A student asked one of my colleagues today why Irish people are so obsessed with economics. It's funny now to think of a time when we weren't. Terms like I.M.F., toxic loans, bailouts, Olli Rehn, mortgage arrears and E.C.B. certainly didn't always have such a large part in the vernacular. But while it's hard not to feel like the sky is falling in at the moment, I still maintain that most of us don't really have a fucking clue what's going on. Sure how could we when we're lied to by the government on a daily basis and receive a drip-feed of misleading and contradictory information. In much the same way as it seems that property developers and bankers made out like bandits during the boomtime it might just be that financial journalists and economic experts will be seen (along with politicians, inevitably) as being the villains of the busted years, for having made a mini-industry out of the public's confusion. For every genuinely well-informed commentator there's some cowboy who knows no more than the average barstool economist making a living from shit-stirring and scaremongering. There's something vaguely immoral about it.
With this in mind, Chancing My Arm took it upon itself to get hold of Ajai Chopra, the man leading the IMF's rescue mission to Ireland, in order to cut to the chase and find out what exactly the bloody fuck is going on. Here, exclusively, is the complete and unedited transcript from my exclusive interview with Ajai:
Ajai, thank you for taking some time out from bailing out our sorry asses to talk to the readers of Chancing My Arm.
You're welcome, Andrew, I myself have a blog , so I'm totally down with this. I love your blog, that shit you wrote about nailing both of the Sweet Valley High twins in a hot tub was righteous. High five, dude!
Thank you, Ajai. Though I must confess that it didn't really happen. First and only time I'll make stuff up to put on my blog, I promise. Now, down to brass tacks. Tell us, did this whole global economic ooopsy entirely originate with the collapse of Lehman Brothers?
Well, yes and no. After Lehman Brothers defaulted in September 2008, global trade collapsed, capital inflows into the region plummeted, credit growth suddenly stopped, and domestic demand plunged.
But pre-crisis domestic imbalances and policies made a difference in how these shocks affected each country’s economy. Some countries saw declines in gross domestic product (GDP) similar to those in the Great Depression (Estonia, Latvia, Lithuania, Ukraine), while others avoided declines altogether (Albania, Poland). But the seeds of the crisis were sown, in large part, in the five years before the crisis. Between 2003 and 2008, much of the region experienced a boom in bank credit, asset prices, and domestic demand. This boom was fueled and financed by large capital inflows.
With low interest rates in advanced countries, banks in western Europe expanded aggressively into emerging Europe—where returns were higher. And, while the influx of capital boosted growth, it also led to rising imbalances and vulnerabilities.
I see, but what kinds of imbalances and vulnerabilities, exactly?
Current account deficits increased to unprecedented levels in some countries, and inflation accelerated. And substantial vulnerabilities emerged in bank and household balance sheets, particularly because much of the borrowing was in foreign currency.
Fascinating. Tell me, Ajai, in your brief time in Dublin have you had a chance yet to savour any of our local delicacies?
Oh, yes. Strawberry and vanilla YOP is famous the world over and after a good skinful at the bar in the Merrion Hotel a few of us ended up hopping in a taxi and telling yer man we were really jonesing for one. They were harder than expected to locate but we finally achieved success at a Shell garage on the Dargle Road in Bray.
Lovely part of the world. I once dated a girl from Bray, she was a right goer.
Is this Mary Coughlan woman from Bray? She introduced me to brown flavour Hula Hoops. I love her.
It's barbecue flavour, Ajai, not brown. Have some respect. Now, tell me, why was Ireland amongst the hardest hit by the global collapse?
Countries that experienced the fastest credit growth during the boom years saw the deepest recessions. And it now appears that average GDP growth over the full business cycle in this group was no higher, and in some cases was lower, than in countries with more modest credit growth.
In other words, we talked ourselves into believing our own bullshit?
To be succinct, yes.
Right, when you're walking into a high pressure, cards-on-the-table, heart-in-your mouth, cocks-in your-hands meeting with the likes of Brian Cowen and Angela Merkel do you choose to freshen up beforehand with Lynx Africa or Lynx Nevada?
Truth be told, I always favoured Lynx Tempest. I certainly associate it with the years when I did most of my shifting - is that what you call it, "shifting"? - with girls in nightclubs. I fell into a terrible depression for years after it went out of production and chose to wallow in my own faeces instead of deodorising. My career briefly stagnated as a result.
No doubt. Did the high price of housing in Ireland have a lot to do with our misfortunes?
Well, you all thought it was worth spending about 750 grand on a two bedroom semi-detached in Ballaghaderreen, so you tell me.
Don't knock Ballaghaderreen, Ajai. The wildest retirement party I ever went to was in Spelman's Motel there, you know.
The wildest retirement party I was ever at was my uncle Sanjay's. I snorted petrol and got off with one of my cousins. I wish I could remember which one it was, it would have been prudent of me to have made a note of it. Speaking of prudence, Ireland needs to learn to adopt a more prudent fiscal policy. This is a policy of saving money when revenues are growing instead of increasing spending and boosting public wages. Prior to the crisis, fiscal positions in emerging Europe looked good—better than in other emerging market regions. But those good-looking headline numbers masked a deterioration of the underlying fiscal position. Public expenditure was surging, financed by a temporary revenue boom. This not only further contributed to overheating; it also set the stage for large fiscal deficits. So when revenue plummeted in 2009 and fiscal deficits increased sharply, many countries had no choice but to cut spending precisely when this was most painful.
Uh huh. And if things start looking up a bit, what would you advise?
When revenue takes off during the next boom, it should be used to build up fiscal buffers rather than boost expenditure. Politically, this may be very challenging—when revenues abound there is strong pressure to increase expenditure or cut taxes—but this will help dampen the boom and create fiscal space that can be used to soften the impact of the next recession.
So no public sector pay rises ever again, ever?
Nope. Do you have Mary Harney's number? I would like her to be my wet-nurse.
You're a sick puppy, Ajai. But our futures rest in your hands. Now, Cash in the Attic is on soon and you're boring me, so any other pearls of wisdom before we wrap this up?
Going forward, growth in the region should become more balanced, and less dependent on domestic demand and capital inflows. Much of the shift will come about through private sector actions. Now that profits in the nontradable sector (finance, real estate, construction) have shrunk, investments will seek more promising venues. More balanced macroeconomic policies and wage restraint can also help maintain balanced growth by preventing the overheating that pulls resources from the tradable to the nontradable sector.
Above all, it will be important—when the next boom comes—to be wary of claims that “this time will be different.” Such narratives often have some plausibility and attractiveness in the heat of the moment. But a careful analysis of the drivers of growth, current account deficits, asset price developments, and credit growth should always be used as a “reality check.”
Lovely. And finally, if I may change tack entirely for a moment and imagine that I am a radio presenter, is there any particular song you'd like me to play for our listeners today?
Yes, it being the only song I'm aware of to namecheck the I.M.F. it has to be 'Electioneering' by Radiohead. But I'd like to dedicate it to Marek and Sklopek for indulging my whims at the hatch of the Dargle road Shell station and to Larry the cabbie for making the magic happen. Yiz fuckin' rock and I wish success and fiscal solvency to yiz all!