Ireland's Shattered Dream

[tomandlu]

I haven't seen this posted elsewhere - sorry if I missed it...

Not a bad piece - a little light on analysis, but that's not what it's aiming for. My main criticism is that it sets out what it calls 'an unholy trinity' of politicians, bankers and developers, but fails to hold the general public who were happy to go along with the madness to any account.

One lone mini-cab driver seems to be aware that the culpability is shared.

The article finishes with an interview with the economist, David McWilliams:

"You got it right, didn't you?" nods the conductor on the Limerick train to David McWilliams. It is hard to imagine another country where an economist would be recognised by passing members of the public, but everyone in Ireland is an economist now. McWilliams, a maverick who presciently warned of Ireland's impending economic conflagration, next month brings "economic stand-up" to Ireland's national theatre. Tonight he is hosting a night of "polemedy" in Limerick: this mix of satire, comedy and earnest debate about Ireland's future, which continues until well after midnight.

"There were very few of us in the boom who suggested what was going on was nonsense. If you're against consensus in Ireland, the first phase is ridicule, then it's violent opposition, and the third phase is universal truth – where everyone pretends they agreed with you all along," McWilliams says, with a smile.

He has two radical, populist solutions: let the banks go bust, and leave the euro. Individuals' deposits could be guaranteed while corporate bondholders would lose out, but the markets would not panic, he believes – rather, they would regard the Irish economy with renewed interest, because money once earmarked to bail out the banks could be invested in the recovery. Saving Anglo Irish Bank "is the economics of Stalingrad", he says. "Throwing all your resources at a symbolic entity signals to the rest of the world that you are a fanatic."

McWilliams also argues that Ireland's attachment to the euro, and the EU, is born of the establishment's traditional desire to eschew the British, who are still Ireland's biggest trading partner. If Ireland left the euro and returned to the Irish pound, its currency would take a hammering. Let it, says McWilliams: if it fell by 40%, suddenly Ireland's wages would be 40% less than its rivals. Investment would flood into Ireland; exports would be super-competitive.

More orthodox voices on the right and left will not countenance either letting Irish banks die or leaving the euro. "You can't let a bank that is half your GDP collapse in the middle of your economy. It pulls the entire economy down with it," says a government economist. FitzGerald adds: "If the Irish central bank had to go out and borrow tens of billions to replace the euros in the banking system, there is no way they could raise it. There would be a dramatic fall in the currency, a dramatic rise in interest rates, and a complete collapse in the economy. Leaving the euro would be lunatic."

Of FitzGerald's predictions that the Irish economy will return to business as usual next year, McWilliams says: "That's horseshit. The establishment view is what we need is more of the same. The most important thing about crises is it gives you permission to change."

[Fromage Frais]

He has two radical, populist solutions: let the banks go bust, and leave the euro. Individuals' deposits could be guaranteed while corporate bondholders would lose out, but the markets would not panic, he believes – rather, they would regard the Irish economy with renewed interest, because money once earmarked to bail out the banks could be invested in the recovery. Saving Anglo Irish Bank "is the economics of Stalingrad", he says. "Throwing all your resources at a symbolic entity signals to the rest of the world that you are a fanatic

This should have been plan A , surely its going to be plan B

[Snafu]

He has two radical, populist solutions: let the banks go bust, and leave the euro. Individuals' deposits could be guaranteed while corporate bondholders would lose out, but the markets would not panic, he believes – rather, they would regard the Irish economy with renewed interest, because money once earmarked to bail out the banks could be invested in the recovery. Saving Anglo Irish Bank "is the economics of Stalingrad", he says. "Throwing all your resources at a symbolic entity signals to the rest of the world that you are a fanatic

This should have been plan A , surely its going to be plan B

I think he talks complete sense.

[Sour Mash]

Who would have thought that decades of electing chancers and crooks into office would end badly?

You get the politicians you deserve and Irish voters have always been willing to look the other way and vote for fraudsters and embezzlers so long as they get tossed a bone like a new road or a local school.

[VeryMeanReversion]

Servicing a Euro mortgage with 40% reduced wages is going to be tricky. Everyone that bought in the boom is financially ruined, not just those that bought in the later stages.

VMR.

[SHERWICK]

Servicing a Euro mortgage with 40% reduced wages is going to be tricky. Everyone that bought in the boom is financially ruined, not just those that bought in the later stages.

VMR.

Good point.

[CrashConnoisseur]

While McWilliams was presciently warning of "Ireland's impending economic conflagration", George Osborne was enthusiastically praising "Ireland's economic miracle"...

'Gordon Brown's policies are wedded to the past' [February 2006]:

http://www.putneyconservatives.co.uk/record.jsp?type=cchNews&ID=585

Shadow Chancellor George Osborne has fired a fresh broadside at Gordon Brown's economic policies and called for Britain to learn the lessons of Ireland's stunning economic success.

[...snip...]

"Ireland stands as a shining example of the art of the possible in economic policy-making. With its vision of a highly-educated, innovative, open, dynamic, low-tax economy, and relentless focus on the long-term drivers of prosperity, Ireland's economic miracle has shown that it has the right answers to the challenges of the new global economy.

"The new global economy offers us great challenges, and also great opportunities. Ireland has shown the world that wise economic policy-making can produce outstanding results that surpass all expectations, so that we can meet our potential, achieve our goals, and share rising prosperity in an increasingly competitive world. We in Britain would do well to listen and learn from our Irish neighbours."

[CrashConnoisseur]

Servicing a Euro mortgage with 40% reduced wages is going to be tricky.

But not nearly as tricky as servicing a euro mortgage with no wages.

[Laughing Gnome]

Leave the Euro and crash the currency, I see the sense, but presumably all those outstanding mortgages will still be valued in Euro's.

How would that work?

[tomandlu]

Servicing a Euro mortgage with 40% reduced wages is going to be tricky. Everyone that bought in the boom is financially ruined, not just those that bought in the later stages.

VMR.

Aren't they likely to be ruined in any currency? (or was that your point?)

[Nationalist]

Servicing a Euro mortgage with 40% reduced wages is going to be tricky. Everyone that bought in the boom is financially ruined, not just those that bought in the later stages.

VMR.

As they discovered recently in Latvia, when having maxed out on euro debt (mortgages mainly) because it had a lower interest rate than the lat the IMF then forced the government to devalue the lat as the price for bailing out their deficit.

Latvia is essentially a model of what it's like to leave the euro - only strictly-speaking they never went in.

Edited May 27, 2010 by Nationalist

[swissy_fit]

Can't Irish people ruined by this situation just come to England on a "bankruptcy holiday", or won't the Irish courts accept a UK bankruptcy?

[VeryMeanReversion]

Aren't they likely to be ruined in any currency? (or was that your point?)

The point was that currently, only those that bought in the late stages are ruined. If they effectively get 40% pay cuts, then all those who bought in the bubble years get ruined.

VMR.

[tomandlu]

The point was that currently, only those that bought in the late stages are ruined. If they effectively get 40% pay cuts, then all those who bought in the bubble years get ruined.

VMR.

Ah - oh well, time to implement a bit of non-recourse...

[Nationalist]

Don't forget that when a country leaves the euro the people still have to pay their euro-mortgages AND the government still has to redeem its euro-bonds. According to BIS Ireland owes the UK US$188bn - if they default we're a bit toasty as well.

[guitarman001]

Good comment:

Well, put it this way - even at the height of the so-called boom, my wages were always low - I never scraped past the 'low' 30k wage mark, for example, while always reading that Dublin Bus drivers were paid an average of 38k or whatever... but, today, that's all irrelevant, as I've taken a 40% pay cut on my low wages, as, in common with many other people here, my working days were first cut to four days a week, and then to three, as my company tries desperately to survive, seeing our competitors sink without trace every month.

Still, despite my HUGE pay cut - and, let me tell you, on low wages, any cut has a bigger impact than a big cut on big wages - I know that, compared to many people out there, I'm 'lucky' - after all, with a population of less than 4.5m people, we're now up to - what, 520,000 unemployed, or something ridiculous like that?

All around the country, including in my home town, you can drive past one unemployment blackspot after another, with NO hope of changing things there for, well, generations. All those 100 or 150-y-o family businesses and companies, which survived past the Depression in the 1930s, two world wars, the 80s Recession etc - they're dead. Gone. Bust. And with them, in all the small towns, the knock-on effect has seen those they traded with also taken down - the collapse of a middling business in a small town takes down another few small shops and traders with them, creating a ripple effect in the small-town economy that most of Ireland - still a largely rural country - operates by.

For example, five years ago, my home town's population of about 3,000 people had about 300 unemployed in the region - now, that figure is well over 2,000 - now, how the hell is my home town ever supposed to come out of that? Where will ANY of those people find a new job?!

And yet, Ireland is full of new-build apartment blocks - drive into any town, and you'll see ranks of dusty, empty, brand-new and unsold apartment complexes, deserted new business parks, and so on - buildings with paper-thin walls and sky-high prices thrown up on flood plains and mountain sides with gay abandon, with unchecked council greed and no awareness that there wasn't a need for them - again, my home town has some huge new structures, with no-one living in them. So, the developers went bust - meaning that the local firms who built them weren't paid, and they went bust (so that a brother-in-law also lost his job), and etc etc.

It's even emerged that, although the Irish ARE emigrating again, the numbers are low, despite the dire straits the country is in. Why? It's because of personal debt - people here can't afford to emigrate, as they're already laden down with personal debts (for negative equity mortgages, and car loans to take to our creaking roads to drive from the middle of the country to work in Dublin, two hours away, etc etc). In effect, people have become trapped in the country; unable to stay and work and save for a future - wait til the inevitable pension crisis emerges in 10 or 15 years from now - and yet also unable to leave.

I could go on and on and ON, but there are dozens, Dozens of other problems here that most people here are desperately struggling with, and yet which our British cousins and friends across the pond don't understand, or know the scale of...

[swissy_fit]

Good comment:

Well, put it this way - even at the height of the so-called boom, my wages were always low - I never scraped past the 'low' 30k wage mark, for example, while always reading that Dublin Bus drivers were paid an average of 38k or whatever... but, today, that's all irrelevant, as I've taken a 40% pay cut on my low wages, as, in common with many other people here, my working days were first cut to four days a week, and then to three, as my company tries desperately to survive, seeing our competitors sink without trace every month.

Still, despite my HUGE pay cut - and, let me tell you, on low wages, any cut has a bigger impact than a big cut on big wages - I know that, compared to many people out there, I'm 'lucky' - after all, with a population of less than 4.5m people, we're now up to - what, 520,000 unemployed, or something ridiculous like that?

All around the country, including in my home town, you can drive past one unemployment blackspot after another, with NO hope of changing things there for, well, generations. All those 100 or 150-y-o family businesses and companies, which survived past the Depression in the 1930s, two world wars, the 80s Recession etc - they're dead. Gone. Bust. And with them, in all the small towns, the knock-on effect has seen those they traded with also taken down - the collapse of a middling business in a small town takes down another few small shops and traders with them, creating a ripple effect in the small-town economy that most of Ireland - still a largely rural country - operates by.

For example, five years ago, my home town's population of about 3,000 people had about 300 unemployed in the region - now, that figure is well over 2,000 - now, how the hell is my home town ever supposed to come out of that? Where will ANY of those people find a new job?!

And yet, Ireland is full of new-build apartment blocks - drive into any town, and you'll see ranks of dusty, empty, brand-new and unsold apartment complexes, deserted new business parks, and so on - buildings with paper-thin walls and sky-high prices thrown up on flood plains and mountain sides with gay abandon, with unchecked council greed and no awareness that there wasn't a need for them - again, my home town has some huge new structures, with no-one living in them. So, the developers went bust - meaning that the local firms who built them weren't paid, and they went bust (so that a brother-in-law also lost his job), and etc etc.

It's even emerged that, although the Irish ARE emigrating again, the numbers are low, despite the dire straits the country is in. Why? It's because of personal debt - people here can't afford to emigrate, as they're already laden down with personal debts (for negative equity mortgages, and car loans to take to our creaking roads to drive from the middle of the country to work in Dublin, two hours away, etc etc). In effect, people have become trapped in the country; unable to stay and work and save for a future - wait til the inevitable pension crisis emerges in 10 or 15 years from now - and yet also unable to leave.

I could go on and on and ON, but there are dozens, Dozens of other problems here that most people here are desperately struggling with, and yet which our British cousins and friends across the pond don't understand, or know the scale of...

Oh it'll come to them.

[xux42]

The point was that currently, only those that bought in the late stages are ruined. If they effectively get 40% pay cuts, then all those who bought in the bubble years get ruined.

VMR.

A 'friend' has positioned himself to clean up despite a 40% paycut. Depends on

1) all the overleveraged having their pay cut by 40% and being brought to their knees

2) the authorities not finding the cash he has hidden

Screw them - pass some emergency legislation - if the borrowers try to walk away I say indenture them to their lender until the -ve equity is cleared then evict them. They're used to it in Ireland anyway.

Now, where's me jackboots?

[Michael]

but IReland could go back to using sterling which would prevent a run on the banks and too big a devaluation when it left the Euro.........

From the creation of the Irish Free State in 1919 tilll the late 70s Ireland effectively used sterling as its Irish pound was interchangeable with the British pound at one for one...From an economic point of view this makes sense ....but could they swallow it politically?

[erranta]

While McWilliams was presciently warning of "Ireland's impending economic conflagration", George Osborne was enthusiastically praising "Ireland's economic miracle"...

'Gordon Brown's policies are wedded to the past' [February 2006]:

http://www.putneycon...=cchNews&ID=585

"The New Global Economy" - what it means!

It means that as soon as the Irish Tax free/reduced rates/EEC grants/subsidies for 'inward investment' ran out, the huge USA companies drawn to Ireland to service Europe, like DELL, upped sticks and moved on to the next country offering the same, ie POLAND!

It's a complete CON on the peoples of Europe by Global Big Business being Parasitic (how many times have we seen this word?) to make more profits for themselves without any 'payback' penalties.

We would be far better off giving the money to individual artisans, support inventors and to grow promising small companies who can get going with an investment boost - coz thats where larger businesses start from!

Edited May 27, 2010 by erranta

[Rare Bear]

Don't forget that when a country leaves the euro the people still have to pay their euro-mortgages AND the government still has to redeem its euro-bonds. According to BIS Ireland owes the UK US$188bn - if they default we're a bit toasty as well.

Suppose Ireland were to leave the Euro, have a new currency, call it the Punt, 1 Punt=1 Euro

If you have an account in Ireland the balance, which was in Euros is no in Punts. If you had 1000 Euros in an account in Ireland you now have 1000 Punts. If you owed 100, 000 Euros you now owe 100,000 Punts. The bank in which you have your money deposited or you have your loan is called Bogbank. Your relationship with Bogbank has not changed.

Now, the next morning after this change, say at midnight on a Sunday the market says that it does not like these new fangled Irish Punts and by lunchtime the rate has settled toe 2 Punts=1 Euro. Your relationship with Bogbank has not changed, you still owe 100,000 Punts

If Bogbank has loaned you the 100,000 Euros_which-became-Punts from money deposited to it no change as the deposits which were in Euros are now deposits in Punts so no immediate problem. If on the other hand Bogbank has borrowed 100,000 Euros from say Germany then Bogbank still owes 100,000 Euros but has to find 200,000 Punts to repay it.

If you have borrowed the 100,000 Euros from a bank in Germany you of course are the one who has to find 200,000 Punts.

A 40% wage reduction jsut makes things even more unpleasent. The fact is though that Ireland has simply become too expensive for everything and as things stand there is no obvious solution. Pre Euro the Punt would just have dropped in value and things would have been to some degree self correcting. When the Government had devided the Punt was low enough interest rates would have gone up to protect it. Not any more.

I can't see Ireland dropping out of the Euro though, for a start no political cojones. What I can see happening, whether next week or in two years times is that the good citizens of Germany are going to refuse to bail out the weaker, prolifigate Euro economies.

[Nationalist]

We need an open market in kidneys and penal brothels.

[davidhpc]

Come and join the UK again, it'll be like old times!

House price drops are getting bigger Irish house price cuts

[bricor mortis]

Who would have thought that decades of electing chancers and crooks into office would end badly?

You get the politicians you deserve and Irish voters have always been willing to look the other way and vote for fraudsters and embezzlers so long as they get tossed a bone like a new road or a local school.

So thats different to the Brit voters ?

I cant beleive you wrote that.

[Hip to be bear]

While McWilliams was presciently warning of "Ireland's impending economic conflagration", George Osborne was enthusiastically praising "Ireland's economic miracle"...

'Gordon Brown's policies are wedded to the past' [February 2006]:

http://www.putneyconservatives.co.uk/record.jsp?type=cchNews&ID=585

What is the point of linking to this article? Almost everything that Osborne said in 2006 is valid today. The only thing he missed out was to say that the economies of both UK and Eire would not be looking so healthy if it were not for a housing bubble and reckless bank lending.

The bits of the Irish economy that Osborne was praising are the very policies that might allow us to drag ourselves out of this mess. He was critical of Brown's policies of high taxation, excessive regulation and big government.......surprise, surprise! Now we have a debt mountain of £900 billion and a deficit of £160 billion, we will get small government, whether we want it or not!

Again, what was your point?