An excellent letter today in the Irish Times by Myles Duffy (do see a link to his blog here) puts into perspective the real extent of Ireland's Golden Circle - reaching, cancer-like deep into our public service leadership. I have questioned in this blog on several occasions the competency of the CBFSAI. Now, as Myles puts it in his letter (linked here):
"When the governor of the Central Bank appeared before the Oireachtas Committee on Economic Regulatory Affairs, ...the committee was reminded that the governor is paid an annual salary of €348,000, a figure that reflects the voluntary reduction taken last October from the €368,000 that he had hitherto been paid.
It is interesting to compare the salary for this position with those whose influence on global economic affairs is absolutely pivotal and whose utterances and nuances greatly affect the world investment climate and the effectiveness of economic recovery initiatives.
The US Federal Reserve system consists of 12 federal reserve banks ...supported by the Federal Reserve Board based in Washington DC. The system as a whole employs almost 20,000 people and the board employs 2,053. The annual salary of the chairman of the Federal Reserve Board, Mr Ber Bernanke, is $191,300 (€150,000), and was approved by the US Congress in February 2008.
The president of the European Central Bank, M Jean-Claude Trichet, oversees a staff of 1,499 and was paid €351,816 last year. He is also provided with a residence, in lieu of a residential allowance, but his salary is subject to EU tax, pension, medical and accident insurance deductions.
...The Bank of Canada’s governor, Mr David Dodge, whose seven-year term ended on January 31st, was paid on a salary scale with a maximum of 407,900 Canadian dollars (€250,000).
...Mr Hurley ...and seven [out of eight] of his predecessors formerly held the position of secretary general of the Department of Finance... The salary of the governor is therefore influenced by that of the secretary general of the Department of Finance. This was set at €303,000 in September 2007 by the Review Body on Higher Remuneration in the Public Sector; the figure may have been reduced voluntarily by the current incumbent."
Given that Mr Hurley's position has none of the traditional demands of the Central Banks' chiefs across the world - he does not manage national currency, he has no role to play in interest rates and general monetary policy, etc - in terms of economic and financial functions he carries, he is largely a regulatory officer of the ECB. And yet he earns more than his real boss - the head of ECB. Vastly more when the cost of his pension and tax advantages to being located in Ireland are factored in. In fact, Mr Hurley is paid more in real terms than some of those whose names were listed as belonging to the Anglo's 10. This is pretty much all that needs to be said.
Update: In an unrelated (to the above) story, here is another potential affiliate (not quite a member) of the Golden Circle of those who have grown better off on the back of the Celtic Tiger. This time - from the shores of America. See this article in WSJ (here) - hat tip to PMD - on venerable and (for now?) honourable Senator Chris Dodd's dealings in Irish real estate...
Senator Dodd (D, Connecticut), Chairman of the US Senate Committtee on Banking, Housing, and Urban Affairs, is at the centre of the US policymakers efforts to deal with the financial crisis. He has been in the past insturmental in aggresive expansion of the Freddie-Fannie-Ginnie mandates to increase lending to lower income minorities - a move that has been at the heart of the current sub-prime mortgages collapse. Senator Dodd is also a senior member of the US Senate Committe on Foreign Relations and a member of the Subcommittee on European Affairs - a position of power that would require, one presumes, to keep any personal European affairs at arms length and spankingly clean. Adding more to the circus of titles, he is a member of the US Senate Committee on Rules and Administration - an entity responsible for setting rules of ethical conduct and compliance in the Senate.
Now, here are the main points of the story in WSJ:
"The story starts in 1994, when the Senator became one-third owner of a 10-acre estate, then valued at $160,000, on the island of Inishnee on Galway Bay. William Kessinger bought the other two-thirds share in the estate. Edward Downe, Jr., who has been a business partner of Mr. Kessinger, signed the deed as a witness. Senator Dodd and Mr. Downe are long-time friends, and in 1986 they had purchased a condominium together in Washington, D.C.
Mr. Downe is also quite the character. The year before the Galway deal, in 1993, he pleaded guilty to insider trading and securities fraud and in 1994 agreed to pay the SEC $11 million in a civil settlement. The crimes were felonies and in 2001, as President Clinton was getting ready to leave office, Mr. Dodd successfully lobbied the White House for a full pardon for Mr. Downe.
The next year -- according to a transfer document at the Irish land registry... -- Mr. Kessinger sold his two-thirds share to Mr. Dodd for $122,351. The Senator says he actually paid Mr. Kessinger $127,000, which he claims was based on an appraisal at the time. That means, at best, poor Mr. Kessinger earned less than 19% over eight years on the sale of his two-thirds share to Mr. Dodd. But according to Ireland's Central Bank, prices of existing homes in Ireland quadrupled from 1994 to 2004.
In his Senate financial disclosure documents from 2002-2007, Mr. Dodd reported that the Galway home was worth between $100,001 and $250,000. However, Mr. Rennie reports that in 2006 and 2007 the Senator added a footnote that reads: "value based on appraisal at time of purchase."
Mr. Dodd had good reason to add the qualifier. Senate rules call for valuations to be current and anyone who looked into the estimate would immediately spot Mr. Dodd's lowballing. A June 17, 2007 feature in Britain's Sunday Times did just that. "Diary" observed that in Roundstone "a two-bed recently made E680,000 ($918,000) and a cottage is currently on offer for E800,000." Noting Mr. Dodd's estimate of his property -- between E75,000 and E185,000 -- the diarist quipped, "to hell with the stamp duty, and form an orderly queue."
Mr. Dodd is busy these days blaming everyone else for the real-estate bubble and financial meltdown. But he owes his constituents and the Senate an honest accounting of his Galway property over the past 15 years. If its value grew with the rest of the area, he needs to explain why Mr. Kessinger handed it over for a song, why that isn't an unreported gift under Senate rules, and what role Mr. Downe might have played as a middleman.
More broadly, Connecticut voters might want to know why their senior Senator has hung around for years with Mr. Downe, the kind of financial scoundrel Mr. Dodd spends so much time denouncing."
Now, of course, this side of the Atlantic we would like to know - was Senator Dodd, presumably a US resident, liable for tax on his purchase of the land share and how this tax was assessed.
Wednesday, March 11, 2009
A Patent Lie: Ireland's Capital Investment Stimulus
In its April 2008 review of Ireland's economy, seen by the Government some 5 months prior to its publication, OECD has identified two salient medium term problems linked to the twin crises we are currently experiencing:
Reforming the taxation of housing. "...the unusually favourable tax treatment increases the role of housing in the economy and adds to volatility in the housing market. There should be a gradual move towards a more neutral system of housing taxation," said OECD. Thus, even assuming its ignorance prior to the OECD report, the Government had at least 15 months since to design a functioning system of either land-value or property taxation, there by reducing the impact of the house prices slowdown.
Public spending needs to slow. "Fiscal performance has been strong in recent years but revenue growth has moderated as the economy, particularly the housing market, has weakened. Public expenditure is set to slow but it is important to avoid locking-in expensive commitments, particularly on public sector pay. As spending rises more slowly, improving public services will have to rely more on undertaking further reforms to public sector management and getting better value for money." Once again, nothing has been done in over 15 months to address these recommendations.
Chart below - taken from the OECD report, illustrates the extent of the problem.
However, a closer examination of the components of the public expenditure in Ireland show even more dramatic failure by the Irish Governments to stop the gravy train of wasteful expenditure.
Consider the following chart plotting actual net current expenditure against capital expenditure, incorporating my own forecast for fiscal consolidation in 2009-2010 and DofF January 2009 forecasts for the same period.
Two features can be glimpsed from the chart:
Chart below shows the net current and capital expenditures as a percentage of GDP.
According to this chart, the economically unproductive spending which is largely absorbed into public sector wages and social welfare subsidies (our current expenditure):
Should you wonder how high were the rates of growth in current and capital expenditure over the last decade, chart below shows that in 2000-2009, even by DofF own (excessively optimistic) projections for this year, cumulative capital investment's importance in overall economy will decline by 39%. In contrast, cumulative current expenditure growth will reach +27%.
In short, the above figures show that:
Reforming the taxation of housing. "...the unusually favourable tax treatment increases the role of housing in the economy and adds to volatility in the housing market. There should be a gradual move towards a more neutral system of housing taxation," said OECD. Thus, even assuming its ignorance prior to the OECD report, the Government had at least 15 months since to design a functioning system of either land-value or property taxation, there by reducing the impact of the house prices slowdown.
Public spending needs to slow. "Fiscal performance has been strong in recent years but revenue growth has moderated as the economy, particularly the housing market, has weakened. Public expenditure is set to slow but it is important to avoid locking-in expensive commitments, particularly on public sector pay. As spending rises more slowly, improving public services will have to rely more on undertaking further reforms to public sector management and getting better value for money." Once again, nothing has been done in over 15 months to address these recommendations.
Chart below - taken from the OECD report, illustrates the extent of the problem.
However, a closer examination of the components of the public expenditure in Ireland show even more dramatic failure by the Irish Governments to stop the gravy train of wasteful expenditure.Consider the following chart plotting actual net current expenditure against capital expenditure, incorporating my own forecast for fiscal consolidation in 2009-2010 and DofF January 2009 forecasts for the same period.
Two features can be glimpsed from the chart:- Over the last decade, there has been a steady, unrelenting rise in the current expenditure - largely reflecting social welfare spending and the wage bill increases in the public service.
- Even before the mini-Budget this month, our capital expenditure has peaked in 2008. Recall that Brian Cowen and Mary Coughlan are endlessly repeating that in 2009-2010 NDP-linked capital investments will act as a stimulus to the economy. Either they have not seen their own Government projections, or cannot comprehend the reality. During the recessionary 2009-2010, Ireland Inc is planning to spend decreasing net amounts of funds on capital programmes. If the Government can think of the NDP (created two years ago) as a recession-busting stimulus, then it has fired virtually all of its ammunition in 2008. And, of course, that has made no difference to the recession, as we all know.
Chart below shows the net current and capital expenditures as a percentage of GDP.
According to this chart, the economically unproductive spending which is largely absorbed into public sector wages and social welfare subsidies (our current expenditure):- has grown virtually exponentially as a share of economy, whilst the capital investment programmes have bounced along a declining trend, and
- has far outstripped capital investment in terms of its role in the economy.
Should you wonder how high were the rates of growth in current and capital expenditure over the last decade, chart below shows that in 2000-2009, even by DofF own (excessively optimistic) projections for this year, cumulative capital investment's importance in overall economy will decline by 39%. In contrast, cumulative current expenditure growth will reach +27%.
In short, the above figures show that:- Our leaders have deceived us about the importance of capital investment in the economy: between 2000 and 2009, capital expenditure share of GDP has actually fallen, while the current expenditure share of GDP has risen much faster than the GDP itself;
- Since 2000, our Governments have misled the public about the nature of Exchequer expenditure growth by stressing less rapidly expanding investment portion of the budget and downplaying a rampant expansion of payoffs to the public and social welfare sectors promoted by the Social Partners;
- Our current leadership is now deceiving the country and the markets by referring to a falling capital-spending programme as economic stimulus. That 'stimulus' applied to 2008 and not 2009-2010 and even in 2008 it was relatively small, compared to the current spending waste;
- Our Governments since at least 1999 have engaged in reckless and unsustainable increases in the current expenditure - in 2000-2009, current spending has grown in nominal terms by 138%, outstripping almost 2:1 the rate of growth in the nominal GDP (72%). Meanwhile capital expenditure has grown by 57% - over 2.5times slower than the current expenditure.
Tuesday, March 10, 2009
Irish bonds - on the move again (updated)
UPDATE: see below
In case you've missed it, Irish bonds spreads are on a renewed march upwards - needless to say, in anticipation of the mini-Budget maxi-soaking-of-the-middle-class by Brian^2+Mary. Hat tip to BL, the chart explains all:
The same story told in price indices:
Of course, our primary (and not-so-primary) dealers keep telling us that Government bonds are fine, things are going swimmingly indeed. In the mean time, another local maximum is breached, 10-year at 223.4 and 5-year at 217.9. Term premium widened again. Perhaps the prospect of an imminent roll-over of the last month issue at maturity (2012) coinciding with still gargantuan budget deficits is driving the 10-year spread away from the 5-year bonds?.. Wait until we issue the next tranche.
Update: From NTMA press-release on February Euro4bn bond issue: "The bond attracted strong demand from domestic investors who subscribed 55% of the total, as well as investors from euro area countries (20%), the UK (13%) and the Middle East (9%). As would be expected with a relatively short maturity bond, banks accounted for 72% of the amount invested. Pension funds contributed 11%, fund managers 10% and Central Banks 7%." Does this suggest that most of the bond was 'bought-in' by the publicly-supported Irish Banks and the Euro-area Central Banks? After all a whooping 79% of the bond placement went to Banks and Central Banks (BCBs), 75% went to 'investors' (inclusive of BCBs) tothe euro area countries, and only a meagre 21% went to private institutionals (although how does one treat funds run by the state-supported banks?). As I said before, February issue was a pipe-priming for the low-quality issues to come that will aim from the origination date for placement with the BCBs. A helicopter drop, indeed, but not of money - of public waste!
Now, per current spreads: term premium on 5-10year bonds yield spreads is now at +2.52% or in pricing terms +6.6%, implying that our 3-year bond, priced at an annual yield to maturity (YTM) of 4.01% is equivalent, roughly, to a 5.7-5.9% yield for a 10-year security.
In case you've missed it, Irish bonds spreads are on a renewed march upwards - needless to say, in anticipation of the mini-Budget maxi-soaking-of-the-middle-class by Brian^2+Mary. Hat tip to BL, the chart explains all:
The same story told in price indices:
Of course, our primary (and not-so-primary) dealers keep telling us that Government bonds are fine, things are going swimmingly indeed. In the mean time, another local maximum is breached, 10-year at 223.4 and 5-year at 217.9. Term premium widened again. Perhaps the prospect of an imminent roll-over of the last month issue at maturity (2012) coinciding with still gargantuan budget deficits is driving the 10-year spread away from the 5-year bonds?.. Wait until we issue the next tranche.Update: From NTMA press-release on February Euro4bn bond issue: "The bond attracted strong demand from domestic investors who subscribed 55% of the total, as well as investors from euro area countries (20%), the UK (13%) and the Middle East (9%). As would be expected with a relatively short maturity bond, banks accounted for 72% of the amount invested. Pension funds contributed 11%, fund managers 10% and Central Banks 7%." Does this suggest that most of the bond was 'bought-in' by the publicly-supported Irish Banks and the Euro-area Central Banks? After all a whooping 79% of the bond placement went to Banks and Central Banks (BCBs), 75% went to 'investors' (inclusive of BCBs) tothe euro area countries, and only a meagre 21% went to private institutionals (although how does one treat funds run by the state-supported banks?). As I said before, February issue was a pipe-priming for the low-quality issues to come that will aim from the origination date for placement with the BCBs. A helicopter drop, indeed, but not of money - of public waste!
Now, per current spreads: term premium on 5-10year bonds yield spreads is now at +2.52% or in pricing terms +6.6%, implying that our 3-year bond, priced at an annual yield to maturity (YTM) of 4.01% is equivalent, roughly, to a 5.7-5.9% yield for a 10-year security.
Monday, March 9, 2009
Insanity of our policies
Limbering through crises since the end of 2007 (for its was painfully clear, following the credit markets stalling in July-August 2007, that the near future promises no prospect of continuity of the orgy of credit and debt that we partook in from the beginning of this century) we now have reached that state of nature where the Government is, once again, embarking on an effort to 'do something' about the economy. The latest promise is that of a mini-Budget 2009 by the end of this month.
It reminds one of a famous fable about Albert Einstein's last exam. Upon being told that his final pre-retirement term paper in physics contained the same questions as those posited on the previous year exam, Einstein remarked: "Ah, yes, the questions are the same. The answers, however, have changed".
And so it is with Ireland Inc. The questions, or rather the issues faced by us are painfully the same as we faced before:
Sadly, not. The menu of economic policy potions on offer from the Government and academe is:
Has anyone noticed that having raised VAT in October, we are seeing continued collapse in VAT revenue? Having raised income tax from January on, we are seeing continuous deterioration in the income tax receipts? Having implemented not a single pro-growth policy since the beginning of 2008, we are seeing real costs of living and working in this country remaining stubbornly high and real returns to work depressingly declining?
How long will it take? How many homes will have to be repossessed? How many personal bankruptcies and corporate insolvencies declared? How many of us and our children will have to emigrate out of here before our policy idiocy will lead us to the conclusion that you cannot tax yourself out of a recession?
Some years before his final exam, Einstein remarked that "Insanity is doing the same thing over and over again and expecting different results".
For now our politicians soldier on, with Unions whistling in step, back into the 1980s. Back into the 1980s answers to the 1980s-like problems. Stop cheering them on!
It reminds one of a famous fable about Albert Einstein's last exam. Upon being told that his final pre-retirement term paper in physics contained the same questions as those posited on the previous year exam, Einstein remarked: "Ah, yes, the questions are the same. The answers, however, have changed".
And so it is with Ireland Inc. The questions, or rather the issues faced by us are painfully the same as we faced before:
- Public spending that is running at ca 38% (current expenditure) ratio to GNP - the same as in the early 1980s;
- Businesses insolvencies and personal bankruptcies rising like an unstoppable tide - too great to see it before it breaks over our heads;
- Financial system that is facing ruin in real terms and a currency that is no longer offering any comfort;
- Collapsed taxes (some 25% down y-o-y already and counting) drawn out of a folding economy (having contracted ca 4-5% to date, heading for triple that rate in cumulative terms over 2009-2011);
- Rising tax burdens amidst shrinking economic activity and private sector incomes;
- A specter of mass emigration (with net outflows of workers out of Ireland recorded in 2008 already) and double-digit unemployment (expected to reach 14% this year);
- Public sectors war against the rest of society waged to ensure that the privileges - in employment, monopoly power, wages etc - of the few will be protected even at a cost of sacrificing the prosperity of the many;
- Corruption (this time - primarily of legal nature) led by the interest groups that stand close to the center of power;
- Elites, incapable of any new thinking, neurotically running for cover of failed ideologies;
- Academia that is so far removed from reality that its practitioners forget ABCs of their own disciplines (finance and economics) in their desire to embrace the consensus;
- Desperate electorate that, in a Stockholm Syndrome moment of truth, are begging their captors - the State and its leaders - to 'do something', 'anything', 'to present a plan for the future'; and so on.
Sadly, not. The menu of economic policy potions on offer from the Government and academe is:
- Conviction-driven hikes in direct income and consumption taxation (Priority 1);
- Ideologically motivated (the ideology of public greed) hikes in indirect taxation so desperate in their scope that we are now facing a prospect of a tax on text messages and a clawback of pension deductions (Priority 2);
- Ambiguous & vague promises of some current expenditure cuts (Priority 3);
- Empty & often outright senile promises of an NDP stimulus packaged along with a pork train of 'knowledge' economy, 'green' economy and 'social' politics measures (Priority 4).
Has anyone noticed that having raised VAT in October, we are seeing continued collapse in VAT revenue? Having raised income tax from January on, we are seeing continuous deterioration in the income tax receipts? Having implemented not a single pro-growth policy since the beginning of 2008, we are seeing real costs of living and working in this country remaining stubbornly high and real returns to work depressingly declining?
How long will it take? How many homes will have to be repossessed? How many personal bankruptcies and corporate insolvencies declared? How many of us and our children will have to emigrate out of here before our policy idiocy will lead us to the conclusion that you cannot tax yourself out of a recession?
Some years before his final exam, Einstein remarked that "Insanity is doing the same thing over and over again and expecting different results".
For now our politicians soldier on, with Unions whistling in step, back into the 1980s. Back into the 1980s answers to the 1980s-like problems. Stop cheering them on!
Sunday, March 8, 2009
Germany and the Euro
This post is a response to a comment by Tim (here):
"I just heard that Germany is considering leaving the euro. ...What do you think?"
I have not heard such a rumor - at least not at any credible level. I would be surprised if such sentiment was gaining significant strength in Germany. Here is the latest data I could find and my understanding of what is happening.
Per Eurobarometer 70, December 2008, 56% of German population tend to trust in the ECB - a fall of 4 percentage points on Spring 2008. EU27 average was significantly lower at 48% (a fall of 2 percentage points on Spring 2008). This still places Germany as 13th ranked country in the EU27 in terms of overall trust in the ECB. Ireland is 14th with 52% (down 6 percentage points on Spring 2008). In general, decline in trust for ECB tends to be rising with the worsening in economic conditions: Portugal leads the fall with -10%, Spain follows with -8%, Ireland comes next.
Also significantly, the decline in those trusting ECB has translated into an even higher rise in those who tend not to trust the ECB (as opposed to those who declined to answer): in Germany, 8 percentage increase in those who do not trust the ECB, in Spain +13%, in Ireland +10%, and so on. This shows that people are actually becoming more decisive in their negative position vis-a-vis ECB policies. But, again, it does not show Germans swinging decisively against the Euro membership. In my view, the rising negative perception of the ECB is driven by the policy lags with which the ECB greeted the economic crisis between July 2007 and July 2008.
As far as I understand, there was no direct question on the Euro in the preliminary EB70 results available at this time.
Eurobarometer 69, Spring 2008, does show results for trust in Euro itself. Even before the crisis pushed Germany into a recession, only 17% of Germans tended to claim that their approval of the Euro is one of the top two reasons for supporting the ECB. Same as in Ireland, but below the EU27 average of 19%. Table below gives results for "QA25a Which of the following are the main reasons for trusting the European Central Bank?":
"QA26a Which of the following are the main reasons for not trusting the European Central Bank?" Table below shows response to the above question:
When it came to mistrusting the ECB, 18% of Germans named being against the Euro as one of the top two reasons for their position vis-à-vis the ECB.
These numbers do not show a significant doze of skepticism about the Euro amongst the Germans, but they do show that the two tails of the attitudes to Euro distribution are both ‘fat’ and virtually identical in size. In other words, anti-Euro enthusiasts are roughly as prevalent as Euro supporters in Germany. In Ireland, those mistrusting the ECB due to their dislike for the Euro are less numerous than those who support ECB because of the Euro.
Overall, 60% Europeans (EU27), 69% of Germans, and 87% of Irish approved of the Euro in Spring 2008. Going further back in time, Eurobarometer 68 (Autumn 2007) shows 68% of Germans supporting the Euro, 87% of the Irish doing the same. EU27 average was 61%. Eurobarometer 67 (Spring 2007) showed 71% of Germans supporting the Euro, as opposed to the EU27 average of 63% (Ireland – 88%).
So on the net, the trend in the EU27 is for a very slight decline in support for Euro from 63% in the Spring 2007 to 60% in Spring 2008. For Germans these figures were 71% to 69% and for Irish – 88% to 87%. This is hardly a sign of a decisive shift in opinion against the Euro.
It will be interesting to see, once full Eurobarometer 70 results are in, if there has been further erosion in support for the Euro. Most likely, given the current economic conditions, there would be a rising sense of pessimism. But I still doubt Germany will reach a swing point.
Needless to say, the implications of a German exit from the Euro would be disastrous for the global financial system and for Ireland in particular.
First there will be an effect of unwinding the Euro positions worldwide and a monumental mess of absorbing ex-Euro positions (assets and liabilities) into national currencies.
Second, there will be a logistical nightmare of reintroducing new exchange rates, as the original (EMU-entry point) exchange rates are no longer reflective of the actual economic conditions.
Third, there is a problem of divesting the ECB roles back to the national Central Banks and re-establishing these Central Banks' reputational capital.
Fourth, for countries like Ireland, indeed for the APIIGS, the end of the Euro would spell a massive and instantaneous devaluation. Imagine the trade flows and investment positions disruptions that would arise if the reintroduced 'punt' were to be devalued by ca 50% instantaneously.
Fifth, the Euro has become a part of the reserve currencies basket around the world. It is hard to see how the central monetary authorities around the world can unwind their Euro holdings in an orderly fashion in the current environment.
Sixth, the resulting crisis at the EU level - triggered by a removal of the fundamental pillar of EU expansionism and internal markets supports - will be of a magnitude equivalent to the current economic and financial crises combined. Amongst obvious economic implications, there will be a significant political cost of the tearing up of the entire fabric of the EU elite built on the singularly integrationsit agenda.
Fortunately, once again, I am not seeing any significant signs of the public opinion in Germany shifting decisively against the country membership in the Euro.
"I just heard that Germany is considering leaving the euro. ...What do you think?"
I have not heard such a rumor - at least not at any credible level. I would be surprised if such sentiment was gaining significant strength in Germany. Here is the latest data I could find and my understanding of what is happening.
Per Eurobarometer 70, December 2008, 56% of German population tend to trust in the ECB - a fall of 4 percentage points on Spring 2008. EU27 average was significantly lower at 48% (a fall of 2 percentage points on Spring 2008). This still places Germany as 13th ranked country in the EU27 in terms of overall trust in the ECB. Ireland is 14th with 52% (down 6 percentage points on Spring 2008). In general, decline in trust for ECB tends to be rising with the worsening in economic conditions: Portugal leads the fall with -10%, Spain follows with -8%, Ireland comes next.
Also significantly, the decline in those trusting ECB has translated into an even higher rise in those who tend not to trust the ECB (as opposed to those who declined to answer): in Germany, 8 percentage increase in those who do not trust the ECB, in Spain +13%, in Ireland +10%, and so on. This shows that people are actually becoming more decisive in their negative position vis-a-vis ECB policies. But, again, it does not show Germans swinging decisively against the Euro membership. In my view, the rising negative perception of the ECB is driven by the policy lags with which the ECB greeted the economic crisis between July 2007 and July 2008.
As far as I understand, there was no direct question on the Euro in the preliminary EB70 results available at this time.
Eurobarometer 69, Spring 2008, does show results for trust in Euro itself. Even before the crisis pushed Germany into a recession, only 17% of Germans tended to claim that their approval of the Euro is one of the top two reasons for supporting the ECB. Same as in Ireland, but below the EU27 average of 19%. Table below gives results for "QA25a Which of the following are the main reasons for trusting the European Central Bank?":
"QA26a Which of the following are the main reasons for not trusting the European Central Bank?" Table below shows response to the above question:
When it came to mistrusting the ECB, 18% of Germans named being against the Euro as one of the top two reasons for their position vis-à-vis the ECB.These numbers do not show a significant doze of skepticism about the Euro amongst the Germans, but they do show that the two tails of the attitudes to Euro distribution are both ‘fat’ and virtually identical in size. In other words, anti-Euro enthusiasts are roughly as prevalent as Euro supporters in Germany. In Ireland, those mistrusting the ECB due to their dislike for the Euro are less numerous than those who support ECB because of the Euro.
Overall, 60% Europeans (EU27), 69% of Germans, and 87% of Irish approved of the Euro in Spring 2008. Going further back in time, Eurobarometer 68 (Autumn 2007) shows 68% of Germans supporting the Euro, 87% of the Irish doing the same. EU27 average was 61%. Eurobarometer 67 (Spring 2007) showed 71% of Germans supporting the Euro, as opposed to the EU27 average of 63% (Ireland – 88%).
So on the net, the trend in the EU27 is for a very slight decline in support for Euro from 63% in the Spring 2007 to 60% in Spring 2008. For Germans these figures were 71% to 69% and for Irish – 88% to 87%. This is hardly a sign of a decisive shift in opinion against the Euro.
It will be interesting to see, once full Eurobarometer 70 results are in, if there has been further erosion in support for the Euro. Most likely, given the current economic conditions, there would be a rising sense of pessimism. But I still doubt Germany will reach a swing point.
Needless to say, the implications of a German exit from the Euro would be disastrous for the global financial system and for Ireland in particular.
First there will be an effect of unwinding the Euro positions worldwide and a monumental mess of absorbing ex-Euro positions (assets and liabilities) into national currencies.
Second, there will be a logistical nightmare of reintroducing new exchange rates, as the original (EMU-entry point) exchange rates are no longer reflective of the actual economic conditions.
Third, there is a problem of divesting the ECB roles back to the national Central Banks and re-establishing these Central Banks' reputational capital.
Fourth, for countries like Ireland, indeed for the APIIGS, the end of the Euro would spell a massive and instantaneous devaluation. Imagine the trade flows and investment positions disruptions that would arise if the reintroduced 'punt' were to be devalued by ca 50% instantaneously.
Fifth, the Euro has become a part of the reserve currencies basket around the world. It is hard to see how the central monetary authorities around the world can unwind their Euro holdings in an orderly fashion in the current environment.
Sixth, the resulting crisis at the EU level - triggered by a removal of the fundamental pillar of EU expansionism and internal markets supports - will be of a magnitude equivalent to the current economic and financial crises combined. Amongst obvious economic implications, there will be a significant political cost of the tearing up of the entire fabric of the EU elite built on the singularly integrationsit agenda.
Fortunately, once again, I am not seeing any significant signs of the public opinion in Germany shifting decisively against the country membership in the Euro.
Euronews is now Purer than Before: says Heathrow Sign
Euronews - a channel co-financed by the EU Commission and that virtually never bothers to broadcast any opinion or analysis of the events that does not mirror to a letter the views of the EU Commission and the rest of the establishment is doing some re-branding (see the pic below for a truly Pravda-esque advertising, possibly also co-financed by the European citizens' hard earned taxes).
Being launched as a hard-news 're-focused' channel, its new identity is now Euronews Pure. The latest linguistic twist has been added to distinguish it from the presumably 'poluted' CNN, BBC, Bloomberg, Reuters, etc. Given Euronews record of almost never being able to actually break news, the 'purity' must be in analytical capabilities of the channel. Alas, since Euronews never gives credit to its journalists - anonymity in journalism is the best cover of all - and since it never interviews those critical of the official EU positions, it is hard to imagine exactly how this can be the case.
Overall, my suggestion would be for the Euronews/EU Commission's Ministry of Truth to spend some money explaining why do people of Europe, who enjoy (at least for now) virtually unlimited access to global information channels need Euronews at all? They can post the result near all vital locations with captive audience: elevators, EU bureaucrats' offices, European hospitals, public restrooms and so on - in short, wherever the wait is necessary and is necessarily burdensome...
Being launched as a hard-news 're-focused' channel, its new identity is now Euronews Pure. The latest linguistic twist has been added to distinguish it from the presumably 'poluted' CNN, BBC, Bloomberg, Reuters, etc. Given Euronews record of almost never being able to actually break news, the 'purity' must be in analytical capabilities of the channel. Alas, since Euronews never gives credit to its journalists - anonymity in journalism is the best cover of all - and since it never interviews those critical of the official EU positions, it is hard to imagine exactly how this can be the case.Overall, my suggestion would be for the Euronews/EU Commission's Ministry of Truth to spend some money explaining why do people of Europe, who enjoy (at least for now) virtually unlimited access to global information channels need Euronews at all? They can post the result near all vital locations with captive audience: elevators, EU bureaucrats' offices, European hospitals, public restrooms and so on - in short, wherever the wait is necessary and is necessarily burdensome...
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