Sunday, April 29, 2012

Threatening and Bullying The Electorate

The Government has decided that the best strategy to win a Yes vote in the forthcoming European Stability Treaty referendum is to bully and threaten us into submission.  There's no backup fund, says Noonan.  Even the normally tempered Leo Varadkar warned how we would be denied access to the fund.  If the Lisbon Treaty was trumpeted as a "Vote Yes for Jobs", perhaps this could be trumpeted as a "Vote Yes for Cash" referendum.

The argument needs to be taken to its logical conclusion.  If it is argued that we would run out of cash, and be unable therefore to meet the public sector pay bill, and repayments on existing debt, our domestic banks would crash (not having cash for ATM machines), and the sovereign would default.  That would result - effectively - in an exit from the Euro, and would most likely trigger an exit of Greece and Portugal.  The alternative would be that Ireland finds money from somewhere else.

Saving that alternative for a moment, and presuming that this is indeed the alternative to a Yes vote, why has the government put us in this position?  This is Hobson's Choice.  It is not a vote at all, but a ridiculous proposition that unnecessarily exposes the State to the whims of an electorate who is angry, hurting, and not in a good place to make a rational choice.  How inept a government to put the state so at risk! 

Of course the truth of the matter is not there.  There is a backup, there is always a backup.  If we vote no, there will be other sources of funding.  There will be options, and other cards to play.  These are admittedly high stakes, but Ireland has choices.  It is offensive to me that the Government don't see fit to share them with us.

Monday, April 23, 2012

Forcing Europe to Face Its Demons

Richard Boyd-Barrett is many things.  He's well educated, well heeled, and well raised.  He's considerate, impassioned, and idealistic.  He's articulate, and convincing.  However, he is inexperienced in government, under-qualified in economics, and at times naive in his dealings with the Government parties.  Suggesting stratospheric taxes for the super rich, ignoring behavioural economics and the science of incentives, is crazy stuff.  Demanding a re-balancing of the wealth distribution, while campaigning against increased taxes, is similarly mad as a box.  But on RTE's The Week in Politics show last night, he said something simple and interesting.  To paraphrase, he said "the fiscal treaty is intended to save the Euro.  The Government say we have no option but to say yes, because otherwise we would have no access to money, and therefore our economy would collapse.  But if we collapse, then the Euro collapses, so Europe won't let that happen."

He's right, of course.  All of this is smoke and mirrors, designed to avoid the reality of Europe's crisis.  The Euro project has failed, and everything that the European political leadership has been doing for the last three to four years has been designed to delay the inevitable, in order that each domestic government can put in place the necessary structures to offset the impact of its inevitable termination. It's not a completely negative picture, of course.  Growth in global markets would provide the tools for a possible escape, at least until the next crisis. But growth has been sluggish, and even Chinese growth has slowed, with some fearing a hard landing there.  And even if growth were to come back, the weakness in the Euro structure - essentially that currency union cannot be divorced from political union - will not be easily overcome.

There are two ways to fix the problem.  The first is to scrap it, take the short term pain (two to three years) of the correction, and start again.  The problem with this is that most governments in Europe would likely fail, there would quite possibly be social unrest, even some attempted coups d'etat, and inevitable damage done to the EU.  Whatever about looking for growth, it would be likely that we would see contraction, and stagflation.   The global economy - denuded of one of its two key markets - would see recession again, and things would generally speaking be very bad.  Banks would be exposed as defaults on everything from car loans to soverign bonds accelerate, and the holes created by excessive asset leveraging over the past ten to fifteen years would cause them to collapse in on themselves.  Weeping and gnashing of teeth indeed.  On the other hand, it would force a correction over a relatively short period of time, and a re-boot of the European economy.  We would in effect have something akin to a blank slate, upon which we could begin anew, though like I said, not without a lot of pain.

The second way to fix the problem is to combine austerity and "bridging bonds" with a fundamental restructuring of the Eurozone Fiscal Architecture.  This, over a long period of time, would see Europe remodeling its management structures through deep relationships between the countries.  Those who over-extended themselves - Ireland, Greece, Spain, Portugal, Italy - would need to correct their spending.  In return, those who were more cautious - Germany, emmm... - would underwrite their current accounts during the period of the correction.  (At the same time Germany demanded the support of the IMF in order to offset the domestic impact, which would otherwise have been too much for German domestic politics to bear)  The Fiscal Compact Treaty is the first major instrument in this; Lisbon went some way, but was framed at a time when none of these problems were seriously considered.  There will be others coming down the line - on tax harmonisation (the elephant in the room), bank regulation, auditing and monitoring, and hardening ever more the penalties and disincentives for fiscal recklessness.

Scrapping the Euro may seem like a much more chaotic solution, and a less elegant solution, and in many ways it is.  It won't happen because Eurozone leaders decide that it's the best course of action - they all think it would be awful (as do I, in many regards, as a good mildly socialist European).  It will happen because events take it out of their control.  A euroskeptic government takes office in France, or Holland - both of these events would be damaging, though not fatal.  All countries can still be expected to act with rational self-interest, and therefore can be brought onside.  Should Ireland vote no on the Fiscal Compact, it would need to be managed; as a small country, the cost of managing Ireland should be relatively small, and the integrity of the Eurozone can be protected.  Even if Spain was priced out of the bond market, there appears to be enough support there at this point to bail her out.  Just about.  But should any of these things happen together, then the decision to scrap the Euro may well be taken out of their hands.

For Ireland, unfortunately, there is only one choice.  She is already substantially feeling the pain of a Euro implosion.  There is a massive correction alongside great austerity underway.  While Foreign Direct Investment remains encouraging, unemployment rates are still enormous, and showing little sign of easing.  It appears that should Ireland continue to support the strategy of the Eurozone, that Ireland would continue to suffer for an indefinite period of time, without control of its own resources, the same as Spain, Portugal, Italy and Greece.  Not only that, but the Eurozone project is highly unlikely to succeed anyway, given the precariousness of its position.  Saving the Euro remains preferable, but is this country willing to see ten to fifteen more years of pain and suffering in the hope that they might pull it off?  And then, at the end of it all, see even more disaster if and when it does indeed fail?

Voting no on May 31st will tell Europe that Ireland has had enough.  Just like France is doing through Hollande, like the Netherlands are doing, and like the Bond Markets have been doing for some time in Ireland, Portugal, Greece, and more recently Italy and Spain.  And we will take the consequences.  Europe must face her demons, however painful that might be.

Sunday, April 22, 2012

Ireland's Undignified Retreat

About seven or eight years ago, Joe Nye wrote a book called Soft Power, which talked about how non-economic, non-military power could be wielded in international affairs to great effect.  It discussed how the brand of countries was valuable and important, and how the desire to imitate could be leveraged towards the advancement of the admired country's ambitions.  There was an immediate relevance of course, with America in the process of burning a lot of international bridges in the aftermath of the invasion of Iraq, but Nye also made the case for small countries who simply didn't have military or economic power, and how important soft power could be.  If memory serves he mentioned Sweden's role in the development of International Law as a case in point. 

If ever Ireland needed to have or be building its soft power then it is now.  Ireland needs - as the Government is at pains to point out - "to rebuild its international reputation".  We need friends in the international community; we need people to think of Ireland in terms of its positive aspects, as a country to imitate, admire and respect.  In order to do that, a significant perpetual campaign needs to be run in order to improve Ireland's standing internationally.  Instead of that, we are retrenching, retreating, isolating ourselves in four key areas. 

1. We are closing embassies all over the world.  While the closure of the embassy to the Vatican grabbed most of the headlines, embassies were closed in Iran and East Timor, while other missions were scaled back and other cuts imposed on the diplomatic corps.  We should be opening new embassies, hiring more diplomats, and selling Ireland agressively internationally through our international relations.  The review, according to Eamon Gilmore, gave "particular attention to the economic return from bilateral missions."  Iran is at the eye of a worldwide storm right now, and buys a considerable amount of Irish food exports.  It needs friends, and a thoughtful, considered, Iran policy could have provided Ireland with some opportunities.  In addition, many countries have very active missions in Teheran because of the International Security concerns, and therefore Ireland's mission would have afforded an opportunity for her diplomats to meet with and develop relationships with many other countries.  The costs for such exercises are minimal.

2. We are reducing our international aid budget.  While relative to an atrophying GDP our contribution in percentage terms may not have declined as dramatically as the €200m cut in 2009 would suggest.  Foreign aid is a wonderful opportunity for Ireland to demonstrate leadership, particularly in growth markets, where burgeoning opportunities for food exports in particular offer massive potential. 

3. RTE is shutting the London office, and reducing investment in international journalism.  RTE has become more and more an odious, anachronistic and irrelevant institution over the years.  I believe it should be privatised and wound up, apart from its news coverage.  It is the only piece (though one can make perhaps an argument for culture) of the organisation that needs to be invested in, and though I don't know the complete economics, I would imagine that it is one of the most profitable areas of the business.  Journalists - news journalists, not "broadcasters" or "entertainers" like Pat Kenny, Marian Finucane and Miriam O'Callaghan - are not expensive, and the management and orchestration of news output (genuine news output, as opposed to sensationalist scandalising dressed as news like Prime Time Investigates) need not cost hundreds of millions.  In the area of international news reporting, Ireland's journalists abroad develop significant relationships with press corps in their host countries, and invariably become ambassadors for Ireland when Ireland is in the International news.  This is not recognised by RTE, who are short-sighted, under pressure, and acting in a ham fisted way, lurching from crisis to crisis.

4. We are not allowing our political leaders to travel abroad on relationship building missions.  St. Patrick's Day is a magnificent international celebration of Irishness, but we begrudge the politician's the chance to hob nob in some far flung corner of the world.  It is politically incorrect to get on a plane and fly somewhere because that seems like a perk.  We've really corkscrewed ourselves here, with some undercurrent of "well, if I can't afford a holiday this year, then they're damn well not getting one either".  Every single national politician should be out of the country on St Patrick's day.  Matter of fact, every single national politician should be out of the country more than they are in the country - the civil servants can run most of it, and they can leave the politicians do what they're really good at - glad-handing, kissing babies, schmoozing.  They might actually do some good. 

Bórd Failte does not seem to have been hit by the cuts, which is some good news, though it could do with additional investment.  We need to change our foreign policy, our foreign affairs strategy, and our investment in foreign affairs.  Or else we're just making a bad situation worse.

Thursday, April 19, 2012

Why I'm Voting No: A Post-Euro Ireland

Just over a year ago, I blogged that Ireland's imperative was to see the Euro fail.  A somewhat bleak picture, perhaps, but if anything I am even more convinced of that now.  The Euro project has been a disaster.  While politicians have been kicking the can down the road, past one election after another, at some point someone needs to carry the can (see what I did there? nice, eh!).  There are two important questions.  What is the trigger point for someone to actually call a halt to this charade of a currency union?  And what happens then?

I think the trigger point will be a de facto default in Spain or Italy, though it may take some time to take effect.  Spain looks the most likely.  The fundamentals of its economy are weak; its property bubble was as severe as almost anywhere else; its unemployment rates are appalling, and the black economy is burgeoning.  So Spain one day will go to the bond markets and find itself priced out.  that will result in a withdrawal from the bond markets, and a resort potentially to bilateral loans with major trading partners, or - if the shortfall can be reasonably contained at least in the short term - the EFSF.  However, the EFSF will include monitoring, and that's where the damage could be done.  The Euro project would not fail because of a de facto default, but because after the default the scale of the hole in Spanish finance - and by extension European finances - would begin to be revealed.  Heading towards a trillion Euro funding shortfall, possibly several trillion Euro, the impact on the Spanish financial system would be catastrophic, and the domino effect on French, German and in particular English banks would be crippling.

The net effect would be for Spain to withdraw from the Euro and devalue its currency by 50% or more.  Greece would immediately do the same, immediately followed by Portugal, Ireland and most likely Italy.  The Eurozone would effectively agree to dissolve itself, shaking hands with one another and wishing each country all the best, with some wishy-washy think tank established to understand the causes of the collapse, and make recommendations for alternate structures towards future integration.  The next thing likely to happen is the repudiation of debt - at such an enormous scale that bank collapses happen with alarming frequency.  The banks that are left standing will be banks that are asset backed, and controlled out of other parts of the world.

The rest of the world of course would not be immune from the goings on in Europe, but most American banks have either hedged their Eurozone exposure or reduced it drastically.  Chinese banks are heavily asset based, but would be exposed to the global slowdown that would inevitably follow a Euro collapse.

In Ireland, we would see an acceleration of the current austerity, but we'd get through it in two or three years, and everyone would be in the same boat both inside and outside the country.  Mortgages would be dramatically written down; the public and civil service would be thinned more aggressively than is currently the case; the national debt would be repudiated, and currency trading would be regulated heavily.  With no access to the markets, we would not have cash (which isn't really a concern given that the currency has just exploded) and we would have to rebuild our economy from scratch.  The government has to have a plan for this scenario, it's a very obvious one with a high degree (relatively speaking) of probability.

Teachers would still teach.  Guards would still do their work.  Doctors would still practice medicine.  Food prices would rise in the near term, and social welfare would need to go into overdrive, as would civic society.  And we'd most likely have significant political upheaval.  The new punt would take time to settle, there'd be no new cars for a year or two, and petrol could be in short supply for a time.  But we'd get by.  It would be a shock to the system, but we'd all feel better for it.  A fresh start.  Everyone would have to keep their heads, and stay calm, and for some this would be tough.  Leadership would come to the fore, perhaps not from politics but from local and regional organisations.  We'd probably make some of the old mistakes again, that's human nature.  But we'd do our best to fix them.  Most of all, we as a people would finally be able to take ownership of our country again, and I don't mean from the Troika.  We lost ownership of our country a long time before that, when our political system became poisoned, and the national movement ended.  It would be a wonderful thing to take it back.

So that's why I'm voting no.  We're already living in delusion, and I just want it to end.  I don't want my generation to have to suffer through 20 years of tortuous explanations about how well we're doing and how austerity is working, because, well, it's austere, and it destroys hope.  Maybe Spain blows up in the bond markets, or maybe we can accelerate things a little bit by voting no.  So to Old Europe, to the Old Establishment - Please get out of the new one, If you can't lend your hand, For the times they are a-changin'.

Monday, April 16, 2012

The Politics of Water Meters

Enda Kenny and Richard Bruton were today out in force talking about water meters.  Kenny, amidst some hecking in Roscommon, repeated the position that someone had to pay, and so people would pay.  But, he added, nothing had been decided yet.  Which meant that, erm, maybe we didn't have to pay after all?  Bruton, quoted in the same piece, was talking all warm and fuzzy about water meters being people's friends, and friends of businesses, saving them from the odiousness of compensating for someone else's waste.

We're only talking about the water meters here, not the charges.  I mean, Dear Lord, where were these lads got?  And where's Big Phil Hogan, Minister for Sneaky Taxes when you want some cannon fodder?  Kenny shouldn't be fronting this thing, his role is above that.  On the Pat Kenny show today (podcast), Pat mentioned that his information had the meter's priced between €35 and €75, and the casing at €40, which is in or around €100, which isn't much.  Coming out fast with something that says people can pay fifty cents a week for four years for the meters sounds like a whole lot of sense.  Would completely take the sting out of it.  And a consultation group with the dissenters in the Dáil - ringfenced around water charges - would bring them into the decision making process too, and blunt their blade.

The ULA are doing serious damage to the government and its credibility.  People who would never vote for them are taking cover under their public quasi-official position of "don't pay."  The ULA folks are claiming this as an endorsement, but polls don't put them anywhere near the kind of 50% support they're claiming as a result.   The government is in essence allowing the ULA a false legitimacy, which will get progressively worse, and which is borne of the arrogance of the government.  Whatever you say about Bertie Aherne, he was never too arrogant to talk to anyone - anyone! - and that was one of the secrets of his success.  The government needs to sit down with the ULA and get them onside, fast.  

Wednesday, April 04, 2012

The Role of RTE in The State

The Celtic Tiger created an anomaly far broader than just the property market. Across all aspects of Irish society, culture, politics and economics, the bubble distorted perceptions of success, probity, and success.  This is just as true in RTE as it is in government, banking and social justice.  RTE is facing much more than a defamation scandal, or accusations of incompetence in handling the Presidential election; it is facing nothing less than an existential crisis, and a seminal moment in its history, a point of inflexion that is extremely important for the State and her citizens.

Like the legal system, the health system and the civil service, RTE is an anachronistic, poor imitation of British structures of the early twentieth century.  While those systems in the UK are not immune from challenge, their philosohpical foundations were well established, and well considered.  There were points of principle that aligned with the society that begat those institutions, and that supported their perpetuation.  Ireland had no such principles, and imitation was a poor substitute.  As a result, we developed a civil service without accountability, a legal system where ordinary people are not allowed to contract directly with barristers or with medical consultants because they are "gentlemen".  We also have a State funded broadcaster that actively crushes competition in the market, and remains in thrall to its advertisers as it decides on programming.

Today, RTE feels itself under pressure for funds, and knows it won't see a license fee increase any time soon.  Its high profile failings - in the Fr Reynolds case, and "Tweetgate" - have caused it to make some cosmetic changes in rebranding "Prime Time Investigates", moving one editor to a new job, and retiring Ed Mulhall off on a fat pension.  That last one rankles.  Noel Curran could never have walked, at 45 he's too young, and the pension wouldn't have been enough.  But Ed had 33 years under his belt, and will likely get appointed to a couple of Quangos and possibly the board of a production company or two.

The extent to which it overpaid presenters like Marian "four hours a week" Finucane was symptomatic of a fundamental failure in its remit - it was beholden to advertisers, justifying wages on ad revenues, and not on the quality or quantity of the output.  While newspapers are increasingly an online business, RTE Online competes directly with them based on state-funded journalism, further distorting that market, and wielding its massive power to the expense of private media.  Commercially, such decisions make sense.  But politically, socially, is this the kind of State broadcaster we should have?

The sensationalism of Prime Time Investigates (one remembers such over-egged installments about waste tyres and counterfeit cigarettes) was not editorially contrived to contribute to the state by holding people to account, but contrived to maximise the audience in order to generate audience, and ad revenues.  That was evident from the hype building that preceded every installment of Prime Time Investigates - this was not news, or even investigative journalism: it was entertainment.  With such a trajectory, the Fr Reynolds incident was unavoidable.  Perhaps not with such devastating consequences, but litigation was inevitable.  The cuts in ad revenue, and an absence of license fee increases have put enormous pressure on managers in RTE to find new revenue.

RTE is no longer an altruistic arm of state, it is a fully fledged commercial media behemoth.  It does not merely fail to deliver upon its remit as a national broadcaster, it undermines the entire commercial media structure in the state.  TV3 and the Independent are increasingly sensationalist and populist because they are driven to the extremes by the monster that is RTS hoovering up all of the space for "conventional" media.  And even The Irish Times is more given to polemic than genuine journalism these days.  Its battle against that trend is commendable.  But the pressures are odious.

The imitation of the British State has crippled our Heath Service, our Civil Service, and our Legal System.  RTE's pale imitation of the BBC has now been shown to have failed.  We need to rethink entirely our structures for State Media, and build one that suits Ireland.  Let the state run a news channel on television and radio, with no advertising, and privatise everything else.  Then we can work on law, health and the civil service.

Tuesday, April 03, 2012

The Democrats and America's Future

The Republicans are in trouble in America, and they know it.  It's not just because Romney will emerge from the primaries such a battered and bruised candidate, that any chance he had of energizing the base will have disappeared like an etch-a-sketch in a paint mixer.  It's longer term than that.  The Tea-Party movement was the first in what will likely be many splinter groups fragmenting the conservative right, as the demographics of America continue to change, and progressive liberalism asserts itself as the dominant force in US politics.  

The old, right wing white middle and lower classes are becoming increasingly marginalised, and radicalized.  Krugman's acerbic deconstruction of Paul Ryan's budget placed the blame for this "fraud" with "the hard right’s grip on the GOP"  In the Globe and Mail, Doug Saunders highlights the long term trend in America towards progressive liberalism, but fails to consider the impact on the new minority.  The GOP is becoming less and less relevant to American politics, and those who it represented are in danger of slipping into dangerous territory.  The imbalance between left and right, the divisiveness of the politics, and the income inequality gap are combining to detach Washington from the rest of the country.  In effect, the march of progressive liberalism risks disenfranchising great swathes of America, and undermining its very legitimacy.  Choppy waters lay ahead.