Saturday, 23 April 2011

Beware Long Weekends In An Economic ‘Waste- land’

There is a ‘sense’ in the market data of an impending systemic shock. Beware long weekends; it’s when Chancelleries/Finance Ministries work over-time to push elephants out of rooms before financial markets re-open.
Ireland should exit from the Eurozone, devalue against the Deutstche-Euro before the markets do to it what they did to the UK in the September 1992: force the prevailing political mind-set to adjust to market realities. The temptation to do nothing – fear of the unknown – is overwhelming. But the risks of staying where we are – in an economic ‘waste land’ and dependent upon our EU ‘Partners’ – are far greater; our ‘core’ Eurozone  ‘Partners’ have their own agenda
The extent of the ‘Credibility Gap’ within the Eurozone is reflected in the yields on bonds of peripheral countries which are at historically high levels; the Eurozone has seen nothing like this before. This is not speculation: it is a prognosis that is terminal; Credit Ratings Agencies provide the ‘case notes’ in their successive downgrades.

There is no way back for the Eurozone from yields such as we are seeing. All of the cards have been played: the May 2010 €750 billion ‘Rescue package’ that simply didn’t work; the participation of the IMF in ‘Bail-outs’; unprecedented budgetary cuts (but no economic growth). The ‘Authorities’ – the ECB and Germany in particular – have retreated into ‘denial’ mode, characterised by, for example, plans for a revised Financial Stability Mechanism by 2013 – which is a little late for preventing a Eurozone crisis, let alone preventing Greece, Ireland and Portugal imploding. At the same time, Political Union is pursued by stealth aka ‘European Economic Governance’.

What is happening within the Eurozone reflects global instability. A key indicator is the rise in the price of gold to levels not seen since the collapse of the international monetary system in the early 1970’s. In the wake of the collapse, the real economy of jobs and businesses were buffeted by a decade of volatility.

The recent downgrade of U.S. sovereign debt by Moody’s is another significant indicator. So, too, are the recent warnings about its deficit by the IMF. Denials by the U.S. Treasury Department that a downgrading was warranted, or indeed would happen, up to the moment it actually happened, are precisely what one would expect. Last year, in an interview with Bloomberg,  Professor Laurence Kotikoff pointed out that the U.S was insolvent; that it’s Public Finances – its actual and contingent liabilities stretching out into the medium-term – had long past the point of being sustainable. It’s got a whole lot worse since then
If the U.S. was a member of the Eurozone, Markets would be speculating about the imminence of a bail-out and an IMF Team would be packing their cases. The problem is: no one can bail-out the U.S. The implications for systemic stability, and for global political stability, are far- reaching indeed.

The backdrop against which this is happening is a massive Geo-Political shift in innovation, productivity and growth towards China and, also, other emerging countries. Governments and Sovereign Wealth Funds may be reluctant to contemplate the ‘appalling vista’ that these developments open up and just how easily another crisis in the Eurozone could ignite a global catharsis. This doesn’t mean it’s not going to happen.

What was a banking, and then an economic crisis, has now morphed into a crisis of political credibility. The markets know this.  Therefore, the question arises whether, as a general proposition, governments in these circumstances can be trusted. There are, of course, highly ethical, high-minded and decent individuals who serve in Governments and in administrations. That’s not the issue. The issue is ‘Politics’ and ‘Power’. Students of politics will be familiar with ‘The Politics of Lying’ by Cliff, Ramsay, Bartlett (Ed., 2000). It’s an insightful critique, with plenty of case studies, of the pathology of Politics and Power and how Administrations decide for themselves just how to define ‘Truth’: as well as  all of the subtle and persuasive reasons why ‘we’ cannot trust the people or truly democratic institutions.

The financial markets have long tumbled to this reality. In addition, new technology is opening-up the dark corners of politics, where lies and expediencies fester and spawn and emerge full-blown in the guise of ‘Public Interest’. Sometimes, as in the case of Ireland’s treatment by Germany and the ECB regarding interest relief on the EU ‘Bailout’, it’s simply about self-interest.
What all of this suggests is that it is not prudent to seek ‘Truth’ or objective ‘Reality’ within the Communiqu├ęs or Statements of governments.

This lack of ‘Truth’, as an indispensible political value, is a catastrophic deficiency in itself and, also, because the first casualty of this deficiency is ‘Trust’. There is neither Trust nor Empathy within the Eurozone, as it is being shaped by the ‘Core’ countries with the aim of morphing in to Political Union by 2015.
Political Union as a result of the democratic will of the European people, properly consulted, is one thing; Political Union secured by brute political and economic power is quite another. That is why Ireland should leave the Eurozone now: there is no ‘Trust’ but only voodoo economics, widening the structural divides between ‘Partners’.

Ireland has a formidable process of change ahead, much of it related to the need for a wholly new culture within our governance at every level. ‘Agreements’ are of little use if there is no Trust and no willingness to rebuild such Trust. Recovery will not be built on ‘Agreements’. This has to be recognized as an integral part of leaving the Eurozone and rebuilding our economy, solvency and self-respect. So, too, has the issue of exchange-rate management in the wake of a Eurozone exit: then, again, Ireland maintained a 200 year link with sterling prior to joining the ERM, precursor of EMU. Ireland has options once it exits from a Eurozone that has been hijacked.

However, the next stage of the evolving crisis in the Eurozone will be political instability. It has already begun. When Greece defaults –‘restructures’ – the pressures on Ireland will become irresistible and people will begin to ask ‘what was all of the needless pain for?’.

Where there is political instability, extremism is never far behind. ‘Extremism’ should not be equated with legitimate opposition to Eurozone-dictated policies that howl at common sense. But ‘Extremism’ will exploit such opposition. The supreme irony is that the original Common Market and the impetus towards greater cooperation across Europe were precisely intended to prevent such Extremism.
The lessons of history, of the trajectory of the global financial market ‘contagion’, and even of biological systems, are that it takes only a small shift in a key parameter to generate far-reaching and unpredictable consequences.

In Ireland, we are now not far from this point. There were concerns regarding political instability arising from the counter-productive and regressive budgetary policies being followed back in 2009. The defeat in the General Election of the previous Administration which negotiated the ‘Bail-out’ from our ‘EU partners’ – and the ECB’s self-serving assistance to Ireland, has left the new Government still mired in a ‘Death Loop’. That is, extracting more and more from an emaciated economy in order to safeguard Eurozone banks as well as the wider stability of the Eurozone itself. A banking system is only as strong as the economy it services; the Irish economy has at this stage been run into the ground despite the private sector adjustment that has occurred.  This makes the intransigence of the Eurozone ‘Core’ even more perverse. There is now a focus for public discontent and political instability.

The Irish government has a limited time to leave the Eurozone before markets – or political disillusionment with the Eurozone – take things into their own hands. The catalyst for political instability such as Ireland has, all too tragically, known before may well be the cumulative effects of budgetary cuts, which, to take one example, are putting lives at risk in our health system. It may stem from the nihilistic proposals to sell certain state assets. We are not talking here about very necessary restructuring or increased competition; what is at issue is the sale of Ireland’s natural resources to appease a malign and self-serving orthodoxy being pushed through by Germany, with the acquiescence of France and some smaller countries. Once, in the not too distant past, the imposition on VAT on children’s shoes brought down an Irish government. All it takes...!
What is unfolding in the Eurozone is entirely predictable: a kind of political ‘Contagion’ which I highlighted at an OSCE political conference in 2009.

What leadership now requires is that Ireland leave the Eurozone, having faced-down those ‘Authorities’ that are impelling us into default; the consequences of default will impact not alone on the Irish economy but will resonate across the Eurozone. If the logic of President Obama in putting the IMF into play at the May 2010 EU Finance Council meeting in order to ‘Fire-wall’ the EU peripheral countries, is correct, it may also ignite Global instability

Professor Ray Kinsella is on the Faculty of the Smurfit School of Business UCD.

Friday, 22 April 2011

Easter Reflection: Everything Was Made New-In That Upper Room

Holy Thursday draws all of humanity together. The mystery that is the infinite value of our lives; the unfolding drama of humanity, is drawn into the ‘Upper Room’ in Jerusalem, where Jesus had asked his disciples to prepare the Passover.

It is, surely, the most poignant of meals. Everything in the history of mankind has been leading to this meal-This Passover- in an upper room in the outskirts of Jerusalem. Throughout His public ministry, Jesus was aware that it was to be in Jerusalem that the redemption of human history was to be accomplished, and where God ‘would make all things new’. The gospels tell us as the days drew near ‘He set his face for Jerusalem’ The centrality of love and mercy are at the heart of the redemption. But the courage of Jesus, in His human nature, is, by any measure, beyond the extraordinary. Perhaps this is because courage is the virtue in which love and mercy are reflected- as in a prism.

Holy Thursday is the prelude; Good Friday the culmination ,and Easter Sunday the definitive vindication of the redemptive love of Jesus.
 All of the scriptures, and all of the teachings of Jesus, and the ‘sign’ of Lazarus being raised from the dead after four days in the tomb -demonstrate unequivocally- that the resurrection of Jesus is the ultimate reassurance of life after death, and in particular, of our life being with Him, and in Him. It all began in the 'Upper Room'.

Why is Holy Thursday so full of gentleness and so full of strength? Saint John’s gospel provides an unsurpassed insight into the reasons for this: ‘The Passover’ meal that Jesus longed to celebrate with his friends-that friendship-and the betrayal of that friendship-and the forgiveness of that betrayal. Saint John's account of the last supper conveys, as only one who was there could convey, the gentleness with which Jesus ‘loves his own and loved them to to the end’ The sense of urgency with which He reassured them that although ‘’He would not be with them much longer’’ He was never the less going to ‘prepare a place for them’  is palpable.

Even in the face of what He knew was confronting him in a matter of hours, and all that he had to accomplish, his focus is on them: His reassurance that he would send the ‘Comforter’ to them- as he did at Pentecost.

Saint John’s gospel resonates the utter integrity of what was unfolding within the upper room- no metaphor or allegory: the last supper and the ‘new Covenant’ in all of it’s infinite , and emotionally charged reality.

The relationship with the 12 who were there is utterly compelling: The sincerity and the hypocrisy (‘Not I Surely’) The master who had shepherded his disciples for three years confronting His imminent betrayal- by one of those disciples whom he had shepherded .There is a sense of emotional turmoil in His acceptance of what is happening all around him-and then that extraordinary priestly prayer for unity which leaves no doubt about  the transcendence of the love to which his disciples are called, which is a reflection of Christ’s own love for his Father.

All that is most important, that is best In our lives, is being made wholly new in ‘The Upper Room’ On Holy Thursday.

The ‘last Supper’ is culmination of the first Passover, set out in Exodus. It is what Isiah foresaw seven hundred years previously was to be accomplished by God- through  the ‘Suffering Servant’. To read, and to reflect, on the ‘Suffering Servant’ and on the reality of the sense of abandonment of Jesus ‘emptying Himself’ of everything-Which is so well captured by Saint Paul, is to confront both the truth and the nature of God. It transcends all arguments, and makes them redundant. Only in reading them can one begin to understand the truth of this.

In taking a basin of water, getting to his knees, and washing the feet of His disciples, Jesus provides the definitive example of leadership which consists essentially of service to   others in our lives- which Jesus specifically identifies with Himself. Our failure to understand this point, to which he drew such attention in the ‘Upper Room’ at his last Meal, helps to explain why our world is the way it is.

In taking a basin of water, getting to his knees, and washing the feet of his disciples, Jesus- their ‘Lord and teacher’ provided the defining example of leadership. Today we see this as a ritual.In the ‘Upper Room’ it was something so radical that even Peter tried to push the demands which it made on him away. Jesus was wholly emphatic saying to Peter ‘If he did not allow him to wash his feet, he could not be a true disciple of Jesus’. He simply didn’t get it. It was no ritual, It was a lived example, seen for the first time and turning all of their preconceptions upside down. That He chose consciously to do this, and in His last meal with them, and with so very little time left, tells us just how important His leadership was to them and to us.

The example is powerfully reinforced by what the Priest at this evening Mass pointed out to us. Namely, Jesus washed the feet of All Twelve, Including the feet of the one who was to deny him three times and also the one who was-Shortly- to betray him. Now that is indeed, unconditional love- nobody is excluded. It is telling us -we have no right to exclude others either, whoever they are, or where-ever they are coming from.

On that Holy Thursday, in the Upper room, Jesus instituted the priesthood of the ‘New and Eternal Covenant’. Covenant means promise and participation by all of his followers in His priesthood, exercised by the successors of those gathered by Him in the upper room.

The institution of the Holy Eucharist is at the heart of the Passover celebrated by Jesus in the upper room. ‘The Passover’ celebrated the deliverance of the Jewish people from slavery. Jesus, in instituting the Holy Eucharist transforms utterly the Passover. It is in the Holy Eucharist that ‘He showed the depths of His love’: The Eucharist being the memorial of the passion he was about to undergo. In his divinity, His final and defining gift could never be less than His whole self, It was after all, His whole self He offered up on the cross.
The Holy Eucharist was prefigured by the Manna with which God fed to His people after their deliverance from slavery.
The Holy Eucharist  raised this ‘food’ to the transcendent gift of God to the people- whom Jesus, through His sacrifice on Calvary, would  deliver from the defining slavery of  humanity. In fact, reading through the events of His public ministry, it is possible to see the minds of his disciples prepared for this gift: in the feeding of the five thousand - as well as in His statement that the food that he would give was ‘real food’ that would raise them up on the last day: Many were scandalised and went their way. But it was this gift of Himself in the Holy Eucharist that he bequeathed to them in the hours before he set out to Gethsemane on such an occasion,-in that Upper Room.
 God would Hardly do less, than give Himself- albeit under a sacramental form.

In that Upper Room, on that Holy Thursday everything ‘was made new’ .

Tuesday, 19 April 2011

Should Ireland Leave The Eurozone -Before We're Pushed ?

The last thing Ireland needed was to be commended by the EU/ECB/IMF ‘Troika’ for ‘making good progress’, following their first Review meeting of the ‘Bailout’: continued economic contraction, 15% unemployment, property prices continuing to fall with tens of thousands in negative equity and in mortgage arrears. 
The losses of banks in 2010 and prospective impairments tell their own story about the state of the economy. The public finances are carrying an unsustainable debt burden.  Our Sovereign Bonds are rated near ‘Junk’. This is ‘good progress?  God help us if we ever really get into difficulties.

The changes secured by the Government from the EU/IMF/ECB ‘Troika’ are commendable. Nevertheless, in terms of the impact that the implementation of the Bailout is having right across the economy, they are very much at the edges. The counterproductive Stability and Growth targets to be achieved by 2015 remain the same. Coming down the line are the negative effects of the rise in ECB rates.
The new Government’s focus on job creation is right. The difficulty is that the Government now has little or no autonomy to invest in putting our people, spare capacity, and our natural renewable energy resources, to work. Or to invest further in the ‘knowledge equity’ embedded within our Third Level institutions, the ‘linkages’ with our multi-national companies (MNC’s) and in individual companies.The Ministers we elected now must effectively have their decisions ‘signed off’ by the ‘Troika’—where does Democracy or Liberty come into all of this?Crucially, there has been no reduction in the bailout servicing costs – even though the IMF in their recent Global Stability Report made the case for such an initiative.....Read On

Friday, 15 April 2011

A BLAST FROM THE PAST -2002 ! Bill slammed for 'ignoring' Allfirst lessons

By Samantha McCaughren
Wednesday April 10 2002

CHARLIE McCreevy's new single financial regulator Bill has been slated just weeks before it is due to be published. The failure to incorporate the lessons learned from the AIB trading scandal into new regulatory legislation is "inexplicable", a leading Irish financial expert said yesterday

CHARLIE McCreevy's new single financial regulator Bill has been slated just weeks before it is due to be published.
The failure to incorporate the lessons learned from the AIB trading scandal into new regulatory legislation is 
"inexplicable", a leading Irish financial expert said yesterday.
Professor Ray Kinsella of the UCD Smurfit Graduate Business School said that a Bill which will put in place a single regulatory structure would reduce our capacity to respond to a major economic shock and that it should be shelved.He told the annual Finance Dublin conference that the legislation was being put through with a "lack of informed debate".
The Bill, which has been in preparation for over a year, is expected to be published in the next week or two.
Mr McCreevy told the conference it was designed to maintain the best of the existing system, while moving towards a "one-stop-shop" approach.
He made clear that the Bill would contain the proposed structure chaired by the Governor of the Central Bank but with a separate board, chairman and chief executive for the financial regulator.
Prof Kinsella told the conference: "It is almost as if the Bill is being rolled out at a total remove from the events of the last six months and semi-detached from the lessons that may need to be incorporated in future legislation.""Internal controls are at the heart of the supervisory process. There are enormously important lessons to be learned from the failure of internal controls and risk management procedures in Allfirst/AIB."

John Hurley, the newly-appointed Governor of the Central Bank, said the Bank was reviewing its relationship with other regulators of parent and subsidiaries of Irish authorised institutions to identify any areas which need to be strengthened in light of the Allfirst affair.

But Prof Kinsella said the proposed Bill was "fatally flawed" and should be withdrawn.It envisaged "an alphabet soup", too complicated for efficient and transparent regulation."The net effect of the proposals in the Bill will be a weakening of Ireland's, albeit already limited, capacity to respond to a major systematic shock," he said."At the same time, consumers of financial services and products would be considerably disadvantaged, compared with alternative institutional arrangements," he continued."Namely, an enlarged director of consumer affairs which could ensure timely redress for an ever-widening spectrum of financial services."He also said that the Bill was being brought forward at a time of considerable financial uncertainty, both globally and within the EU."The reality is that prudential supervision and consumer protection have a very different focus."It simply makes no sense whatsoever to lump them together within a single organisation."
Mr McCreevy said the new regulatory authority would have a dedicated consumer protection director to give a new focus on consumer concerns.
"The overall purpose ... is to combine the targets of having both a prudently managed and regulated, internationally competitive and consumer-friendly financial services sector."
- Samantha McCaughren
And this was April  10 2002!

Monday, 11 April 2011

It's not case of if, but when our default will happen As Portugal joins Europe's bailout club, Roisin Burke looks at what a default would mean for Ireland

Sunday April 10 2011

A must-read for financial types, The International Economy Magazine recently asked "a number of top thinkers" for odds onIreland and other embattled eurozone countries defaulting.
Those polled included senior ex-US Treasury figures, German bank economists, respected academics and hedge and investment fund bosses. Of the 25, 18 thought it was either "certain" or "probable" that Ireland would go under outright or face significant haircuts of sovereign debt within three to five years.
Analysis from researcher Capital Economics puts Ireland's default risk at more than one in three.
"Call it what you like -- default, call it debt restructuring, re-engineering -- but it is now inevitable," UCD economist Ray Kinsella says.
"I don't think we're talking in 2013, I think we're talking in the near term. In my view the markets may push us to that in months. The EU/IMF orthodoxy is pushing our economy into enforced default."
If it happened, what form would it take, and would it make things better or worse? We've looked 
at some of the possible .

Wednesday, 6 April 2011

Greece – Ireland – and now Portugal: Bailouts and Defaults and the Implosion of the Eurozone

Portugal’s decision to seek a ‘Bail out’ was inevitable. It almost
certainly, signals a terminable fracturing of the Eurozone. The
contagion will now spread to Spain – and it will not stop there.
Sovereign debt defaults are now well nigh inevitable. The Irish poet
W.B. Yeat’s put it best ‘things fall apart, the centre cannot hold’.

The weakness of the peripheral economies reflects the very different
structure of their economies compared with that of Germany. It also
has to be said that each of the peripheral economies, including
Ireland, is suffering from its own distinctive self-created wounds.
Even so, the continued insistence by German and French Federalists on
imposing the Stability and Growth Pact targets, has proved wholly
counter-productive. It has not assisted the peripheral countries in
recovering. In their attempts to impose a wholly misconceived
discipline on the Eurozone countries. Euro Federalists have pushed
Ireland and now Portugal into a vicious deflationary cycle with
chronically weak banks undermining the status of their governments in
the sovereign debt market.

It was always the case that recovery, followed by closer convergence
across the Eurozone’s disparate membership, would take not years, but
more like decades. Germany and the ECB were not prepared to compromise
on the Stability and Growth Pact. Is there really anyone who still
believes that Portugal or Ireland can achieve the convergence criteria
of a 3% current deficit and a 60% debt GDP ratio by 2014/2015?
Particularly under the crushing burden of increased debt servicing
costs and with ECB rates set to rise.

For the peripheral economies, the initial issue is less about Bailouts
than about planning for orderly sovereign defaults. It is about the
leadership necessary to reconstruct their economies, based not on a
malign EU orthodoxy, but rather on their own latent strengths and on
the willingness of their people and institutions to engage in
transformation change and trust-building.

Ireland must now contemplate an enforced exit from the Eurozone with
all of the enormous disruption that this would entail. Ireland has
never been less than fully committed to the building of a values-based
Europe, characterised by solidarity and subsidiarity, as well as
mutual respect.  This vision – and the singular achievements of recent
decades – has been eclipsed by the ad hoc, reactive and prescriptive
approach to mitigating the strains of the global financial crisis
across the Eurozone. For all Ireland, and Portugal’s mistakes, it is
the Eurozone’s leadership that lost the plot and which the primary
cause of the escalating collapse of Europe’s peripheral economies.

If the still-unfolding crisis has taught us anything, it is the need
to plan proactively, for the ‘unthinkable’. This now means the
break-up of the Eurozone under the twin pressures of punitive bail-out
arrangements and the inevitable sovereign defaults. It is also worth
recalling the oldest monetary union in Europe – which latest some 200
years – was the pre-ERM link between Ireland and the UK.

Sunday, 3 April 2011 | ECB roars, eurozone periphery shudders | ECB roars, eurozone periphery shudders

Irish Banking Crisis Set To Trigger Eurozone Sovereign Default Event

In the wake of the stress test results, it is difficult to see how, as matters stand, Ireland’s inter-related banking and sovereign debt crisis can be resolved within the eurozone as it is presently constituted.

In the absence of decisive assistance from our European partners, Ireland is stumbling towards a default event. Indeed, it is already happening.

A ‘twin track’ Europe with Ireland in the outer track is now a very real prospect. The costs and consequences of such an event have already been modelled by authoritative analysts. Irish policy needs to adapt to this prospective reality. 

Read more: