bubbles. And, in an unopened bottle of champagne, there is equilibrium between the CO₂ inside the liquid and the gas in the spaces of the cork.