The Great Debate UK
from Felix Salmon:
I love the way that the WSJ today covers the collapse of Ireland's banking system, and with it the country's fiscal leadership. There's little if any actual news here, but that's a feature, not a bug: it frees up the WSJ's writers and editors to present the big-picture narrative in as clear and compelling a manner as possible, without having to overemphasize some small factoid which they happen to be breaking.
The story reads like one of those epic lyric tragedies of old, where no one ever learns from their mistakes, and errors simply compound endlessly. First, the Irish government, convinced that the country's banks were suffering from a liquidity crisis rather than a banking crisis, decided to solve that problem in the way that only a government can -- with a blanket guarantee of substantially all of the banks' liabilities.
But of course the banks were fundamentally insolvent, and so began a series of cash drains on the government, each one meant to be the last and final. First there was €1.5 billion for Anglo, and €2 billion each for Bank of Ireland and Allied Irish. Then there was another €7 billion for Allied Irish and Bank of Ireland. Then Anglo's losses reached €20 billion, with another €48 billion "at risk" of default. And where are we now?
The total capital injected into banks by the government so far: €34 billion, with at least another €12 billion on the way. The bailouts mean Ireland will run a government deficit equal to 32% of its gross domestic product, the highest figure ever in any euro-zone country. Skeptics say a still-sinking property market will next sour residential mortgages, inflating the government tab even more.
from Global News Journal:
Every time I write a story on European countries cutting public spending, I feel a frisson of panic. I can't help but fear my health, lifestyle and liberty could be a casualty of the "age of austerity".
On assignment covering the Sri Lankan civil war for Reuters four years ago, I broke my neck in a minibus smash. It left me quadriplegic, almost entirely paralysed from the shoulders down and totally dependent on 24 hour care. I was 25.
from Global News Journal:
Irish literature and legend is full of boasts, like the claim by Christy Mahon in Synge's "Playboy of the Western World" that he has killed his da with a loy (Irish for spade), only to have the old man track him down in another town.
Perhaps that's the way to view Irish Finance Minister Brian Lenihan's announcement two years ago that the state-backed guarantee scheme to rescue the country's troubled banks, hit hard by the collapse of the property market, was "the cheapest bailout in the world so far".
It seemed too good to be true. And it was.
On Thursday, Lenihan, who has spent the last two years scrambling from one fiscal crisis to another, announced that, actually, the cost for cleaning up years of reckless lending was "horrendous" and in a worst-case scenario the price tag would be over 50 billion euros ($68 billion).
The bill will shackle Ireland, once the EU's fastest growing economy, with a public debt burden of nearly 99 percent of gross domestic product.
Ireland's now crippled economy, meanwhile, has done everything but recover. Unemployment is stubbornly high, property prices remain depressed, taxpayers face years of cutbacks and, in the second quarter, growth again went into reverse.
Maybe what Lenihan said two years ago was wishful thinking, or perhaps it has taken this long for Ireland to wake up to just how colossal a hole its one-time high flying property tycoons have dug for themselves, and for every Irish taxpayer, even though much of what they were up to is so big as to be unmissable.
Take, for example, the Battersea Power Station in London, which is Europe's largest brick building and has been derelict since it was decommissioned as a coal-burning power plant about a quarter century ago.
In 2006, a firm controlled by two Irish property magnates, Johnny Ronan and Richard Barrett, bought the building and land surrounding it for a staggering 400 million pounds ($750 million) -- even though previous plans to develop it had all come to nought.
The boys, as they are referred to in some of the Irish press, had ambitious plans for a new, exclusive, "Knightsbridge"-class development for office, commercial and residential space, including an extension of the Northern Line branch of the London Underground.
Four years later, the site is still derelict, promoted, perhaps a bit desperately, as a location for lavish weddings held inside a marquee, and most recently as the venue for a Red Bull-sponsored high-jinx, daredevil motorcycle show.
Ronan and Barrett's property empire, meanwhile, has seen some of its loans earmarked for the Irish government's National Assets Management Agency (NAMA) -- Ireland's "bad bank scheme", which was established to purge lenders of commercial property loans, many of them non-performing.
Battersea is at the top end of the scale of Irish property investment during the decade of the Celtic Tiger boom, but replicate it at a lesser level all the way from Eastern Europe to the holiday beaches of Spain and out to Asia, and it becomes clear why Lenihan has had to change his tune.
A historical footnote: a Reuters feature informs us that the Battersea Power Station was used during World War Two to burn 120 million pounds worth of banknotes that had to be disposed of to stop enemy forgeries.
Something to boast about then. Comparatively small change now.
- Kathleen Brooks is research director at forex.com. The opinions expressed are her own. -
The euro’s resilience in the third quarter has been astonishing. Since reaching a low against the dollar in June, the single currency has appreciated by an impressive 14 percent. This has coincided with the Irish financial crisis reaching boiling point, culminating in the announcement on Thursday by the Irish authorities of the final bill for winding down Anglo Irish Bank.
from The Great Debate:
Ireland and its economic unraveling is not simply a test case of the stimulus versus austerity dispute, it is an illustration of the limits and pitfalls of the very popular strategy of keeping the banks ticking over, hiding under a desk and hoping for a strong recovery.
Previously praised for taking a tough fiscal stance which fans hoped would put it on a solid footing, Ireland now seems more vulnerable than ever. Concerns that the costs of the banking bailout will exceed the government's ability to pay, even with European Union support, have battered Irish debt in financial markets.
The more the scandal of Catholic priests sexually abusing boys in Germany spreads, the more the focus turns to Rome to see how Pope Benedict reacts. The story is getting ever closer to the German-born pope, even though he has been quite outspoken denouncing these scandals and had just met all Irish bishops to discuss the scandals shaking their country. Nobody's saying he had any role in the abuse cases now coming to light in Germany. But the fact that some took place in Regensburg while he was a prominent theologian there, that his brother Georg has admitted to smacking lazy members of his choir there and that Benedict was archbishop in Munich from 1977 to 1982 lead to the classic cover-up question: what did he know and when did he know it?
The reality of 'political economy' is something that irritates many economists -- the "purists", if you like. The political element is impossible to model; it often flies in the face of textbook economics; and democratic decision-making and backroom horse trading can be notoriously difficult to predict and painfully slow. And political economy is all pervasive in 2010 -- Barack Obama's proposals to rein in the banks is rooted in public outrage; reading China's monetary and currency policies is like Kremlinology; capital curbs being introduced in Brazil and elsewhere aim to prevent market overshoot; and British budgetary policies are becoming the political football ahead of this spring's UK election. The list is long, the outcomes uncertain, the market risk high.
But nowhere is this more apparent than in well-worn arguments over the validity and future of Europe's single currency -- the new milennium's posterchild for political economy.
This was the 1970s when I was fresh out of an American college, bumming around Europe on almost no money. But it was the Ireland of my ancestors and they had no money either, so we were all in this together.
The EU show is back on the road. Sixteen months after Irish voters brought the European Union's tortured process of institutional reform to a juddering halt by voting "No" to the Lisbon treaty, the same electorate has turned out in larger numbers to say "Yes" by a two-thirds majority.
This is an immense relief for the EU's leadership. After three lost referendums in France, the Netherlands and Ireland, and a record low turnout in this year's European Parliament elections, the democratic legitimacy of the European integration process was increasingly open to question. The Irish vote will not completely silence those doubts. Opponents are already accusing the EU of have bullied the Irish into voting again on the same text, and of blackmailing them with economic disaster if they did not vote the right way this time.
Political leaders gathered in Dublin to debate both sides of the controversial Lisbon Treaty and the implications it could have on the future of Europe.
The panel consisted of Micheál Martin, Ireland’s Minister of Foreign Affairs, Nigel Farage MEP, leader of UKIP, Mary-Lou McDonald, Deputy President of Sinn Fein and David Begg, General Secretary of the Irish Congress of Trade Unions.