Danny McCoy - why can't all treaty proponents be as succinct?

PopeBuckfastXVI

http://www.irishtimes.com/newspaper/opinion/2012/0525/1224316662766.html

Wonderful destruction of the key claims of treaty opponents, along with a rational argument in favour of the treaty. It's such a shame our elected representatives, who negotiated the treaty can't be as articulate, or even as informed! That piece wouldn't be out of place on these boards, and it's great to see such discourse reach a wider audience.

Why is it that our politicians can't do similar?

later12

You're kidding right?

Almost everything Danny McCoy says is hypothetically true - if only because some of his suggestions are un-knowable - but it's a completely one dimensional argument.

Nobody can counter someone's "belief" that a state will be denied a bailout because it might not be able to access the ESM. It's a belief, an explanation for which is not provided. You can't just say "well, in April 2013, ESM bailout funds will be illegal" and expect the story to end there. Ireland and Greece were bailed out under Article 122 and there is nothing to stop European leaders from bailing out Ireland under that Article once again.

While it is not particularly relevant to how we vote, I think there is a broad consensus that the TSCG is going to spell major trouble for the European periphery - particularly Spain and Italy - over the next 24 months at a minimum. This could be detrimental to economic stability in the Euro, and makes the title of this treaty something of a misnomer in my opinion. It also runs counter to McCoy's argument that "stability is what we need". It is - but this Treaty doesn't guarantee stability either for Ireland nor the EA.

On a related issue, I thought it was intriguing to read that "because we will have several years to meet the target, even under conservative assumptions, economic growth will bridge the gap and no additional austerity will be required". What is Ireland's growth profile for the years after 2015? I find it fascinating to think that McCoy can trot it out so confidently.

In any case, the story is not black and white as McCoy would suggest.

Godge

later12 wrote: »

On a related issue, I thought it was intriguing to read that "because we will have several years to meet the target, even under conservative assumptions, economic growth will bridge the gap and no additional austerity will be required". What is Ireland's growth profile for the years after 2015? I find it fascinating to think that McCoy can trot it out so confidently.

.

Someone here (was it Scofflaw?) has used 1980s growth data to show that would mean no additional austerity.

Seamus Coffey has posted numerous times on his website about this showing that what is important is nominal rather than real growth and that something around 3-4% nominal growth would do it for us.

later12

Godge wrote: »

Someone here (was it Scofflaw?) has used 1980s growth data to show that would mean no additional austerity.

Seamus Coffey has posted numerous times on his website about this showing that what is important is nominal rather than real growth and that something around 3-4% nominal growth would do it for us.

But sure nobody is arguing against the miracle of economic growth. What McCoy actually said was "we will have several years to meet the target, even under conservative assumptions, economic growth will bridge the gap and no additional austerity will be required"

He is only looking at the structural deficit, not the paying down our debt to GDP ratio will take years and which will require the state to run repeated surpluses, putting these into paying down debt, which will indeed mean austerity. Fair enough, but he should at least acknowledge that.

PopeBuckfastXVI

I enjoyed his destruction of the popular opposition myths, SF & the Socialists have been allowed too much leeway to 'frame' the debate unchallenged, in my opinion.

Scofflaw

later12 wrote: »

But sure nobody is arguing against the miracle of economic growth. What McCoy actually said was "we will have several years to meet the target, even under conservative assumptions, economic growth will bridge the gap and no additional austerity will be required"

He is only looking at the structural deficit, not the paying down our debt to GDP ratio will take years and which will require the state to run repeated surpluses, putting these into paying down debt, which will indeed mean austerity. Fair enough, but he should at least acknowledge that.

A real growth rate of 0.5% would do it - is that adequately conservative? Such a growth rate would require us to run surpluses for only 5 years, and small surpluses at that:

Year|GDP growth|Inflation|Nominal GDP|Debt €bn|Ratio|Target|“Austerity”|Reduction €bn|Deficit
2019|0.50%|1.75%|159.92|187.68|117.36%|117.00%|0.36%|0.57|0.36%
2020|0.50%|1.75%|163.52|187.11|114.43%|114.15%|0.28%|0.45|0.28%
2021|0.50%|1.75%|167.20|186.65|111.64%|111.44%|0.20%|0.33|0.20%
2022|0.50%|1.75%|170.96|186.33|108.99%|108.87%|0.12%|0.20|0.12%
2023|0.50%|1.75%|174.80|186.12|106.47%|106.43%|0.05%|0.08|0.05%
2024|0.50%|1.75%|178.74|186.04|104.08%|104.11%|-0.02%|-0.04|-0.02%
2025|0.50%|1.75%|182.76|186.08|101.81%|101.90%|-0.09%|-0.16|-0.09%

If you assume the same miserably (and historically entirely unreasonable) growth rates for the remainder of the century, the debt/GDP ratio drops to 60% in 2093, assuming you run the maximum deficit you can get away with. In other words, even with 0.5% growth, the debt/GDP ratio will indeed sort itself out without any long-term (or even medium-term) running of surpluses and debt repayments.

regards,
Scofflaw

later12

Scofflaw wrote: »

A real growth rate of 0.5% would do it - is that adequately conservative?

regards,
Scofflaw

As I said above, that only relates to the structural deficit; I mentioned the debt to GDP figure. Austerity does not depend on the structural deficit figure alone, there are two major fiscal indicators which will define and inform the state's fiscal policy over many years to come. The latter requires the allocation of additional fiscal resources to pay down debt, possibly to an unwarranted degree. McCoy conveniently ignores this.

Scofflaw

later12 wrote: »

As I said above, that only relates to the structural deficit; I mentioned the debt to GDP figure. Austerity does not depend on the structural deficit figure alone, there are two major fiscal indicators which will define and inform the state's fiscal policy over many years to come. The latter requires the allocation of additional fiscal resources to pay down debt, possibly to an unwarranted degree. McCoy conveniently ignores this.

You've apparently failed to read what was posted - the above table refers specifically to the debt/GDP reduction. It does not refer to the structural deficit, or even the general deficit.

Please re-read.

Scofflaw

later12

The table wasn't there when I wrote my post; your post was edited about six minutes later.

My point is that we don't know what shape the economy will be in, we cannot rule out austerity based on conservative forecasts because there are no forecasts available. The effects of another slowdown would obviously aggravate the situation entirely, there are too many unknowns to be as confident about no more austerity as McCoy seems to be.

Scofflaw

later12 wrote: »

The table wasn't there when I wrote my post; your post was edited about six minutes later.

Ah - fair enough! I retract my irritation in that respect.

later12 wrote: »

My point is that we don't know what shape the economy will be in, we cannot rule out austerity based on conservative forecasts because there are no forecasts available. The effects of another slowdown would obviously aggravate the situation entirely, there are too many unknowns to be as confident about no more austerity as McCoy seems to be.

In terms of probabilities, the likelihood of Ireland growing at less than 0.5% for decades is not something one can base a reasonable argument on - and that's what you'd have to base your argument on.

It's not sufficient to wave your hands and say "but we don't know growth rates!". If you're going to claim that Ireland will have negative or no growth for decades - which is what you need to do - please be explicit that that's what you're doing, because it will allow people to see how farcical the position is.

regards,
Scofflaw

later12

Scofflaw wrote: »

It's not sufficient to wave your hands and say "but we don't know growth rates!". If you're going to claim that Ireland will have negative or no growth for decades - which is what you need to do...

...need to do for what? I'm challenging the idea that no more austerity will be required - not that Ireland is going to turn into the Weimar Republic.

monkeybutter

Scofflaw, do you have a graph showing the next 7 years as well to get to the 117%. Thanks

Scofflaw

later12 wrote: »

...need to do for what? I'm challenging the idea that no more austerity will be required - not that Ireland is going to turn into the Weimar Republic.

And to challenge it, you really need to show how we can have growth rates lower than 0.5%. Otherwise, your "challenge" just consists of repeating "well, I don't believe it (but I can't back up what I'm saying)".

regards,
Scofflaw

later12

I'm not saying I don't believe it - did you read the first post where I said that almost everything McCoy said is hypothetically true?

By your own 0.5% scenario there is going to be austerity. But we don't know where the economy is going to be in 2018 or 2019 so we cannot possibly say that austerity will be so limited with a strong conviction. I don't see this as a particularly controversial point.

Scofflaw

monkeybutter wrote: »

Scofflaw, do you have a graph showing the next 7 years as well to get to the 117%. Thanks

I'm actually starting from the position where we don't have any growth between now and 2018, and our debt rises to 120% by then. That's a deliberately conservative assumption.

In fact, we're expecting - according to the IMF - the debt/GDP ratio to peak at something like 115% in 2015, and to have declined somewhat by 2018 as a result of slight growth:



cordially,
Scofflaw

monkeybutter

Ok, thanks for the graph, maybe a table would be better Are there any calculations associated with the graph? r Thanks

Scofflaw

monkeybutter wrote: »

if he/she/they post that graph to show us how we get to 2019 that would be a starter. Please include the budget deficit and how it affects the overall debt year on year and how the reduction in the deficit will affect growth.

The deficit between now and then doesn't affect things, though. Nor does the extent to which the deficit affects growth (which would be a highly arguable topic in itself).

Nor, indeed, can one say exactly what happens between now and 2019 except by reference to the government's plans and the current programme. All you can do is make assumptions about how that turns out. Assuming that we'll go beyond what we're expecting in terms of debt seems not unreasonable, while assuming that the economy won't grow at all is perhaps a little less reasonable.

If you like, I can run the same set of assumptions backwards, or I could add in what's supposed/expected to happen between now and 2019 - using IMF predictions, I think, the government is always far too optimistic.

Or I can do you some "really awful" scenarios, if that's what you're looking for? Have you some parameters you'd like to use?

cordially,
Scofflaw

Scofflaw

monkeybutter wrote: »

Ok, thanks for the graph, maybe a table would be better Are there any calculations associated with the graph? r Thanks

Sorry - seeing this edit now. The graph is from the IMF's fifth report (I should go get the sixth, really), and their calculations are in the report.

cordially,
Scofflaw

monkeybutter

Maybe running it backward to 2012 would be the best bet. Looking at the IMF figures, if debts drops off from 2013, for what reasons would be potentially need to dip into the ESM? Would it not being able to roll over existing debt or would it be purely to fund the year on year deficit which would include interest and repayments on the existing structural debt. Thanks

monkeybutter

That IMF report is pretty decent, much more readable than I was expecting and all the graphs you could want Sound

Scofflaw

monkeybutter wrote: »

Maybe running it backward to 2012 would be the best bet.

It's really just a flat line, though - GDP doesn't change, and debt gets bigger by the deficit. Still, I'll give it a go....

monkeybutter wrote: »

Looking at the IMF figures, if debts drops off from 2013, for what reasons would be potentially need to dip into the ESM? Would it not being able to roll over existing debt or would it be purely to fund the year on year deficit which would include interest and repayments on the existing structural debt. Thanks

A bit of both. Our current funding (not the programme, but the funding) runs out at the end of 2013. For 2014 we're expecting a deficit of €8.6bn, while on January 15th we have a maturing government bond worth €8.227bn plus some other payments of €1.206bn during the year.

So there are outgoings of €18.033bn in 2014, and currently no source of funding for them.

cordially,
Scofflaw

antoobrien

Scofflaw wrote: »

Year|GDP growth|Inflation|Nominal GDP|Debt €bn|Ratio|Target|“Austerity”|Reduction €bn|Deficit
2019|0.50%|1.75%|159.92|187.68|117.36%|117.00%|0.36%|0.57|0.36%
2020|0.50%|1.75%|163.52|187.11|114.43%|114.15%|0.28%|0.45|0.28%
2021|0.50%|1.75%|167.20|186.65|111.64%|111.44%|0.20%|0.33|0.20%
2022|0.50%|1.75%|170.96|186.33|108.99%|108.87%|0.12%|0.20|0.12%
2023|0.50%|1.75%|174.80|186.12|106.47%|106.43%|0.05%|0.08|0.05%
2024|0.50%|1.75%|178.74|186.04|104.08%|104.11%|-0.02%|-0.04|-0.02%
2025|0.50%|1.75%|182.76|186.08|101.81%|101.90%|-0.09%|-0.16|-0.09%

Sorry if I'm asking the obvious here Scofflaw, but I've two questions about this table:
Where does the target figure come from?
Where does the reduction of debt/gdp by 1/20th figure come in?

Scofflaw

monkeybutter wrote: »

That IMF report is pretty decent, much more readable than I was expecting and all the graphs you could want Sound

Yes, they're not bad, really, and they're a hell of a lot better than government output.

Anyway, table with IMF projections (up to 2017) and then a couple of guesses, and then the maths:

Year|GDP growth|Inflation|Nominal GDP|Debt €bn|Ratio|Deb/GDP Target|Deb/GDP “Austerity”|Reduction €bn|Deficit
2011|0.90%|-1.00%|155.25|163.63|105.40%|105.40%|0.00%|-15.95|-10.27%
2012|0.50%|1.40%|158.88|180.64|113.70%|113.70%|0.00%|-13.6|-8.56%
2013|2.00%|1.20%|163.90|194.06|118.40%|118.40%|0.00%|-12.4|-7.57%
2014|2.70%|1.50%|170.90|201.66|118.00%|118.00%|0.00%|-8.61|-5.04%
2015|2.90%|1.60%|178.80|205.98|115.20%|115.20%|0.00%|-5.13|-2.87%
2016|3.20%|1.60%|187.50|210.94|112.50%|112.50%|0.00%|-3.75|-2.00%
2017|3.30%|1.60%|196.80|213.89|108.68%|108.68%|0.00%|-2.95|-1.50%
2018|3.00%|1.60%|205.85|214.92|104.40%|104.40%|0.00%|-1.03|-0.50%
2019|0.50%|1.60%|210.18|214.92|102.26%|102.18%|0.07%|0.00|0.00%
2020|0.50%|1.60%|214.59|214.92|100.15%|100.07%|0.08%|0.17|0.08%
2021|0.50%|1.60%|219.10|214.75|98.02%|98.07%|-0.05%|-0.12|-0.05%
2022|0.50%|1.60%|223.70|214.87|96.05%|96.17%|-0.11%|-0.25|-0.11%
2023|0.50%|1.60%|228.39|215.12|94.19%|94.36%|-0.17%|-0.39|-0.17%
2024|0.50%|1.60%|233.19|215.51|92.42%|92.64%|-0.22%|-0.52|-0.22%
2025|0.50%|1.60%|238.09|216.03|90.74%|91.01%|-0.27%|-0.65|-0.27%
2026|0.50%|1.60%|243.09|216.68|89.14%|89.46%|-0.32%|-0.78|-0.32%
2027|0.50%|1.60%|248.19|217.46|87.62%|87.99%|-0.37%|-0.91|-0.37%
2028|0.50%|1.60%|253.40|218.37|86.18%|86.59%|-0.41%|-1.04|-0.41%
2029|0.50%|1.60%|258.73|219.41|84.81%|85.26%|-0.45%|-1.17|-0.45%
2030|0.50%|1.60%|264.16|220.58|83.50%|83.99%|-0.49%|-1.30|-0.49%

So, if we assume the government slows its pace of deficit reduction a fair bit after 2015, since it will then be inside the 3% deficit limit, then there's a bit of an adjustment to be made in 2019 or 2020 - about €170 million in debt repayment is needed.

Other than that, there just doesn't seem to be any need for debt repayment - at least, based on the IMF projections - even with a very low growth scenario from 2020 on. Instead, the government can actually add to the debt. Obviously, if we look at growth more in line with the IMF projections, then there's no adjustment required at all, and the government never has to run a surplus or pay off debt.

Where it would get brutal, of course, is if our GDP continued to grow at very low rates during the period of high debt acquisition from here to 2015, because then obviously debt/GDP ratios will be much higher than anticipated - reaching 122.8% in 2016. However, even under those circumstances, the required "austerity adjustment" resulting from the debt/GDP limit is only €1.8bn in 2020, and once again drops to nothing within 6 years.

cordially,
Scofflaw

Scofflaw

antoobrien wrote: »

Sorry if I'm asking the obvious here Scofflaw, but I've two questions about this table:
Where does the target figure come from?
Where does the reduction of debt/gdp by 1/20th figure come in?

The target figure is the target produced by the reduction of 1/20th. If we have 120% of GDP in debt, we need to reduce that by 1/20th of the excess over 60% - 3% in other words.

You don't get a steady 3% every year thereafter, though, because the rule is 1/20th of the outstanding excess, so the following year you're reducing by (117% - 60%)/20 = 2.85%

cordially,
Scofflaw

PopeBuckfastXVI

antoobrien wrote: »

Sorry if I'm asking the obvious here Scofflaw, but I've two questions about this table:
Where does the target figure come from?
Where does the reduction of debt/gdp by 1/20th figure come in?

Sorry to jump in,

I think it's this way:

Difference between 117 & 60(required ratio) - = 57
5% (1/20th) of 57 = 2.85

117-2.85 = 114.15 giving next years target, and so on.

antoobrien

Scofflaw wrote: »

The target figure is the target produced by the reduction of 1/20th. If we have 120% of GDP in debt, we need to reduce that by 1/20th of the excess over 60% - 3% in other words.

Thanks - so the assumption is that the ratio in 2017 will be 120%.

When the ratio of a Contracting Party's general government debt to gross domestic product exceeds the 60 % reference value referred to in Article 1 of the Protocol (No 12) on the excessive deficit procedure, annexed to the European Union Treaties, that Contracting Party shall reduce it at an average rate of one twentieth per year as a benchmark, as provided for in Article 2 of Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure, as amended by Council Regulation (EU) No 1177/2011 of 8 November 2011. The existence of an excessive deficit due to the breach of the debt criterion will be decided in accordance with the procedure set out in Article 126 of the Treaty on the Functioning of the European Union.

I don't have access to those other texts, but it seems to me that the reduction is 1/20th of the debt ratio, not the difference between 60% & the ratio (e.g. the 57% in 2018). Is there something I'm missing from those other texts?

PopeBuckfastXVI

antoobrien wrote: »

Thanks - so the assumption is that the ratio in 2017 will be 120%.

That's the assumption in Scofflaw's figures. The assumption in the IMF figures is more optimistic at something like 114 or 115% I think.

Scofflaw is actually outlining a pretty pessimistic scenario here, believe it or not.

Scofflaw

antoobrien wrote: »

Thanks - so the assumption is that the ratio in 2017 will be 120%.



I don't have access to those other texts, but it seems to me that the reduction is 1/20th of the debt ratio, not the difference between 60% & the ratio (e.g. the 57% in 2018). Is there something I'm missing from those other texts?

Yes - you're missing the Stability & Growth Pact implementation rules: http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/coc/2012-01-24.pdf

1) Preparation of a Commission report under Article 126(3)
The Commission will always prepare a report under Article 126(3) of the Treaty when at least one of the conditions (a) or (b) below holds:
(a) a reported or planned government deficit exceeds the reference value of 3% of GDP;
(b) a reported government debt ratio is above the reference value of 60% of GDP and
(i) its differential with respect to the reference value has not decreased over the past three years at an average rate of one-twentieth as a benchmark, which is measured by an excess of the debt ratio reported for the year t over a backward-looking element of a benchmark for debt reduction

Page 8 - that's the excessive deficit procedure rule. Their calculation is slightly more complex than the one I've used, because it uses a three year period.

Makes sense, when you think about it.

cordially,
Scofflaw

antoobrien

Scofflaw wrote: »

http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/coc/2012-01-24.pdf

That's a relief, I thought you were being over optimistic for a while.

Cheers.

Ozymandius2011

IBEC are dominated by public-sector companies like the ESB and so cannot be regarded as impartial or representative of the private sector.

meglome

Ozymandius2011 wrote: »

IBEC are dominated by public-sector companies like the ESB and so cannot be regarded as impartial or representative of the private sector.

I assume you're going to prove that statement are you?