Ireland to go bust

[RandBlade]

How does that differ from what I said?

Taxes had nothing to do with it. It was the absurdly low (negative) interest rates that caused the problem. An issue Hazir simply ignores.

[RandBlade]

It is worth bearing in mind that in 2007 the Irish governments dept was an extremely healthy 25.4% of GDP.

The failure now is not a failure of taxes, or spending, it's a failure of monetary policy. The euro failed for Ireland, pure and simple.

[earthJoker]

So we should close the thread now? Not much room for an argument from your side.

[Dreadnaught]

Now, let's say the USA takes on $10 trillion in obligations it can't afford. Do you think the US would have a right to empty the wallets of the rest of the world in order to stay afloat and even demand that it won't change anything internally?

Once again, there is a difference between government obligations and banking sector debt. They can be intertwined, but not necessarily. It's not as if the revenues of the Irish government didn't increase dramatically over the last decade. But their financial system's debt also increased, which is probably more a function of cheap debt than the specifics of the Irish tax code. It's not as if higher taxes would have prevented a debt boom and asset bubble.

[earthJoker]

Again, if the Irish gov didn't bail out the banks they wouldn't be in debt, so the problem lies there. If the gov wants to insure the banks it has to have the reserves. Obviously it didn't.

There are many mechanisms to counterfeit such a problem. One would be to have the banks to have more reserves. The same thing that Basel III is actually proposing, but I would go further than that.

[wiggin]

Probably, you are simply taken in by some brit-type nonsense about the EMU and how it can't be bla di bla. I am looking at it from a different angle, that sees that the most likely result of this crisis is that fiscal policies will be centralised to an extent that could not have been achieved before. Talk about the break up of the euro is either claptrap from english language people parrotting eachother, or EU politicians that want to put maximum pressure on those amongst them who are reluctant to give up their 'sovereignty' in fiscal affairs.

I find all of this actually highly amusing; arms being twisted in ways unthinkable not so long ago and even the idiotic Brits de facto being pulled into the eurozone more than they could even had imagined. No matter how they try to sugarcoat it; the British government is going to do exactly what it said it wouldn't do; bailing out a eurozone country

Did you even read what I've written? I specifically offered two viable options - either breaking up the euro or centralizing economic policy as well as monetary policy. I'm not taken in by some systematic english language bias here, I'm just illustrating a difficulty with the current management of the EMU, not the concept of the EMU itself. I couldn't care less what you guys do on that front.

Somewhat different is a big understatement. In fact we will vote about on the 28th of this month. The socialists have made an Initiative (proposal) that there should be a minimum tax for the rich. The thing is we have little Ireland within our countries. (Schwyz, Zug). But then again the federal government has it's own budget two, and the federal gov and parliament decide what to do with that money. This is actually the thing the EU is lacking. They don't have a budget they can decide upon, all the EU budget is actually bound to certain defined expenses.

What I want to say is that the countries don't have to give up that much, but the EU has to get something. But I think to make this possible the EU needs to be more democratic first. Otherwise their decisions wont be legitimated.

Okay, I'll bow to your expertise on the Swiss federal system - though I'm still not sure it's applicable to the broader example (IMO the differences in economic philosophy across the EMU are pretty broad). I think we can agree, though, that the EMU needs to have more economic and fiscal policy coordination to mitigate these sorts of problems in the future - or independent monetary policy.

Now, let's say the USA takes on $10 trillion in obligations it can't afford. Do you think the US would have a right to empty the wallets of the rest of the world in order to stay afloat and even demand that it won't change anything internally?

Here's my problem with this reasoning - did Ireland have a choice, really, about bailing out their banks? And was the EMU completely blameless in the size of bailout needed?

Again, if the Irish gov didn't bail out the banks they wouldn't be in debt, so the problem lies there. If the gov wants to insure the banks it has to have the reserves. Obviously it didn't.

There are many mechanisms to counterfeit such a problem. One would be to have the banks to have more reserves. The same thing that Basel III is actually proposing, but I would go further than that.

Now we're getting somewhere. So the real issue isn't whether euro monetary policy was involved in the huge bubble in Ireland (it was), but whether Ireland should have bailed out their banks. I personally think the answer is clear - saving the financial system of a country from wholesale collapse is inevitably cheaper than the alternatives. Furthermore, it's often possible to recoup most of the bailout costs through later provisions (e.g. TARP hasn't been too pricey).

The bottom line is that Ireland is too small to fix the financial sector in its country. IMO this isn't something wrong with Ireland - many countries weight industries one way or another. Furthermore, they're particularly susceptible to bond market vigilantes because their bond market is tiny in comparison to much of the world. Lastly, guaranteeing Irish access to credit costs peanuts to 'core' countries in the EMU and generally saves the entire region from serious knock-on effects - hell, the euro and European markets have been seriously battered by uncertainty over Ireland (just as with Greece months ago) - said uncertainty mostly due to foot-dragging by a few key countries (ahem, Germany).

[earthJoker]

I just lost all my post by pressing the wrong reply button

Okay, I'll bow to your expertise on the Swiss federal system - though I'm still not sure it's applicable to the broader example (IMO the differences in economic philosophy across the EMU are pretty broad). I think we can agree, though, that the EMU needs to have more economic and fiscal policy coordination to mitigate these sorts of problems in the future - or independent monetary policy.

I think cooperation doesn't work for that. To much interests of the local (country governments). The EU should have its own politics with its budged, but for that it needs democratic legitimation. What I don't think, is that the countries have to give up much of their fiscal autonomy. Of course the EU will have to set the frame rules, but doesn't it do that already?

Here's my problem with this reasoning - did Ireland have a choice, really, about bailing out their banks? And was the EMU completely blameless in the size of bailout needed?


Now we're getting somewhere. So the real issue isn't whether euro monetary policy was involved in the huge bubble in Ireland (it was), but whether Ireland should have bailed out their banks. I personally think the answer is clear - saving the financial system of a country from wholesale collapse is inevitably cheaper than the alternatives. Furthermore, it's often possible to recoup most of the bailout costs through later provisions (e.g. TARP hasn't been too pricey).

The bottom line is that Ireland is too small to fix the financial sector in its country. IMO this isn't something wrong with Ireland - many countries weight industries one way or another. Furthermore, they're particularly susceptible to bond market vigilantes because their bond market is tiny in comparison to much of the world. Lastly, guaranteeing Irish access to credit costs peanuts to 'core' countries in the EMU and generally saves the entire region from serious knock-on effects - hell, the euro and European markets have been seriously battered by uncertainty over Ireland (just as with Greece months ago) - said uncertainty mostly due to foot-dragging by a few key countries (ahem, Germany).

There is a point here. The question is who should have bailed out the Irish banks? This is not even an EU problem. The financial system is so connected that one countries failure can have effects all over the world.
The Irish problem could have and can happen in Switzerland too. The top banks (UBS & CS) are so big, if they really go bust it would be hard for Switzerland to bail them out. And as they make a lot of their business abroad, the fiscal autonomy of the National Bank is not going to help much.

[Hazir]

Once again, there is a difference between government obligations and banking sector debt. They can be intertwined, but not necessarily. It's not as if the revenues of the Irish government didn't increase dramatically over the last decade. But their financial system's debt also increased, which is probably more a function of cheap debt than the specifics of the Irish tax code. It's not as if higher taxes would have prevented a debt boom and asset bubble.

In the case of Ireland there is no difference. Ireland is too small to save its banks, yet it chose to do so. Now it's in a very deep hole and it can only get out of that hole with the help of others. Those others will decide from now on what Ireland's fiscal policies are. And there is no reason to assume those others will allow the Irish to have fiscal policies that are detrimental to their own interests. The idea that the problems of the banks are not the problems of the state has become pure fiction in Irealand.

[Hazir]

Did you even read what I've written? I specifically offered two viable options - either breaking up the euro or centralizing economic policy as well as monetary policy. I'm not taken in by some systematic english language bias here, I'm just illustrating a difficulty with the current management of the EMU, not the concept of the EMU itself. I couldn't care less what you guys do on that front.


Here's my problem with this reasoning - did Ireland have a choice, really, about bailing out their banks? And was the EMU completely blameless in the size of bailout needed?


Now we're getting somewhere. So the real issue isn't whether euro monetary policy was involved in the huge bubble in Ireland (it was), but whether Ireland should have bailed out their banks. I personally think the answer is clear - saving the financial system of a country from wholesale collapse is inevitably cheaper than the alternatives. Furthermore, it's often possible to recoup most of the bailout costs through later provisions (e.g. TARP hasn't been too pricey).

The bottom line is that Ireland is too small to fix the financial sector in its country. IMO this isn't something wrong with Ireland - many countries weight industries one way or another. Furthermore, they're particularly susceptible to bond market vigilantes because their bond market is tiny in comparison to much of the world. Lastly, guaranteeing Irish access to credit costs peanuts to 'core' countries in the EMU and generally saves the entire region from serious knock-on effects - hell, the euro and European markets have been seriously battered by uncertainty over Ireland (just as with Greece months ago) - said uncertainty mostly due to foot-dragging by a few key countries (ahem, Germany).

Yes I read what you wrote, I am just no longer willing to allow for any talk of the EMU needing to disband. I am however also aware of the fact that this crisis may actually force the parts of Europe most unwilling to turn the EMU into a monetary zone the way a monetary zone needs to work. Ireland in my eyes is one of the countries that deserves to be hit with a big stick as long as they keep whining about sovereignty.

Yes, the bubble was possible because of low interest rates. But that doesn't mean the Irish government couldn't have prevented it from happening. But rather than doing that they decided to fuel the bubble. If pretty much everybody who bought a house in the last 4 years is under water and 5% of your home owners already isn't able to meet payments, then you know that somebody was ostentatiously looking the other way when things went wrong. Ireland then got in the situation that it needed to save its banks but really couldn't. Now we have reached the point where the rest of us have got to sort the mess they made out. It is going to cost us, that much is clear. And since it is going to cost us, we pretty damn well should set the rules of the game.

By the way, Germany was at no point alone when it was dragging it heels. The idea of giving help to the PIIGS is extremely unpopular in a bunch of countries. If it weren't for the fact that we'd rather see them taken care of in an orderly way politicians in a lot of countries could win serious votes by not allowing help.

[earthJoker]

It's always Germany to blame! Huere scheiss Tütsche!

[LittleFuzzy]

Those others will decide from now on what Ireland's fiscal policies are. And there is no reason to assume those others will allow the Irish to have fiscal policies that are detrimental to their own interests.

An Ireland with strong growth is not detrimental to their own interests. Except that the supposedly neo-realist views being espoused are growing more and more strongly neo-colonialist.

[']['ear]

There's a lot of neo there. You're living in a dream world, Neo.

[wiggin]

I think cooperation doesn't work for that. To much interests of the local (country governments). The EU should have its own politics with its budged, but for that it needs democratic legitimation. What I don't think, is that the countries have to give up much of their fiscal autonomy. Of course the EU will have to set the frame rules, but doesn't it do that already?

Fair enough, the 'coordination' or 'cooperation' will obviously need more teeth than current agreements, though probably with some veneer of individual countries being able to set policy.

There is a point here. The question is who should have bailed out the Irish banks? This is not even an EU problem. The financial system is so connected that one countries failure can have effects all over the world.
The Irish problem could have and can happen in Switzerland too. The top banks (UBS & CS) are so big, if they really go bust it would be hard for Switzerland to bail them out. And as they make a lot of their business abroad, the fiscal autonomy of the National Bank is not going to help much.

The monetary autonomy can help cool off an overheated economy (like Ireland's before the recession), reducing the total bill for a bailout. But in principle you're right, the damage to the financial system is hardly limited to one country, and ripple effects can be pretty bad. In general, I think the costs should be shouldered first by the country in question, then by the local trade partners (in this case, the EU), and then by various international organizations (e.g. the IMF, meaning essentially the US). The total bill need not be so high, and any demanded structural reforms should be targeted at fixing the problem, not punishing the country or industry in question.

Yes I read what you wrote, I am just no longer willing to allow for any talk of the EMU needing to disband. I am however also aware of the fact that this crisis may actually force the parts of Europe most unwilling to turn the EMU into a monetary zone the way a monetary zone needs to work. Ireland in my eyes is one of the countries that deserves to be hit with a big stick as long as they keep whining about sovereignty.

I really don't get you, Hazir. It's a perfectly reasonable suggestion. I think the problem is when either side of the debate touts the 'only' solution for the current problems in the EMU setup. Recognizing a solution exists that you find suboptimal is hardly unreasonable.

Yes, the bubble was possible because of low interest rates. But that doesn't mean the Irish government couldn't have prevented it from happening. But rather than doing that they decided to fuel the bubble. If pretty much everybody who bought a house in the last 4 years is under water and 5% of your home owners already isn't able to meet payments, then you know that somebody was ostentatiously looking the other way when things went wrong.

First off, what do you think they should have done in the absence of monetary policy? There are some policy choices that are available, but they're far less effective than a contractionary monetary bent.

Secondly, when pretty much every major developed economy in the world had the same situation and didn't effectively prevent it (with a few notable exceptions that are rather special cases), why do you expect Ireland to have done so? It's only different as a matter of degree - and the degree of the damage was largely exacerbated by loose monetary policy, which almost certainly would have been tightened much earlier in Ireland.

By the way, Germany was at no point alone when it was dragging it heels. The idea of giving help to the PIIGS is extremely unpopular in a bunch of countries. If it weren't for the fact that we'd rather see them taken care of in an orderly way politicians in a lot of countries could win serious votes by not allowing help.

True, and I didn't say Germany was the only country being slow about things - they were just the most vocal about it, including a rather stupid amount of domestic politicking that should have had no place in the discussion. Also, Germany is one of three or four countries that are really critical to any rescue, so their vocal opposition means a lot more to markets than uneasy rumblings from Estonia or whatever.

[Hazir]

Wiggin, the central problem of the EU is shoddy arrangements that pander to people who rather not be part of the EU at all. Think Brits and idiots in other countries whining about their 'sovereignty'. It is hard enough to get anything done in this continent with the stupids who think their little patch of land in Europe still has some weight in the world under normal circumstances. I think there is nothing wrong with shoving them and their visions aside when the alternative is yet another shoddy arrangement that doesn't really solve the problem which under given circumstances is actually dangerous to the rest of us. What needs to be fixed is how the EMU works. What we don't need is a close gazing at our navel's again about whether or not the EMU (and by extention the EU) should exist.

Or, as they say in Brussels; it's a terrible thing to waste a good crisis.

You could maybe say that my anger comes from the fact that virtually all the problems we have right now are because 'we' were allowing eurosceptics too much leeway.

[wiggin]

I hardly think that the EU is dependent on the euro, nor does British concerns about sovereignty really matter here since England isn't part of the EMU. Obviously you're welcome to your opinion, though.

[Hazir]

I hardly think that the EU is dependent on the euro, nor does British concerns about sovereignty really matter here since England isn't part of the EMU. Obviously you're welcome to your opinion, though.

It is all linked together. The Brits should never have been allowed to stay out, or the Swedes for that matter. A break up of the EMU will result in a break up of the EU, if only for the fact that no country could allow a free flow of capital during the break down of the EMU.

I regret the day the UK was allowed in.

[LittleFuzzy]

Recognizing a solution exists that you find suboptimal is hardly unreasonable.

Sure it is, from his perspective. His only concern is and always has been the political aggrandizement of European integration.

[Hazir]

Sure it is, from his perspective. His only concern is and always has been the political aggrandizement of European integration.

You could also call it by its real name; federalism.

[LittleFuzzy]

You could also call it by its real name; federalism.

I might, if I thought that was what you were interested in. But federalism involves limits and power-flows in both directions. I meant it when I said the rhetoric was starting to develop a neo-colonialist tinge. I think Europe is going to take on a real federal character within the next 30 years as a stage in its integration, but I do not think it is going to stop there and I do not think, when that time comes, that you would be happy if it did.

[Hazir]

Why wouldn't I? I would be perfectly happy with a EU that functions as a federation rather than a loose conglomerate of nation states with unclear mandates and accountability. I think it was a big mistake to take in a hostile bunch like the Brits in an environment where they can block any sensible arrangement with vetoes. You must mistake my 'go fuck yourself' attitude towards people who are actually trying to make steps away from the federal states under the guise of a 'more democratic' EU. A good example would be how Randblade trots out votes in Ireland as if only if all 450 million Europeans accept what 3,5 million Irish decide it's legitimate.

Of course we don't really respect the outcomes of their referenda, and why should we? Would you let R.I. alone decide on the direction the US goes?

[Dreadnaught]

In the case of Ireland there is no difference. Ireland is too small to save its banks, yet it chose to do so. Now it's in a very deep hole and it can only get out of that hole with the help of others. Those others will decide from now on what Ireland's fiscal policies are. And there is no reason to assume those others will allow the Irish to have fiscal policies that are detrimental to their own interests. The idea that the problems of the banks are not the problems of the state has become pure fiction in Irealand.

I'm not sure it's fair to judge a country for "choosing" to save its banks. What would you have them do?

Of course the state failed to properly control the banks and curb an asset bubble, but then again so did many nations. That doesn't mean the tax policy is at fault. The idea that a solid tax policy is to blame for an asset bubble is almost like blaming telcos for the Internet bubble.

[RandBlade]

Wiggin, the central problem of the EU is shoddy arrangements that pander to people who rather not be part of the EU at all. Think Brits and idiots in other countries whining about their 'sovereignty'.

Bullshit.

1, This is not our crisis. If we get involved it will be bail out the EMU's failure.
2, We were right. Warning about a loss of monetary control was right.
3, The eurosceptics were right. Either no EMU or more control is necessary. This halfway house doesn't work.
4, Being outside EMU we have not been the main player involved in setting it's rules.
5, This failure was again caused by the EMU. How you can blames sceptics is absurd.

Finally, your attitude belies a major fault. Your whole 'us' and 'them' mentality, with Ireland that you'd apparently want to be in federation with being 'them' that you're WANTING to punish and hurt. That doesn't work. You're a hypocrite.

[Hazir]

I'm not sure it's fair to judge a country for "choosing" to save its banks. What would you have them do?

Of course the state failed to properly control the banks and curb an asset bubble, but then again so did many nations. That doesn't mean the tax policy is at fault. The idea that a solid tax policy is to blame for an asset bubble is almost like blaming telcos for the Internet bubble.

Iceland let its banks go. Sure enough that wasn't a popular move in other countries and it was hard on Iceland, but it enables them to make a new start. In the case of Ireland most likely the fall out of the banks would have been harsh, but the salveable pieces could have been picked up by banks from other countries with the clout to save their banking system. It would have left Ireland without any 'Irish' bank, but at least a fighting chance to make a clean start. We sure as hell wouldn't be considering the risk of a sovereign default.

Fortis would have been an example to learn from; a huge financial conglomerate mercilessly chopped up in a matter of days after which the Belgian parts were sold off to France. A lot of angry share-holders and Belgium lost a lot of importance as a financial center, but Belgian tax-payers or citizens won't be carrying the burden of Fortis untill kingdom come.

[Hazir]

Bullshit.

1, This is not our crisis. If we get involved it will be bail out the EMU's failure.
2, We were right. Warning about a loss of monetary control was right.
3, The eurosceptics were right. Either no EMU or more control is necessary. This halfway house doesn't work.
4, Being outside EMU we have not been the main player involved in setting it's rules.
5, This failure was again caused by the EMU. How you can blames sceptics is absurd.

Finally, your attitude belies a major fault. Your whole 'us' and 'them' mentality, with Ireland that you'd apparently want to be in federation with being 'them' that you're WANTING to punish and hurt. That doesn't work. You're a hypocrite.

Rubbish, rubbish and rubbish. The problem is not the monetary policy, it's the lack of fiscal policies to go along. Exactly what the UK has been figting against and is still fighting against not it has been shown that that is not only stupid nationalism but outright dangerous to the entire financial system.

Thank God politicians in other countries at the moment have bigger priorities than pandering to British nationalists.

[RandBlade]

Bullshit.

We're not even in EMU. Had that been the case then fiscal unity could have been agreed in Maastricht as a condition for EMU membership 2 decades ago. We could have had an opt-out from that with our EMU opt-out.

But there was no interest in that across the board. That's like saying the Australian cricket team is doing badly because the Indian team declined to do some training. We're not even a member.

Take some responsibility.

[Hazir]

Bullshit.

We're not even in EMU. Had that been the case then fiscal unity could have been agreed in Maastricht as a condition for EMU membership 2 decades ago. We could have had an opt-out from that with our EMU opt-out.

But there was no interest in that across the board. That's like saying the Australian cricket team is doing badly because the Indian team declined to do some training. We're not even a member.

Take some responsibility.

So you don't even know the EMU can't make decisions separate of the EU. And you opting out doesn't mean you didn't have a role in shaping the rulebook.

[RandBlade]

So you don't even know the EMU can't make decisions separate of the EU. And you opting out doesn't mean you didn't have a role in shaping the rulebook.

The EMU area can make any rules they god-damn please if they'd bothered to. If the EMU couldn't work in its current form it shouldn't have launched but you never said in the past that it couldn't work. I seem to recall you saying that it "wasn't an economic decision". Well, looks like economics have caught back up.

Maastricht treaty established EMU, any necessary requirements could and should have been done then. Maastricht established plenty of rules that solely affect the EMU area, seperate from the rest of the EU. Since then there's been the treaties of Amsterdam, Nice and Lisbon. Not one of them have addressed this issue so don't bleat about the Brits. You are so obssessed that even when something with nothing to do with us goes wrong its still our fault. You're laughable when you speak like that.

[Hazir]

So you've just proven you are too stupid to understand what an opt-out clause means. What's next?

[RandBlade]

No. You've proven you're too stupid to look beyond your hatred at the real problem.

[earthJoker]

/me gets the popcorn.