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Benchmarking Working Europe 2014

BENCHMARKING 2014 - ETUI ‘Is Europe still suffering the consequences of crisis, or is the current situation rather the outcome of inappropriate policy choices? And if the wrong policies have indeed been followed, is it possible to envisage more effective alternatives?’    

Breaking down the myths

Dr Conor McCabe gave an excellent presentation at the Communist Party’s meeting this weekend, ‘They partied, we paid!’ In his presentation he put up a number of slides that help us break down some of the myths and lies peddled by the establishment. Myth # 1 – ‘We all partied’ The establishment constantly push the

The 67 people as wealthy as the poorest 3.5 billion!

In 2013 Oxfam reported 85 people had the wealthy of the poorest 3.5 billion but the rich have got richer and Forbes now reports it is down to 67 people who have the same wealth as the poorest 3.5 billion of us. Full Forbes article at link below. http://www.forbes.com/sites/forbesinsights/2014/03/25/the-67-people-as-wealthy-as-the-worlds-poorest-3-5-billion/

Their Growth, Their Slowdown and the condition of the People

An excellent report from India and the affect of the crisis of capital on the people much of which is very relevant to Ireland. As we shall see, the ‘growth’ around which the discussion is focussed is irrelevant to the people. We shall also see how those demanding interest rate hikes are actually unconcerned about

Banking in Cyprus: A crisis made in the eurozone

Read the full paper here  A crisis made in the eurozone Report from Research on Money and Finance Entry into the euro, followed shortly by the Eurozone debt crisis and subsequently by the problematic management of the banking crisis by the EU, has had profound and detrimental effects on the Cypriot banking system. This brief

Benchmarking Working Europe 2014

BENCHMARKING 2014 - ETUI

‘Is Europe still suffering the consequences of crisis, or is the current situation rather the outcome of inappropriate policy choices? And if the wrong policies have indeed been followed, is it possible to envisage more effective alternatives?’

 

 

Breaking down the myths

Dr Conor McCabe gave an excellent presentation at the Communist Party’s meeting this weekend, ‘They partied, we paid!’

In his presentation he put up a number of slides that help us break down some of the myths and lies peddled by the establishment.

Myth # 1 – ‘We all partied’

The establishment constantly push the line that we all partied, we all got involved, we were all overpaid and we all bought properties. Nothing could be further from the truth.

68% of us earned less than €40,000 in 2009.

And during the so-called Celtic Tiger owner-occupancy actually reduced, meaning many of us did not get involved.

Myth # 2 – Housing ownership is in our DNA

Owner occupancy actually reduced during the boom years and Ireland is no different than most of Europe in terms of owner-occupancy trends.

Our owner-occupied with a mortgage or a loan is about the EU average and stands below countries like Finland, Belgium, UK, Denmark, Netherlands, Iceland, Sweden and many other countries. So, no, the famine has not created a genetic desire to own a home.

And the property bubble was not a uniquely Irish phenomenon.

Myth # 3 – House prices rouse responding to demand

It’s often suggested that the rise in house prices was a logical consequence of our rising wages and it’s what we deserved for giving ourselves massive pay increases. Again, nothing could be further from the truth.

House price rouse at many multiple times the rise in wages.

And the rise in house prices actually resulted from the sudden influx of cheap money for Irish Banks on the interbank market that facilitated them flooding the Irish market with credit.

Myth # 4 – NAMA is necessary to stabilise house prices to help those in negative equity

Almost whenever NAMA is mentioned they talk about our mortgages and our homes as if that is what NAMA is all about and so homeowners quietly support it on the presumption it is somehow helping them. But once again this is nonsense as the overwhelming value of loans socialised by NAMA are commercial loans not homes at all.

So who is NAMA really protecting?

As always, thank you Conor McCabe.

 

The 67 people as wealthy as the poorest 3.5 billion!

In 2013 Oxfam reported 85 people had the wealthy of the poorest 3.5 billion but the rich have got richer and Forbes now reports it is down to 67 people who have the same wealth as the poorest 3.5 billion of us.

Full Forbes article at link below.

http://www.forbes.com/sites/forbesinsights/2014/03/25/the-67-people-as-wealthy-as-the-worlds-poorest-3-5-billion/

Their Growth, Their Slowdown and the condition of the People

An excellent report from India and the affect of the crisis of capital on the people much of which is very relevant to Ireland.

As we shall see, the ‘growth’ around which the discussion is focussed is irrelevant to the people. We shall also see how those demanding interest rate hikes are actually unconcerned about inflation as it affects the vast majority of the people. Indeed the entire discussion of the slowdown brings to the fore once again the gulf between the economy of the elite and that of the masses of people. This should not be taken to mean that the two operate independently of each other; rather, the former is rising on the bony and weary back of the latter. As the elite strains to reach higher and higher, it plunges the people into the depths.

Full paper below:

http://rupe-india.org/50/growth.html

Banking in Cyprus: A crisis made in the eurozone

Read the full paper here  A crisis made in the eurozone

Report from Research on Money and Finance

Entry into the euro, followed shortly by the Eurozone debt crisis and subsequently by the problematic management of the banking crisis by the EU, has had profound and detrimental effects on the Cypriot banking system. This brief note highlights how adoption of the euro and the Eurozonecrisis jointly formed the critical backdrop to the Cypriot crisis.

 

Ireland Holds the Record for Longest Domestic Recession in the EU

Taken from Michael Taft’s

http://notesonthefront.typepad.com/politicaleconomy/2014/03/some-commentators-are-celebrating-our-recovery-some-have-even-said-that-we-have-recovered-relatively-quickly-after-a.html

Some commentators are celebrating our ‘recovery’.  Some have even said that we have recovered relatively quickly, after a dramatic fall.  Here we go again – rewriting history, distorting the current situation.

Ireland holds the record for the longest domestic demand recession in the EU.  And the really bad news is that we may not be out of it yet.  The following table breaks down the length of consecutive domestic demand recession that EU countries have suffered since 1960.

Almost all EU countries have, since 1960, suffered at least a two-year domestic demand recession – with the exception of France and Malta (though data only goes back to 1996 for the island).  Some domestic demand recessions have been harsh – Estonia’s two-year experience saw a fall of over 30 percent; some have been mild – Poland’s two-year experience saw a fall of less than one percent.

Ireland – along with Spain and Greece – have the longest consecutive domestic demand recession:  six years.  And in the tradition of breaking the tie, let’s count the number of years that domestic demand fell since 1960:

  • Ireland:  12 years
  • Greece:  10 years
  • Spain:  9 years

With 12 years where domestic demand fell, Ireland wins on points.

Indeed, Ireland wins the double:  longest domestic demand recession and the highest number of years where domestic demand fell.  Since 1960, Ireland has spent 23 percent of the time suffering from falling domestic demand. That’s the cup.

But, surely, this is nit-picking – what with all that recovery going on.  So don’t worry about it.

Vulture capitalists eye Irish homes

A number of mortgage books have already been sold to unregulated private equity companies or hedge funds, mostly American; but in the proposed sales of the IBRC residential book (13,000 former INBS mortgages) we are looking at the largest sale ever of mortgages to unregulated vulture capitalists.


What does this mean for mortgage-holders?
Their mortgage will now be held by an unregulated entity whose sole purpose is to squeeze as much money out of the debt as possible. If it paid 30 cents for each euro of debt it will try to secure 50 cents or more back. As unregulated entities, mortgage-holders will not be covered by the Central Bank’s code of practice on mortgage arrears, which provides some minimal regulation and process for mortgage-holders who fall into arrears. Families will be completely at the mercy of these entities.
The voluntary agreement, much trumpeted by the special liquidator of the IBRC, is worthless. it is not even written down, which he confirmed to the Finance Committee of the Oireachtas late in February.
These vulture funds will base all their decisions on maximising the return for their investors. They are not vulnerable to political pressure or to negative publicity. If an asset becomes more valuable than a prospective return, they will evict families, seize the asset, and sell it on. They may securitise some mortgages further and sell these on to other entities. As most of the former INBS mortgages are on variable interest rates, they may increase the interest rates, especially on performing loans, if they feel this will increase their return.
The list of options are there for these funds, none of which are good news for any families involved.
One option not pursued by the IBRC, however, was that owners of the mortgage might be able to buy their own loan. Even if the mortgage-holder was willing to pay more for the loan than the vulture capitalist, they would not be allowed to buy it.
This sale process has also exposed, once again, the circle of big business that continues to profit from the misery they were involved in creating. The special liquidators appointed to manage the winding down of IBRC are KPMG. But KPMG were also the auditors of INBS and approved their accounts, which were so horrifically skewed towards speculative lending.
The legal advisers to the special liquidators are McCann Fitzgerald, who advised INBS on corporate governance; and a wonderful job they did.
And the “independent valuation” of the IBRC loan books for sale was carried out by PWC, the firm that valued the Anglo-Irish book in 2008 and reassured the Government that they would only require recapitalisation of €300 million. Only off by a factor of 100!
So it’s clear who this process has been designed to benefit, and what the Government means by a “recovery.” It’s a recovery of property inflation and profits for the wealthy, and a recovery of contracts and profits for big business.
[NL]

http://www.communistpartyofireland.ie/sv/01-vultures.html

Forbes Irish Rich List

Irish billionaires are worth a whopping $25 billion between them

The Celtic Tiger may have left the building, but Ireland’s billionaires are sitting on a combined fortune of $25 billion, according to the latest figures from Forbes magazine.

There are 1,645 names on the latest list of the world’s billionaires from Forbes and between them they control $6.3 trillion in wealth, according to an Irish Independent analysis of the report.

The paper says India-based Pallonji Mistry (84), the patriarch of the sub-continent’s massive Shapoorji Pallonji construction group, is listed as being worth $12.8bn and, thanks to his Irish citizenship, is Ireland’s richest person by far.

Media and communications tycoon Denis O’Brien (55) is listed by Forbes as Ireland’s second richest person, with a $6bn fortune.

The largest shareholder in Independent newspapers, O’Brien also controls the Digicel mobile communications group, which operates in the Caribbean, the Pacific and Central America.

O’Brien also controls Communicorp, which owns radio stations in Ireland, the UK and eastern Europe.

In third spot in the Irish rankings is John Dorrance, the 70-year-old worth $2.5bn who renounced his US citizenship and moved to Ireland before selling his 10.5pc stake in Campbell Soup Company.

Forbes speculates that he moved to Ireland to avoid paying high capital gains tax in the US.

Glen Dimplex founder Martin Naughton (74) is named by Forbes as Ireland’s fourth richest person with $2.2billion in total assets.

Celtic football club owner Dermot Desmond is fifth-richest at $2bn.

The paper says that among the Irish billionaires missing from the group are Hilary Weston and her family, who are behind Brown Thomas, Selfridges and Associated British Foods, the company that owns Primark. They are estimated to have a $10billion fortune.

Dublin financier Paul Coulson, who owns a large stake in glass container maker Ardagh, is said to be worth just over $1.3billion.

The Forbes list is topped by Microsoft founder Bill Gates, with a $76bn fortune.

http://www.irishcentral.com/news/Irish-billionaires-are-worth-a-whopping-25-billion-between-them.html

The euro and the balance of payments

The euro has worked well for the creditor (surplus) countries. Germany is the best example. The German mark would have risen in value if there was no euro, and this probably would have eliminated some of the surpluses.
These surpluses enabled the Germans to buy assets abroad: for example, Lidl and Aldi have expanded throughout Europe. They return profits to Germany, and this increases the German surplus and the Irish deficit. This applies to the other creditor surplus countries: the Netherlands, Austria, Finland, Belgium, and Luxembourg.
The Chinese are achieving similar results by keeping the value of their currency low. They have been able to buy up US government bonds, and mines in Africa and Australia, with the surpluses generated by this policy.
Some countries in the euro area were winners in international trade, and some countries were losers. The winners had trade surpluses, and the losers had deficits. In table 1 the surpluses of the winning countries are shown as an average percentage over the periods 1990–99 and 2000–09, as well as the cumulative sum of their surpluses in the latter period.
Table 1: Average surplus or deficit as a percentage of GDP, creditor countries
1980–89 1990–99 2000–09 Cumulative surpluses,
2000–09
Population, 2009
Germany 2.2 –1 3.8 €883.5 billion 81.757 million
Netherlands 3 4.1 6.5 €332.1 billion 16.612 million
Belgium –0.4 3.9 4.3 €127.8 billion 10.883 million
Austria –1.8 –2.1 2.2 €57.7 billion 8.388 million
Finland –1.4 0.9 5.3 €45.2 billion 5.363 million
Luxembourg 15.9 12 9.7 €28.2 billion 508 million
Average using population weights 1.7 2.1 4.2
Total €1,474.5 billion 123.511 million
Note: Cyprus, Estonia and Malta adopted the euro in 2008, and Slovenia and Slovakia joined in 2007, and they are left out.

It is important to remember that the euro is a fixed exchange-rate mechanism (in 1999 each currency was fixed against the euro), with no exit mechanism. This gives rise to the surpluses and deficits.
Between 2000 and 2009 the euro was undervalued with respect to these creditor (surplus) countries. The cumulative sum of the surpluses is approximately €1½ trillion. Most of these surpluses would have arisen from trade with other euro countries.
As Germany had the largest cumulative surplus—approximately €0.9 trillion—it is worth analysing what happened in Germany. The 1990s deficit for Germany is deceptive because of reunification. But the average surplus for the 1980s, 2.2 per cent, was much less than the 3.8 per cent of the euro era. If the 1980s rate had applied in the euro era, the cumulative surplus would have been €364 billion less.
Since 2009 the surplus is approaching €200 billion per annum, which is twice the level of the period 2000–09.
The Germans operated a beggar-my-neighbour policy by keeping tight control over wages. Gross wages in Germany in the first quarter of 2010 were 22 per cent higher on average than in the first quarter of 2000, while other labour costs were 19 per cent greater, according to the German Statistics Office. This was the lowest increase in twenty-two countries of the EU. The average increase in wages for the EU was 36 per cent, and other labour costs were also 36 per cent.
This moderation in wages was facilitated—
(1) by the system of “co-determination” in larger firms, whereby unions, as part of board structures, agreed to low wage increases;
(2) the fact that more and more firms were able to opt out of industry-level agreements and were able set more flexible working time, which lowered costs and reduced wages;
(3) the Hartz IV reforms, which cut welfare benefits and forced recipients to take low-paid, part-time or temporary jobs. The government provided benefits to top up their incomes. This enables employers to be more competitive, and they were able to hire short-term workers, and to fire them at will. There are now 1.3 million workers with these types of conditions.
Adjusted wage share as a percentage of GDP in Germany fell from 66 per cent in 2000 to 64 per cent in 2010; adjusted share that went to capital increased from 34 per cent in 2000 to 36 per cent in 2010. So over the decade there was a major transfer from labour to capital in Germany.
These factors made exports more competitive, and meant that workers’ demand for imports from other euro countries was reduced. As a consequence, German exports went up, and imports did not rise as fast. Exports from the deficit countries to Germany did not rise as fast.
Exports reduced unemployment in Germany and increased unemployment in the countries that imported from Germany. The reduced imports into Germany meant that German firms could sell more, and this reduced unemployment. This had the opposite effect on unemployment in countries exporting to Germany.
These surpluses increased Germany’s sway with the other creditor countries in the euro area and in the EU. They ended up in the private sector; and as this was foreign currency, they were able buy foreign assets directly, or they could invest in foreign financial instruments. Deutsche Bank was a conduit for German investors investing in foreign governments, foreign banks, and foreign companies. German companies could also invest directly abroad; banks such as Deutsche Bank and Commerzbank became involved in buying bonds issued by banks and governments in the deficit countries. Deutsche Bank, as well as banks such as Goldman Sachs, developed esoteric financial instruments with higher rates of return during this period, which led to the recession in 2008.
The performance of France is shown in table 2. It had a small deficit in the euro era. It cannot be classed as a creditor country or a major deficit country, so it has a separate table.

Table 2: Average surplus or deficit as percentage of GDP, France
1980–89 1990–99 2000–09 Cumulative surplus,
2000–09
Population, 2009
–2.1 0.7 –0.2 –€59.4 billion 64.824 million
      Table 3 shows the performance of the debtor (deficit) countries.
Table 3: Average surplus or deficit as percentage of GDP
1980–89 1990–99 2000–09 Cumulative surpluses,
2000–09
Population, 2009
Italy –1 1.3 –1 –€150 billion 60.483 million
Spain –1.1 –1.8 –6.3 –€579 billion 48.073 million
Greece –0.6 –1.7 –13.3 –€115.5 billion 11.308 million
Portugal –8.1 –6.4 –9.7 –€149.1 billion 10.637 million
Ireland –5.8 1.4 –2.2 €36.2 billion 4.476 million
Average population weights –1.8 –0.3 –2.9
Total –€1,030.3 billion 134.977 million
Note: Cyprus, Estonia and Malta adopted the euro in 2008, and Slovenia and Slovakia adopted it in 2007, and they are left out.

The euro was overvalued with respect to the debtor (deficit) countries.
Greece’s deficit increased dramatically, from less than 2 per cent per annum in the 1990s to over 12 per cent during the 2000 decade. It is a similar story with Portugal and Spain. It is clear from a trade viewpoint that the euro has been bad for these countries, and it seems likely with hindsight that these countries should not have joined the euro.
Ireland did not have as dramatic a trade swing but, like Spain, had a banking crisis and a fiscal crisis after 2008.

Solutions to the imbalances

1. The creditor countries could expand demand or increase wages. This would lead to extra imports from the debtor countries and go some way towards solving their deficits. The Germans object to this, because it might cause inflation in Germany. It also smacks of Keynesian economics, and the Germans are now in the neo-liberal camp and believe that governments should not interfere in markets.
2. The deficit countries could retain the euro but pursue a policy of “internal devaluation.”
(a) This means cutting wages in the economy to make exports cheaper and domestic goods more competitive against imports. But the creditor countries are dominated by large companies, and it will be difficult for the deficit countries (excluding Italy, where most firms are small) to expand output to compete with these.
(b) Lower wages lead to less consumption, and this leads to a contraction in the economy. If it is assumed that investment remains the same, and the effect of a is greater than that of b, the economy contracts (negative economic growth and higher unemployment). This has happened here since 2008. This lowers imports and reduces the balance of payments deficit.
(c) Other incomes may be unaffected—for example doctors, lawyers, and pharmacists—and profits will rise. This is unfair, as only one sector (employees) have their incomes reduced.
(The present situation in Ireland is complicated by the need to meet the Maastricht criterion of a maximum ratio of deficit to GDP of 3 per cent. This has led to reduced expenditure and increased taxation, which reduces demand further in the economy, reduces growth, and increases unemployment. The present Government emphasises cuts in expenditure (two-thirds), which affect low-income households most, over tax increases (one third), which affect higher-income households. This is austerity.
3. The deficit countries could abandon the euro and devalue their currencies. This would increase exports and reduce imports in time. Thus the deficit would be cut. But the foreign portion of government debt would increase, and so would the interest on it.
4. The possibility of a return to the exchange-rate mechanism is most unlikely, but this would lead to adjustments being undertaken in a more orderly fashion, without the major dislocations that are occurring under the euro regime.
From all this it can be seen that the euro area is divided into surplus and deficit countries. The inclusion of the deficit (weak) economies brings down the value of the euro and creates surpluses in the surplus countries. The inclusion of the surplus (strong) economies increases the value of the euro and creates deficits in the deficit countries.
It should also be noted that the population of the deficit countries—135 million—is greater than that of the surplus countries—124 million—yet policy seems to be run by and for the surplus countries.
[KC]

http://www.communistpartyofireland.ie/sv/06-euro.html

Ireland needs a pay increase – Unite Research

A new research paper from Michael Taft of Unite the Union here in Ireland shows why Ireland needs a pay increase.

Highlights are:

  • Pay is 14% below EU average
  • Pay is 30% below other ‘small, open economies’
  • Irish productivity is well above the average of other EU-15 countries
  • Irish Labour costs make up a smaller portion of operating costs than other EU-15 countries
  • Irish profits are NOW growing at a faster rate than profits in the Eurozone

Read the full paper here, Ireland needs a wage increase