Dominique Strauss-Kahn’s economic philosophy suited Ireland’s situation, so his departure is not good news for us
Last Monday, having trashed the pitch that the England football team train on ahead of internationals with a display of over-the-hill five-a-side, I headed back into Google’s Zeitgeist conference in the salubrious surrounding of The Grove in Hertfordshire.
Zeitgeist is like a younger, techier version of Davos. It is Google’s answer to the TED talks. Many of the great and good – and, more to the point, the coming great and good, the next generation -were there.
Of course, given how many of these people have access to the most powerful people in the world and are familiar with the world of high finance, emerging businesses and power politics, the conversation last Monday morning revolved around Dominique Strauss-Kahn.
I was speaking on a panel about the future of the euro with Professor Joe Stiglitz, a Nobel Prize winner for economics. Stiglitz is no stranger to Ireland. In fact, the first time I met him was, believe it or not, in the back of a small republican bar on Cardinal O’Fiaich Square in Crossmaglen in the winter of 1992.What a young Irish economist and a Nobel laureate were doing downing pints in south Armagh during the Troubles as a British army helicopter droned overhead is another story.
But the point is that Stiglitz knows Ireland and, as the former chief economist of the World Bank, also knows and understands the International Monetary Fund (IMF).
As one of the IMF’s main critics and a consistent campaigner for the eradication of the Washington-Wall Street axis — where by Wall Street exerts too much pressure on the US government – Stiglitz is a man at the centre of the debate.
After the panel discussion, we chatted about the economic implications of Strauss-Kahn’s dramatic fall from grace.
Stiglitz was absolutely convinced that Strauss-Kahn was one of the few senior people who stood up for Ireland.
He told me that Strauss-Kahn was all for burning the bondholders and giving the Irish economy a chance to survive as a real breathing economic entity, rather than a large debt-servicing agency. Comments last Friday from the IMF, criticising the European approach to tackling the Irish crisis, suggested that this was indeed the case – the IMF realises that Europe’s periphery needs a break.
Without the help of Strauss-Kahn at the IMF, which is now clearly at loggerheads with the ECB over the future of Ireland, Greece and Portugal, the peripheral countries will sink further. This is an analysis that you will know I agree with.
The IMF realises that you can’t get blood out of a stone. It also understands that there is trouble ahead if your debt-to-GDP ratio is rising towards 150 per cent and the rate of interest you are paying means some 9 per cent of GDP in debt repayments alone is leaving the economy each year.
That is before you try to cut government expenditure. So it can’t work, not so much because the debt is so big, but because the interest rate is so high.
For example, Japan has been running a debt-to-GDP ratio of 200 per cent for ages, but because it is only paying 2 per cent for the pleasure of this borrowing – and is internally financing this – the drain on the national economy is bearable.
Strauss-Kahn realised that the case of Europe’s peripheral countries was different to Japan’s – and the IMF’s position has changed accordingly. Strauss-Kahn – a socialist – also saw no great need to protects banks and penalise workers.
Thus the IMF has been more forceful in applying the rules of capitalism to Europe’s debt problem, believing that those that lent to the banks on the periphery should pay.
The ECB’s position is quite the opposite. The Central Bank has turned the EU into a loan shark that is shafting members of its own family by borrowing from the markets at 3 per cent, lending at 6 per cent to the likes of us and pocketing the difference. This is hardly the behaviour of solidarity.
Last December, Strauss-Kahn urged EU finance ministers at a meeting in Brussels to enlarge their €750 billion bailout fund and end their ‘piecemeal’ approach to the sovereign debt crisis in Europe.
‘‘The eurozone has to provide a comprehensive solution to this problem,” Strauss-Kahn said. This precise point was reiterated in IMF comments last Friday about the Irish bailout.
Obviously this is saying that the current solution is not working and is not likely to work. Of course, Herman Van Rompuy, president of the European Council, came back last December with: ‘‘There is no need to increase the means available. There is no problem at all.”
There was a problem then – and there is a problem now. The problem is the same: EU politicians are unwilling to face up to the size of the problems in the eurozone – they want to see the world as they would like it to be, rather than how it is.
In Strauss-Kahn, Ireland had someone who was able to see two things: the size of the problem and the inadequacy of the solution offered. For Ireland, this matters. With someone at his level being able to see the size of the challenge facing us and being there to suggest realistic solutions, we might have been able to get somewhere in renegotiating the terms of the Irish loan. Without Strauss-Kahn, Ireland is left to the realpolitik of the forthcoming German and French elections.
Strauss-Kahn was leader of the IMF since 2007 and managed to change the focus of the organisation away from the neo-liberal values it has traditionally held.
On May 5, Stiglitz wrote an article noting that the IMF had realised that a nation’s economic wellbeing depends on social equality and justice. He called Strauss-Kahn a ‘‘sagacious leader of the IMF’’ and said: ‘‘We can only hope that governments and financial markets heed his words.”
Speaking at the Brookings Institute last month, Strauss-Kahn said: ‘‘Ultimately, employment and equity are the building blocks of economic stability and prosperity, of political stability and peace. This goes to the heart of the IMF’s mandate. It must be placed at the heart of the policy agenda.”
These sound like the kind of policies that Ireland needs right now – not the blinkered bondholder bailouts that Europe will continue to force on us. Whatever happened in that New York hotel room, the IMF’s loss of Strauss-Kahn is also Ireland’s loss. But his influence will remain.
The next candidate may well be from an emerging market. We should support that person. The last thing we should do is throw our weight behind Christine Lagarde of France, who has urged the adoption by the EU of a single candidate – namely her. She is not a person who has Ireland’s interests at heart.
Maybe after the queen’s visit, we should adopt the British adage, which is that, in foreign affairs, countries have no friends, simply interests.
Lagarde as head of the IMF would not be in our interest.
You can watch the panel discussion mentioned above on the future of the euro here.
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Interesting.
However, the IMF is an overrated Institution and I think we witness a franco-german stitch up, Lagarde is high on the agenda, and with Lagarde the next IMF boss, the US will hold the World Bank position.
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I’m not so sure DSK was as favourable to Ireland as DmcW suggests, after all, the IMF put its name to 5.8% at the end of the day. I agree though, the position on the priority of equity and employment should be the mainstay of any solution. But what happened in the hotel room has a huge bearing on how DSK’s words on equity actually meant for him. I’m rather a fan of Christine Lagarde and think its most unfortunate she was not consulted along with Alistair Darling prior to the guarantee. I’m thinking there could be quite a bit… Read more »
DSK is certainly a loss for the Irish cause but the people to convince are the senior officals in the ECB; Axel Weber held similar opinions to DSK but he was forced out. I cannot fathom the behaviour of the ECB. They should print EUR and buy up all the peripheral debt and squeeze all those bailed out banks who are speculating against those same countries. In return for this, countries would have to balance their budgets by 2016. It would be a one off aid program to allow a more uniform EUR economic area. There is also nothing to… Read more »
Yet again, another interesting and insightful article David. Interesting too about you about hanging out with Joe Stieglitz in some South Armagh watering hole during the troubles. It’s funny, at the time of the bailout last November, I remember listening to the radio (Radio 1 or Newstalk) and Stieglitz’s approach to Ireland was quoted and despite being a Nobel laureate he was similarly sneeringly dismissed by some vacuous establishment talking heads on the hilarious and crudely anti-intellectual basis that he “wasn’t Irish” and therefore he didn’t understand Ireland and wasn’t qualified to talk about the unique Irish economic situation! For… Read more »
Well, we really are in a serious predicament when we are relying on the likes of DSK for a prop-up. This just shows you where the entire experiment that was the last fifteen years, and going back much further has led us. Personally, I have no regard for somebody who is good at telling the rest of us about socialism, and who is staying in a hotel that costs three grand a night. He is married to a millionairess. This chap is a creep. He is facing allegations from a woman in France who interviewed him a few years back… Read more »
Lagarde is a disaster for Ireland.
The only opponent for the role, to emerge so far, is from Mexico. The Chinese are making noises. Long term they might be aiming to have this.
From Ireland’s perspective, the most suitable candidate is the “real Minister for Finance in Ireland” – “AJ”.
Though I am slightly concerned that without AJ, that we might get some muppet in charge, who might let the politicians lose the plot.
Yes, DSK favored a better deal for Ireland.
But may I point out that Timothy Geithner, head of the USA money governing apparatus, squelched any more favorable terms for Ireland. The Geithner Doctrine is that banks must be rescued and kept alive, however dead, no matter what the cost to the ordinary citizen. He is the Eminence Grise of the ECB.
Please keep that in mind during the Obama happyfest in Ireland.
Here again david is hoping for an easy way out where there is none. We will be faced with austerity and repayment of debt no matter what, there will be no default or ECB printing money to bail out Ireland. There is no easy quick solution , there is only years of austerity ahead. Just as the housewives of Ireland have adopted a strategy of austerity and repayment of debt so too must our Government. We must balance our budget within a short period of years, just you wait and see the next budget will have to cut a further… Read more »
I saw Joe there in Crossmaglen in 1992, and wondered who he was drinking with. Was that yourself? It was fierce cold that night, do you remember?
Don’t worry David, we’ve got Enda Kenny, he’ll look after us.
No matter who gets the IMF job they will do as they are told. Personally I do not believe there was any conspiracy against DSK. Whilst he may have spoken up for Ireland nothing came of it. If he spoke out declaring that the bond holders should bear the result of their risks it was a pointless exercise. So truthufully I really doubt he was of any use to Ireland. Why do we Stupid Irish keep depending on others to do what we should do ourselves. It is actually very simple. However, there are those in Ireland who will do… Read more »
Greece – an update on the next step. http://www.marketwatch.com/story/greece-to-immediately-sell-state-assets-2011-05-23?link=MW_latest_news Presumably, we will see the same. The problem is that the stuff that is rubbish, that performs a lousy job and that we are better off without…the ESRI, FAS, RTE, CIE is the stuff that we will not be able to sell. So the Irish taxpayer will keep paying for these wasters. And the stuff that is of value, like Coillte and the ESB will probably be the stuff that we will be instructed to sell. Because our overseers will want us to sell stuff that will give them their bonds… Read more »
One German Newspapers (Zeit) turns briefly form the blind propaganda and support for their politicians re. the Financial crisis: Zeit says to German politicians (sic) “STOP LYING AND TELL THE TRUTH TO THE EUROPEAN PUBLIC” and “ITS A DISGRACE THAT GERMAN POLITICAL LEADERS AND ESPECIALLY ANGELA MERKEL ALLOW THEIR PEOPLE TO BELIEVE THEY ARE GIFTING MONEY TO COUNTRIES LIKE GREECE” Read more here http://www.zeit.de/wirtschaft/2011-05/europa-krise-gegenmassnahmen (pop it into google language tools here http://translate.google.de/translate_t?hl=&ie=UTF-8&text=Wir+f%FChrten+in+Ihrem+Auftrag+oben+genannten+Regelservice+durch.&sl=en&tl=de#de|en| ). The EU “Financial crisis” is more a PR WAR than a Finance War. And so far, the Germans/French are winning because their Press/Media are lined up behind… Read more »
While it’s tempting to lament, from an Irish perspective, the falling from grace of Dominique Strauss-Kahn, one question we ought to consider is this — “If he were still head of the IMF, how different would our situation actually be”? My contention is that it would make negligible difference in the long term. Inevitably we are going to default and if DSK were still around then that fact wouldn’t change. It’s the powers in Germany and France who will ultimately decide our economic fate (given that Kenny & Co will never muster the necessary backbone to stand up for the… Read more »
I dont believe for one moment that Dominique Strauss-Kahn was on the side of anyone but his employers – the world’s senior bondholders. Anyone who believes his downfall will have any impact on our situation is missguided. But it suits the elite to foster such illusions – especially now he is gone. The IMF is part of the global banking cartel that owns and controls the money (debt) creation system that rules our planet.
Just bringing forward this link from doflynn from David’s last article.
http://thechatteringmagpie14.blogspot.com/2011/05/run-to-dail.html
Another take on things
http://www.indymedia.ie/article/99858
You can watch the panel discussion mentioned above on the future of the euro here.
Yes and Gabor, so keen to point out his personal link to Blankenfein, is a waste of space.
Personally bought Greek Bonds…. Pfff… what a peacock
http://www.zerohedge.com/article/greek-bankruptcy-one-year-later-exposing-charlatans-formerly-lost-translation
http://online.wsj.com/article/SB10001424052748704858404576128610450010924.html Lagarde who is supported by UK has it right, Europe needs greater coordination under a tighter stability pact. Our wages across the public service are 50-60% higher than UK, same or more for Europe. Gollum’s ‘my precious’ Corporation Tax needs to be harmonised with same from rest of Europe, so CT makes a fair contribution to paying back our debt. Our rentier bubble reignition project, NAMA, needs to be scrapped. We need decent senior bondholder burden sharing. IFSC needs to be properly regulated with an end to transfer pricing, Double Irish, Dutch sandwich and dodgy financial paper ‘investment engineering’.… Read more »
Lagarde, Osborne more bailouts?
http://news.bbc.co.uk/2/hi/programmes/newsnight/9485242.stm
Dr. Stiglitz talks very much sense. It must be nice to be hanging out at a coming together of so many smart people like that you’d learn so much. I agree with what he said that Irelands corporate tax regeme is unfair. Their is definatly tax dodging going on by mainly US companies, Simon Johnson also points this out. This should be cleared up by Irish authorities who once again are turning a blind eye. I don’t see the big issue of raising coporate tax a little. If Dr. Stiglitz says that Straus Kahn was an ally I’d tend to… Read more »
What is Brute up to now ?
http://www.independent.ie/business/irish/change-of-tack-as-bruton-reveals-admiration-for-ecb-2655129.html
I suspect he is chasing another well paying post in the ever growing and gigantic EU bureacracy machine.
On yesterday’s early evening news I saw a report from Charlie Bird on Obama’s visit. Do they manufacture this stuff purely with an eye on future series of Reeling in the Years? How does the saying apply here? History is enacted first as embarrassing self-parody and then repeated as… well, just repeated. This has gone far enough. We all know what happened. Now, I want everyone to pause and just reflect for a moment on what they’ve done. Face it, acknowledge the shame, and move on. And see that it doesn’t ever happen again. People could see what was happening,… Read more »
Niall Ferguson says that the EU/ECB has become a government killing machine, endangering the stability of Europe.
http://www.businessinsider.com/niall-ferguson-eurozone-government-2011-5?utm_source=Triggermail&utm_medium=email&utm_term=Business%20Insider%20Select&utm_campaign=BI_Select_052311
On the Souvlaki Front:
Private Deposits down E 31bln January – April
Business down E 40,6 bln
Foreign capital down E 7,9bln
By all means, this is what I call the beginning of a bank run.
Secretary general of Greek Banksters Club was on TV on Tuesday trying to calm people by stating deposits up to 100k would be guaranteed.
According to the plan, Greek is supposed to implement a total austerity package of 22bln until 2015.
Laughable!
ECB forced policies are equal to a protracted default
Good article in DER SPIEGEL
http://www.spiegel.de/international/business/0,1518,764299,00.html
Nasty little slideshow of images here in the NY Times re Obamas visit to Moneygall
http://www.nytimes.com/interactive/2011/05/22/magazine/20110522-obama-ireland-ss.html
Must read! Bill Black’s (suberb!) response to Bloomberg Roger Lowenstein’s Wallstreet whitewash
Lowenstein should stick his dick back into his Sequoia fund, leave it there and spare the world his unbelievable intellectual diarrhea!
http://www.businessweek.com/magazine/content/11_21/b4229060222515.htm
Bill’s response 1 Part here:
http://neweconomicperspectives.blogspot.com/2011/05/in-praise-of-sorkins-praise-of.html
John Mauldin: If Greece defaults, it cannot be contained.
http://www.businessinsider.com/a-greek-default-wont-be-contained-2011-5?utm_source=Triggermail&utm_medium=email&utm_term=Business%20Insider%20Select&utm_campaign=BI_Select_052411
The Good Ship EU is leaking badly.
The article details how the ECB is a bad bank, with dangerous exposures and overvalued (but unsellable) toxic assets.
http://www.businessinsider.com/ecb-enormous-bad-bank-2011-5
We had Comical Lenny.
Now, we have comical Kenny.
http://www.independent.ie/national-news/taoiseach-admits-to-not-asking-crucial-questions-2656567.html
Unbelievable. Maybe it is not a great time to talk about economics. And besides they might not want to talk about it either.
But this is a bit like Cowen going for a full round of golf with Seanie Fitz and a former RTE Head turned political lobbyist, and not discussing the state of the banking system, or the construction sector.
Do these lads actually forget about their responsibilities for long spells ?
More stories about power, and accountbaility and media non-involvement in the French state. http://www.independent.ie/world-news/europe/sarkozys-sleaze-file-on-strausskahn-2656657.html Unbelievable. No wonder CJH modelled his career on Mitterand….another rogue. We know that Sarkozy was diamtrically opposed to the IMF position concerning bailouts. With all this information Sarkozy effectively had DSK over a barrel – he could practically control the IMF via blackmail. I am reminded of the words of Benjamin Franklin, and what happens to people when they become entrapped in debt. We are the victim in all of this – because we are not being allowed to apply Capitalist consequences for capitalist misadventure. This… Read more »
Professor Noam Chomsy: “I’m never asked “What should I do?” in the third world. When you go to Turkey or Colombia or Brazil, they don’t ask you, “What should I do?” They tell you what they are doing. When I went to Porto Alegre, Brazil, for the World Social Forum, I met with some landless campesinos, and they didn’t ask me what they should do; they told me what they were doing. These are poor, oppressed people, living under horrendous conditions, and they would never dream of asking you what they should do. It’s only in highly privileged cultures like… Read more »
Statement of BRIC IMF Directors
http://af.reuters.com/article/southAfricaNews/idAFN2426946220110524
Strauss-kanhn gone ! , who was probably the most powerful man in Europe. This is akin to Caesar being assassinated by the Roman senators. What does that really mean ?. For a start it represents a faction fight among the highest echelons of the international financial oligarchy. I don’t think David grasps the historic significance of this event. Before his arrest kanhn was coordinating with Obama , little Timmy Geitner and Helicopter Ben for another round of bailouts both for Wall street and The EMU via the likes of Greece and Portugal. On the morning of his arrest he was… Read more »
To quote from Paddyjones in an earlier:
austerity => balance budget=> start repaying debt=> no default
Managers/Housewives alike cannot manage what they do not know.
It would be useful to have the answers to a few very simple questions in order to put basic financial measures into place; good housekeeping:
1. When will Greece default?
2. What efect will this have on Ireland?
3.
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