Brian Lenihan blames euro and Eastern cheap labour for recession

Time Magazine

BlitzKrieg wrote: »

I am thinking right then in a very layman's thinking that the cost to relaunch the punt or a new currency not tied to the euro would cost each individual taxpayer more than [€40 per month on a €300k mortgage]?

The "relaunch" cost, as in the cost of printing some notes and minting coins, isn't the cost. It would only be a fraction of it. The true cost would the implications of exchange and interest rates on our national accounts. Put simply, it would probably bankrupt the State. On the other hand, contrary to all the scaremongering, even in this recession the value of our exports has not fallen this year. The suggestion that we should pull out is worse than nonsensical, it's plain stupid.

K-9 wrote: »

Cormac Lucey is a chartered accountant and an associate of the Irish Management Institute. He was a special adviser to former minister and tánaiste Michael McDowell from 2003 to 2007

Being an accountant does not make you an expert on monetary policy. Nor does hanging out in the IMI. The fact that he was a special advisor to the Minister for Justice, rather than the Minister for Finance, does not strengthen your case.

P. Breathnach

The Economist wrote: »

... Being an accountant does not make you an expert on monetary policy. Nor does hanging out in the IMI. The fact that he was a special advisor to the Minister for Justice, rather than the Minister for Finance, does not strengthen your case.

Especially that Minister for Justice, whose economic thinking was, well, a little worrying.

Scofflaw

The Economist wrote: »

On the other hand, contrary to all the scaremongering, even in this recession the value of our exports has not fallen this year.

Interesting - do you have a handy link for that?

cordially,
Scofflaw

Time Magazine

Scofflaw wrote: »

Interesting - do you have a handy link for that?

cordially,
Scofflaw

No problem. Comment here, followed by some handbags, followed by clarification.

K-9

The Economist wrote: »

Being an accountant does not make you an expert on monetary policy. Nor does hanging out in the IMI. The fact that he was a special advisor to the Minister for Justice, rather than the Minister for Finance, does not strengthen your case.

I was pointing that out, thanks for the explanation.

Exports are up, mainly pharmaceutical and FDI. Imports are down too so our balance of trade has improved. Exports are predicted to drop for this year though.

netron

free to prosper wrote: »

Lenihan blames euro and cheap labour as cause of overheating and Ireland’ recession

Low euro interest rates and cheap labour from Eastern Europe after 2004 were the main reasons for the overheating of the Irish economy which led to the recession, the Minister of Finance, Brian Lenihan has said.

[see news article Irish Mail on Sunday 28/6/09 page 2]
Asked about the causes of the recession during ‘The Last Word with Matt Cooper’ radio show on Thursday 25/6], Minister Lenihan put it down to,

‘cheap credit from the European Central Bank, the availability of cheap labour after 2004 was a factor as well.'

He also added. ‘the public appetite for lending, and public appetite for increased purchase of property were part of it.’
Former Green MEP for Dublin, Patricia McKenna said the ‘membership of the euro currency has led to a credit bubble and shows that the European Central Bank has huge say over our economy. The ECB,’ she said, ‘ is more geared to the interest of big states like France and Germany, and we shall find going forward, as they recover quicker, that it does not act in the interest of Ireland.’

The People’s Movement spokesperson also described the ‘economic scare mongering’ of some on the Yes side as ‘odious.’ The people of Spain, she said, had voted Yes in a referendum on Lisbon, but they were currently in a very bad situation with an unemployment rate almost double that of Ireland. ‘The economic policies pursued by the EU and enshrined in the Lisbon Treaty are’, she said, ‘ the same policies which have failed across Europe.’

Ireland was once held up, she said, as a shining example to other states of what good the EU could do, but while they took the credit while it suited, they now wash their hands as things turn bad.’

Minister Lenihan was taking part in a radio interview provoked by the latest IMF report on the Irish economy which proposed from 2005 to 2007, ‘easy credit fostered a property bubble,’ and Ireland’s ‘international competitiveness was compromised as wages climbed rapidly.’

While the IMF report suggested that access to ECB financing has been an important source of liquidity for the banking sector, it also pointed out that since Ireland’s Euro currency membership meant ‘the possibility of adjusting through the depreciation of its own exchange rate is not available, further wage reductions will be required to restore competitiveness and growth prospects.’



Ireland voted to join the Euro currency under the Treaty of Maastricht in 1992

Since May 2004 almost half a million people from Eastern Europe have come to work in Ireland, more than was suggested by Government ministers during the Treaty of Nice debate in 2002. This increased numbers of workers has also been fingered by economists as a factor in the housing construction boom.

Minister Brian Lenihan admitted, ‘We did overheat the economy, I have always accepted that and I made that clear in my last budget speech.’



These fools told us to vote for Maastricht - we were screwed by the Euro
They then told us to vote for Nice - we now have half million economic migrants

These same fools not tell us to vote for Lisbon -

Is there anyone willing to commit economic suicide and follow their lead?

so Brian - why are you still a member of the party that inflicted economic suicide on the country?

but to be fair - he seems to be a heck of a lot more honest than most British politicians - who seem to be in constant denial of the recession. (e.g. Gordon "it started in America, nothing to do with me" Brown )

netron

The Economist wrote: »

Fascinating. Why, then, has the value of our exports not fallen over the past year?

Also please stop citing David McWilliams and some no-name accountant on issues of monetary policy. Find me ONE academic Irish economist who wants us to pull out of EMU and I'll be impressed.

the markets will answer that in the coming years. markets need raw certainty - and who do they trust - Silvio Berlusconi, Gordon "Bonkers" Brown, Brian "Going Forward" Cohen, or Angela Merkel?

in times of recession , the markets always bank on the Germans. And they cant because of the Euro.

The Euro by its very nature is going to self destruct.

Time Magazine

netron wrote: »

the markets will answer that in the coming years. markets need raw certainty - and who do they trust - Silvio Berlusconi, Gordon "Bonkers" Brown, Brian "Going Forward" Cohen, or Angela Merkel?

in times of recession , the markets always bank on the Germans. And they cant because of the Euro.

The Euro by its very nature is going to self destruct.

And other than two sentences you just wrote there, have you anything to back that up? No, you don't, because you're talking crap. The markets can bank on the Germans by buying German government bonds.

For non-economists reading this: please take anything you read from posters here with a pinch of salt. If they cannot back claims that the Euro is going to collapse up, then please ignore them.

solice

Hi, im a non economist. But I can see how the ECB has hindered our ability to remain competitive. A high interest rate for the past 5 years would have been nice. I am also a realist, our woes are not entirely the fault of the ECB, our governement and our people need to be held accountable too.

But I was thinking, is it possible to have a two tiered euro. Let the ECB set 2 interest rates, one low, one high and the individual countries can choose which one they want to be alligned with and as economic circumstances change they can jump to the other rate. As I said, I am not an economist so I am more than likely talking a load of cake.

Other idea, is it possible to establish our own interest rate on top of the ECB rate? Interest rate is at 1%, we can add on 5% ourselves. 5% of interest generated goes to the Irish coffers and 1% goes to the EU coffers? We can increase or decrease as much as we want and always take account of the ECB rate.

Now I know what you are going to say - why would any investor take out a loan in Ireland when they can take out a loan in Germany with a lower rate of interest? Well that would have been the case too before we joined the Euro...

Again, I know im talking cake so please ignore this post if its of no merit whatsoever!

Time Magazine

solice wrote: »

Hi, im a non economist.

Hello . It's really important non-economists get informed and involved in economics debates so I've no problem with people not knowing the boring details, it only gets annoying when politically-motivated people basically lie about economics to mis-lead others.

But I can see how the ECB has hindered our ability to remain competitive. A high interest rate for the past 5 years would have been nice. I am also a realist, our woes are not entirely the fault of the ECB, our governement and our people need to be held accountable too.

But I was thinking, is it possible to have a two tiered euro. Let the ECB set 2 interest rates, one low, one high and the individual countries can choose which one they want to be alligned with and as economic circumstances change they can jump to the other rate. As I said, I am not an economist so I am more than likely talking a load of cake.

Other idea, is it possible to establish our own interest rate on top of the ECB rate? Interest rate is at 1%, we can add on 5% ourselves. 5% of interest generated goes to the Irish coffers and 1% goes to the EU coffers? We can increase or decrease as much as we want and always take account of the ECB rate.

Now I know what you are going to say - why would any investor take out a loan in Ireland when they can take out a loan in Germany with a lower rate of interest? Well that would have been the case too before we joined the Euro...

Again, I know im talking cake so please ignore this post if its of no merit whatsoever!

Good questions. Unfortunately the answer is "not really". The point of setting the interest is to match supply (people saving, etc.) and demand (businesses borrowing, etc.) Set the rate too high and people can't afford to borrow, set it too low and people are reluctant to save. (At the moment the real problem is there's no economic activity so the ECB are trying to stimulate that by keeping rates artificially low.)

Say the ECB sets a 1% rate and a 5% rate and countries can pick which they like. Ireland takes 1% and France takes 5%. You have €1bn. Where are you going to save? In France, where the return is 5%. You need €1bn. Where are you going to borrow from? In Ireland, where the interest repayments are only 1%. But nobody is saving in Ireland so the banks don't have the billion to lend.

Even worse than that, there's an arbitrage availability. Borrow €100 in Ireland and you have to pay back €101 in a year's time. Invest that €100 in France and you get €105 at the end of the year. Pay off the €101 you owe in Ireland and you're left with €4. You've just made €4 by simply borrowing money.

If we weren't all the one currency this wouldn't happen because the exchange rate differences would whittle your €4 down - the basic idea can be explained here.

So interest rates can vary a little bit between countries, but once you go beyond a percent or so it doesn't last.

djpbarry

solice wrote: »

But I was thinking, is it possible to have a two tiered euro. Let the ECB set 2 interest rates, one low, one high and the individual countries can choose which one they want to be alligned with and as economic circumstances change they can jump to the other rate.

Wouldn’t that defeat the purpose of EMU?

solice wrote: »

Other idea, is it possible to establish our own interest rate on top of the ECB rate? Interest rate is at 1%, we can add on 5% ourselves. 5% of interest generated goes to the Irish coffers and 1% goes to the EU coffers?

Again, sounds like you’re diluting EMU; the ECB sets a ‘guidance’ rate, but the Irish central bank (and every other central bank) can effectively set whatever rate it wants?

EDIT: Look at that - The Economist has tackled my points before I even had a chance to post them.

Économiste Monétaire

On the two tiered Euro question, that wouldn't work. Once a financial institution is as an eligible counterparty to EuroSystem refinancing operations, they can execute this with pretty much any national central bank (NCB). It's generally the national central bank in their operational area, e.g. AIB using the Irish NCB. This is usually due to accounts being held at the local NCB and payments systems (RTGS) were (are) fairly heterogeneous. NCBs cannot just attach a premium at will; you'd probably see national leaders asking their respective NCBs to offer a lower rate than the ECB main refinancing rate.

Also, the 5% doesn't go to the 'Irish coffers', the surplus income given back to national exchequers from the EuroSystem operations are based on a capital key.

solice

Économiste Monétaire wrote: »

On the two tiered Euro question, that wouldn't work. Once a financial institution is as an eligible counterparty to EuroSystem refinancing operations, they can execute this with pretty much any national central bank (NCB). It's generally the national central bank in their operational area, e.g. AIB using the Irish NCB. This is usually due to accounts being held at the local NCB and payments systems (RTGS) were (are) fairly heterogeneous. NCBs cannot just attach a premium at will; you'd probably see national leaders asking their respective NCBs to offer a lower rate than the ECB main refinancing rate.

Also, the 5% doesn't go to the 'Irish coffers', the surplus income given back to national exchequers from the EuroSystem operations are based on a capital key.

I can honestly say that I dont understand much of that post, thats why I aint an economist! But thank you, I get the general gist and that it just cant happen under any circumstances

professore

PopeBuckfastXVI wrote: »

Yes, and he's right that Britain isn't as big a factor as it was.

And that's only because of the multinationals here. Most SME's (i.e. the small companies employing most people here that never make the news when they close) still trade heavily with Britain.

gurramok

K-9 wrote: »

Even on immigration, it was Irish Govt. policy not to get a derogation in 01/02 like they did with Bulgaria and Romania. Govt. decisions, not EU. We had the freedom to choose and it seems our Govt. chose the wrong option.

They opened the borders in 2004 to help continue the construction boom via the new demand.

As per last CSO census, it was found that the vast majority of immigrants rented(fascinating read online). This is turn created a huge demand for new rentals and with favourable tax incentives for new builds, its no wonder rents went through the roof in the period. (house prices continued to rise with a combination of speculation via low rates along investor related immigrant demand)

Now we have the opposite, some immigrants have gone home and guess what happens, the rental market is chronically oversupplied and rents going down(good thing)

Spain had more of a holiday home boom from foreign buyers as they were too late to the game of opening their borders('07 or '08 it was).
This fuelled their construction bubble and when that burst, so did the unemployment rate go up, dunno how on earth that is related to Lisbon or Nice though:)

thebman

Before people put any blame on the ECB they have to ask would we have set interest rates any differently given the government was trying to push a property boom?

I don't think this government would have done it differently. The ECB is just a nice scapegoat since they were in control and not helping us out. There were other ways of controlling lending, none were used effectively as you can see from the situation we find ourselves in.

The blame lies completely with the government who supported us joining the Euro anyway.

Scofflaw

professore wrote: »

And that's only because of the multinationals here. Most SME's (i.e. the small companies employing most people here that never make the news when they close) still trade heavily with Britain.

That's an interesting suggestion, which seems reasonable on the face of it. Have you any evidence for it?

interested,
Scofflaw

free to prosper

On Friday 26/6/09, Mr Cowen felt obliged to defend his record as finance minister in the Dail.

"In Budget 2005, I announced a review of tax incentive schemes," he said.

"Due to membership of the euro, we were unable to raise interest rates but, as minister for finance, I moved to gradually remove incentives for the property market."

Sunday Independent June 28, 2009 page 2

So we have both Lenihan and Cowen freely saying because of our Euro membership they could not change interest rates - obviously.

But Lenihan goes further and blames Euro for creating cheap credit and boom and bust. At least he is being honest on this point.

oscarBravo

Hi there. Any chance of an answer to this question?

free to prosper

I have already give my answer earlier.

It is for the Irish people alone to decide the family and social laws to be applied in their country.
It is the right of other people to decided the family and social laws of their states.

For future reference - I answer questions while and only when I feel like it. I won't be twisted into a position that I don't actually hold.

As this thread is about the Euro and mass immigration facilitated by EU treaties - answer this:

Which are the 2 richest countries in Europe?
Are they inside or outside the EU?

Give you a clue: Nordic country states with Nor...
other - famous for chocolate and banks -starts with Switzer...

Hitman Actual

free to prosper wrote: »

For future reference - I answer questions while and only when I feel like it. I won't be twisted into a position that I don't actually hold.

And there it is... what little credibility you had has just floated out the window. :rolleyes:

oscarBravo

free to prosper wrote: »

Which are the 2 richest countries in Europe?
Are they inside or outside the EU?

Give you a clue: Nordic country states with Nor...
other - famous for chocolate and banks -starts with Switzer...

Is it your position that Ireland should adopt Norway's approach to the EU - a trading arrangement that would require us to implement EU directives without having any input into their formulation?

P. Breathnach

oscarBravo wrote: »

Is it your position that Ireland should adopt Norway's approach to the EU - a trading arrangement that would require us to implement EU directives without having any input into their formulation?

And have lots of oil? And high personal taxes, with a related low level of income inequality?

Steviemak

Don't forget Norway pays hundreds of a millions a year to the EU for the privilege of accessing our markets and as stated above must also implement EU directives

Norway pays an annual fee of €240 million to the EU budget but it receives no EU expenditure. Norway now contributes more per capita to the new EU Member States than any of the original EU 15

http://www.euromove.org.uk/index.php?id=6509

K-9

free to prosper wrote: »

On Friday 26/6/09, Mr Cowen felt obliged to defend his record as finance minister in the Dail.



Sunday Independent June 28, 2009 page 2

So we have both Lenihan and Cowen freely saying because of our Euro membership they could not change interest rates - obviously.

But Lenihan goes further and blames Euro for creating cheap credit and boom and bust. At least he is being honest on this point.

You really aren't going to change your mind on this one. Even the politics.ie thread had good reasons not to leave and it seems you haven't taken any of it on.

That quote by Cowen actually shows him admitting what went wrong. Too many property incentives.

In the budget the year after, he doubled Mortgage Interest Relief. So, he did not remove property incentives, he encouraged FTB's to buy, allowing €20,000 a year Interest and giving a €4,000 a year tax rebate.

Again, only a few countries in the Eurozone had property bubbles, but you keep ignoring that.

free to prosper

Its all in the mix.
We had lost control of our interest rates.
Our low tax economy was going well - well Germany was going badly

The ECB rates were set to suit Germany etc.
The too low interest rates overheated our economy.

On top of that we had massive immigration after Nice II.
The effects of which the govt lied to the people about.

On top of that again we had property incentives and lack of bank regulation.

We had boom and bust.

So the EUro is not a saviour - it is part of the problem. It got us into this mess- as did mass immigration.

On the other matter - Norway etc. I'm not advocating pulling out of the EU.
I would like to see it reformed to make it democratic, and turned away from becoming a political union.
I am all in favour of friendship and free-trade. But that's it.

Steviemak

free to prosper wrote: »

I would like to see it reformed to make it democratic, and turned away from becoming a political union.

Bit of a contradiction here, don't you think? The only way to make it more democratic is to make it more political.

The reason it is not more democratic is because it is fundementally an equal union of countries of all different population sizes and not a defined political democratic entity in itself.

A more democratic union would destroy Ireland's influence. Lisbon doesn't do this and that's why I support it.

Mario007

free to prosper wrote: »

Its all in the mix.
We had lost control of our interest rates.
Our low tax economy was going well - well Germany was going badly

The ECB rates were set to suit Germany etc.
The too low interest rates overheated our economy.

On top of that we had massive immigration after Nice II.
The effects of which the govt lied to the people about.

On top of that again we had property incentives and lack of bank regulation.

We had boom and bust.

So the EUro is not a saviour - it is part of the problem. It got us into this mess- as did mass immigration.

On the other matter - Norway etc. I'm not advocating pulling out of the EU.
I would like to see it reformed to make it democratic, and turned away from becoming a political union.
I am all in favour of friendship and free-trade. But that's it.

oh ok so the ECB is one big conspiracy trying to suit only germany but not ireland, right? and the economy was overheated due to ECB and nothing else? dont be ridiculous, you cant blame everything on the eu, no matter how much you'd like to.the interest rates of the ECB are actually helping ireland right now, but you seemed to have forgotten that....
the mass immigration also helped the economy to keeping going with the boom- the immigrant workers took on jobs no irish person would work for, there was also a lack of workforce in ireland as those 4% that remained unemployed could not be bother to go to work and so the goverment, in the end, was making sure enough immigrants were coming to the country to keep the economy pumping.
euro did damage ireland against britain but thats about it, we get cheaper petrol thanks to the euro, which affects huge area of things. the IMF actually suggested that, in order to get the economies of the non eurozone memebers of eu up, everystate of eu should get euro disregarding the criteria.

P. Breathnach

free to prosper wrote: »

Its all in the mix.
We had lost control of our interest rates.
Our low tax economy was going well - well Germany was going badly

The ECB rates were set to suit Germany etc.
The too low interest rates overheated our economy.

On top of that we had massive immigration after Nice II.
The effects of which the govt lied to the people about.

Oh, no: here we go again. The immigrants did not cause our problems. They came for the jobs that were on offer.

On top of that again we had property incentives and lack of bank regulation.

That's the key. We had means by which we could manage economic activity, most particularly in relation to property. Decisions were made that added to the bubble rather than moderated it. It is quite possible that if the government had set itself against the false market, the effects of the recession would have been far less severe. Many of those who were in government at the time can not or will not recognise that.

We had boom and bust.

So the EUro is not a saviour - it is part of the problem. It got us into this mess- as did mass immigration.

The main thing that got us into this mess was our own government's fuelling of the property boom. Sure, cheap money was part of the circumstance, but we abrogated all controls. It was the boom that caused the immigration, not the converse.

Now that we are in the position that we find ourselves in, the Euro is the only thing between us and perdition.

On the other matter - Norway etc. I'm not advocating pulling out of the EU.
I would like to see it reformed to make it democratic, and turned away from becoming a political union.
I am all in favour of friendship and free-trade. But that's it.

"Will sir have the beef or the salmon?"
"No, I'll have the magret de canard."
"Sorry, sir. That's not on offer. The menu has only beef or salmon."

free to prosper

Mario007 wrote: »

oh ok so the ECB is one big conspiracy trying to suit only germany but not ireland, right? and the economy was overheated due to ECB and nothing else? .

Nobody said the ecb was a conspiracy,

and nobody here has said the economy overheated cause of ECB and nothing else.

Read my post above and don't misrepresent what I say.

Proper discussion is based on honesty -

It's simple - The ECB and mass immigration post 2004 was a major contributor to overheating and the recession. Comprendez?
No-one denies there were other factors - outlined above also.