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News : Irish Economy Last Updated: Dec 5, 2012 - 4:38 AM


Irish Budget 2013: Debt and the cost of addiction to spin
By Michael Hennigan, Finfacts founder and editor
Dec 4, 2012 - 7:47 AM

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Wolfgang Schäuble and Pierre Moscovici, ministers of finance of Germany and France respectively, discussed the challenges of the European economy and the Irish bailout with European Parliament MEPs, Monday, Dec 03, 2012.

Irish Budget 2013: Monday witnessed another installment of the Irish-EU bank debt version of Salome's 'Dance of the Seven Veils.' Recent stirrings of optimism that at least part of the €64bn* in State support for banks after the economic crash would be mutualised, were dashed again when France joined Germany in the European Parliament, in rejecting an extension of last week's terms of the latest Greek bailout, to Ireland and Portugal. The enduring addiction to spin at Irish policy level comes at a cost. Pleading the 'béal bocht' while being happy to promote to international audiences, a misleading narrative of recovery, underpinned by rising exports and competitivness, has consequences.

The bailout Troika with two permanent representatives in Dublin, is not fooled of course but the desire to have a 'poster boy' of success means that official reports do not tell the full story.

"Greece is a very unique case...neither Ireland nor Portugal have put this idea to me," was the answer from Wolfgang Schäuble, German finance minister, when asked at a meeting of the European Parliament's economic affairs committee in Brussels Monday if the Greek terms would be extended to Ireland and Portugal.  “For Ireland and Portugal, which are in the process of returning to the markets step-by-step, it would be a disastrous sign, and that’s why I would really advise them not to further follow this point,” he added.

Pierre Moscovici, French finance minister, testifying jointly with Schäuble, said Ireland and Portugal are “clearly not in the same situation” as Greece is the country where the crisis started.

*Ireland’s bank debt: A €64bn gift from Europe for cargo cultists looks unlikely (breakdown of bank-related debt here)

Bloomberg reports that Michael Noonan, Irish finance minister, signaled that easier terms may be too much to ask for, saying Greece was saddled with “onerous” conditions to obtain them. Still, he said, Ireland will see “if there’s something in the Greek deal that offers us another element.”

Noonan called two points -- the reduction in EFSF (the previous rescue fund) lending rates and a 15-year extension of maturities -- “an interesting idea.” Portugal is pursuing similar concessions, based on a July 2011 pledge by European leaders to treat aid recipients equally.

At the conclusion of the monthly Eurogroup meeting of Eurozone finance ministers on Monday night in Brussels, Jean-Claude Juncker, chairman and Luxembourg prime minister, threw a further spanner in the works, at a press briefing.
 
 "I don't think the Eurogroup is prepared to give equally similar treatment to [Ireland and Portugal] when it comes to the detailed discussions taken as far as Greece is concerned," he said.

Schäuble and Moscovici may well believe that Ireland has exited from the road of perdition. Debt will peak at about 120% of GDP (gross domestic product) -- similar to Italy's current level.

US economists Carmen Reinhart and Kenneth Rogoff say that the good news from their historical study of eight centuries of international financial crises is that up to the current one, they have all ended. In their celebrated book, This Time Is Different: Eight Centuries of Financial Folly, they said from over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances, one of their main finding was that the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90% of GDP. Above 90%, median growth rates fall by one percent, and average growth falls considerably more. "We find that the threshold for public debt is similar in advanced and emerging economies."

While GDP is the national accounts metric in the European Union, it is not a good measure for Ireland as it includes the inflated profits of the dominant foreign-owned sector.

While GDP grew by 1.4% in 2011, GNP (which mainly excludes multinational sector profits) fell by 2.5% and domestic demand dipped 3.7%.

Nominal GDP was 20% higher than GNP in 2011, up from a gap of 14% in 2009. Not only are exports significantly exaggerated, international comparisons of Irish labour productivity growth and unit labour costs are distorted by the multinational sector.

Ireland: GDP or GNP? Which is the better measure of economic performance?

At the end of 2011 General Government Debt stood at €169bn or 108% of GDP and 131% of GNP. 

Shouldn't Dr Schäuble know that the real debt ratio will peak over 140% and that is based on current rosy growth projections?

Google in 2011 booked 44% of its global revenues in Ireland in 2011 but it is in the realm of fairytales to brag that it is Ireland's biggest exporter.

These are a number of other reports that seek to present a Reality Check:

Irish Economy: Pharmaceutical patent cliff no growth threat; High exports have low impact

Irish Economy: Export growth insufficient to pull domestic economy out of recession

Irish Economy 2012: At least a third of value of Irish services exports is overstated

Dell remains Ireland's biggest manufacturing exporter despite closing Limerick plant

Irish Economy 2012: Only 50,000 Irish direct workers responsible for 69% of annual Irish exports

The addiction to spin is seen in four enterprise ministers supported by vested interests, seeing salvation in an aspiration to become a 'world class knowledge economy' and on Monday, Richard Bruton claimed that two firms guaranteed 850 jobs, only if the Government cedes independence to the loss-making Shannon Airport.  The jobs may materialise but to claim this will be the crucial factor in the decisions, is risible

What is independence? Believe it or not thousands of more jobs within five years through a minister appointing a local board from a departmental list of 'safe hands' - -  nobody that would rock the boat! A new Shannon quango will report to Dublin.

Ask yourself, how do they get away with this nonsense as memories fade of waffle on 'seismic shifts' and other illusory earthquakes?

Irish Budget 2013 Page

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