Monday, 23 February 2015


As I write, it remains unclear whether Greece will reach an acceptable deal with its creditors, who are mainly other European Governments.

It is important to say that the recession in Greece has been much deeper than expected by those who agreed the original bailout package with Greece in 2010, a 25% fall in output as against a predicted 7% fall. The budgetary adjustments have also been bigger than in any of the other bailout countries.

It must be acknowledged that, when Greece got a bailout from the other Governments and the IMF, the ultimate beneficiaries included banks, not only in Europe but also elsewhere.

These banks had been lending to the Greek Government, long after they should have stopped doing so, and have forced Greece to confront reality. They assumed that, because Greece was in the euro, someone somewhere would ensure they were repaid.

Yes, some the banks,who were thus saved from their errors, were indeed German. But many of the banks who were rescued from their embarrassment were British and American, and the British and American taxpayers have avoided a proportionate exposure to the costs, through the Greek bailout, of saving THEIR banks!

The Euro zone is bearing the main burden, while the others offer free advice.

That said, it would have been in nobody’s interest, for a panic about Greece to have infected banks around the world. Bank credit constitutes 95% of the money we use, and a collapse in confidence in money could have had really devastating global consequences. Without confidence in banks, economic activity would have come to a shuddering halt.

We would have had a crash, rather than just a crisis. Hindsight critics can ignore that now, but it was a real risk then.  

The origins of the Greek problem are very deep and longstanding. For years, Greeks had been consuming more than they were producing, retiring on pension earlier than is normal in other countries, and running an educational system that had few links with the real economy. All these gaps were bridged by borrowing money from foolish investors, who averted their eyes from the profound underlying problems of the Greek economy.

Meanwhile Greece supported a cumbersome and slow courts system, and an equally inefficient system of public administration and of regulating entry to professions. These systems got in the way of growth, because growth needs a capacity to move human and other resources quickly from less, to more profitable activities. Such systems might have been affordable in a very rich country, but Greece never was a rich country. 

Meanwhile Greece failed to develop a broad modern industrial sector. It relied too heavily on tourism and ship building. Greeks made money selling things to each other Greeks, rather than to the rest of the world. 

Greek businesses stayed small, not big enough to become exporters.  Indeed the proportion of micro businesses in Greece is very large, and this sort of business frequently under declares its income for tax purposes. This is part of the reason for poor tax collection in Greece.

There is growth potential in the Greek economy.

A McKinsey study back in 2011 suggested, for example, that Greece could develop medical tourism (it has a large population of dentists).  I met someone recently who was waiting for ages a treatment for tonsillitis in Ireland, who went to Greece, and had the operation done in days. 

McKinsey suggested big scope for Aquaculture and food processing in Greece.

Greece could develop its port infrastructure to provide a regional cargo hub. 

But none of these things can be financed unless Greek business people have access to a healthy banking system.

The Greek banking system is far from healthy. Its capital is tied up in Greek government bonds. The credibility of these bonds has been called into question by the brinkmanship and loose rhetoric of the new Greek government. The uncertainty over whether Greece will still be in euro, in a few months time, also inhibits investment, and nationalistic rhetoric in Germany on that topic has added greatly to that uncertainty.

Greece’s future needs to be underpinned by a credible plan that focuses on private sector led growth, backed by a healthy European banking system, that invests in productive Greek businesses, rather than just in Greek government bonds, as it did in the past.

If that is to happen, it is not just Greece that needs to do a lot of homework, but the entire European Union. The EU needs a real banking union that allows banks to lend across borders to good projects wherever they are found in the euro zone. This needs common EU legislation on debt collection, collateral and the like.

The fact that Greek, Irish, Portuguese and Spanish taxpayers have borne large burdens to recapitalise their banks, or have undertaken new debts, as part of a project to sustain the global banking system, also needs to be recognised by the rest of the world

This cannot unfortunately be done straight away. The problems that gave rise to the crisis must be understood, and fixed, first. 

The Greek election result would not lead one to believe that Greeks understand the source of their problems. And the credence that many voters elsewhere give to rhetoric that suggests that being “against austerity” constitutes an implementable policy, in a world of free capital movement, suggests that many do not understand what went wrong or what can realistically be done about it.

But ultimately there must be an honest attempt to find a fair settlement of these legacy issues.

A Global Debt Conference, some time before 2022, when Greece has to make huge repayments, should be considered.  It could be sponsored by the IMF, and might negotiate debt relief on the basis of the extent to which countries have, in the seven years between 2015 and 2022, implemented growth promoting reforms and achieved primary surpluses on their current budgets, taking account of the demography and the tax raising potential of each country.

Wednesday, 18 February 2015

THE LONG WAR.....CHINA V JAPAN...... 1937 TO 1945

For China, the Second World War began in July 1937, and did not end until August 1945. China’s casualties in the war were greater than those of any other nation in the world, apart from the Soviet Union.

Whereas the enmities of the Second World War in Europe have largely been subsumed by the economic integration within the EU, they are still very much alive in the brittle relations between Asian states, notably between Japan and China.

I have just finished reading “China’s War with Japan, 1937-1945, the struggle for survival “ by Rana Mitter, which sets out the background to this brutal war and explores all its complexities.

Throughout the nineteenth century the central government in China had been steadily weakening. The Emperor had to rely on local warlords, raising their own forces to suppress the Taiping Rebellion between 1856 and  1864. The government had to make major trade concessions to western powers and lost effective control of some of its key port and its trade policy. It  had to allow foreign troops, including Japanese units, on  parts of its territories.

After the overthrow of the Emperor in 1911, the Nationalist Chinese Government of Chiang Kai Shek, began to reduce these foreign privileges, and in 1930 took back control of its own trade policy. This was seen by Japan, which from the early 1930’s could no longer rely on western markets because of the protectionist policies of western powers, wanted to create its own exclusive  economic zone, including China.

Japan decided in 1937 that it would demand that China cut its tariffs on Japanese goods, employ Japanese military advisors, and join a military pact ultimately directed against the Soviet Union. It did not intend to conquer China, just to control it.

But a minor incident between Japanese and Chinese troops near Beijing in 1937 escalated into a general war, because the Chinese did not, as the Japanese expected, back down and apologise.

Japanese troops took over large parts of Northern and eastern China, committing major atrocities including the rape of Nanking. There was no outside intervention to defend the territorial integrity of China, by the United States or anyone else. The Chinese retreated inland but did not surrender or make peace, as most people expected they would.

The war in China was costly and Japan needed more resources, and it  decided it had to choose between seizing territory and resources from the eastern part of the Soviet Union, or from South East Asia. 

It decided on the latter option. 

This led to a response from the United States which, in November  1941, demanded that Japan withdraw its troops from both Indochina and China.

Japan saw what was coming and attacked Pearl Harbour a few days later.

This did not solve China’s problem, because the United States gave priority to rolling back the Japanese in the Pacific, and to liberating Europe, over direct US military  intervention in China. Indeed the Japanese continued to advance further and further into China right up to 1944. China sensed that it was being treated as a second class global citizen, and that shapes present attitudes, both to the West and to Japan.

Wednesday, 11 February 2015


I visited Vietnam for the first time this week and had the honour of meeting the Prime Minister, Nguyen Tan Dung, and other Ministers.  The purpose was to brief them on how Ireland has enhanced its productivity over the past 40 years. 

Vietnam has recently achieved middle income status, and is one of the fastest growing countries in Asia. It has a population of 90 million, about the same as Germany.

Like Ireland, Vietnam’s growth is derived partly from a growth in the working age population due to past high birth rates, a shift in population from agriculture, and the entry of more women into the paid workforce.

In Ireland, the available workforce doubled between the 1980’s and the 1990’s for these reasons. This workforce growth explains much of the exceptional growth rates of  the Celtic Tiger years, and  was a one off phenomenon.

In Vietnam’s case, only one third of its recent growth can be attributed to pure productivity growth, the rest is also due to one off workforce growth, not dissimilar to that which occurred in Ireland  15 years ago.

In future, both countries will have to derive their wealth growth increasingly from productivity increases, rather than from workforce growth, which will naturally slow down.

In response to this, Ireland has developed knowledge based industries is sectors like financial services, nutrition and health care. It has also relied consistent tax policy, and on institutions like the IFSC, IDA and Enterprise Ireland, to put in place a framework for private sector growth.

Vietnam has a large state owned sector, which accounts for 40% of national output. It has invested heavily in ports, airports and roads which give it great potential

Prime Minister Nguyen Tan Dung told me that Vietnam is committed to an open market policy and attracting foreign investment. Investors from 100 countries have already invested in the country.
During my visit, I also met the Irish Ambassador, Damien Cole and the EU Ambassador Franz Jessen.

Sunday, 8 February 2015


I recently finished reading “Mitterrand, a Study in Ambiguity” by Philip Short, an English writer who lives in France. 

I only met Francois Mitterand once, shortly before his death, when he spoke as President of France at the celebrations in Moscow in 1995, marking the 50th anniversary of the end of the Second World War. His speech on that occasion was memorable for his clarity of expression and for the fluent case it made for European unity, a cause in which he deeply believed.

This biography is comprehensive and definitive. It deals with his complicated personal life, and with his childhood in a staunchly Catholic family in a part of France where the wealthiest families were Protestant. His family politics were to the right of the spectrum, as was Mitterand himself in his student days in the 1930’s. 

He lost his Catholic faith as a student, something which troubled him. But even to the end of his life he believed in the value of prayer, or at least of taking time for silent reflection.

His role during the German occupation of France was complex and compromising. He served in the Vichy regime, dealing with the problems of French prisoners of war in Germany, of whom he had been one himself. But he also took part in the resistance against the Germans.

He entered post war politics as a radical rather than a socialist, and served in many of the governments of the Fourth Republic.

His politics gradually evolved towards socialism. But  one of his  Socialist rivals, Guy Mollet said of him “Mitterrand did not become a socialist, he learned to speak socialist”.

Unlike many others of the left, he did not rally to General de Gaulle when the latter came to power in 1958. He was unwilling to play second fiddle. 

Nor was he much interested in economics. When he came to power as President of France himself in 1981, it was on a socialist programme, which some believe still contributes to France’s economic problems today.

He reduced the pension age from 65 to 60, introduced the 35 working week, added a 5th week of holidays for every worker, recruited thousands of civil servants to reduce unemployment, and raised the minimum wage. The costs involved led to payments crisis and he  had to switch to austerity within a year or so.

He was an introspective man, who maintained a carefully cultivated veneer of imperturbability. He modelled himself of the seventeenth century French politician, Cardinal Mazarin, who wrote in his “Breviary for Politicians”

“Be sparing with your gestures, , walk with measured steps and maintain a posture at all times which is full of dignity......Always keep in mind five precepts, Simulate, Dissimulate, trust nobody, speak well of everyone, anticipate before  you act”

Mitterrand so admired Mazarin that he called his youngest daughter, Mazarine, after him

But one can think of one Irish politician, of Mitterrand’s era, who may also have studied Mazarin’s “Brievary”!

This is an excellent book and I strongly recommend it.