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Bedside Book To Wake Us Up

Posted on: April 27th, 2009

I HAVE to make a confession. Beside my bed at home lies a book. No, not by Cecelia Ahern, nor Barbara Cartland. Not even Mills and Boon. Admittedly it has been lingering there since December. A couple of pages a night works wonders for insomnia. The book is called The Return of Depression Economics by Paul Krugman.

Which only goes to show what an utterly miserable nocturnal life I lead.

In mitigation, I plead that I only manage a chapter a month.

I actually hate the sight of it.

Last week I picked it up with a new enthusiasm. Its author, Krugman, had hit the headlines. He had a view on Ireland.

Krugman was dismissive of our economic efforts.

Which is not an uncommon view from overseas these days.

Krugman writes for the New York Times. His newspaper is one of the most powerful in the world. And he is among the most influential commentators in the US.

Normally, when the Financial Times or the Daily Telegraph takes a potshot at this little island, we shrug our shoulders and put it down to British begrudgery.

Krugman is different.

On the surface he is a crushing bore. Did he not win the Nobel Prize for Economics? Which is normally not a page turner, but in truth his writings are pretty entertaining. He has a credibility advantage. He has no axe to grind with Ireland.

Indeed, his New York Times piece would give the impression that he only discovered Ireland last week, took a passing swipe at us and then moved on.

So perhaps we should excuse his article as the meanderings of a maverick?

Not so easy, as Krugman is fiercely independent. He is even a thorn in the side of Barack Obama, attacking him from the liberal-left flank. He is not a captive consultant, nor an economist bought by a bank.

His headline hurt. ‘Erin Go Broke’ was catchy. His cruel comparison of Ireland with Iceland hit a raw nerve. He was scathing of the Government’s efforts to bail out our banks.

His summary was stinging. “And the lesson of Ireland is that you really, really don’t want to put yourself in a position where you have to punish your economy in order to save your banks.”

Ouch. A reference to lunatic lending to developers, forcing the Irish taxpayer to pony up billions to rescue reckless bankers.

Never mind, the mighty Mary Coughlan — Tanaiste of all Ireland and promoter of the Irish story — was on hand in the US, counterspinning for the wronged nation.

Mary defended Ireland’s honour against Paul’s polemic with really, really powerful retorts, like claiming that his comments were neither “helpful” nor “appropriate”.

Unfortunately, independent commentators rarely regard it as their job to be “helpful”. That sort of spin is left to hired guns.

But was Paul right? Or was he on a solo run, alone in saying we were in deep doo-doo?

Sadly, he was not. Blow number two last week came from an outfit whose very initials fill us with fear.

The ominous International Monetary Fund (IMF) was on our case.

On Wednesday they dropped us deeper in the manure.

The IMF independently confirmed that Ireland was paying a king’s ransom to dig out its banks. While the IMF’s forbidding figure of a €24bn cost was quoted, its main message was disturbing. We are paying more than any other developed country to rescue our banks.

A message eerily close to Krugman’s.

This time Mary was, mercifully, not on hand to challenge the IMF. She was out of harm’s way, jetting across the Atlantic. Not a bad place to keep her in these troubled times. The cost of fuel might be less than the potential damage from gaffes.

Instead, the Taoiseach himself headed into the Dail to rubbish the IMF.

Not an easy task. And he did not make it any easier.

Cowen’s defence was to practise his greatest skill, making a simple statement completely incomprehensible to man or beast.

He asserted that the IMF figures were based on “more or less mechanical application of various modelling tools with a heavy reliance on technical assumptions”.

Quite. That should soften the IMF’s cough. Its gurus are doubtless heading back to the abacus, suffering from self-doubt.

The Taoiseach went on to dismiss the IMF as not having any “significant new or additional informational value in the figures presented from a national point of view”.

“Informational value?”

He then denounced Labour Party leader Eamon Gilmore for using “populist phrases like ‘bailout'”. Gilmore should have used Cowenspeak and called it: “Replenishing the funding necessities of the financial institutions’ capital requirements as part of the restoration strategic management theme.” Then no one would understand.

Still, one or two phrases the Taoiseach used were possible to interpret — at a pinch. He rubbished the IMF as being flawed because its report did not “represent the outcome of a specific examination of Irish institutions such as being carried out on behalf of the Financial Regulator by PricewaterhouseCoopers (PwC)”.

Ahem. Who would you trust for an objective report, Paddy Neary, the now retired Regulator, or the IMF?

Remember, it was poor Neary who insisted that the banks were solvent and dismissed warnings of a property doomsday. Brian wants him back to give us an estimate of the cost of the guarantee. Assisted by PwC, Ireland’s favourite accountants.

Give me the IMF any day.

And in a flash of clarity, the Taoiseach added: “The principal reason the IMF approach gives a relatively high figure for Ireland is that our bank guarantee arrangement is broader-ranging than in other countries and our financial sector is larger relative to the economy.”

Bingo, Brian. A good reason. By “broader-ranging”, let us assume Brian means “big”. In that case, he agrees with the IMF. Our guarantee is gigantic. And our banking sector is enormous. A big guarantee given to a bulging banking sector carries extra dangers.

According to media reports, the Government disputes the IMF’s warnings because it does not see a hope in hell of the guarantee ever being called in. The Department of Finance insists the chances of the guarantee costing anything are negligible.

Well, not until an Irish bank goes bust.

Not the view of the markets. Ireland’s borrowing rate is rocketing because the markets see a danger of a “call-in” of the guarantee.

Cowen could always recall Peter Bacon, the favoured Irish economist who has given the Government so many reports to their liking.

Or rely on the Department of Finance, whose forecasts of growth in recent years have been hopelessly wide of the mark.

On reflection, my bedside reading has suddenly become an enticing prospect.

Ask yourself, which would make a better read, the mumbo-jumbo of Taoiseach Brian Cowen, the deep thoughts of ex-Regulator Paddy Neary, the collected works of economist Peter Bacon, the haywire forecasts of the Department of Finance or the predictable findings of accountants PwC?

Brian would like us to read the above.

For bedside reading, on balance, I will stick to the works of Paul Krugman.