Does the EU get the credit (blame) it deserves for its part in our economic mess

Bill2673 · 14-10-2010 08:13AM #1

So

In 1999, or 2001, not sure exactly when.....our Central Bank's main responsibility, that of monetary policy, was wrestled away from us. We no longer had our own currency, we no longer had control over interest rates.

Now obviously, we voted for this, for the many advantages that were touted.

What we got was

- a single currency....hurray, no more hassle for importers/ exporters and people arriving in Malaga airport.

- an interest rate that was wholly inappropriate for our economy....throughout the noughties, the interest rate in Ireland was one that was appropriate for a moribund Germany economy which had no growth and no inflation.

- With interest rates (set by the ECB) of circa 3% and an inflation rate of 5% in Ireland (and at that, a bit of a nonsense since it didn't reflect rising house prices), the European Central Bank / Irish domestic banks were effectively paying people to borrow......and so a housing boom happened here.....

- Meanwhile, our Central Bank, whose role was greatly compromised by the advance of the Euro, was wholly ineffective in moderating the income flow. The seperation of the financial authority into Central Bank and IFSRA seems to have compounded this (who exactly was responsible for tempering domestic growth)....this seperation presumably was supported by the EU.

Obviously there are tonnes of other reasons why a boom happened here.

But my feeling is, that in looking for a scapegoat, people seem a bit too comfortable with lining up Seanie Fitz or Fingers Fingleton....makes for good tabloid reading, a comfortable outlet for our rage.

One can be damn sure that inappropriate interest rates had a huge role in creating this mess.

So they helping us out now....so we need to appease them?

I'm not so sure. Any German's bitching and moaning now should have this hammered into them.....we bailed them out by allowing low interest rates for a decade, that were completely inappropriate for economy. Now they can help us out for their part in creating our mess.

dan_d · 14-10-2010 08:18AM

No.

About the only thing I'd ask of the EU is why it didn't keep a closer eye on what was going on, why it only relied on information fed to it by the systems in each country.

Other than that this is a home-grown mess.

McTigs · 14-10-2010 08:18AM

if a lake of chocolate is put in front you, there is no obligation to jump into it and drown.

ei.sdraob · 14-10-2010 08:19AM

Our CB and Regulator had/has plenty of other tools at its disposal

if they pressed the right buttons available to them we would not be where we are now

but carry on, EU did it, they held a gun to our heads and made us borrow hundreds of thousands on overpriced shoeboxes and then gloat about "personal net worth"

ei.sdraob · 14-10-2010 08:21AM

dan_d wrote: »

No.

About the only thing I'd ask of the EU is why it didn't keep a closer eye on what was going on, why it only relied on information fed to it by the systems in each country.

Other than that this is a home-grown mess.

Because if they played a closer hand the anti EU crowd would scream murder "the EU beuracrats are running the place" and all that.

The EU is a fairly loose collection of states, the solution is to either integrate more (eurozone wide deposit insurance and regulator be nice) or fall apart now, theres no other way going forward.

The EU placed trust in each state, and the likes of Greece then proceeded to lie, not that we are saints either, we also lied (but due to denial from FF about scale of the mess they made) about NAMA, Anglo and the whole lot and still dont know the extend of the problems we face 2 years later.

Bill2673 · 14-10-2010 08:22AM

surprised you think that way.

we clearly had the wrong interest rate, that we clearly had no input into. that was clearly a big part of the problem.

what people do with a chocolate lake is in my view irrelevant, I'd rather deal with the real world.

when people are faced with cheap money they borrow. its the same the world over (please see Spain, Portugal, USA, UK in recent years) and ireland was no different. In fact (compared to historical precedent) it would have been a huge surprise or anomaly if we had behave responsibly in the circumstances. The EU gave no guidance in this respect.

ei.sdraob · 14-10-2010 08:27AM

Bill2673 wrote: »

surprised you think that way.

we clearly had the wrong interest rate, that we clearly had no input into. that was clearly a big part of the problem.

what people do with a chocolate lake is in my view irrelevant, I'd rather deal with the real world.

when people are faced with cheap money they borrow. its the same the world over (please see Spain, Portugal, USA, UK in recent years) and ireland was no different. In fact (compared to historical precedent) it would have been a huge surprise or anomaly if we had behave responsibly in the circumstances. The EU gave no guidance in this respect.

The whole western world had low interest rates, short of closing borders and putting up walls in a modern globalized world credit flows around freely in all sorts of trades. Money being printed in Japan could endup in places like Ireland in a few seconds.

Even if we weren't in the euro we still would have felt it (points at Iceland) being such an open economy.

Once again the question to be asking is why was the money wasted and not invested wisely as has been done in other countries?
One plausible answer is that FF made property investment very attractive for people in a country mad for home ownership and bad rental laws, thru all sorts of schemes and among media fanfare in the process lining their pockets (Hi Frank Fahey)

dan_d · 14-10-2010 08:53AM

ei.sdraob wrote: »

Because if they played a closer hand the anti EU crowd would scream murder "the EU beuracrats are running the place" and all that.

The EU is a fairly loose collection of states, the solution is to either integrate more (eurozone wide deposit insurance and regulator be nice) or fall apart now, theres no other way going forward.

The EU placed trust in each state, and the likes of Greece then proceeded to lie, not that we are saints either, we also lied (but due to denial from FF about scale of the mess they made) about NAMA, Anglo and the whole lot and still dont know the extend of the problems we face 2 years later.

True, I suppose. Good point.

Bill2673 · 14-10-2010 09:02AM

ei.sdraob wrote: »

Because if they played a closer hand the anti EU crowd would scream murder "the EU beuracrats are running the place" and all that.

The EU is a fairly loose collection of states, the solution is to either integrate more (eurozone wide deposit insurance and regulator be nice) or fall apart now, theres no other way going forward.

The EU placed trust in each state, and the likes of Greece then proceeded to lie, not that we are saints either, we also lied (but due to denial from FF about scale of the mess they made) about NAMA, Anglo and the whole lot and still dont know the extend of the problems we face 2 years later.

Right, so the EU was right not to intervene because if it had, the anti EU brigade (that vast army of who, exactly?) would scream murder about bureaucrats running the place.

So thats an excuse for the EU.

If, in 2005, the Irish govt and/or central bank had stepped in and told banks to stop lending into the housing market...there would have absolute blue murder and outrage about politicians being out of touch, preventing people from buying houses blah de blah.....

But thats not an excuse for the Irish government.

So the EU trusted the local govts, and thats ok.

And the Irish govt trusted the Irish banks (quote unquote from bertie ahern on the Freefall programme).

But thats not ok for the Irish govt.

Which is it folks? Bread buttered on both sides or have your cake and eat it?

Final point, the Irish govt, whatever else did not fabricate government accounts. That is what the Greeks did. But sure never mind small details.

Japer · 14-10-2010 09:07AM

The O.P. is correct / has a point in that being tied to low interest rates was the root cause of many of our problems. The British were proved correct to be sceptical of the euro. If our banks were not part of the euro + could not have borrowed all they did, then we would not be in the mess we are in. However, our appalling government decisions are the real cause of the mess. You cannot blame the board of Anglo or Nationwide for the mess ; individuals there can be expected to do all they can to maximise their own gain, without breaking the rule of law. If they break / broke the law they should be punished. Its the govt + their employees who are supposed ( ....well they were bl**dy well paid ) to make the laws + regulate.

SkepticOne · 14-10-2010 09:09AM

Joining the single currency when we did was probably a mistake as lower interest rates were the last thing an overheating economy needed at that time.

However I don't think we can blame the EU for this. They did not force us to join the single currency. What we should have done was set up a set of convergence criteria which, when met, would mean that the economy in Ireland was reasonably synchronised with the economies of mainland Europe.

Nijmegen · 14-10-2010 09:13AM

The single currency decision was made as a condition of German reunification in the early '90's, and economic planning is a lot more long term than us having a boom in the late 90's and deciding, heck, we'd better scrap this deal.

In this case, the eurozone may have helped add fuel to our fire, but our politicians up in the Oireachtas were pissing petrol onto it a lot more than that.

Tax breaks to encourage building - Irish made.

Light touch regulation - Irish made.

Verbal encouragement to get a loan or commit suicide - Irish made.

The best we can say about the EU outside of the Eurozone is that they didn't roll tanks into Dublin Prague Spring style and take over directly to calm us down.

ei.sdraob · 14-10-2010 09:18AM

Bill2673 wrote: »

Right, so the EU was right not to intervene because if it had, the anti EU brigade (that vast army of who, exactly?) would scream murder about bureaucrats running the place.

So thats an excuse for the EU.

If, in 2005, the Irish govt and/or central bank had stepped in and told banks to stop lending into the housing market...there would have absolute blue murder and outrage about politicians being out of touch, preventing people from buying houses blah de blah.....

But thats not an excuse for the Irish government.
So the EU trusted the local govts, and thats ok.

And the Irish govt trusted the Irish banks (quote unquote from bertie ahern on the Freefall programme).

But thats not ok for the Irish govt.

Which is it folks? Bread buttered on both sides or have your cake and eat it?

Final point, the Irish govt, whatever else did not fabricate government accounts. That is what the Greeks did. But sure never mind small details.

Lisbon treaty giving the EU more power only came along in 2008
Even now they dont have much say in our internal affairs, tho the force is getting stronger

To give an example the EU could not tell us to stop with all the property related taxbreaks we had that directly fuelled the bubble.
They grumbled, complained and made some noise but were promptly ignored by FF whom did not want to hear outside entities telling them their path will lead to disaster.

@OP it seems you are trying very hard to find someone to blame, in this case the EU, but you should be looking much closer to home at our homegrown "talent"

Bill2673 · 14-10-2010 09:19AM

SkepticOne wrote: »

Joining the single currency when we did was probably a mistake as lower interest rates were the last thing an overheating economy needed at that time.

However I don't think we can blame the EU for this. They did not force us to join the single currency. What we should have done was set up a set of convergence criteria which, when met, would mean that the economy in Ireland was reasonably synchronised with the economies of mainland Europe.

I think we can apportion some of the blame to them, in that the Monetary Policy employed disregarded and was inappropriate the needs of the periphery states, of which we were one.

What I am saying is that some of the blame should go to them. Not all of it. Or most of it. Just some of it.

To be honest, I actually can't understand why people would disagree with this. From an economics point of view, its indisputably one of the cause of the property boom here.

Bill2673 · 14-10-2010 09:21AM

ei.sdraob wrote: »

Lisbon treaty giving the EU more power only came along in 2008

Even now they dont have much say in our internal affairs, tho the force is getting stronger

To give an example the EU could not tell us to stop with all the property related taxbreaks we had that directly fuelled the bubble.

@OP it seems you are trying very hard to find someone to blame, in this case the EU, but you should be looking much closer to home at our homegrown "talent"

Monetary Union was the key event, much more significant than Lisbon from an economic perspective. That gave ECB control over monetary policy.

As mentioned earlier, in our press the ECB is getting none of the blame. My point is that they should get some of the blame. Not all of it. Or most of it. Just some of it.

ei.sdraob · 14-10-2010 09:21AM

Bill2673 wrote: »

To be honest, I actually can't understand why people would disagree with this. From an economics point of view, its indisputably one of the cause of the property boom here.

Many other states with their own currencies outside the euro also had property booms.
That really throws a spanner into your arguments.

ei.sdraob · 14-10-2010 09:28AM

Bill2673 wrote: »

Monetary Union was the key event, much more significant than Lisbon from an economic perspective. That gave ECB control over monetary policy.

As mentioned earlier, in our press the ECB is getting none of the blame. My point is that they should get some of the blame. Not all of it. Or most of it. Just some of it.

Ireland had (and still has) enough control to prevent what happened from happening.

To give an example: the maintenance of the highway and road-painting (currency) changed to another county council (ECB), but the direct control of the car (Ireland) going down this road was firmly with the driver (our Regulator and govt) who proceeded to crash the said car.

Bill2673 · 14-10-2010 09:31AM

ei.sdraob wrote: »

Ireland had (and still has) enough control to prevent what happened from happening.

To give an example: the maintenance of the highway and road-painting (currency) changed to another county council (ECB), but the direct control of the car (Ireland) going down this road was firmly with the driver (our Regulator and govt) who proceeded to crash the said car.

well here's a similar example.....

The ECB took the German law allowing no speed limits on the autobahn and applied that same rule to Irish country roads.....and expects everyone to drive slowly anyway.

ei.sdraob · 14-10-2010 09:37AM

Bill2673 wrote: »

well here's a similar example.....

The ECB took the German law allowing no speed limits on the autobahn and applied that same rule to Irish country roads.....and expects everyone to drive slowly anyway.

It wasnt the ECBs role to regulate (the speed limits) the banks and what they did with credit but our Regulator.
You seem to have no understanding of the purpose our Regulator and the europeanCB.
Once you learn the difference you would realise that your thesis is flawed.
You also continue to ignore the examples of other countries outside the euro who had no issues getting cheap credit and not only from europe.

To continue with our example, the ECB widened the motorway but our driver was asleep at the wheel while we were "turning a corner"

BluePlanet · 14-10-2010 09:54AM

So you reckon little ol' Ireland should have dictated interest rates to the EU?
What are we, 1% of the EU population?

Or, you reckon the EU should have put manners on us via regulation.

Either way, your passing the buck.

We voted to join the euro so surely you're not suggesting we weren't properly informed? Or even manipulated by our own government to vote the correct way?

SkepticOne · 14-10-2010 09:57AM

Nijmegen wrote: »

The single currency decision was made as a condition of German reunification in the early '90's, and economic planning is a lot more long term than us having a boom in the late 90's and deciding, heck, we'd better scrap this deal.

Yes, but other countries decided to delay membership without sanction.

xavidub · 14-10-2010 10:08AM

I seem to remember that the French were one of the prime movers behind the Euro, mainly to make sure that their rather weak economy could keep up with the strong German one. The German's were very happy with the Deutschmark and not at all convinced about the Euro.

I also remember the Irish Punt taking a real battering on foreign exchange markets. God only knows what an independent Punt would be worth now.

ei.sdraob · 14-10-2010 10:13AM

BluePlanet wrote: »

So you reckon little ol' Ireland should have dictated interest rates to the EU?
What are we, 1% of the EU population?

Why are you fixated on the ECB interest rate? Its one variable out of many.
I must have told you many times that our national institutions have many other levers at their control that they decided not to pull while they were having a nap.
The ECB rate now and for the last long while been at 1%, doesn't mean any of this is actually being passed on to the rest of us.

BluePlanet wrote: »

Or, you reckon the EU should have put manners on us via regulation.

Once again you are ignoring what was already mentioned in this thread, the EU pre Lisbon had **** all powers, and they still dont have a say in many issues such as direct taxation.

BluePlanet wrote: »

Either way, your passing the buck.

I am not the one trying to pass the blame onto EU, the blame that squarely lands on FFs shoulders who are responsible for this mess.

BluePlanet wrote: »

We voted to join the euro so surely you're not suggesting we weren't properly informed?

Informed of what exactly?

BluePlanet wrote: »

Or even manipulated by our own government to vote the correct way?

Our government would do anything to stay in power and line own members pockets, pitty the fool who listens to them or worse votes for FF.

Scarab80 · 14-10-2010 10:50AM

Bill2673 wrote: »

we clearly had the wrong interest rate, that we clearly had no input into. that was clearly a big part of the problem.

The first part of your argument is correct, we had negative real interest rates for most of the 2000's, it was clearly a big contributor to the bubble.

I do not agree with the second part of your argument, while we have no input into the ECB rate, bar our tiny effect on eurozone inflation, we do have control over our own economy. The government should have put the brakes on our economy to bring inflation in line with European averages, this could be done by the regulator in raising the capital reserve requirement for banks, decreasing the money supply or could be done directly by government by increasing taxes and putting the proceeds into the pension reserve fund.

What we get from the ECB is consistency, they are to maintain eurozone inflation at below but close to 2%, the current average eurozone inflation since inception of the EMU is 1.97%, forward rates indicate a similar rate going into the future. It is the job of government to align our economy with this steady rate of growth.

jmayo · 14-10-2010 10:54AM

Bill2673 wrote: »

So
In 1999, or 2001, not sure exactly when.....our Central Bank's main responsibility, that of monetary policy, was wrestled away from us. We no longer had our own currency, we no longer had control over interest rates.

Now obviously, we voted for this, for the many advantages that were touted.

What we got was

- a single currency....hurray, no more hassle for importers/ exporters and people arriving in Malaga airport.

- an interest rate that was wholly inappropriate for our economy....throughout the noughties, the interest rate in Ireland was one that was appropriate for a moribund Germany economy which had no growth and no inflation.

- With interest rates (set by the ECB) of circa 3% and an inflation rate of 5% in Ireland (and at that, a bit of a nonsense since it didn't reflect rising house prices), the European Central Bank / Irish domestic banks were effectively paying people to borrow......and so a housing boom happened here.....

- Meanwhile, our Central Bank, whose role was greatly compromised by the advance of the Euro, was wholly ineffective in moderating the income flow. The seperation of the financial authority into Central Bank and IFSRA seems to have compounded this (who exactly was responsible for tempering domestic growth)....this seperation presumably was supported by the EU.

Obviously there are tonnes of other reasons why a boom happened here.

But my feeling is, that in looking for a scapegoat, people seem a bit too comfortable with lining up Seanie Fitz or Fingers Fingleton....makes for good tabloid reading, a comfortable outlet for our rage.

One can be damn sure that inappropriate interest rates had a huge role in creating this mess.

So they helping us out now....so we need to appease them?

I'm not so sure. Any German's bitching and moaning now should have this hammered into them.....we bailed them out by allowing low interest rates for a decade, that were completely inappropriate for economy. Now they can help us out for their part in creating our mess.

Oh FFS it's always someone elses fault isn't it :rolleyes:
Lehmans, the US subprime market, anyone who bought a house in Ireland, anyone who had a credit card in Ireland, now it is the Germans' fault and the ECB's fault . :rolleyes:

Do you know how pathetic it sounds ?
It sounds like a kid complaining that it's their parents fault for allowing them access the fridge and eat all the ice cream that has now made them sick.
Or it sounds like some drunk complaining the reason they have a hangover is because the off license sold them cheap booze.

Nobody forced the kid or the drunk to overindulge their habits.
Much like no one forced our government, our banks, our developers, our speculators or our investors to overborrow, to overlend and royally screw up.

They mostly did it becuase of their own greed, stupidity and arrogance, not because of Germans or any other nationality.

In this country a fair chunk of people elected a bunch of arrogant greedy incompetents who together with more greedy incompetents in both public regulatory authorities and private sector banks and businesses (developers/builders/estate agents, etc) created a massive bubble that has ruined the economy.

Now we as a nation have to stump up more taxes and suffer more cuts.
Sadly all of us have to suffer because some morons thought the Irish bubble was unique and arrogantly disregarded any wanrings.
Even worse we all have to suffer because we all have ended up paying for the debts of a few.

Bill2673 · 14-10-2010 11:05AM

ei.sdraob wrote: »

It wasnt the ECBs role to regulate (the speed limits) the banks and what they did with credit but our Regulator.
You seem to have no understanding of the purpose our Regulator and the europeanCB.
Once you learn the difference you would realise that your thesis is flawed.
You also continue to ignore the examples of other countries outside the euro who had no issues getting cheap credit and not only from europe.

To continue with our example, the ECB widened the motorway but our driver was asleep at the wheel while we were "turning a corner"

Well thats an interesting one.

You are right, I don't know what the purpose of our regulator was during the period 2000 to 2007.

You clearly know.

Please tell me. In factual terms please, by reference to the charter of the relevant institutions.

In particular, which financial institutions (by name) had the authority to impose lending controls on banks. And again, by reference to their charters and to the relevant legislation.

I'd be very interested in an answer to that one and look forward to your answer.

Bill2673 · 14-10-2010 11:18AM

Scarab80 wrote: »

The first part of your argument is correct, we had negative real interest rates for most of the 2000's, it was clearly a big contributor to the bubble.

I do not agree with the second part of your argument, while we have no input into the ECB rate, bar our tiny effect on eurozone inflation, we do have control over our own economy. The government should have put the brakes on our economy to bring inflation in line with European averages, this could be done by the regulator in raising the capital reserve requirement for banks, decreasing the money supply or could be done directly by government by increasing taxes and putting the proceeds into the pension reserve fund.

What we get from the ECB is consistency, they are to maintain eurozone inflation at below but close to 2%, the current average eurozone inflation since inception of the EMU is 1.97%, forward rates indicate a similar rate going into the future. It is the job of government to align our economy with this steady rate of growth.

I agree with you, the government was spectacularly short sighted to cut income taxes to raise public spending levels, to live off a property market fuelled by cheap loans and tax breaks....

Thats well documented.....Fintan O'Toole is all over it.....every other punter on Boards is all over it.

All I'm saying is that cheap money was a part of it, and that the ECB had a role to play in that.

Your point on the ECB bringing consitency is true, but is it relevant.

My point is that the Monetary Policy was designed only for the core central states.

Its no coincidence that Ireland, Greece, Portugal, Spain and the accession states find themselves in trouble at the same time.

Bill2673 · 14-10-2010 11:21AM

jmayo wrote: »

Oh FFS it's always someone elses fault isn't it :rolleyes:
Lehmans, the US subprime market, anyone who bought a house in Ireland, anyone who had a credit card in Ireland, now it is the Germans' fault and the ECB's fault . :rolleyes:

Do you know how pathetic it sounds ?
It sounds like a kid complaining that it's their parents fault for allowing them access the fridge and eat all the ice cream that has now made them sick.
Or it sounds like some drunk complaining the reason they have a hangover is because the off license sold them cheap booze.

Nobody forced the kid or the drunk to overindulge their habits.
Much like no one forced our government, our banks, our developers, our speculators or our investors to overborrow, to overlend and royally screw up.

They mostly did it becuase of their own greed, stupidity and arrogance, not because of Germans or any other nationality.

In this country a fair chunk of people elected a bunch of arrogant greedy incompetents who together with more greedy incompetents in both public regulatory authorities and private sector banks and businesses (developers/builders/estate agents, etc) created a massive bubble that has ruined the economy.

Now we as a nation have to stump up more taxes and suffer more cuts.
Sadly all of us have to suffer because some morons thought the Irish bubble was unique and arrogantly disregarded any wanrings.
Even worse we all have to suffer because we all have ended up paying for the debts of a few.

Thanks for the impressive BOLD print.

Nobody forced the Irish electorate to vote in Fianna Fail for three consecutive elections.

Of course, we were very surprised when it transpired that the great brains in Fianna Fail didn't run the economy in a cautious and prudent manner. Shocked really. Was a big surprise. They had always been so cautious and prudent in the past.

But thats a seperate matter.

PS I know you didn't vote for them, needless to say.

ei.sdraob · 14-10-2010 11:25AM

have fun reading, a very long list of failures there...
this crowd have been responsible for so much manure yet no one has been jailed yet

Bill2673 wrote: »

Its no coincidence that Ireland, Greece, Portugal, Spain and the accession states find themselves in trouble at the same time.

correlation is not causation there are so many more actors and variables at play

BluePlanet · 14-10-2010 11:27AM

ei.sdraob wrote: »

Why are you fixated on the ECB interest rate? Its one variable out of many.
I must have told you many times that our national institutions have many other levers at their control that they decided not to pull while they were having a nap.
The ECB rate now and for the last long while been at 1%, doesn't mean any of this is actually being passed on to the rest of us.

Once again you are ignoring what was already mentioned in this thread, the EU pre Lisbon had **** all powers, and they still dont have a say in many issues such as direct taxation.

I am not the one trying to pass the blame onto EU, the blame that squarely lands on FFs shoulders who are responsible for this mess.

Informed of what exactly?

Our government would do anything to stay in power and line own members pockets, pitty the fool who listens to them or worse votes for FF.

Pay attention to whom you are replying to.
I was commenting on the OP.

SkepticOne · 14-10-2010 11:32AM

BluePlanet wrote: »

Pay attention to whom you are replying to.
I was commenting on the OP.

That is the problem with the jerking knee. Once it starts kicking no one is safe!

Does the EU get the credit (blame) it deserves for its part in our economic mess

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