It appears that the Irish election will take place on February 25. It should be an interesting one. Some basic briefing notes below: commenters should feel free to add stuff/disagree as appropriate.
From the category archives:
Irish Politics
Live at Eurointelligence. An extract.
bq. The reaction to the news that Irish taxpayers are to be squeezed while foreign bondholders escape scot-free has been one of outraged disbelief and anger. At the start of last week, it was possible to make the argument that ‘burning the bondholders’ was irresponsible, since it would inevitably lead to contagion, and the spread of the crisis to Iberia. That argument has at this stage lost all validity, since contagion has happened anyway. Besides, the correct response to the possibility of contagion was never to engage in make-believe, but to extend taxpayer protection to other Eurozone members as required. Swapping debt for equity in a coordinated fashion across Europe would show ordinary people that Europe is on their side; but like the PLO of old, the European Union never misses an opportunity to miss an opportunity. It could have provided a means of kick-starting a new post-crisis growth strategy based on investment in the infrastructures we will need in the future; instead it has transformed itself into a mechanism for forcing pro-cyclical adjustment onto countries that are already sinking. It could have led the way in reining in an out-of-control financial sector; instead it now embodies the discredited principle that banks must never, ever, default on their creditors, no matter how insolvent they may be.
As I mentioned a few days ago, the best paper I’ve read on Ireland and the economic crisis was this one by Sebastian Dellepiane Avellaneda and Niamh Hardiman. I’m happy to say that Niamh has agreed to do some guest-blogging for us over the next several days on the Irish crisis as it continues to unfold, and its implications for the EU. Niamh is a senior lecturer at University College Dublin’s School of Politics and International Relations. She has written extensively on political economy and public policy in Ireland and the EU. We’re grateful and lucky to have her. Her first post will be up shortly.
I’m a bit surprised not to have seen anyone making this point, but one obvious consequence of the current situation in Ireland is that European integration (to the extent that it is driven by Treaty change) is dead for the foreseeable future. New Treaties – if they are to be passed, not only require unanimity, but have to pass through two veto points.
First, they have to get a majority vote in a referendum in Ireland. This is thanks to a legal ruling (the Crotty ruling) that Treaty texts which have constitutional implications (which any Treaty involving significant further integration obviously _would_ have) require popular assent in a referendum. Given popular anger at the way that the bailout has been structured, I imagine that the chances of Ireland voting ‘yes’ to any new European initiative are close to zero.
Yet even if somehow the Irish people could be persuaded to say yes to some initiative – perhaps because it put in place a more equitable system of fiscal transfers in the case of crisis – it would have to pass through the second veto point – the German Constitutional Court. The Court has made it clear in recent rulings that it is not prepared to countenance major new initiatives that might e.g. shift responsibility for decisions over fiscal policy to the EU level. In other words – any more equitable system of economic governance is likely to be vetoed.
It is extremely hard to envisage Treaty changes that could get a yes vote in Ireland. It is next to impossible to imagine any new Treaty that could _both_ get a yes vote in Ireland, _and_ survive scrutiny in Karlsruhe. Hence – the process of ‘ever closer union’ through Treaty change is effectively dead. One can imagine other mechanisms of change (drift, policy incrementalism, ECJ rulings) coming into play, but they are unlikely to result in any very obvious changes except over the very long run.
While there has been a lot of interesting work by economists on Ireland’s crisis over the last year, there hasn’t been much on the _political economy_ of the crisis. This piece, written this summer by Sebastian Dellepiane Avellaneda and Niamh Hardiman at University College Dublin, is the best that I’ve seen, and is particularly excellent on the interaction between Economic and Monetary Union and domestic decision-making structures. I’ve patched together extracts Brad-De-Long style into a short quasi-narrative below the fold, but if you are interested, you should really download and read the original piece.
Tyler Cowen links to my post on Ireland, which is somewhat embarrassing, as I was convinced in comments that my basic argument was wrong (short version: _always_ check taxation statistics you think you have a fair idea of before you post opinions regarding their implications). While property taxes played a crucial role in Ireland’s fiscal disaster, corporate taxes were simply not a large enough part of revenue to be worth talking about (and probably would not have been under any plausible alternative regime).
Nonetheless, I still want to make a (weaker and more indirect) argument about the relationship between Ireland’s efforts to attract inward investment (which included, but were not limited to, its taxation regime) and its current state of disaster. The short version: the desires (a) to attract inward investment, and (b) to maintain peaceful industrial relations helped reinforce an unsustainable fiscal strategy. This has implications for the left as well as for the right.
Matt Yglesias on the horrors of the Irish economy.1
bq. Today of course Ireland is a total disaster. I wouldn’t try to blame their property crash on low tax rates. But by the same token a frightening number of pundits went “all-in” on the idea that Ireland’s conserva-friendly tax policies were behind a boom that was in fact driven by a real estate bubble.
I personally _would_ try to blame a fair chunk of Ireland’s property market crash on low corporate tax rates.
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I’m quite glad I’m not an Irish taxpayer, or I’d be very pissed off indeed today. Details are beginning to emerge about the reasons why the Irish government stepped in to offer an unconditional guarantee for the liabilities of Irish banks at the beginning of the crisis – a decision which really has had very unpleasant consequences indeed for the Irish economy. Three fact stand out. First – that perhaps the most urgent precipitating factor seems to have been the unfortunate fact that no-one wanted to lend money to Anglo Irish Bank. From an advice memo by Merrill-Lynch to the government
bq. However, liquidity for some could run out in days rather than weeks. Anglo Irish has recently approached the Central Bank with a proposal to create a new funding facility that the Central Bank would accept commercial mortgage assets in exchange for cash. Anglo are rapidly approaching the point where they have exhausted all possible sources of liquidity available via the market or their ECB eligible collateral is close to being fully utilized.
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I was thirteen at the time of Bloody Sunday, so I can remember it just about. It is hard to know what to think about today’s report. On the one hand, it is a kind of justice, however inadequate, for the relatives; on the other, it has taken nearly forty years. And the British government has spent £200 million to tell us what we all knew anyway: that British paratroopers murdered fourteen civilians in cold blood and that a subsequent “inquiry” (Widgery) was a whitewash. Still, it is one thing knowing the truth (as we already did) and it is another to have it publicly acknowledged. Will there be prosecutions? Doubtful.
After a disastrous poll last week that showed people in Ireland think little of the Taoiseach and less of opposition leader Enda Kenny, Richard Bruton has made a bid for leadership of Fine Gael. I hope he wins.
Bruton is the brains of the operation and an able and articulate politician. He has singlehandedly carried the almost forgotten social democrat mantle in a party long over-run by Christian Democrats who wouldn’t be out of place in North Rhine Westphalia. He has a social conscience and mastery of policy detail almost unknown in Irish politicians, but he seems able to get his ideas across in a straightforward and compelling way. Bruton offers a fully thought-through alternative economic and political vision to the crony capitalism that has dominated Ireland for almost two decades. And, in an era where cutbacks and ‘tough decisions’ are inevitable, he has shown today a willingness to wield the knife. [click to continue…]
Apropos of my piece on Ireland’s bubble economy for the _Washington Monthly,_ it does no good thing for a country’s reputation when they start naming tax dodges perfectly legitimate tax avoidance strategies after you.
bq. On advice from Ernst & Young, Forest Laboratories Ireland reorganized that year, dropping the country from its name. The newly dubbed Forest Laboratories Holdings Ltd. established a registered office in Hamilton, Bermuda, declaring the island its tax residence. This unit took control of licensing the patents. A second subsidiary in Ireland inherited the old name. It handled the manufacturing, sublicensing the rights to the patents, according to a corporate disclosure and an internal Forest flow chart tracing the arrangement that was reviewed by Bloomberg. The change helped the Irish subsidiary cut its effective tax rate to 2.4 percent from 10.3 percent the year before the reorganization, according to its annual reports. It did so by deducting from its taxable income the fees that went to Bermuda, which has no corporate income tax. Charlie Perkins, a spokesman for Ernst & Young, one of the so-called Big Four accounting firms, declined to comment on its work for Forest. International tax planners have a nickname for the type of structure the drugmaker adopted: the Double Irish. …
bq. Even though Forest described its Bermuda office as the Irish subsidiary’s “principal place of business” in a 2008 court filing, it has no employees on the island. The closest it comes to an actual presence is its registered office at Milner House, at 18 Parliament Street in Hamilton, a beige building nestled among the pastel structures of the island’s main commercial area. There, Coson Corporate Services Limited, part of law firm Cox Hallett Wilkinson, provides “corporate administrative services” for Forest Laboratories Holdings, according to Jeannette Monk, who identified herself as the company’s corporate administrator. Asked whether Forest had any employees there, she said, “This is a law firm.”
But perhaps “Double Dutch” would be better …
bq. To avoid another Irish tax, Forest’s profits don’t fly direct to Bermuda. They have a layover in Amsterdam. Fees paid to the Bermuda unit pass through yet another subsidiary, Forest Finance BV in the Netherlands, according to the internal Forest document, Dutch corporate records and a person familiar with the transaction. That route bypasses a 20 percent Irish withholding tax on certain royalties for patents, according to Richard Murphy, a U.K. accountant who worked on similar transactions and is director of Tax Research LLP. The structure takes advantage of an exemption from the levy if payments go to a company in another EU member state, Murphy said.
A really good article from Bloomberg – go and read it.
My review of “Ship of Fools,” Fintan O’Toole’s book on the wreck of the Irish economy, is up at the _Washington Monthly._ Opening paragraph:
bq. When I first came to the United States from Ireland in the early 1990s, Americans thought of my home country as a land of green fields, bibulous peasants, and perhaps the occasional leprechaun. Once, on a bus from Ann Arbor to Detroit, a fellow passenger heard my accent and asked if she could touch me for good luck. But something changed over the course of the 1990s and 2000s, as Ireland started to enjoy remarkable levels of economic growth. Blather about Guinness and the Little People made way for a new story line: the success of the Celtic Tiger economy. Between 1995 and 2007, Irish GDP grew at an average rate of 6 percent every year. Housing prices rose by 270 percent between 1996 and 2006. A country that had long been notorious for its high emigration rates started to import people instead. Gort—a tiny town in Galway—acquired a large population of South American immigrants, while Dublin supported no less than three Polish-language newspapers.
All up to dsquared now.
Sad and upsetting times in Ireland. Cardinal Brady, it turns out, was instrumentally involved in the closed investigation of the monstrous Fr. Smyth, and himself swore to secrecy two children raped by Smyth. The incident simply resulted in Smyth getting some form of censure from the Church and going on to rape and abuse many, many more children. Whose parents were in turn stonewalled by the Church. How does anyone get over this? Should they?
Meanwhile, Pope Ratzinger is wriggling off the hook – at least this hook, this time – for his own involvement in a cover up. It’s odd to me that people are searching so intently for Ratzinger’s smoking gun, when as head of the Congregation for the Indoctrination of the Faith, he wrote to bishops telling them that breaking the seal of secrecy on church investigations of sex abuse was punishable by excommunication. That’s the smoking gun that destroyed not just the childhoods and perhaps lives of one or two children in Ratzinger’s direct responsibility, but thousands of children around the world who deserved better from the one, true Church.
The Irish adult voices of raped children are joined by American ones; people now grown up who were raped and abused by Fr. Smith when he was sent away from these shores and off to where he wasn’t known and could start again. A Connecticut woman poignantly asks why she was repeatedly raped by a priest who had been sent to America instead of to the police. An Irish woman asks why no one went to the police. If they had, she might have been saved. Many might have been saved. [click to continue…]
Tyler Cowen links to a post on a blog that I had hitherto been unaware of, True Economics (proprietor: Constantin Gurdgiev, Adjunct Lecturer in Finance with Trinity College, Dublin and Chairman of the Ireland-Russia Business Association), asking the question “How much did the Irish government subsidize housing?” I’m writing a review of Fintan O’Toole’s “Ship of Fools” which speaks specifically to this question, and the answer is ‘not very much at all.’
Gurdgiev’s post is both quite mad and oddly charming, combining denunciations of the ‘Stalinesque schemes’ to provide development funds for Western Ireland and a railway link thereto, with quite sincere-sounding suggestions that he wants to engage with his critics. His intent is to rebut Paul Krugman’s recent column on the Irish economic collapse (Krugman builds explicitly on this recent report by three Irish economists). But his post, entertaining though it is, cannot be taken as a reliable guide to housing policy in Ireland, or indeed to Ireland’s economic crisis.
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Oh dear. Half of Greece is now protesting against the EU as the cause of budget cuts, and not, say, their own lying government(s), aversion to tax and an enormous black economy. They could even more logically protest about Goldman Sachs’ role in the affair. But no, it’s all the Germans’ fault.
Invoking the European statesman’s version of Godwin’s Law, Greece’s deputy prime minister Theodoros Pangalos says Germany never paid proper reparations following its occupation of Greece in 1941:
“They took away the Greek gold that was at the Bank of Greece, they took away the Greek money and they never gave it back. This is an issue that has to be faced sometime in the future,” Mr Pangalos told the BBC World Service.
“I don’t say they have to give back the money necessarily but they have at least to say ‘thanks’,” he added.
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