Iceland Proves Ireland Did `Wrong Things' Sacrificing Taxpayers

Euroland

I believe that instead of borrowing tens of billions and squeezing our taxpayers we should follow Iceland, bankrupting banks and restructuring their debt, and then pulling out of the Euro zone:

Iceland Proves Ireland Did `Wrong Things' Sacrificing Taxpayers

http://www.bloomberg.com/news/2011-02-01/iceland-proves-ireland-did-wrong-things-saving-banks-instead-of-taxpayer.html?nstrack=sid:5021631|met:102|cat:244|order:1


On the upcoming elections I will vote for those who would propose something similar.

Sugarfree

Euroland wrote: »

I believe that instead of borrowing tens of billions and squeezing our taxpayers we should follow Iceland, bankrupting banks and restructuring their debt, and then pulling out of the Euro zone:

Iceland Proves Ireland Did `Wrong Things' Sacrificing Taxpayers

http://www.bloomberg.com/news/2011-02-01/iceland-proves-ireland-did-wrong-things-saving-banks-instead-of-taxpayer.html?nstrack=sid:5021631|met:102|cat:244|order:1


On the upcoming elections I will vote for those who would propose something similar.

Iceland were never in the "Euro" zone

Euroland

Sugarfree wrote: »

Iceland were never in the "Euro" zone

Yes, and we also shouldn't. The Euro zone serves only the interests of Germany (and maybe France), but not the interests of small open economies like Ireland is. Our economy requires own currency and own monetary system. Look at Sweden.

later12

Euroland wrote: »

Our economy requires own currency and own monetary system.

Oh yes because we've always been such deft hands at handling our own economic affairs.

In any case, it's futile arguing against the euro, we are in the eurozone and I don't think anybody is realistically arguing that we leave at the moment.

Look at Sweden.

What, some of the most expensive home in the world in relation to income? Household debt that is 167% of disposable income? Some of that sound familiar? Combine that with rising interest rates and currency appreciation, and you'll see why Sweden are an emerging concern in Europe.

SkepticOne

There are some arguing against the Euro but they tend to be fairly high profile international economists like Krugman, Eichengreen or Feldstein and not specifically arguing against Ireland's membership but rather pointing out the flaws of the currency union generally.

eoinbn

By guaranteeing bank liabilities, Ireland faces a public debt burden as high as 12 times the country’s GDP.

Can anyone tell me where the 12 times our GDP(€1.8tn) figure comes from? Seems like a fairly rubbish article which is misrepresenting many of the facts.

sollar

The two brians made a terrible mistake. Now one is retired and the other will prob retire after the election... leaving us with a debt legacy that would seem far fetched in a movie.

I hope iceland does really well. And i hope we default on the private banking debts - i fully believe that we could borrow on the markets at a fair rate if we leave that silly debt behind.

later12

eoinbn wrote: »

Can anyone tell me where the 12 times our GDP(€1.8tn) figure comes from? Seems like a fairly rubbish article which is misrepresenting many of the facts.

You are correct to query this, although Ireland's GDP is not, of course, 1.8tn.

This paper is a little bit out of date but can help to inform you out of where this sometimes quoted figure might be arising. I presume the 12 times figure also takes in the IMF-EU bailout, the Emergency Liquidity provisions, and possibly a theoretical cost of extending debt repayment.

Yes, it is an exaggeration.

alan85

Pat Rabbite called to my door last night and I asked him about this. I made the point that at the interest rate of all the money that is being borrowed any cutbacks this year are negated and more is to come. How is it sustainable and are you fair to refer to Sinn Féin as left wing nuts?

He didn't say much about the interest repayments and took the opportunity to refer to SF as Trotskyites.

So my fears are no less than they were after talking with a probable future minister....

I think I will side with SF on this one...

later12

alan85 wrote: »

I made the point that at the interest rate of all the money that is being borrowed any cutbacks this year are negated and more is to come

Why did you waste a conversation on such a futile point? The benefit of last years austerity measures are to lower our fiscal deficit whereby we will hopefully see a situation where we could return to the sovereign bond markets next year or raise funds on a European basis away from the EFSF and EFSM. If we didn't cut the deficit last year, we would probably have been paying higher yields and rates at a much earlier point, and probably over a longer period than is currently anticipated.

There are a lot of policy problems and moral hazards floating around, but the need for austerity is not one of them.

Sand

Iceland has definitly had far better leadership in this period of stress than Ireland has had. Though, also one could say they have had a far better electorate too.

I think everyone is clearly recognising that the Irish strategy was an appallingly bad one. It will be taught in textbooks of the future, explaining exactly what *not* to do in a crisis situation. At each point, they will present the ideal response, and for comparison puposes they will describe the ludicruous Irish "solution".

We were governed by fear and scaremongering, assured the country would be devoured in firestorms and sunk beneath the waves, terrorised into a stupid bank guarantee, a stupid NAMA scheme and a stupid banking policy which prioritised the interests of bank bonholders, who would be rescued at *any* cost to the Irish taxpayer. Constantly we were told that if a bank bondholder lost a penny the first born child of every family would be struck down in veangeance. Instead, it appears theyll be forced to emigrate to find work.

I think the most telling phrase in the piece was this:

“In the beginning, banks and other financial institutions in Europe were telling us, ‘Never again will we lend to you,’” Einarsdottir says. “Then it was 10 years, then 5. Now they say they might soon be ready to lend again.”

The people of Iceland were also terrorised, and indeed the UK and the Netherlands wilfully bullied and terrorised them, but the key difference is that the Icelandic people refused to be bullied and they forced their government to listen and to stand up for them. And despite all the threats, Iceland remains afloat.

Ireland still has choices.

eoinbn

later10 wrote: »

You are correct to query this, although Ireland's GDP is not, of course, 1.8tn.

This paper is a little bit out of date but can help to inform you out of where this sometimes quoted figure might be arising. I presume the 12 times figure also takes in the IMF-EU bailout, the Emergency Liquidity provisions, and possibly a theoretical cost of extending debt repayment.

Yes, it is an exaggeration.

Sorry, I didn't mean to suggest that our GDP is €1.8tn, I meant that is the figure that they are suggesting as our max possible debt burden due to the bank guarantee which is nonsense.

later12

Sand wrote: »

Ireland still has choices.

What choice? At the risk of deviating too far from the thread, Ireland is not Iceland, it has different responsibilities and structures to which it must answer and upon which it can rely.

I'm genuinely interested as to what real alternative choice you could possibly believe that Ireland has re. banking policy as of now.

later12

eoinbn wrote: »

Sorry, I didn't mean to suggest that our GDP is €1.8tn, I meant that is the figure that they are suggesting as our max possible debt burden due to the bank guarantee which is nonsense.

Oh ok I understand; yes quite true and good observation. That's exactly why people shouldn't just accept everything they read on the internet, even on Bloomberg.

alan85

Why did you waste a conversation on such a futile point?

Want to explain to me how it's a futile point? Any savings in our deficit this year are immediately wiped out once IMF/EU money is drawn in interest rates alone. Never mind repayments. This could be compared to you or me having a mortgage and then taking on 2/3 of my neighbours' mortgages, then taking a 10% cut in spending and that 10% being wiped out by the interest on those loans.

My point was that the wiping out of the cut backs by interest is a clear sign we can't pay it back... Look at the pain that has been inflicted by the cut backs with little hope of growth or improved services.

later12

alan85 wrote: »

Want to explain to me how it's a futile point? Any savings in our deficit this year are immediately wiped out once IMF/EU money is drawn in interest rates alone.

Of course it is a ridiculous point. It wasn't 'wiped out' because both figures were on the same side of the balance sheet - expenditure. It was subtracted from expenditure; if the amount had not been taken off the state's expenditure, that would effectively be an extra €6 which Ireland would have to repay on top of the principal sum and upon which it would pay in the region of 6% interest.

In other words, €6 billion on top of a potential €6 billion interest charge makes €12 billion, they don't cancel one another out.

flutered

the imf are charging us 3.2%, could/should we have borrowed what was/is required from them.

alan85

You're missing my point.

The pain that was caused by this budget is for what? To decrease our deficit, yes? We're agreed. But when the loan is taken out for the EU/IMF deal interest rates are applied, ok, not this year but next year they are. So that interest goes over to expenditure and cancels out cut backs made this year and probably part of next years too. So back to square one and all that we did was save worthless banks...

The alternative probably lies somewhere between SF and current policy but the current policy is a train running full steam for a brick wall in my opinion.

later12

alan85 wrote: »

So that interest goes over to expenditure and cancels out cut backs made this year

They're both expenditures, you can't regard that €6 billion as a 'saving' unless you don't understand the difference between saving money and not borrowing.
All borrowings must, in theory, be repaid. Therefore by contracting the expenditure, one is reducing the final payment that must be ultimately discharged. If you didn't have it in the first place then you are not physically saving anything.

And so just to be clear what do you propose, no austerity or no IMF loan?

Sand

@Later10

What choice? At the risk of deviating too far from the thread, Ireland is not Iceland, it has different responsibilities and structures to which it must answer and upon which it can rely.

I'm genuinely interested as to what real alternative choice you could possibly believe that Ireland has re. banking policy as of now.

As of now? You mean after the strategy of "Kick the can down the road and hope something magical happens?" has been tried, and tried, and tried, and tried and truly screwed us? After Lenny and the boys in the DoF have driven the car straight off the cliff? Now we get the chance to try an alternative?

1 - Publically refuse to use the ECB/EU credit card facility of Nov 2010 on the grounds of it being self defeating.
2 - Revoke the CPA and take emergency steps to balance the budget, immediately: The government has spend 2-3 years looking at potential cuts so there shouldnt be a mystery of where to find them. Lead from the top: bonfire of the quangos and luxuries. It wont save all the money but it will set the example.
3 - Resolve the banks immediately with a take it or leave it offer to creditors to take equity or nothing. Not as a bluff. As a reality. The only government interest should be maintenance of a payment system. Cite EU commitment to competitive markets free of state support.
4 - Reverse NAMA: Write off the "NAMA" bonds in exchange for giving the banks full ownership of the NAMA SPV in proportional ownership.
5 - Having finished up with the bank crisis over a weekend and removed the uncertainty over the states contingent liabilities, start concentrating on growing the economy by tackling the sheltered sectors and vested interests that act as a drag on real economic activity.

But I'm sure all of this is clearly impossible and crazy. The *only* sane course of action is to continue down the path of unremitting failure and disaster that has been the "leave no bondholder behind" strategy of Lenihan and Cowen.

Its worked out great for us so far.

alan85

later10 wrote: »

Therefore by contracting the expenditure, one is reducing the final payment that must be ultimately discharged. If you didn't have it in the first place then you are not physically saving anything.

And so just to be clear what do you propose, no austerity or no IMF loan?

You're getting caught up on the deficit on its own, separate to the guarantee of banks. The problem is that we are borrowing not only for the deficit but also to cover bank guarantees and capitalisation of the banks. I wasn't making the point that the reductions means a saving. I was illustrating that the hard cuts made so far only cover the interest on the loans that not only cover budget deficits but also bank guarantees...

I would propose a mixture of two. We've already made 5bn cut. 10bn more needed. Use pension fund and reserves to part stimulate and part cover deficit. Be assertive and tell bond holders what they have to do. This is a country, not a business. We don't try to flatter anymore. We be ruthless on one hand and learn to be humble and work hard again on the other and make people want to invest in a sustainable future here. It's certain there is one. Look at exports of food for example. We just need to do more of the same.

@Sand... Agreed!

later12

Sand wrote: »

@Later10
<solution>

Ok, I'm not going to go through it on a point by point basis lets just begin with some issues you skipped over. Ok, first, refusal of the bailout agreement. There has to be a viable alternative. There is about €15bn left in the NPRF, and there is in the region of that figure maturing in sovereign bonds over the year coming. That quite swallows up the NPRF doesn't it. Not to even mention day to day welfare and current expenditure figures and salaries. How is this managed?
If you're going to give a cut, give a figure. Presumably current expenditure and bonds maturing are mainly financed through borrowing, being realistic. Irish Government bonds finished up at 9.03% at the closing bell this evening, is that the rate at which you'd prefer to borrow?

Next - the banks. What you are suggesting amounts to a widespread default. Ok, lets ignore that in itself for a minute and what worsening implications that would have on that 9% bid yield.
How do you avoid (1) capital run (2) suspension of convertibility and next, what, then would happen with the 50 billion or so of debentures liable to the Central bank of Ireland and borrowed from the ECB which has been dripped into the Irish banks?

But I'm sure all of this is clearly impossible and crazy.

It is.

edit alan85: since you agree, exact same question for you.

alan85

I'd imagine if you guaranteed ordinary deposit holders there would be no run. Set up 2 banks, close the rest. These 2 will be set up as good, responsible banks with a clean slate. Basically, restructure. ECB can have an IOU in writing. They were as complicit as anybody here. The joke's on them. We set the terms. We stay in the Euro. We have no choice for the moment.

As you can tell I'm not an economist but I'm not an idiot either. It must come down to simple facts and not psychology of the market players.

Inflation is going up. Interest rates are set to hit. What do you propose we do when the mortgage snowball hits?

McDave

Most Irish voters accept that we're better off in the EU and the Eurozone, even if unenthusiastically. Irish people largely accept we are to a great extent the authors of our own misfortunes. And once a new government is in place, I think most voters will be prepared to dig in and try to pull though the bad years with the best grace possible.

That's the middle ground view as I see it.

Of course there are plenty of dissenters and ideological critics who hold strong convictions on how detrimental the EU is to Ireland. However, they are in a (albeit substantial) minority. I don't have a problem with people holding sceptical views about the EU. It just seems to me that too many of the criticisms are essentially negative. Or based on an unrealistic view of a born-again virgin Ireland, where we can somehow start from scratch with some completely new model which will somehow deliver ideal results - completely ignoring of course how our own sovereign actions actually got us into the trouble we're in.

Dreaming of being like Iceland disregards the severe pain they had to go through and the privations they're having to accept for the foreseeable future. We'll have to endure more pain too. But there's no reason to think the pain will be any less outside the Euro.

Sand

@Later10

is that the rate at which you'd prefer to borrow?

We cant borrow at rates that outstrip our ability to grow to repay. The CB has only today cut the already poor growth predictions for 2011. The difference between 9.03% and the ECB rates are similar to the difference between Venus and Mercury relative to the earth: Theyre both out of reach.

That should answer your initial point: ruling out the possibility of borrowing, the remaining cuts are whatever is necessary to balance the budget. Inside 2011. Every other consideration, including maturing bonds ( we're locked out of the markets anyway...) is secondary to balancing the budget inside 2011.

Thats going to be tough - but its where the policy of "kick the can down the road" has led us. Back in 2008, the Irish state would simply have been staying well clear of a *private* bank failure. The mindset informing the government policy (an attempt at a gigantic bluff...) has forced into a sovereign default. Blame them for that: I recall specifically saying that I never ever wanted to see the words "Sovereign" and "Default" in the same sentence with regards to Ireland, but here we are.

Next - the banks. What you are suggesting amounts to a widespread default.

Heaven and all the saints preserve us!

Ok, lets ignore that in itself for a minute and what worsening implications that would have on that 9% bid yield.

9% or 90%, we cannot realistically or *responsibily* borrow at either of those rates or anything like them. And remember, the markets are already pricing in the probability of us defaulting into that 9%: They are rightly incredulous when examining repeated Irish assurances that Ireland can cover all the bank losses and the highest fiscal deficit recorded in a developed peacetime economy.

Once that event has occured the only decision lenders have to make is if the new Irish regime is a good bet to lend to in *future*. If anything, the 9% could fall significantly after a short term spike: if accompanied by a good performance by the government tackling the other points.

How do you avoid (1) capital run (2) suspension of convertibility and next, what, then would happen with the 50 billion or so of debentures liable to the Central bank of Ireland and borrowed from the ECB which has been dripped into the Irish banks?

Capital run is already happening. 25 billion has fled the banks in a few months. If anything, a definite and final resolution of the banks would end the incentive to flee. I refer you to the Icelandic peoples view on their dodgy banks:

While the shattered trust of the public may take years to rebuild, there aren’t any alternatives for Icelanders, who have kept their deposits at the new banks.

“I lost all the confidence in the banks, but where else can we go?” says Jon Birgir Valsson, a customer at an Islandsbanki branch in downtown Reykjavik who was paying some bills for the government agency that employs him. “Life continues. We need to bank, and these are the banks we have.”

It is.

Intriguingly, if we had taken the correct, decisive action in September 2008 we wouldnt even have to consider these steps.

But as I said, the mindset of "Duck and pray" thats guided policy with regard to the banks has put us here. We were assured the bank guarantee would be the cheapest in the world. We were assured NAMA would get credit going again. We were assured the EU emergency fund would intimidate the big, bad evil markets. We were assured at every step in the process that the chosen policy was The only game in town, There Is No Alternative! and so on and so forth.

And here we are now, forced to seriously contemplate default to escape the implications of these disastrous policies. Carry on, youve been doing grand so far.

later12

Sand wrote: »

We cant borrow at rates that outstrip our ability to grow to repay. The CB has only today cut the already poor growth predictions for 2011. The difference between 9.03% and the ECB rates are similar to the difference between Venus and Mercury relative to the earth: Theyre both out of reach.

Ok well 9% yields obviously inhibit our ability to repay a sovereign debt, so you would start by ruling out all borrowing to fund the state, is that correct?

the remaining cuts are whatever is necessary to balance the budget.

Ruling out borrowing, the current deficit is just under €19 billion at the last official count. So just to get this straight: you want to run Ireland on current and future tax takes and the current NPRF, presumably?

Ok here's what that looks like. The tax take last year fell back to €32bn, give or take a few ten millions. Imagine that this could be magically maintained for 2011 or maintained by auxiliary non tax income on both the capital and current accounts. That's €32bn in the pot. Add in every cent of what's left of the NPRF, that's €15 billion (Bear in mind that if you're including that, we are then defaulting on maturing sovereign debt, not simply restructuring like every other developed economy in recent history). Anyway, so far that's €47 billion for 2011. Incidentally, that's exactly the amount of the state's current expenditure, but doesn't even account for capital expenditure of about €8 billion. So before you've cut a cent you're in the red to the tune of €8bn.

So basically, can you outline in broad terms how you would hope to get Ireland's total expenditure down to €47 billion for 2011, and €32 bn for 2012? Or would you be aiming to spread out the NPRF fund? Bear in mind that you're effectively attempting to do this without a banking system and being the first developed economy in modern history to issue an outright unilateral default on its sovereign debt.

Argentina effectively restructured their debts 10 years ago along with kicking out the IMF; they're a resource wealthy country and they're still in the sh1t, and still facing litigation, and still repaying their debt, and still locked out of the global market. They are a lesson in how not to default, you are taking it to a whole new level. Your plan is not credible, sometimes it's best to admit that while nobody is happy with the current situation, it is the only viable plan there is at present.

Nobody would keep money in Ireland in your scenario, ATMs would dry up, inward investment would cease without a banking system and without the ability to spend on infrastructure, it would be no exaggeration at all to compare a country like that to Zimbabwe. Savings and salaries and current accounts would dry up overnight. I'm sure a lot of people on here would only love it.

maninasia

later10 wrote: »

Why did you waste a conversation on such a futile point? The benefit of last years austerity measures are to lower our fiscal deficit whereby we will hopefully see a situation where we could return to the sovereign bond markets next year or raise funds on a European basis away from the EFSF and EFSM. If we didn't cut the deficit last year, we would probably have been paying higher yields and rates at a much earlier point, and probably over a longer period than is currently anticipated.

There are a lot of policy problems and moral hazards floating around, but the need for austerity is not one of them.

It is not futile to mention the core issue, the amount of debt is simply too high to service and the price to pay for servicing is too high. Yes it would have been preferable to not have let it become sovereign debt already, no it's not too late to do something about it.
It may have been futile to mention to Pat Rabitte though.

later12

maninasia wrote: »

It is not futile to mention the core issue

I'm not talking about the core issue of the interest rate or the principal sum, I said it was futile to raise a point that the interest rate was 'cancelling out' the austerity drive - both are based on borrowings, both are on the expenditure side so they are additional to one another; furthermore a decision not to borrow a sum in these terms cannot seriously be considered a 'saving' when you never had the money to begin with.

alan85

But the interest repayments will end up in expenditure and will eat up budget expenditure. The borrowings should not have been taken out for what they are covering. So the interest rates being paid on loans that cover private failures are impacting on tax payers because we're making cuts to our deficit and those cuts aren't making any impact because borrowings for private loans are making it impossible to ever balance that budget as far as I can see...

As a matter of interest when do we start repaying the loans and in what measure? What are the long term implications?

later12

alan85 wrote: »

But the interest repayments will end up in expenditure and will eat up budget expenditure. The borrowings should not have been taken out for what they are covering.

Should have is irrelevant. The interest rate is not going to change massively, even with the EFSF overhaul plan that might emerge by this weekend.

So the interest rates being paid on loans that cover private failures are impacting on tax payers because we're making cuts to our deficit and those cuts aren't making any impact because borrowings for private loans are making it impossible to ever balance that budget as far as I can see...

Those cuts are making an impact, they are lowering the Irish deficit and theoretically shortening the time that Ireland must spend as a ward of the IMF, the EFSF and the EU institutions.

The austerity measures must be endorsed on their own merits, they have little to do with the crisis mechanism apart from lowering the principal aggregate loan that Ireland must borrow, and upon which it must pay interest; they actually compliment the Irish bailout in that respect.

If people are suggesting that the banks simply be let go then it is only reasonable that they should explain how Ireland would be expected to live with the consequences. It is because people are not asking enough about consequences that SF are getting away with spinning a load of horse manure about kicking out the IMF and burning bondholders.

alan85

Well, those that have forced this bailout upon us tell us:

Where exactly the money is going regards bondholders. And explain why we should shoulder their bad judgement! Why hasn't Sean Quinn and Fitzpatrick been stripped of all assets (including those for which the wife can't clearly prove was earned of her own merit)? Where is the legislation to punish future crimes committed by bankers? Tell me that this won't happen again and even if it does that the nation won't be held accountable for private debt ever again!

Sand

Ok well 9% yields obviously inhibit our ability to repay a sovereign debt, so you would start by ruling out all borrowing to fund the state, is that correct?

Borrowing at any rates we cannot afford has to be ruled out by any sensible, responsible government. We cant afford 9% or anything like it. Borrowing now at those sort of rates is merely looting by the regime: paying themselves now, and leaving future generations to cover the bill.

The *only* scope I can see for borrowing at all is extremely short term borrowing to cover expenditures in advance of revenues. The NPRF reserve should give some scope here: assuming theres anything left after the government has exhausted every strategy bar the correct one.

Ruling out borrowing, the current deficit is just under €19 billion at the last official count. So just to get this straight: you want to run Ireland on current and future tax takes and the current NPRF, presumably?

Ok here's what that looks like. The tax take last year fell back to €32bn, give or take a few ten millions. Imagine that this could be magically maintained for 2011 or maintained by auxiliary non tax income on both the capital and current accounts. That's €32bn in the pot. Add in every cent of what's left of the NPRF, that's €15 billion (Bear in mind that if you're including that, we are then defaulting on maturing sovereign debt, not simply restructuring like every other developed economy in recent history). Anyway, so far that's €47 billion for 2011. Incidentally, that's exactly the amount of the state's current expenditure, but doesn't even account for capital expenditure of about €8 billion. So before you've cut a cent you're in the red to the tune of €8bn.

So basically, can you outline in broad terms how you would hope to get Ireland's total expenditure down to €47 billion for 2011, and €32 bn for 2012? Or would you be aiming to spread out the NPRF fund? Bear in mind that you're effectively attempting to do this without a banking system and being the first developed economy in modern history to issue an outright unilateral default on its sovereign debt.

Do you remember the year 2000? In 2000, total government expenditure was 31 billion. Current expenditure was 25 billion. In 2000. It wasnt the 1840s. People werent eating grass, starving to death on the sides of the road.

Knowing that we were able to run the entire country only a few years ago, on 31 billion euro, are you trying to tell me that its impossible to run the country on 31 billion euro? That no one knows how? How did we manage in 1996 when the entire country was run on 22 billion euro? Can you spot the difference in government services that the spending has brought? Since that time, spending has been increased massively, but mostly on flab and with extremely poor return: Our gardai have very poor equipment, our children are taught in prefabs and our A&Es are like zoos. Throwing money at problems didnt really help. Cutting money that has had no effect wont harm.

Social Welfare and the Public sector would have to be massively cut, rolling them back to 2001-2 levels. Most of the savings would have to be quick and dirty cuts/redundancies/redeployment, but reform and proper management should maintain services we need. If anything, we could do a lot more for less. All existing and future public sector pensions should be capped at a very low figure (30,000 say) and multiple pensions should be eliminated.

Quangos would have to go - any useful function would have to transfer to the relevant department. Free 3rd Level gone. Foreign Aid (including Northern Ireland) gone. Participation in UN missions gone (Perhaps the value of an Irish army reviewed entirely). Irish language enforcement (waste like the dual printing) gone. Junkets gone. Government jets gone. Expenses tabs gone. Car scrappage schemes gone. Subsidies to the legal profession (NAMA and so on) gone. Most of the semi states/white elephants would have to be sold: not only would it generate some upfront cash, it would also save the state from the immense cost and waste of those black holes.

Tax increases would also be necessary so that Ireland is in line with EU norms. The discrepancies however are mostly in the lower bracket. A flat tax might be the simplest way of doing it.

We were running this country on 30 odd billion only a few years ago. It can and *has* to be run on that amount again. Guys like Colm McCarthy have written up their reports and studies to identify potential saves: all it takes is the courage to do it.

Nobody would keep money in Ireland in your scenario, ATMs would dry up, inward investment would cease without a banking system and without the ability to spend on infrastructure, it would be no exaggeration at all to compare a country like that to Zimbabwe. Savings and salaries and current accounts would dry up overnight. I'm sure a lot of people on here would only love it.

Ah, the dramtic threats of doom and disaster. I think you only missed the seas rising up to drown the country.

Nobody is keeping money in Ireland in *your* scenario. Deposits in the Irish banking system dropped by more than 91 Billion in 2010. Youre worrying about a horse thats already over the horizon and gone. ATMs wont dry up: theyre still working in Iceland. We will have a banking system so inward investment will be fine. Yes, it would be an exaggeration to compare Iceland to Zimbabwe.

Pete_Cavan

Sand wrote: »

Borrowing at any rates we cannot afford has to be ruled out by any sensible, responsible government. We cant afford 9% or anything like it. Borrowing now at those sort of rates is merely looting by the regime: paying themselves now, and leaving future generations to cover the bill.

The *only* scope I can see for borrowing at all is extremely short term borrowing to cover expenditures in advance of revenues. The NPRF reserve should give some scope here: assuming theres anything left after the government has exhausted every strategy bar the correct one.

The interest rate set by the EU/IM is quite high (although a lot lower than the ~9% the bond markets would be charging us) so that we do not draw down all the money. The EU/IMF are also hoping that reducing the deficit by €15bn, as per the terms of the agreement, will allow us to go back to the bond markets. The plan is that the bond market interest rate will be lower than the bailout rate so there is an incentive there for us to go to the bond markets asap and the EU/IMF are making sure they get their money back.

Basically, they want us to go to the bond markets once the interest rate their drops below the rate the EU/IMF are charging us, so we borrow from the bond markets to pay them back. The EU/IMF are getting the money they are giving us at around 3% so there is room for them to reduce the rate if it looks like we will default (although they will only do this as a last resort). Anyway, the point is the interest rate has been set such that this will be a short term loan.

alan85

Quangos would have to go - any useful function would have to transfer to the relevant department. Free 3rd Level gone. Foreign Aid (including Northern Ireland) gone. Participation in UN missions gone (Perhaps the value of an Irish army reviewed entirely). Irish language enforcement (waste like the dual printing) gone. Junkets gone. Government jets gone. Expenses tabs gone. Car scrappage schemes gone. Subsidies to the legal profession (NAMA and so on) gone. Most of the semi states/white elephants would have to be sold: not only would it generate some upfront cash, it would also save the state from the immense cost and waste of those black holes.

I broadly agree with you. But!... Northern Ireland is not foreign. I drive there regularly. It is in effect same country, politics aside of course... Irish language is not a waste. Money spent over multiple agencies should go. Why can't the average person access free Irish classes is something I can never understand...

I think the talk of interest rate negotiation is a load of bullsh*t. How can 1/2/3% on €100bn make much difference really? The problem is the amount of bailout and what it's being spent on. Don't be fooled into thinking the problem lies with the interest rate!

RichardAnd

alan85 wrote: »

I broadly agree with you. But!... Northern Ireland is not foreign. I drive there regularly. It is in effect same country, politics aside of course... Irish language is not a waste. Money spent over multiple agencies should go. Why can't the average person access free Irish classes is something I can never understand...

I think the talk of interest rate negotiation is a load of bullsh*t. How can 1/2/3% on €100bn make much difference really? The problem is the amount of bailout and what it's being spent on. Don't be fooled into thinking the problem lies with the interest rate!

The interest rate makes a huge difference. 5% on 100billion translates into 5billion per year and if that's compound interest, then it's even more of a factor.

K-9

Sand wrote: »

Borrowing at any rates we cannot afford has to be ruled out by any sensible, responsible government. We cant afford 9% or anything like it. Borrowing now at those sort of rates is merely looting by the regime: paying themselves now, and leaving future generations to cover the bill.

The *only* scope I can see for borrowing at all is extremely short term borrowing to cover expenditures in advance of revenues. The NPRF reserve should give some scope here: assuming theres anything left after the government has exhausted every strategy bar the correct one.



Do you remember the year 2000? In 2000, total government expenditure was 31 billion. Current expenditure was 25 billion. In 2000. It wasnt the 1840s. People werent eating grass, starving to death on the sides of the road.

Knowing that we were able to run the entire country only a few years ago, on 31 billion euro, are you trying to tell me that its impossible to run the country on 31 billion euro? That no one knows how? How did we manage in 1996 when the entire country was run on 22 billion euro? Can you spot the difference in government services that the spending has brought? Since that time, spending has been increased massively, but mostly on flab and with extremely poor return: Our gardai have very poor equipment, our children are taught in prefabs and our A&Es are like zoos. Throwing money at problems didnt really help. Cutting money that has had no effect wont harm.

Social Welfare and the Public sector would have to be massively cut, rolling them back to 2001-2 levels. Most of the savings would have to be quick and dirty cuts/redundancies/redeployment, but reform and proper management should maintain services we need. If anything, we could do a lot more for less. All existing and future public sector pensions should be capped at a very low figure (30,000 say) and multiple pensions should be eliminated.

Quangos would have to go - any useful function would have to transfer to the relevant department. Free 3rd Level gone. Foreign Aid (including Northern Ireland) gone. Participation in UN missions gone (Perhaps the value of an Irish army reviewed entirely). Irish language enforcement (waste like the dual printing) gone. Junkets gone. Government jets gone. Expenses tabs gone. Car scrappage schemes gone. Subsidies to the legal profession (NAMA and so on) gone. Most of the semi states/white elephants would have to be sold: not only would it generate some upfront cash, it would also save the state from the immense cost and waste of those black holes.

Tax increases would also be necessary so that Ireland is in line with EU norms. The discrepancies however are mostly in the lower bracket. A flat tax might be the simplest way of doing it.

We were running this country on 30 odd billion only a few years ago. It can and *has* to be run on that amount again. Guys like Colm McCarthy have written up their reports and studies to identify potential saves: all it takes is the courage to do it.



Ah, the dramtic threats of doom and disaster. I think you only missed the seas rising up to drown the country.

Nobody is keeping money in Ireland in *your* scenario. Deposits in the Irish banking system dropped by more than 91 Billion in 2010. Youre worrying about a horse thats already over the horizon and gone. ATMs wont dry up: theyre still working in Iceland. We will have a banking system so inward investment will be fine. Yes, it would be an exaggeration to compare Iceland to Zimbabwe.

Okay, that is all well and good.

At the minute, Public Service pay is about €18 Billion and Welfare over €20 Billion so we'd need to slash those. We'd need to slash them by about a third to get your €31 Billion expenditure. We'd need a bit over and above pay and Welfare to keep the country running, open hospitals, schools, Garda Barracks, that type of stuff.

By doing that, we immediately cut tax revenue on the other side. Say we slash pay by €6 Billion, we'd lose tax receipts on the other side of say, 60%, PAYE/PRSI, social and pension levies, VAT receipts, tax on profits of businesses that lose out on revenue. Welfare money is also spent in the economy, filters back in tax revenues like VAT, tax on profits of businesses were that money is spent.

So, say we cut that by €7 Billion, tax revenue drops by €1.5 Billion.

So, we've cut expenditure to €31 Billion but we've knocked €5 Billion of tax revenues and have reduced GNP drastically and probably increased unemployment too, because there is less money in circulation to pay private sector wages.

We are still borrowing significantly plus unemployment has gone up probably leaving a bigger deficit than you envisaged.

Maybe that makes sense to you? I always think people who advocate cuts of 35/40% in Government expenditure are similar to people who want to increase and increase taxes on the rich. Great idea in principle, non runner politically, practically and economically though.

Euroland

later10 wrote: »

What, some of the most expensive home in the world in relation to income? Household debt that is 167% of disposable income? Some of that sound familiar? Combine that with rising interest rates and currency appreciation, and you'll see why Sweden are an emerging concern in Europe.

Emerging concern of Europe for decades to come will be Ireland, if we don’t refuse to bailout European private bondholders.

Euroland

later10 wrote: »

In any case, it's futile arguing against the euro, we are in the eurozone and I don't think anybody is realistically arguing that we leave at the moment.

I do.

Euroland

alan85 wrote: »

I think I will side with SF on this one...

+1, Me too

later12

Sand wrote: »

Do you remember the year 2000? In 2000, total government expenditure was 31 billion. Current expenditure was 25 billion. In 2000. It wasnt the 1840s. People werent eating grass, starving to death on the sides of the road.

Oh yes I remember the year 2000, I was earning IR£2 per hour.

There's nothing wrong with wanting an expenditure of €31 billion in itself, the question is how one reconciles it with the total expenditure today.

If the only borrowing one would engage would be short term funding to meet anticipated revenue (whence I'm not sure, since you've said you would default on the ECB and the sovereign maturities by now) then you are simply imposing an overnight, immediate cut. To use the popular term beloved of Irish Independent journalists everywhere, a short sharp shock.

The current government have a plan to reduce total expenditure by about €15 billion over five years while repaying its debt; €6 billion has been achieved so there are €9 billion outstanding. You want to do pretty similar, overall - except you want to do it overnight while defaulting (in the most serious sense of the word) our debt. Do you not see the folly of that sort of argument?

Now, undoubtedly, you will hereby resort to that other populist jingle of our time after 'short sharp shock', you will of course trot out the uncensurable 'kicking the can down the road' analogy.

Taking €6 billion out of an economy of Ireland's magnitude, in one single year, is not kicking a can down a road. It is pretty steady progress on the €15 billion cut. The thing is that it is being achieved while Ireland meets its obligations.

What you are suggesting is something from Gerry Adam's Economic Thesis, and far more severe than anything Argentina ever contemplated doing in desigining its economic catastrophe (a design for which they are still paying a draconian financial price on top of now paying their debt).

Domestic consumption would necessarily evaporate (far more than is happening), and unemployment would have to rise significantly (more than is happening), so the overall tax take would have to fall seriously, GDP would have to fall and the country would go back into a deep recession and we would have no chance of raising money on the international markets - I presume you are not really disputing those basic points?

You are banking on the fact that 'we'll get by, it will be grand' without accounting for what would happen if revenues fell quicker than Ireland could meet its domestic obligations - monthly pay cheques, welfare payments of the most rudimentary kind, basic infrastructural maintenance. Ins short you are totally ignoring the reverse mulitplier effect that such an immediate cut in public spending can have on an economy if not carefully regulated.

Social Welfare and the Public sector would have to be massively cut, rolling them back to 2001-2 levels.

Ok public pay expenditure was around €11.5 bn in 2002. That's great, but one has to consider factors like how that money generates wealth in the economy, and face up to the question of whether it would be better to allow for a slow deflation of that cost as the economy improves elsewhere, for example in exports and indigenous industry, perhaps.

Unemployment pay was about 935bn billion euros for the unemployed directly (JSA+JSB), - that was for 50,000 unemployed.
http://www.welfare.ie/EN/Policy/CorporatePublications/StrategicPlansAndReports/Documents/ar2002.pdf
Converting that to today's unemployment as things currently stand, that would take the cost to €5.2 billion before a cent was paid in medical card and rent allowance costs (€660m in 2002), and before one single preson was made redundant from your plan (that being inevitable) or laid off due to the drop in consumption (equally inevitable). It isn't clear how much unemployment would arise from your plan, or how you would finance that eventuality, but needless to say it would be significant.

Furthermore you must see that there would be no banking system by this stage, so I'm not sure from where, exactly, credit would arise from for the commercial economy.

Quangos would have to go - any useful function would have to transfer to the relevant department.

Typical populist moan. According to FG, who may tend to inflate these things, the most that one would save by abolishing quangos is €200 million.

Free 3rd Level gone.

Not gone, exactly - transferred to householders directly, again causing a fall in consumer spending or a lower take up of third level overall, which in turn has implications for the economy and emigration.

Foreign Aid (including Northern Ireland) gone.

Yes, this is one that I agree with. I'm not quite convinced that the saving on Northern Ireland would be significant; however the €600 million saving on foreign aid would be significant, certainly. I am quite appalled that our bond yields are currently at around 9%, higher than those of Ghana and Gambon and Nigeria on the bond markets, despite us having an aid presence in some of these places.

However, it is the only legitimate overnight saving you are suggesting, and doesn't quite go far enough.

Tax increases would also be necessary so that Ireland is in line with EU norms. The discrepancies however are mostly in the lower bracket. A flat tax might be the simplest way of doing it.

Tax increases! You've just tried to cut your way out of a recession with cuts that would by their design be sovereign disasters, and now you're trying to tax those who somehow managed to hang on! you've just taken what the Government of Ireland are currently doing, and multiplied it, causing serious long term infrastructural problems, inevitable rises in skyrocketing emigration and unemployment. I notice that you didn't bother to give one single figure in your post - is that you, Gerry?

We were running this country on 30 odd billion only a few years ago. It can and *has* to be run on that amount again.

ideal. Great. But that cannot seriously be achieved overnight.

Sand

I just want to begin by noting that current government expenditure has increased every single year since 2007 (See Chart 2), despite several "austerity" budgets. Just to establish some context here.

And now, a sanity check:

@ K-9

Maybe that makes sense to you? I always think people who advocate cuts of 35/40% in Government expenditure are similar to people who want to increase and increase taxes on the rich. Great idea in principle, non runner politically, practically and economically though.

Do you think the government must close the deficit within the next 2-3 years or do you think it can continue to increase spending and borrowing indefinitly?

Do you consider that Ireland can sustain a balanced budgetary position where we must pay up to 9.66 billion euro per year out of 30-40 billion in revenue on servicing its debt before any other spending is considered?

Do you accept even deeper cuts and higher taxes will be required to sustain a balanced budgetary position that includes up to 9.66 billion euro per year being spent on servicing debt?

Do you think any government can negotiate an actual bailout which passes some of our debts onto the shoulders of EU taxpayers without defaulting and whilst continuing to pay our public sector so much in excess of the EU taxpayers who will be taking on our debts?

@ later10

You are banking on the fact that 'we'll get by, it will be grand' without accounting for what would happen if revenues fell quicker than Ireland could meet its domestic obligations - monthly pay cheques, welfare payments of the most rudimentary kind, basic infrastructural maintenance. Ins short you are totally ignoring the reverse mulitplier effect that such an immediate cut in public spending can have on an economy if not carefully regulated.

Do you think the government must close the deficit within the next 2-3 years or do you think it can continue to increase spending and borrowing indefinitly?

Do you consider that Ireland can sustain a balanced budgetary position where we must pay up to 9.66 billion euro per year out of 30-40 billion in revenue on servicing its debt before any other spending is considered?

Do you accept even deeper cuts and higher taxes will be required to sustain a balanced budgetary position that includes up to 9.66 billion euro per year being spent on servicing debt?

Do you think any government can negotiate an actual bailout which passes some of our debts onto the shoulders of EU taxpayers without defaulting and whilst continuing to pay our public sector so much in excess of the EU taxpayers who will be taking on our debts?

Now, after we've established whose honest about the situation we are in, time for some highlights:

@K-9/Later10

By doing that, we immediately cut tax revenue on the other side. Say we slash pay by €6 Billion, we'd lose tax receipts on the other side of say, 60%, PAYE/PRSI, social and pension levies, VAT receipts, tax on profits of businesses that lose out on revenue. Welfare money is also spent in the economy, filters back in tax revenues like VAT, tax on profits of businesses were that money is spent.

Domestic consumption would necessarily evaporate (far more than is happening), and unemployment would have to rise significantly (more than is happening), so the overall tax take would have to fall seriously, GDP would have to fall and the country would go back into a deep recession and we would have no chance of raising money on the international markets - I presume you are not really disputing those basic points?

Ok public pay expenditure was around €11.5 bn in 2002. That's great, but one has to consider factors like how that money generates wealth in the economy, and face up to the question of whether it would be better to allow for a slow deflation of that cost as the economy improves elsewhere, for example in exports and indigenous industry, perhaps.

Logically then, we should borrow *more*, and *increase* public sector wages, and *increase* social welfare, and tax it so that get more tax revenue and close the deficit. Lets call the DoF - We've found the solution to our debt and fiscal deficit: borrow and spend more! Bertie Ahern had it right all along! [/Sarcasm]

Im well aware that tax revenue will fall: its recycled money and a lot of it is spent abroad. Look at the governments famed car scrappage scheme which was a subsidy to German car manufacturers, paid for by the Irish tax payer. Whats the multiplier effect on that government spending?

Plus where the tax revenues are generated on government spending that is sustained by borrowed money at extortionate rate you also have to take the saved interest into account.

Government spending is not the only source of demand/investment in an economy, and Keynsian ideas, whilst appealing to governments, politicians and parasitic trade unions across the world, dont always fit with tiny, open economies like Ireland. The Irish multiplier effect is not that of a large, closed economy which is why the "stimulus" bleating that informed Labour commentary up until a few months ago was so ridiculous. Also spending which is funded by that taxpayers isnt a "free" source of economic stimulus: it comes with a interest rate, one that will strangle this economy.

@Later10

Taking €6 billion out of an economy of Ireland's magnitude, in one single year, is not kicking a can down a road. It is pretty steady progress on the €15 billion cut. The thing is that it is being achieved while Ireland meets its obligations.

No, its not. See the DoFs own stats on government spending.

Typical populist moan. According to FG, who may tend to inflate these things, the most that one would save by abolishing quangos is €200 million

Directly maybe - What would be saved in heightened accountability and transparency? Better and more efficient policymaking?

And its a political imperative: I believe the Irish people are willing to put their shoulder to the wheel and endure for the sake of the greater good (look at how much has been endured already with only flickers of rage) - but not when favoured friends of Bertie and Co are getting parachuted into quangos, being paid ridiculous wages for mickey mouse jobs. The 200 million saving is not the main attraction of a bonfire of the quangos, its to demonstrate some leadership. Something thats been sadly lacking to date.

Not gone, exactly - transferred to householders directly, again causing a fall in consumer spending or a lower take up of third level overall, which in turn has implications for the economy and emigration.

Whose economy? Because young graduates are emigrating to find jobs in Australia that they cant find in Ireland, free third level or not. Free third level basically amounts to a free subsidy for the Australian economy, paid for by the Irish taxpayer. If you are honest enough to accept that Ireland is in truly deep trouble fiscally, the question that arises is priorities. I prioritise vital services over luxuries: I want to see my taxes going to fund cervical cancer tests for 12 years olds before theyre spent on training the next generation of skilled Australian workers. Maybe you like Australia more than I do.

The dogma that spending on education delivers a massive return to the economy is true in some economies. Its not true in economies and societies which are so horrifically badly governed that young graduates must emigrate to find work.

Im tired of dogma informing government policy making.

K-9

@Sand, I'll answer more in depth later, with more reasoning, I think I've outlined the dangers of a "quick, sharp shock" approach and that it just doesn't involve slashing say 40% of Govt. spending without also damaging the tax revenue side of the economy, thus necessitating more cuts, which leads to.................

Now obviously we need to make cuts and raise revenue, anybody who says otherwise isn't living in the real world. However, suggesting we should cut Govt. spending by 40% tomorrow, just like that, isn't living in the real world either. It tends to come from a dogmatic approach every bit as bad as the far left.

Sand

@K-9

Now obviously we need to make cuts and raise revenue, anybody who says otherwise isn't living in the real world. However, suggesting we should cut Govt. spending by 40% tomorrow, just like that, isn't living in the real world either. It tends to come from a dogmatic approach every bit as bad as the far left.

But if we dont cut by 40% today, we will have to cut by 50% later to cover the interest charge on the money borrowed to cover the spending between now and then.

Theres a choice here. Borrow now, and cut more later, or cut now. Theres no free lunch.

I have friends and family in the public sector, and the constant refrain is to try and get out and retire now, on the current terms (funded by unsustainable borrowing). Its basically looting: grabbing everything that isnt nailed down as the regime collapses, and leaving it to future generations to worry about how to pay for it all.

K-9

Sand wrote: »

@K-9


But if we dont cut by 40% today, we will have to cut by 50% later to cover the interest charge on the money borrowed to cover the spending between now and then.

Theres a choice here. Borrow now, and cut more later, or cut now. Theres no free lunch.

I have friends and family in the public sector, and the constant refrain is to try and get out and retire now, on the current terms (funded by unsustainable borrowing). Its basically looting: grabbing everything that isnt nailed down as the regime collapses, and leaving it to future generations to worry about how to pay for it all.

Indeed, which highlights the problems with reducing numbers in the PS, they get voluntary redundancy and/or pension payments, of if they don't qualify for that, go onto Welfare, so they become a drain on the states finances in another respect.

As regards interest, yep, we could well end up with a massive interest bill of say, 30% of tax revenues or, we take your approach and the tax base constricts so badly, we end up at that ratio anyway!

With Public Sector Pay, you either cut numbers drastically, with the problems above, the state expenditure just gets transferred to another area. FF are looking for 30 to 40,000 job losses anyway. Or, you cut pay drastically, say by a third. Problem there is, the average wage is about 50k so most of them are paying marginal 41% tax, 4% PRSI, 7% Social charge, 5% (about 10% Gross) new Pension Levy and 3% (6% Gross) old Pension Levy.

In effect, you aren't saving €6 Billion, you are saving 40% of that, €2.4 Billion. To get the savings you are looking for, you'd need to cut pay by about €10/11 Billion which so deductions aren't that big.

All that before cutting Welfare by a third and the effect that has on the economy.

So seeing as you are on about sanity checks and truth, do you see that your approach isn't that simple and has unforeseen circumstances? I amn't even counting the effects in the economy of taking out €2.4 Billion out of the economy, VAT receipts, taxes on business etc. If we are going to have a honest discussion, better to acknowledge the drawbacks of your approach, not a dogmatic one.

We already have cut PS pay and welfare and GNP is negative as a result, this will just make that far worse. A cut of Government expenditure of 1% of GNP results in a drop of .5% in growth.

later12

Sand wrote: »

Do you think the government must close the deficit within the next 2-3 years or do you think it can continue to increase spending and borrowing indefinitly?

Insofar as is possible they must aim to close the gap, but I'm not opposed to a small percentile of our expenditure being indebted.

Do you consider that Ireland can sustain a balanced budgetary position where we must pay up to 9.66 billion euro per year out of 30-40 billion in revenue on servicing its debt before any other spending is considered?

No of course not, I'm not suggesting that. I believe I might have debated this with you before. I support a Brady Bond approach to financing Ireland, whereby a facility is drawn up where no further money is drawn down from the EU-IMF as it stands, and instead Ireland is allowed to buy back its debt on the secondary bond market (do you know what bid yields mean when one is buying one's own debt at discounted rate?) which are swapped for progressively maturing paper. Given such a facility, irish bonds would rise, and therefore yields on the primary market should fall back.

All the while, naturally, the four/five year plan should be implemented as a matter of course.

Do you accept even deeper cuts and higher taxes will be required to sustain a balanced budgetary position that includes up to 9.66 billion euro per year being spent on servicing debt?

Deeper cuts absolutely, but not higher taxes, no. Because I dopn't think the 10 billion servicing fee shall nor ought to arise.

Do you think any government can negotiate an actual bailout which passes some of our debts onto the shoulders of EU taxpayers without defaulting and whilst continuing to pay our public sector so much in excess of the EU taxpayers who will be taking on our debts?

The public sector must become more affordable, it must shrink in volume as well.

Plus where the tax revenues are generated on government spending that is sustained by borrowed money at extortionate rate you also have to take the saved interest into account.

Yes but nobody is saying that this must continue, we are saying that it must deflate as other aspects of the economy are strengthened and as Ireland is made to become more competitive. You don't make a country competitive by defaulting on its sovereign debt, and raising taxes, and eliminating its banks. That's how you destroy a country.

Again I would ask you, what happens if your tax take, in your scenario, repeatedly falls short of expensiture year on year? If you overshoot by 1 billion euro... where do you make up the difference, just keep cutting interminably?

The Irish multiplier effect is not that of a large, closed economy which is why the "stimulus" bleating that informed Labour commentary up until a few months ago was so ridiculous.

I'm not arguing for a stimulus at all; furthermore the reverse multiplier is a serious issue for all economies who wish to contract - it has to be managed carefully, you don't just cut it overnight.

Directly maybe - What would be saved in heightened accountability and transparency? Better and more efficient policymaking?

You mentioned quangos, that's what I replied to; I'm all for accountability and transparency, but that is as unlikely in the current civil service as it is in a quango, and it is not what you mentioned.

And its [tuition fees] a political imperative: I believe the Irish people are willing to put their shoulder to the wheel and endure for the sake of the greater good

I agree with tuition fees, I think they are wholly necessary. But tuition fees are often borrowed, you would apparently destroy Ireland's banking system so if not from the already struggling Government, from where would you propose that families would raise the funds to send their kids to college in your high tax, unemployed, low expenditure economy?

(look at how much has been endured already with only flickers of rage) - but not when favoured friends of Bertie and Co are getting parachuted into quangos, being paid ridiculous wages for mickey mouse jobs. The 200 million saving is not the main attraction of a bonfire of the quangos, its to demonstrate some leadership. Something thats been sadly lacking to date.

Oh give it a rest. irish people don't give a damn about leadership, most people, quite rightly, are interested in protecting themselves and their interests. That is how a successful economy ought to function - self progression based on merit. No intelligent young person with any potential would stay in a country like the one you envisage. The kind of people who would stay in such a black hole would hardly be likely leaders of innovation nor future captains of industry would they. That's largely the problem with Ireland as things stand, in my opinion.

Again, you haven't provided a single figure in anything you've been suggesting. You just rely on others to counter your arguments by showing you how unsustainable they are in black and white, and then ignore it all. You ignore the fact that no other country in modern history has ever done what you are suggesting, and every country who has initially attempted it has been the worse off for it. Argentina initially defaulted and kicked out the IMF, then they started issuing repayments, defending litigation, losing, calling back the IMF, and are still repaying their debt. You just want to stop paying and cut off credit altogether. My best advice to you would be to vote Sinn Fein, because I'm not sure that someone with a SF mindset can ever be convinced that they are blatently and utterly wrong.

maninasia

K-9 wrote: »

Indeed, which highlights the problems with reducing numbers in the PS, they get voluntary redundancy and/or pension payments, of if they don't qualify for that, go onto Welfare, so they become a drain on the states finances in another respect.

As regards interest, yep, we could well end up with a massive interest bill of say, 30% of tax revenues or, we take your approach and the tax base constricts so badly, we end up at that ratio anyway!

With Public Sector Pay, you either cut numbers drastically, with the problems above, the state expenditure just gets transferred to another area. FF are looking for 30 to 40,000 job losses anyway. Or, you cut pay drastically, say by a third. Problem there is, the average wage is about 50k so most of them are paying marginal 41% tax, 4% PRSI, 7% Social charge, 5% (about 10% Gross) new Pension Levy and 3% (6% Gross) old Pension Levy.

In effect, you aren't saving €6 Billion, you are saving 40% of that, €2.4 Billion. To get the savings you are looking for, you'd need to cut pay by about €10/11 Billion which so deductions aren't that big.

All that before cutting Welfare by a third and the effect that has on the economy.

So seeing as you are on about sanity checks and truth, do you see that your approach isn't that simple and has unforeseen circumstances? I amn't even counting the effects in the economy of taking out €2.4 Billion out of the economy, VAT receipts, taxes on business etc. If we are going to have a honest discussion, better to acknowledge the drawbacks of your approach, not a dogmatic one.

We already have cut PS pay and welfare and GNP is negative as a result, this will just make that far worse. A cut of Government expenditure of 1% of GNP results in a drop of .5% in growth.

No, GNP growth is negative because we had been on an artificial spending splurge funded by outside banks. Now that money needs to be paid back. It REALLY is that simple.
Further cuts are neccessary (public pay/social welfare) as there is no fair alternative, that is where the fat remains to be cut. More taxes are neccessary too of course but again there is a limit to that.
The real problem, I reiterate once again, is that Ireland needs to stop borrowing so much money and quickly. Many including I, can only see some type of default situation in the next few years, and that won't be pretty for public workers (as many public workers can already feel this as they realise the government is not really running the show now, just like anybody in hoc you lose control).

This issue would be very serious even without a state that now owes 4X GDP of debt, but now there is no avoiding it as nobody is going to pony up the money to keep the show on the road any longer, the cat is out of the bag, the chicken has flown the coup (it's a real zoo ).

maninasia

alan85 wrote: »

Well, those that have forced this bailout upon us tell us:

Where exactly the money is going regards bondholders. And explain why we should shoulder their bad judgement! Why hasn't Sean Quinn and Fitzpatrick been stripped of all assets (including those for which the wife can't clearly prove was earned of her own merit)? Where is the legislation to punish future crimes committed by bankers? Tell me that this won't happen again and even if it does that the nation won't be held accountable for private debt ever again!

They are not even going to run for election yet they signed off on a bailout affecting us decades into the future. Of course the opposition are not much bettter, haven't seen much of their plans, they just want to get voted in.

SkepticOne

I think both Sand as well as later10 have raised good points in this thread.

I think the point of dispute comes down to this: can the debt we're going to take on from the EU and the IMF in terms of the amount and the interest charged actually be paid off? If it can then great. We should do so and try to avoid the sort of economic shock associated with default.

Some economists such as Morgan Kelly believe that it is impossible. If Morgan Kelly is correct then Sand is also correct. If we know we are going to default some time in the future then the responsible thing to do is default/seek to restructure now rather than later. It may throw the country into economic chaos (as argued by later10) but all we're doing is putting it off by taking on debt that we can't pay back.

If on the other hand the debt is manageable then later10 is correct and we should avoid default.

Sand

@K-9

As regards interest, yep, we could well end up with a massive interest bill of say, 30% of tax revenues or, we take your approach and the tax base constricts so badly, we end up at that ratio anyway!

Most variations of a default would imply we wouldnt be paying interest at all or a much reduced interest figure than we are currently paying.

With Public Sector Pay, you either cut numbers drastically, with the problems above, the state expenditure just gets transferred to another area.

Given social welfare would be getting halved, I doubt it would be as lucrative as the wage in the public sector, recycled taxes or not.

Maintaining the current public sector on current wages is not a "free" economic stimulus. The cost of those false jobs and false wages are funded by the actual wealth generating portions of the economy, at an extortionate interest rate. And the benefits of the spending by those false jobs/wages leaks abroad massively in spending on TVs, games, consoles, cars, movies, holidays...assuming it isnt merely shovelled into paying down mortgages and loans so that foreign depositors and bondholders can flee with the cash. Spending does circulate in an economy, but that doesnt mean Irish spending stops and turns back when it encounters the border.

So seeing as you are on about sanity checks and truth, do you see that your approach isn't that simple and has unforeseen circumstances? I amn't even counting the effects in the economy of taking out €2.4 Billion out of the economy, VAT receipts, taxes on business etc. If we are going to have a honest discussion, better to acknowledge the drawbacks of your approach, not a dogmatic one.

I dont believe I've ever said it would be some simple quick fix? In fact, Ive said the opposite in other recent threads: that a default would result in the government having to cut 20 billion in spending in a single year, so it wouldnt be some "Revenge on the bankers!!!" move: it would necessitate austerity measures as yet unknown in Ireland.

The honest reality is that we do have to cut our social welfare and public sector spending to balance the budget. Thats not optional. Whilst it would be nice to tax and spend our way back to economic health, we have no reserves, a completely skewed taxbase and no ability to raise funding at reasonable interest. So we've nothing to spend.

Putting off the decisions required to 4 year "plans" that have yet to deliver a single year of reduced current expenditure (and are already being rowed back on) comes with a mounting costs of loans raised at extortionate interest rates.

@Later10

Insofar as is possible they must aim to close the gap, but I'm not opposed to a small percentile of our expenditure being indebted.

Ah right, "possible"...."aim"

You could have just said no.

Do you think the ECB and EU are going to support us with your Brady bond plan when youre only offering the possibility of aiming to reduce the deficit, so long as it doesnt affect the Irish economy badly? Think thats going to play well with the taxpayers of Germany who are paid less than we are?

Do you think that an Ireland indebted to the tune of 200 billion is going to be able to raise *any* funds post 2013 with the planned risk sharing clauses on bonds? Do you think the state owned Irish banks will be able to roll over their existing debt into the new format?

You mentioned quangos, that's what I replied to; I'm all for accountability and transparency, but that is as unlikely in the current civil service as it is in a quango, and it is not what you mentioned.

You asked about budgetary measures, thats what I responded to. I've views on increasing transparency and accountable policymaking in the civil service (quangos are a way of passing the buck in a circle between the Minister, the Department and the quango so that everyone and no one is responsible), but theyd fall more under the realm of political reform.

Oh give it a rest. irish people don't give a damn about leadership, most people, quite rightly, are interested in protecting themselves and their interests.

People do care about leadership: Look at Cowen.

No intelligent young person with any potential would stay in a country like the one you envisage. The kind of people who would stay in such a black hole would hardly be likely leaders of innovation nor future captains of industry would they.

No intelligent young person with any potential would stay in a country like the one you envisage actually. Emigration has begun again as people seek to flee the awful governance, terrible leadership and horrifically bad banking, fiscal and economic policies.

K-9

@Sand, don't know where you get the idea of tax and spend, I can only think that anybody who questions your approach, you automatically assume they want to tax and spend. Just pointing out the drawbacks.

Amhran Nua

Sand wrote: »

1 - Publically refuse to use the ECB/EU credit card facility of Nov 2010 on the grounds of it being self defeating.
2 - Revoke the CPA and take emergency steps to balance the budget, immediately: The government has spend 2-3 years looking at potential cuts so there shouldnt be a mystery of where to find them. Lead from the top: bonfire of the quangos and luxuries. It wont save all the money but it will set the example.
3 - Resolve the banks immediately with a take it or leave it offer to creditors to take equity or nothing. Not as a bluff. As a reality. The only government interest should be maintenance of a payment system. Cite EU commitment to competitive markets free of state support.
4 - Reverse NAMA: Write off the "NAMA" bonds in exchange for giving the banks full ownership of the NAMA SPV in proportional ownership.
5 - Having finished up with the bank crisis over a weekend and removed the uncertainty over the states contingent liabilities, start concentrating on growing the economy by tackling the sheltered sectors and vested interests that act as a drag on real economic activity.

Ah, that had a kind of poetry to it, well said sir. You've correctly identified the key element, cutting persistent expenditure as fast as humanly possible. After that we can do what we like to a much greater extent.

The only problem I see with that is in point 2, and it's a big one, is that the heavily unionised public sector will have no difficulty pulling the country down around our ears indefinetely should you go ahead with cancelling the CPD and restoring a measure of sanity. I think that if cuts are applied intelligently and with optimisation aforthought (and there are plenty of other areas besides public pay to be cut), the pain can certainly be minimised, but that will run headlong into the old faithful "never an inch" rhetoric.