Michael Taft: During the Greek debt crisis, we were constantly told that we weren’t Spain or Portugal or Italy, that the international markets were treating us differently, better, because we had taken the difficult fiscal decisions (i.e. spending cuts). This was despite the fact that the main indices showed otherwise, that we were competing with Portugal for the worst bond performance once Greece exited the market. It was just one more case of commentators making excuses, after they had spent all last year assuring us that if we took harsh economic medicine, our borrowing costs would fall.
The excuses keep coming. Our deteriorating bond performance is due to S&P’s ill-informed ratings downgrade. Another excuse: it’s not so much that Irish bonds are weakening; the gap between the German 10-year bonds has more to do with the fall in German yields.
First, our bond performance was in pretty poor shape even before the downgrade. It was already 323 basis points above German bonds prior to S&P’s announcement – well above the level at which some commentators suggest we should all start drinking ouzo.
Second, the growing spread between Irish and German bonds is a combination of falling German yields and rising Irish yields. But 60 percent of the gap that has grown since August 16th has been deteriorating Irish bonds – not the fall in German yields.
I’m sure when the whole thing goes over the edge many of our commentators will find more scapegoats (I suggest here that it could be culinary).
One could despair of even getting a factual description of the problem, never mind an analysis that bears some relationship with reality. All we will get is ever more excuses from people who claimed that the bank guarantee was ‘bold and visionary’, that deflationary policies would please the international markets, that our bank bail-out policy is ‘affordable and manageable’ and that we are, finally, back in recovery mode.
Thank god it’s Friday.
3 comments:
Is there not a possibility that the institutional EU is trying to keep the show on the road until it gets a sense that enough voters in the core EZ countries - in particular, Germany - conclude that the PIGS have expereinced enough pain and some mercy may be extended? Rightly or wrongly, many voters in the core EZ countries have the view that the PIGS have spent the last decade living high on the hog financed by their savings.
It may be cruel and unjust, but any relief that the institutional EU may offer - and it is now the only source of relief - has to be with the consent of voters in the core EZ countries.
It is hard to take anyone seriously when they refer to a national economy as a PIG.
I'm afraid I did not invent this widely used acronym - (P)ortugal, (I)reland, (G)reece, (S)pain - PIGS.
Let's use GIPS instead, but whichever is used it represents the combined problem at the periphery of the EZ.
The key issue here, though is that millions and millions of workers and their families in the core EZ countries must be persuaded to make sacrifices to ease the burden of debt in the GIPS. It is their pension funds and savings that have been invested in the GIPS.
And they're probably not feeling very charitable at the moment. German workers, in particular, have experienced much economic discipline and pain to pay for re-unification during the '90s, then had labour market reforms from '97 '05 (imposed ironically by a Red-Green coalition) and were beginning to reap some of the rewards of forging an industrial powerhouse when the current crisis hit.
National governments in the GIPS are powerless to deal with the debt crisis on their own. All they can do is try to reduce the demand for additional borrowing as directed by the institutional EU. So it's no good beating up on them. National governments in the core EZ countries are equally constrained as they are afraid of asking their voters to accept the reductions in their savings and pensions that will be needed to resolve the sovereign and bank debt problem in the GIPS.
What could break this logjam is an initiative by the trades unions/progressive left in the GIPS to approach their counterparts in the core EZ countries asking them to show some mercy to workers in the GIPS in a spirit of European progressive-left solidarity.
If the trades unions/progressive-left in the core EZ countries signal their willingness to be merciful their governments might be encouraged to agree to an EU-wide process to resolve sovereign and bank debt.
Workers in the core EZ countries should also be encouraged to buy more exports from the GIPS. Ireland should encourage them to holiday more here. There are loads of under-occupied hotels and they could see what some of their savings were used for.
I would commend this proposal to the Trades unions/progressive-left.
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