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ONE OF THE few people who predicted the Icelandic financial and economic crisis has insisted that austerity is working in Ireland but criticised the European Central Bank for not doing more to address the lack of growth in the eurozone.
Lars Christensen, the chief market analyst at Danske Bank – which owns National Irish Bank – told TheJournal.ie that the government’s implementation of fiscal austerity is necessary to balance the books but called for more quantitative easing in the eurozone.
“The ECB needs to deliver in terms of providing some stability in the outlook for GDP and for growth. Rather than debating whether austerity is right or wrong, we should be debating that we need to have more monetary easing,” Christensen said.
“So we should continue down the road of austerity if that means balancing the budgets over the long run. But that would be tremendously much easier if we had growth in the economy.”
Christensen said that ECB’s decision to effectively create over €500 billion in cash and lend it to some 800 banks last February in what is called a long-term refinancing operation (LTRO) had eased the crisis in the eurozone “but we’re still very close to the edge”.
Watch:
He called for a more coherent strategy from the ECB because “the markets lose track of where the ECB is”.
“I think fundamentally Europe needs much more quantitative easing but I also think it should be done within a very, very clear rule framework and it should not be about bailing out countries or bailing out banks but ensuring that the European economies do not go into deflationary downward spirals,” he said.
This week, Christensen gave a presentation to clients of National Irish Bank at Dublin’s Convention Centre. He was the co-author of the Geyser crisis paper in 2006 which forecasted the Icelandic financial crisis.
Drawing comparisons with the situation in Irish banks, Christensen said that the sheer size of government’s bailout in September 2008 coupled with a lack of a co-ordinated response across Europe contributed to Ireland’s problems.
“We had a competition to guarantee the most and that had some very unfortunate ramifications for the banking sector across Europe that clearly escalated the crisis. So I think that is clearly the greatest mistake,” he said.
Watch:
Christensen also said that personal insolvency legislation was important in Ireland but that there was a need to do it right rather than “in a panic”.
He added: “If you have households or if you have companies that are insolvent it should be acknowledged. If that means that there will be losses to the banks, well, then that’s just too bad.”
Watch the full interview with Lars Christensen in which he talks more about Ireland’s financial crisis, the Fiscal Compact referendum and whether or not the country will need a second bailout:
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Try living here. Try getting sick here and going to the doctor, try paying €400 on road tax then bursting a tyre in a pothole on Clogher Road, try sticking your mother in a nursing home and watch her die a slow painful death, try skipping meals so your kids can eat after school, try watering down milk and buying everything from the clearance freezers in tesco, try having no friends left in the country because they’ve all emigrated.
Then tell me austerity hasn’t failed.
Well said…!
Thomas! I can absolutely relate to every point you make in your post! It’s time that real peoples living standards were properly investigated! The high powered that make the financial decisions haven’t a clue what it’s like to live in the real Ireland! Austerity doesn’t begin to effect those that make the rules! Someone in Government had better wake up soon, because I genuinely believe the real people are at breaking point!
Spot on Rodrigo. Very hard to see the real Ireland when the 2012 S-class takes you from your blackrock mansion to the dail every morning where you collect €200k a year ON TOP OF your pension(s) ON TOP OF unvouched for expenses.
The men in power here are so far out of touch with reality that its quite frightening.
‘Every morning’??? Haha! Unlikely they go to work every morning!
Unfortunately in this world today there are people that genuinely go without food themselves in order to feed their children. Claiming to be among them when you live in a western European democracy strains credibility. If things really are that bad perhaps you should try prioritising food over internet access and a car.
Brian, most people access the internet through their phone. Maybe he needs a car to visit his dying mother or to bring his kids to school. Either way, its none of your business’
Brian, – internets trough the phone. Dont have the car anymore.
Go back to bed
how people can give you thumbs down for your comment is frightening .
Dermot, its probably those who reckon the government are doing a great job.
@ Hitthepotthomas
Heartfelt comment & right to the crux of the real issues. Typical of his ‘class’ – elites or their ‘useful idiots’, Christenson speaks to none of this.
We need a +radical+ rethink of the failed currency union. (Failed for us, not the top few percent of course. They still profit from the mess.)
And we need real policies for growth in the real economy.
NEVER accept the ‘TINA’ mantra & scaremongering of the authorities. There are real alternatives.
See my full post below, and VOTE NO in the referendum to demand the process to reform begin.
After 4 years of “austerity”, the deficit still stands at 13% of GDP. Whatever way that is dressed up – ie 4% is due to the banks- that is still a huge fail (as are the emigration figures, rise in income inequality, increases in poverty).
Would it be cynical of me to suspect that the fact Lars works for a bank we’re pouring money into may have an effect on his comments?
God knows what his salary is, too ? Easy to talk about austerity etc when on big money. As Thomas Jefferson, the 3rd U.S President & co signer of the American Declaration Of Independence said in the 1770′s – “I believe that banking institutions are more dangerous to our civil liberties than any standing armies”. How right he was. Not one banker stripped, handcuffed & jailed for what they did. The “little people” as usual pay for it. Banking institutions destroyed our economy as well as gutless, spineless & headless politicians from all parties. They too are still on big pay & perks. Each & everyone of them “failed” & as far as I am concerned now at this stage – they can all go f**k themselves.
460000 people unemployed. No one jailed. Pensions, wages, social welfare cut, taxes raised, water charges to come. Austerity has not worked for the people. It has worked for the economy but the economy does not buy food the people do!
It is time that accountability became mandatory for the gamblers who got us into this mess.
NIB got 5 billion bailout from tax payer. They have sold on all Irish debt to foreign bond holders so have been paid twice already!! How it’s possible to make a loss when you’ve been paid twice it takes some spoofer!!
Just a few greedy men brought all this on us Why are they not locked up.
I suspect they are all in “the know”. They all know where the skeletons are buried & each is afraid to speak out of fear of discovery.
Dermot if they banks were allowed to go bust they would have taken the ruling and political class with them and they were not going to allow this to happen ,cowen is a traitor who committed treason but to the wealthy he is a hero
I completely agree with Hip there. All well and good making these decisions when your not the one living it.
I get your point hippo, but maybe you exaggerate a bit?!
Unfortunately I dont.
Oisin, I cant see anything in Hipos post that could be an exageration. Some reads quite familiar to me and I have a job.
Are you a politician by any chance Oisin?
I don’t think Mr Christensen need concern himself about more monetary easing. Once a government/central bank goes down the road of printing money to keep the economy going it becomes near impossible to turn back. We saw the last Ltro gave beleaguered governments about 3 months grace on bond markets. The next session is unlikely to extend to 3 months.
http://papermoneycollapse.com/2012/02/there-will-be-no-end-to-quantitative-easing/
Quantities easing works. Zimbabwe is a good example. When u got paid u had to spend it immediately . If u waited a day it was worthless
That’s the best one yet. A guy from a bank telling us austerity is working. Whilst he drives to work in his Porsche and collects his fat bonus as his bondholder buddies clap his back. This guy has got be a comedian.
I find it hard to take anyone who wears a green tie with a blue shirt and white collar seriously!
And he’s also talking about something that ANY ECONOMICS TEXTBOOK WILL TELL YOU. Basically, he’s looking for attention.
Who is this buffoon, he does work for a bank that continues to loose hand over fist here in Ireland?
Just had another thought on looking at his photo! was this guy a band member of the MONKEYS? :)
This is a hugely disappointing piece from the Journal. (I don’t blame you, Hugh, the entire mainstream of economics thinking is bogus, but please, why not a video interview with Professor Bill Mitchell, see link below?)
Lars Christenson exemplifies the deeply flawed economics thinking, deeply ingrained in near 30 years of neo-liberal ideology masquerading as ‘economics’. Thinking that not only resulted in the crisis itself, the massive blowing up of a +private+ sector debt mountain, but is also the root of the last 4 years of failed policies that now has even Germany – the ‘mercantilist’ winner of the Euro contest – heading into recession. (This should tell you it’s not about ‘nations’, rather elites vs the rest. Plus ca change, eh?)
Specifically. two things stand out in this interview of confused nonsense.
Christenson says…”…my mom always said, you cannot spend more than you have…” offering this piece homely sounding cr@p as MACRO economics wisdom.
Really this is MACRO economics 101.
The MACRO economics of a nation is profoundly different from the MICRO economics of a household. IT SIMPLY DOES NOT WORK LIKE THIS. There are NO USEFUL INSIGHTS WHATEVER from a HOUSEHOLD budget anology. Whenever you hear this rubbish from +anyone+ IGNORE THEM.
Let’s make it simple.
You, as a householder, have a fixed salary of say €20,000 for one year (after deductions). You calculate your bills, food, household, transport etc at say €10,000 for the year. You stick to it. You then have €10,000 of ‘discretionary’ income. Normally you spend €9,000 & save €1,000. But this year, you feel less confident so want to save €3,000 instead. You now only spend €7,000. The economics effects of this in the wider economy are ‘exogenous’ to YOU personally. YOU are not affected, you have the extra €2,000 in savings over your ‘normal’ (previous) annual budget. Result. ‘Mom’ is proud of your ‘thrift’.
Now, let’s try this at the Government level. Let, use similar numbers, but millions instead. The income is €20 million. The Government previously budgetted to spend €19 million, keeping €1 million back for ‘contingencies’ (or paying down debt).
However, this year it decides to only spend €17 million, keeping back an extra €2 million. What happens?
The €2 million now ‘saved’ (or paying down debt) was employing people in the economy, either directly or thru’ contracts to private sector businesses. There is now no need for what those employees previously produced. They are, accordingly, made redundant, losing their jobs. BUT, what happens now to the government’s income & spending budget? Those newly redundant workers were paying taxes – directly as income tax & indirectly as VAT on spending etc. So, the government is no longer going to receive the €20 million income it thought it was going to get. The planned ‘saving’ will not be what was planned. The actual budget outcome is ‘endogenous’ – that is, it is NOT INDEPENDENT of spending/saving decisions. What the actual outcome is depends on many factors & decisions taken at the macro level that cannot be predicted.
On the MACRO level of the national economy, clearly a budget ‘target’ is not something which can achieved with any certainty. And there are many effects in the economy as a whole to be considered. But we can say one thing. Because overall spending (=GDP) is by definition reduced, +growth+ WILL be less than it otherwise would be.
Any economics commentator that wants you to think the government budget & +macro+ economy is like your household SHOULD NOT BE TAKEN SERIOUSLY – EVER.
The other piece of utter cr@p from Christenson is his call for ‘quantitaive easing’ (QE), principally as a policy for growth in the real economy.
First, understand what QE is. It is the creation of money (from thin air) by the central bank (ECB for the Eurozone) credited to the commercial & high street banks’ ‘reserve’ (deposit) accounts at the central bank.
The process is effectively identical to that when a bank grants you or I a loan. The money is ‘created’ by keystrokes on a computer. It is NOT transferred from some bucket of ‘deposit’ money or any other source. Banks do not ‘lend’ deposits or reserves. The loan, in fact, ‘creates’ (from thin air) a ‘deposit’ in the account of the borrower. What quantity of deposits or reserves banks have, +at the TIME+, makes NO DIFFERENCE WHATEVER to their decision to lend or not. Banks make that decision solely on their determination of the borrowers ability to repay (with interest) & the profit they can make from it. THAT’S IT. Where banks’ have ‘reserve ratio’ requirements, they do not need to balance these for a period of between two weeks & one month (depending on jurisdiction). But note, importantly, the granting of the loan +created+ new money as a +deposit+, which then adds to banks’ reserves. Circular isn’t it? In effect, the quantity of reserves, or reserve requirements have little or no effect on whether banks lend or not.
So, to come back to Christenson’s ‘policy’ prescription, that the central bank (ECB) should itself create more money to add to banks’ reserves, on the basis that banks’ will then lend on more to the real economy & stimulate growth. (A ‘monetary’ policy operation.)
This is completely stupid. It is +not+ how banking works. QE does not stimulate the real economy. The US Fed (central bank) has tried massive rounds of QE over the last 3 years As has the UK BoE.). It has had no effect whatever. Except to give banks a bit more stake money in the international ‘financialised’ casino. (Commodity speculation does appear to have risen – a net cost to the real economy.)
Indeed, the ECB has just done the same thing, to the tune of €1,000 billion (not the €500 billion stated by Christenson), calling it ‘LTRO’ . It has not & will not have any ‘stimulus’ effect in the real economy of Europe.
The reason banks’ are not lending is entirely simple, as (competent) economists Steve Keen & Constantin Gurdgiev pointed out on Vincent Browne’s program. Private sector businesses & households are in debt already up to their eyeballs. And whether some of them think themselves ‘creditworthy’ for more loans, the banks +know+ they aren’t & will not take the risk.
Christenson not only demonstrates his ignorance of +macro+ economics, he appears to not even know how banking works. (The latter is not too surprising. Banks don’t want people – even their own employess where it’s not needed for their function – to know the details of the ‘free lunch’ they get in money creation at our expense.)
There is only one way to stimulate the real economy to create the growth & jobs we need – +Fiscal+ policy. We need spending. When the private sector cannot (in massive debt already) there is only one sector left – the governments.
It needs financing.
If the the Eurozone governments could borrow at the low interest rates that sovereign currency governments (inherently) enjoy – US, UK, Japan etc – not at the mercy of profit gouging ‘markets’, all the needed finance would be available. This needs the Eurozone currency issuer – ECB – to back the lending, there is no ther way. Eurozone countries are being forced to borrow (by ‘markets’) at 3, 4, 5 times (yes, multiple) the cost of US, UK Japan etc. This means they can only afford similar multiples +less+ in total debt. (Of course, present policies mean bondholders, banks etc. potentially make much bigger profits off government loans. Guess who’s really driving ECB policy? Surely we in Ireland already know this? What happened to ‘democracy’?)
Better yet, rather pretend that any +issuer+ of (fiat, free floating) currency need ever ‘borrow’ in order to spend, just as the ECB can ‘create’ money to benefit banks, it can just as easily ‘create’ money to benefit us.
For analyses from a real +macro+ economist, rather than this ‘useful idiot’ Christenson, see here:
“Oh Ireland, if only you were growing…”
Look at that tosser! A man, who I would predict with a lot of confidence, has never known any hardship in his life, who doesn’t even understand or care about what austerity means in real human terms. The things I’d like to say about him would be unprintable here :)
This is basic IS/LM model crap.I could give an interview to TheJournal.ie about this…
Thats not arrogant at all. Evidence of Fianna FAILURE membership detected…
One further important point to explain this ad nauseam fallacy of comparing ‘household’ finances with those of nations & governments.
Governments, historically, +never+ repay any significant amount of their accumulated debt, rather roll it over & just pay interest. This is possible because economies must always grow in the long run (or perish completely). Growth makes increasing levels of debt service sustainable. This is why it is not debt in absolute terms that matters, but debt/GDP +ratio+.
This can +never+ apply to a household for the simple reason that +we+ are ‘mortal’. We all ‘retire’ at some point & our income declines. Our own personal ‘economy’ cannot grow forever. Therefore we must +always+ seek to repay all our debts as we grow older – or we will become bankrupt. This does not apply to governments.
It is so important to realise these differences between the +macro+ economy & the +micro+ of ourselves.
Couple of good posts there Mike, thanks.
Yawn…everyone’s an economist these days
The problem is not laws but enforcement of laws.
Further details by searching in Google for ‘Windle stops swindle’
Cheers
The Common Informer
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