www.imf.org/external/pubs/ft/scr/2015/cr1520.pdfThis is interesting. It is the IMF's evaluation of the Irish situation and the measures taken to deal with it under the troika's recommendations and intervention.
First: there is some consideration of the background, which will come as a surprise to those who have swallowed the mainstream account. In particular the paper says this:
QUOTE
Ireland had a long history of exceptionally strong performance. Real GDP growth
averaged around 5 percent and employment increased strongly for several decades prior to 2000, as
the economy benefited from a successful integration into the world economy. Supported by high
inflows of foreign direct investment (FDI) attracted by a competitive and business friendly
environment, exports reached more than 100 percent of GDP and their structure changed towards
high-value added products (IT, services, pharmaceuticals). Economic growth was accompanied by a
marked decline in the public debt ratio, which fell in the three decades prior to the millennium from
110 (one of the highest among advanced countries at the time) to under 25 percent of GDP.
You might be wondering what changed in 2000? Well, Ireland joined the eurozone on 1/1/1999. It was all downhill from there.
In 2000 the current account was balanced. But by 2008 it was in deficit by 6%. Funny, that....
The banks in Ireland have been discussed here before. This paper points out that the financial sector grew to 520% of GDP by 2008, and 60% of the banks' liabilities were to creditors outside the country. As I have noted before, the IMF did not notice any problem when they assessed the Irish situation in 2006. That is how good they are!
But no matter: the troika was there to give advice. The language used here is lovely:
QUOTE
. The original 2008 budget had been expansionary, but amid collapsing revenues and the
rising cost of supporting the financial sector, consolidation measures of 6.2 percent of GDP were
implemented between 2008 and 2010.
"Consolidation measures", forsooth. However, unusually for this kind of paper, the authors do actually spell out what that means. I like that. They explain that the "consolidation measures"
QUOTE
included
reductions in the public sector wage bill, cuts in capital expenditures, cuts and other restrictions on social
welfare benefits, as well as revenue measures.
So far, so typical.
And here is another typical thing
QUOTE
In this period, expenditures in nominal terms shrank by over €5 billion. However, revenues continued to decline even
faster, and the deficit (excluding financial sector support) reached 13.3 percent of GDP in 2010. Public debt jumped from 25 percent prior to the crisis to close to 100 percent of GDP in 2010.
You might wonder in passing why this is "excluding financial sector support". I know I do. They do that in the UK as well, so it must be a normal omission: I just don't know why, especially given the size of support given by the Irish government, which, you will recall, accepted all the banks' liabilities by giving a guarantee.
According to this paper there was "initial success" with this, from 2008 on. (They don't give any evidence in support of that statement, that I can see. Nor do they seem to specify when that success was enjoyed. The accompanying graph seems to show just the opposite, if the level of government debt is the measure. That is considered to be the important thing in all the narratives I have read from this and other bodies. So once again I do not think their data supports their case: but that is no longer a surprise for me. )
Anyhow, at some point it stopped working, for all the usual non- human and entirely unforeseeable reasons. So Ireland asked the troika for a "programme", in 2010. The IMF and pals were severely limited in what they could do, it says, because of Irish mistakes made before 2010 - when the actions were meeting with "initial success", remember.
ETA: that is not correct. Ireland did not ask for a "programme": it was ordered to do so.
http://uk.businessinsider.com/heres-the-se...bailout-2014-11So they broke their own rules, as has been mentioned before. There are criteria which are supposed to be applied when such a programme of bailout is contemplated. One of them is that
QUOTE
there is a high probability that the member’s public debt is sustainable in the medium term.
. It wasn't. The paper says it wasn't. So why did they agree to the bail out? It was because
QUOTE
Ireland’s exceptional access was justified on the basis of high risk of international systemic spillovers, as public debt was not judged to be sustainable in the medium term with high probability.
Think about that. Ireland would not be able to pay that debt, they thought. But they lent anyway because of the risk to international banks. At least I think that is what that means. In this connection it is interesting to compare with agreement made with Germany in 1953, which I was reading about the other day.
http://library.fes.de/pdf-files/iez/10137.pdfI won't go into that in any detail. But the bottom line is that Germany's debt was halved, and repayments were tied to a trade surplus, so that it could definitely be paid without damaging the domestic economy. To that end the other parties to the agreement accepted an undervalued deutsche mark. As the paper says
QUOTE
The London Debt Agreement was comprehensive in the sense that it included almost all public and private
German pre- and post-war debt obligations.
and
QUOTE
Debt service was to be financed exclusively from current (export) income without taking recourse to (currency)
reserves or assuming new debt in order to pay off the existing obligations.
To that end the other parties to the agreement accepted an undervalued deutsche mark.. And Germany has continued to enjoy that privilege both before and after joining the eurozone: which accounts for their strong export performance, very largely. That, too, has been discussed before.
The point of this digression is that in 1953 the London agreement was designed to help Germany. On paper the purpose of IMF and Troika intervention is to help the country concerned: but once again they explicitly acknowledge they were doing no such thing: they were helping the international banks. "Who is your client?"
The paper goes on to say that the Irish were very obedient, and did what they were told. It claims a lot of success. Unfortunately, despite this
QUOTE
unemployment remains high and domestic demand was lower than programmed, amid an external environment that was much more challenging than originally projected.
Again the distancing language. Who could have guessed in 2010 that the "external environment" would be very challenging in the midst of a global financial crisis?
As well as the horrors inflicted on the Irish people, embodied in high unemployment and the declining standard of living implicit in "declining domestic demand", the paper also notes that business is not doing very well, and nor are mortgages. At least not if those can be deduced from the fact that
QUOTE
Amid a weak economy and rising unemployment, NPLs continued to rise until the end of the program period, reaching 27 percent of total loans at end-2013 compared to 10 percent at end-2010. Households and SMEs accounted for 60 percent of the end-2013 NPLstock.
*NPL means non performing loans.
*SME means Small and medium sized enterprises.
Irish banks are not doing well either.
QUOTE
banks reported losses for a sixth consecutive year
in 2013.
. That really bothers the IMF, for some reason. Bothers them much more than high unemployment and poverty, by the looks of it. They really want banks to get profitable, and soon. Interestingly, the IMF is at some pains to distance itself from the continued existence of non-viable banks. Apparently that is the fault of the other Troika members. Nothing to do with us, guv. I have heard that kind of thing from the IMF before.....
And again: private bondholders were not "bailed in" in Ireland: the government took on all the banks' liabilities. This, too, was because of the risk of "spillover" affecting other eurozone banks, and institutions.
QUOTE
There were concerns that a bail-in of senior bondholders could be seen as precedent setting in the euro area and adversely affect euro area banks and their funding markets given also extensive cross holdings by banks of other euro bank senior bonds.
Umm...Cyprus, anyone? Apparently the IMF now think it is not fair that "senior bond holders" should pass the problem to the people when their risk taking results in a loss, so the rules have changed. They are quick on the uptake, aren't they?
The programme included fiscal policy objectives and a plan to achieve them. It is the same old, same old
QUOTE
The authorities’ plans set out a three-year adjustment objective of €15 billion (9 percent of [2010] GDP) in measures relative to a baseline scenario, with €6 billion to become effective in 2011. This would steadily reduce the overall deficit while stabilizing the debt ratio by 2014 at somewhat above 120 percent of GDP. Expenditure reductions would account for two thirds of the adjustment, covering capital spending, public sector staffing and salaries, as well as savings on social welfare and public pensions for new entrants. Revenue measures primarily aimed at broadening the income tax base and increasing its
progressivity. From 2013 and beyond the program period, further revenue measures were to raise
indirect taxes through phased increases in VAT rates and the introduction of a new property tax.
QUOTE
All quantitative fiscal targets were met. Between 2010 and 2013, the overall deficit
narrowed by 3.4 percentage points of GDP, and the primary deficit by 5 percentage points. Broadly
in line with expectations, the gross debt ratio increased markedly to 124 percent of GDP
All good, then?
QUOTE
Lower-than-anticipated interest payments did not lead to a corresponding improvement in the overall balance, and the primary deficit was larger than originally envisaged. Considerable interest savings relative to the original program path (a cumulative €4.4 billion during 2011-13, or 2.7 percent of 2013 GDP) reflected in part lower-than-programmed
interest rates as well as the re-profiling of the European partner support. The interest savings were largely offset by weaker revenues, which underperformed also in relation to GDP. As a result, lower interest payments did not lead to a stronger overall fiscal balance, which would have limited adjustment needs for future years. The improvement in the structural primary balance was still some 1½ percent of GDP per annum during the program period, but this pace was some 1 percentage point per annum slower than in the two years prior to the EFF-supported program, when the authorities had attempted to contain the crisis without external support.
(my bolding). Note the addition above in this connection. Ireland was forced to accept a programme which, according to this paper, performed worse, in the Troika's terms, than had been the case before that programme was implemented.
But despite that they have succeeded in embedding their neoliberal lunacy in Irish law: so that is a success for them
QUOTE
To improve
expenditure management, three-year aggregate and ministerial level expenditure ceilings were
established and put on a statutory basis. In 2012, a Fiscal Responsibility Act was passed and
included, among others, a general government budget balance rule and debt rule consistent with
the SGP. The Fiscal Responsibility Act also established the independence and legal basis of the Irish
Fiscal Advisory Council (IFAC). The IFAC is responsible for providing an ex ante assessment of the
macroeconomic forecasts underpinning the budget and for assessing the soundness of the
government’s budgetary projections and fiscal stance. Measures were also adopted to enhance transparency, including improved fiscal reporting, forecasting, and risk management.
The IMF are so good at forecasting: I am sure you will agree
The paper goes on to talk about what might have been done better
They note that they gave the banks a lot of money and the banks did not use it to help those who were in debt and could not pay. Astonishing, eh? They blame the legal framework, and regret the fact that the banks were not allowed to repossess people's houses. That must be the reason for banks holding on to bail out money in Ireland: but they can repossess in the UK and they did the same thing. Bet that was for some other reason and not because the banks are criminal conspiracies everywhere. Still it is funny: they worry about "moral hazard" for householders and SME's when talking about debt restructuring. But they don't mention it in relation to insolvent banks which they chose to give money to. Sauce for the goose......apparently not.
The tone of this paper is generally upbeat, focusing on claimed success. It does acknowledge some things could have been done better, but it is largely self congratulatory, as we have come to expect. Yet it does not read like success to me: far from it.
Gross public debt rose 100% from 2007 and stood at 120% of GDP in 2013. As you may know I think that is a stupid measure to use for anything at all: but they don't. So it is not very much of a "success" in their way of looking at the world. The economy remains in deficit. That matters to them too. The debt is not considered to be sustainable, though why it would be when it wasn't to start with is somewhat mysterious. So that is not very impressive at all. None of that gives them any pause in presuming their ideas are good ones. Rather they go on to consider whether they should have implemented their programme more quickly, in order to get better results. They do not for one moment wonder whether their prescriptions are just plain wrong.
And yet Ireland was doing fine till it joined the euro: which is where I came in. None of this would have been necessary, arguably, if that hadn't happened. Certainly crazy notions deriving from the SGP and Maastricht would not have applied even if the Irish economy had not been radically altered for the worse after it joined the euro; but would have suffered that alteration regardless (which I don't think likely)
What good is the euro, again?
Edited to add:
www.pieria.co.uk/articles/the_imfs_lament_for_irelandThis is an article by Frances Coppola on the same subject. Her primary focus is rather different from mine, in that she draws more attention to the self serving discussion of disagreements within the Troika, which aims to blame the other parties for the failures. But she also notices that joining the euro was the real problem.
Ms Coppola does not think that getting out of the euro is a solution, however. I am not so sure.
Edited by FionaK - 5/2/2015, 11:55
