Tuesday, 24 March 2015


All citizens of the countries in the euro zone should pay especially close attention to economic policy debate in and about Germany.

Simon Tilford ,of the  London based Centre for Economic Reform, had some very critical things to say about it in a recent publication entitled ,“Germany rebalancing ; Waiting for Godot”.

He said that Germany is not serving its own economic interests by running such a large balance of payments surplus. A country with such a surplus has to reinvest the surplus abroad and he says Germans have lost almost a third of what they invested abroad since 1999. This is because they invested it in property bubbles that burst, and other bad investments.

He says Germans would have been better off investing at home.  German money has gone into ghost estates in foreign countries rather than into Rand D, roads and schools in Germany itself. That would have boosted German wages, spending and imports.

Some of those extra imports might come from other Euro area countries, who currently have deficits and this would make the euro itself more balanced and sustainable. And that would be good for Germany.

While Germany has increased employment by 1 million since 2007, many of these extra jobs are part time.

Germany is one of the worst and most difficult places in the world to try to set up a new business. It is 114th in the World Bank rankings!

Its professions are closed to competition from other EU countries and Germany has the worst record for implementing structural reforms, recommended since 2012 by the  Heads of EU Governments, including its own Chancellor!

He says German businesses are saving rather than investing, and that this should be discouraged.

He urged Germany to boost its consumer spending power by cutting VAT and financing that by higher property taxes.  He said German wages needed to rise, and Germans needed the confidence to spend more.

In contrast the Governor of the Bundesbank, Jens Weidemann has said in a speech in Switzerland, that in the last year, German wages have risen by 3%, which is a real increase, because prices have remained static. Others say that , as many Germans are approaching retirement age, it is understandable that they would want to save a bit more.


In a recent speech , Jens Weidemann asked the sensible question...how can we use market disciplines, rather than mere threats from Brussels, to get countries to run their fiscal policies sensibly? 

In other words, instead of the European Commission making a futile attempt to discipline France for its budget deficits, could a way not be found to get the bond markets to do the job by charging countries, like France, that are borrowing unsustainably to stop doing so, by charging such countries a significantly higher interest rate than countries that are being responsible?

That would require a change in the rules banks must follow in calculating the risks attached to different types of lending that they do. 


It would require, Weidemann  said, an end to the preferential regulatory treatment of government bonds, which includes banks not needing to hold capital reserves against investments in government bonds, whereas they do have to hold reserves against the possibility that other lending they do might go wrong.

This preferential treatment of sovereign debtors of banks is based on the assumption that government bonds are free of risk, an assumption that contradicts the no bail-out clause in the EU Treaties and therefore reduces its credibility.

It is also a nonsensical assumption, as we can see in the Greek case. There IS a risk that governments will not pay, and rules that assume the opposite are unrealistic.

When banks are not required to hold any capital reserves against government bonds, the result is obvious; they will hold too many government bonds, and their solvency is thus becomes directly threatened by a sovereign default. That is imprudent.

 Hence,  Weidemann argued, lending by banks to governments should be backed by adequate capital, in the same way as other lending by a bank has to be.
He said there was another special treatment that should also be ended.


As a general rule, to avoid concentration risks, bank loans to a single private-sector borrower may not exceed 25% of the bank’s liable capital
But that does not apply to a bank holding of its own governments bonds.

That is a mistake.

In future, large exposure limits should also apply to sovereign debtors too. For example, Greek banks should be prevented from buying too many Greek government bonds. That would break the doom loop between banks and governments, whereby fiscal difficulty for a government endangers its banks as well.

From a financial stability perspective, particular problems are posed by the fact that banks often only have government bonds issued by a single country in their portfolio – those of their home country.

Not only do the euro-area banks hold more government bonds on their books than ever before (€1.9 trillion), the home bias has actually become even stronger in the crisis countries in recent years.

In Italy’s case, for instance, 97% of the euro-denominated government bonds held by the country’s banks were issued by the Italian government!  That is really unhealthy and has been brought about by bad policy in the supervision of banks.

Friday, 20 March 2015


George Osborne, current Chancellor of the Exchequer in the UK, is the subject of a biography entitled “The Austerity Chancellor” by Janan Ganesh of the “Financial Times”.

“Austerity” is obviously a relative term, given that, after four years of it, the UK still has the second largest structural deficit in the developed world after Japan, and debt that is £100 billion more than was planned back in 2010. Austerity is not over, in that current plans, accepted in principle by both parties are to turn the deficit of 5% of GDP into a surplus by 2019/20. Politicians who think the Northern Ireland block grant will be increased, if they protest enough, should keep that in mind.

Janan Ganesh blames this continuing financial gap on the under performance of the overall EU economy, which provides the UK with its export market for its services and goods. In that sense, Mario Draghi ‘s comment that he would do “whatever it takes” to underpin the European economy may have contributed as much to the recent recovery in the UK economy as anything Osborne himself did.

George Osborne came from a comfortable London home, did his degree in history, and could have entered many professions, but chose politics from an early age. He worked first as a political advisor to the Major Government in the Department of Agriculture during the BSE crisis, and then to William Hague when he became leader of the Opposition. Although a metropolitan Londoner, he succeeded in being adopted as the candidate for the safely Conservative Tatton constituency, near Liverpool.

He has always managed to stay close to whoever was leader of his party, and briefed several of them on how best to exploit the ordeal of Prime Ministers Questions. He has a talent for devastating one liners.

His close and trusting relationship, as Chancellor, with Prime Minister David Cameron is in marked contrast to the destructive relationship that existed in the New Labour government between Chancellor George Brown and Prime Minister Tony Blair. According to Ganesh, Osborne is an unabashed admirer of Tony Blair, as a master politician, and holds Brown in ill disguised contempt.

Osborne and Cameron do not have identical political views. Osborne is a classical liberal on social as well as economic issues. Cameron has a more sentimental streak, with his emphasis on “the Big Society”, an attempt to encourage voluntary organisations to be more active in tackling social problems.

Will Osborne still be Chancellor after the General Election?

Polls show that, while voters like David Cameron much more than they like Ed Miliband, 52% of them profess to “like” the Labour party, while only 33% “like” the Conservatives. 

Incidentally this is less than the 40%, who say they like the Lib Dems, which suggests that, despite huge efforts, the Conservatives have yet to shed the harsh image they acquired in Mrs Thatcher’s later years.

Voters have low expectations of Ed Miliband, and this means that, in the campaign, he has an easier job than Cameron, unless he makes some big mistakes.

All he needs to do is perform above very low expectations, and people will be favourably surprised. In contrast, the Conservatives will have the much more difficult task of exposing the contradiction between Labour’s professed commitment to eliminating the deficit, and their simultaneous opposition to “austerity”.

Monday, 16 March 2015


I write about the following matter with some feeling because like others, I have devoted a significant amount of time and effort over 10 years or more to creating conditions in which, as part of a wider settlement, nationalists and unionists would share power and responsibility in Northern Ireland. Responsibility goes with power, and recent events suggest that some people want the power, but prefer to dodge the responsibility that goes with it.

The debacle over welfare reform in Northern Ireland, and the resultant severe risk that the power sharing institutions themselves will collapse, raises a doubt as to whether Sinn Fein is a serious political party, capable of exercising government responsibility in any jurisdiction. 

On 23 December last, after months of brinkmanship and suspense, Sinn Fein and the other parties agreed a package of measures in the Stormont House Agreement. Everyone knew, in those talks, that the Agreement was framed within a block grant from Westminster that was limited.

Yet three months after they made the agreement, Sinn Fein are backing off the part of it concerning welfare reform, saying the DUP did not give them the figures (as if there was no Sinn Fein person capable of doing the relevant arithmetic, notwithstanding their huge taxpayer funded staff in Stormont!), and without making any proposal as to how the funding shortfall might otherwise be bridged within the budget. 

Last December, Sinn Fein and the other parties agreed to the following, including specific figures:

“The (UK) Government has developed a comprehensive financial support package to help the Executive deliver across its priorities. The total value of the Government package represents additional spending power of almost £2 billion. Details of the financial package are in a financial annex attached to this agreement.”  

“A final balanced budget for 2015-16 needs to be agreed in January.” 

“Legislation will be brought before the Assembly in January 2015 to give effect to welfare changes alongside further work” 

“ Implementation of these welfare changes will begin to take place in the financial year 2015-16 and implementation will be complete by 2016-17.”

None of this was new. The issue of welfare reforms had been the subject of exhaustive debate in the Assembly, over the previous years, so everyone should have known the sums involved. 

For example, a Committee of the Assembly issued a final report on the Welfare Reform Bill in 2013 which said:

“While the Committee agreed the general principles and aims of the Bill it had serious concerns about its potential negative impact, particularly on vulnerable groups. Therefore, in its engagement with stakeholders the Committee specifically asked what mitigating measures needed to be put in place in order to minimise the impact on the most vulnerable in society. In drawing up these recommendations the Committee was acutely aware of the arguments relating to parity with GB and the potential cost implications. While social security arrangements are devolved to the Northern Ireland Assembly, the costs (approximately £3bn per annum) are covered by the Treasury and are separate from the NI Block Grant.
The Minister made it clear to the Committee that any deviation from parity that had an associated cost would have to be borne by the Block Grant i.e. the Treasury would not make any additional funding provision to accommodate these changes.”

That was back in 2013!

If the welfare cuts were to be mitigated, the funds would have to be found elsewhere, so those who wanted changes had two years to work out how to pay for them.

So the idea, now being peddled by Sinn Fein that they did not understand the figures involved, when they made the Stormont House Agreement last December, and now that they have been told them, even have no proposals for making up the shortfall of about £200 million, is just incredible.

It would suggest that they do not take their responsibilities seriously, and regard the whole business of government as a game, the purpose of which is to say what your supporters want to hear all the time, and blame someone else for everything. 

This is a juvenile approach to politics. It is just not serious, and voters deserve politicians who are serious about their work.

It is a mystery to me that the SDLP, which did so much in the past to bring power sharing into being ,has gone along with this exercise.

It is also a warning to any parties in the Republic who might contemplate negotiation with Sinn Fein...If you agree something with them in December, they will go back on it in March!

Sunday, 8 March 2015


In his book “The Ascent of Money” the historian Niall Ferguson told the story of the development of money – a means of exchange that depends on trust – from its earliest origins in ancient Mesopotamia, when clay tokens were used, to the dominance of gold in the later Middle Ages, to the scrapping of usury laws in 1833, whose repeal allowed  for an expansion of interest-bearing loans and paper money. Money became credit. Today 95% of the money we use is bank credit, and only 5% or less is cash.

Gradually the amount of purchasing power in the economy came to bear less and less on the relationship to the reserves of gold or other capital that was supposed to back it all up.

There were many frauds, scares and panics along the way. The historical episodes described in this book discredited the mathematical models of finance, which purport to predict human behaviour on the basis of past performance. 

They enhanced the credibility of the ‘reflexivity’ theory of the world famous hedge fund owner George Soros, who sees market behaviour as a reflexion of the irrational hopes, fears, and biases of millions of half-informed people.  

Recent financial history, with its succession of bubbles and busts, shows the auditors, non-executive directors, and regulators, who are supposed to lean against the wind, are too easily carried along, with everybody else, by the irrational hopes and fears of the half informed. 

Niall Ferguson is a Professor in Harvard. He said that in 1970, only 5% of the men graduating from Harvard went into banking and finance. By 2007, 20% of the men and 10% of the women were doing so.

One started to get too much of a good thing. The ever more creative forms of credit offered by the expanded financial sector fuelled a consumption boom in the US. Consumer spending jumped from 62% of income in the 1960s to 74% in 2006. Household savings almost completely disappeared. 

This was made easy by the free movement of money across the world. The huge savings that Chinese factory workers had to accumulate, because they have no welfare state to fall back on, if they lose their jobs, were recycled into consumer loans which enabled Americans to buy more Chinese goods than they could  afford.

This book put our present anxieties in an historical context and would provide useful background reading for the Irish Banking Enquiry.

Monday, 2 March 2015


The rebellion of Easter Week 1916 was one of the formative events in Irish history.

It led towards the independence we now enjoy, along with the enactment of Home Rule in 1914, the meeting of the First Dail in 1919, the Treaty of 1921, the Constitutions of 1923 and 1937, and the declaration of the Republic in 1949.

Those who initiated the Rising did so with high idealism, bravery, and self sacrifice.

It was, however, a violent action, involving loss of life, and was, as would have been anticipated by its initiators, violently suppressed with further loss of life.

As we have worked painstakingly over many years to remove violence from Irish politics, we must do our best now to commemorate 1916 in a way that does not glorify violence.

It is argued by many that the form and content of the 1966 commemoration romanticized violence and contributed negatively to inter community relations on the island generally, and particularly in Northern Ireland. 

But how can one remember 1916, without glorifying the methods used in the conflict?


My proposal would be that, as part of the overall commemoration, all who died violently in Ireland in and around Easter week 1916, be remembered individually, and by name.

Naturally, a major focus should be on the Volunteers who died, and on the executed leaders.

But I suggest we also remember, by name, the civilians who were killed ,

the DMP members who were killed,

the RIC members who were killed, and

the British  Army soldiers (both those who were Irish and those who were not) who were  killed.

This approach would put a focus on the cost of violence, the loss of life and the suffering, as well as the bereavement suffered by relatives left behind.

All the above casualties would have had relatives who mourned them, and it would be good, a century later, to remember them all. From a religious and ethical perspective, all these lives, taken away in 1916, were equally valued and valuable.

Apart from these considerations, it is worth saying that the families of the DMP, RIC, and Army casualties, who continued to live in Ireland, may have felt that the loss they suffered, was in some sense less recognised by their fellow Irish people, because of a perception that they had died on the “wrong side”. A century later, that can be rebalanced a little. 

It may pose practical difficulties, but it would be good if that the state should invite a family member of every casualty to a Commemoration, perhaps on the inclusive model of the National Day of Commemoration. With all the data now available, tracing some of these relatives would not be as difficult as it might have been 20 years ago.

I know that there will be a military element to the commemoration during Easter Week, and it might be perceived that a commemoration on the same day focussing on all the victims, would take from that. 

So perhaps this could be done on another day, perhaps a week or two later, which might be appropriate anyway, given that  some of the victims on all sides, who died of their wounds, would not have done so until sometime after  Easter Week itself was over.


I recently learned from the Taoiseach, Enda Kenny,  that the Government is already moving in this direction.

A Commemorative Wall is to be erected in Glasnevin Cemetery bearing the name of all who died in the 1916 Rebellion, regardless of the side they were on, or of whether they were killed accidentally or deliberately.

The names of the 1916 victims will be inscribed on the Wall in 2016, and, in the centenary year of their deaths, those who were killed in the War of Independence and the Civil War will be added.

The Wall will remind future generations of the true price of warfare.