May 122013
 May 12, 2013  Posted by at 3:05 pm Finance

Ireland was one of the first European countries to get hit by the financial crisis. It decided to bail out its banks at the direct cost of the taxpayer. In 2012, those banks were still overleveraged (and still are today) to the same level as for instance Cyprus, with assets over 800% of GDP. Probably only Iceland has been worse (UK?!). According to IMF/EC, 2012 Irish national debt was 117% of GDP; not a pretty number either. This all as a lead-up to a May 5 article by Dan White in the Irish Independent that TAE's own Nicole Foss sent over recently. But first a little history, for who may be bit shaky on it, just for fun, and to explain how Ireland got to have its present population of 4.5 million people.

The population of Ireland in the 1830's, when it was part of Britain, was around 8.5 million. There are estimates of as much as 10-12 million; in those days counting everyone, even in a census, was an obvious struggle. Ireland then had perhaps 30% of the overall population of the kingdom, a sharp contrast with today.

In 1845, the Great (Potato) Famine hit home. Over the next 5 years, 1 million Irish died of hunger and disease, and 1 million emigrated. And it didn't stop there. Millions more emigrated in the following decades, and the country remained dirt poor, so starvation didn't stop either. Some say Britain liked things that way (religion was always a big factor). Only in the 1916 Great Rising, the -catholic – Republic of Ireland gained independence, while – protestant – Northern Ireland became part of the UK.

Ironically, it was the very same potato that, once it came to Europe from the Americas in the 16th and 17th centuries, allowed for a huge increase in population in Ireland and beyond. The "Old World" didn't have a crop that all by itself people could live on. Now they had one. And then someone imported blight.

Today, the Irish Republic counts 4.5 million citizens, or 4 million less than in 1830. Northern Ireland's 1.8 million make up some of the loss, but the picture is clear: 180 years later, during which time world population rose from just over 1 billion to just under 7 billion, and Britain went from some 20 million to 63 million, Ireland's population still hasn't recovered (will it ever?).

There is the Irish diaspora, however. Approximately 15 times as many people of – often fiercely proud- Irish descent live elsewhere in the world today than live in Ireland. In the US alone there are over 40 million.

So today, we have (the Republic of) Ireland at 4.5 million people. That's useful when looking at debt numbers. Especially since it is just about 70 times less than the US at 315 million. Irish unemployment is 14.1%, youth unemployment 30.3%, both numbers somewhat recovering from deeper pits.

One more thing before we get to the article: it refers to GNP, Gross National Product. Refresher: it's almost the same as GDP, but not exactly. The latter is a measure of the value of goods and services produced in a country, the former is a measure of the value of goods and services produced in a country by its domestic institutions and individuals. For most countries both will be quite similar, but in Ireland, GNP is estimated to be perhaps as much as 25% smaller than GDP.

The reason for this is that Irish tax laws make the country very attractive for foreign companies (there are some 600 American ones alone operating in the Republic). Ergo (simplified): a lot of the revenue generated in GDP leaves the country as profit for mother companies, and doesn't count towards GNP. This makes some voices even claim that recent GDP gains are false signs of a recovery, and that when measured in GNP, there has been no recovery whatsoever. One more detail: Irish property prices have fallen over 50% since 2007.

So there: Ireland's initial cost for the bailout of its banks was €40 billion ($52.4 billion if you use a 1:1.31 exchange rate). In 2011, US "investment manager" BlackRock conducted a stress test that concluded that the four Irish banks still in business, AIB, Bank of Ireland, Permanent TSB and EBS (now part of AIB), would require an extra €24 billion of capital. So that added up to €64 billion ($83.5 billion). In comparative US terms (70 times bigger), that was $5.85 trillion.

And thus we finally get to Dan White, who says the Irish are far from done bailing out. He starts off referring to numbers published by (Danish, thus foreign) Danske Bank Ireland the week before, and takes it from there:

Taxpayer beware! Irish banks need another €30 billion at least

[..] The latest write-offs mean that Dankse will have written off almost €3.6 billion, just over a third of a loan book which had a total peak value of just over €10.5 billion. If that isn't enough to give taxpayers a bad case of the heebie jeebies then nothing will.

For those of us who have followed the crisis from the beginning Dankse has been a useful pointer to future developments at the Irish-owned banks. Unlike its domestic counterparts, who are still in denial about the full extent of their problems, Dankse has been upfront about its loan losses. Where Dankse goes today the Irish-owned banks look set to follow tomorrow. [..]

The BlackRock stress tests concluded that total loan losses at the continuing Irish-owned banks would amount to between €27.5 billion and €40 billion. The biggest single source of these losses would be residential mortgages with BlackRock forecasting losses of between €9.9 billion and €16.9 billion.

The other big generators of losses were forecast to be commercial real estate lending (between €8.1 billion and €10.3 billion) and corporate lending, including SMEs (between €7 billion and €9.5 billion). [SME=small business]

Even on the basis of the banks' own figures it is clear that these projected losses were hopelessly optimistic. According to the most recent AIB results, €8.1 billion of its €39.5 billion Irish mortgage book was more than 90 days in arrears at the end of December 2012.

Over at Bank of Ireland €3.6 billion of its €27.5 billion Irish mortgage book was more than 90 days in in arrears at the end of last year, while €5.5 billion of Permanent TSB's €24.5 billion Irish mortgage book was similarly suspect.

At the end of December 2012 some €38 billion of owner-occupier mortgages and €10.6 billion of buy-to-let mortgages were in arrears, while a further €6.7 billion of owner-occupier and €3.2 billion of buy-to-let mortgages had been restructured but were not in arrears. By value that's the equivalent to over 41% of the total €142 billion stock of outstanding mortgages held by the domestic and foreign-owned banks.

Apply this pro rata to the €91.5 billion of Irish mortgages held by the domestic banks and one is looking at over €37 billion of compromised loans. With property prices having fallen by at least 50% since 2007 it would seem reasonable to provide 50% against these loans, say €18.5 billion.

In addition the Irish-owned banks have at least €50 billion of loss-making tracker mortgages on their books. Some of the foreign-owned banks have been offering to reduce loan balances by between 20% and 25% for tracker customers who are prepared to switch to a variable rate. Even a 20% write-down on trackers would cost the Irish banks another €10 billion.

Throw in a further 20% provision for those mortgages not currently impaired, €11 billion, and the Irish-owned banks are looking at mortgage losses of €39.5 billion, €22.6 billion more than forecast by BlackRock in its "worst case scenario".

And that's barely the half of it.

The Irish-owned banks have €27 billion of SME lending on their books. Last month the Central Bank's director of credit institutions, Fiona Muldoon, revealed that 50% of SME lending was in distress. On the basis of a 50% write-down of the distressed loans and a 20% precautionary write-down of the remainder that translates into a further €9.4 billion of losses, €4.9 billion greater than BlackRock's "worst case scenario".

The Irish-owned banks also still have almost €30 billion of commercial property lending on their balance sheets. Once again one has to ask, just how realistic is BlackRock's "worst case scenario" of €10.38 billion of losses.

By the time one adds losses on other lending, to large corporates, personal loans, credit cards etc. and it is hard to see how the cost of any fresh bank recapitalisation could come in at under €30 billion. That would bring the total cost to the Irish taxpayer of "fixing" our bust banks to almost €100 billion.

Clearly greater love hath no government than that which lays down its citizens for its banks!

Looking through White’s numbers, for instance "Irish-owned banks have at least €50 billion of loss-making tracker mortgages on their books", I'm thinking even he stays on the cautious side, but they're bad enough as is already. The "total €142 billion stock of outstanding mortgages" translates to $186 billion, which in "US Size" (x70) would be over $13 trillion, about on par with the US at $41.350 per capita, but in a country that has no particular history of owning homes. It's not home value, it's mortgages. Not assets, but debt. And prices have already fallen over 50% in Ireland since 2007.

As late as October 2010 Ireland declared itself "fully funded well into 2011", but just one month later, in November 2010, the government asked for a €67.5 billion "bailout" from the EU and the IMF as part of an €85 billion 'program' (the Irish State "funded" €17.5 billion itself). By August 2011 total funding for the six biggest banks by the ECB and the Irish Central Bank came to about €150 billion; at that point the largest of the six, Bank of Ireland, had a market capitalisation of just €2.86 billion.

The question then becomes how Ireland is going to facilitate another €30 billion bank recapitalisation. The government stated this spring it was getting ready to ask for further aid, but EU forces apparently – and curiously – have a completely different take on this. Before Ireland was recently handed a 7-year extension on paying back the loans, the "donors" made clear they not only don't feel like approving extra aid, they want Ireland to exit the bailout scheme and return to the bond markets for funding. As the Irish Times reported on April 12:

Euro zone believes deal will see Ireland exit bailout this year

An imminent deal to postpone Ireland’s bailout repayments will be enough to secure a smooth exit from the EU-IMF programme later this year, according to the chief of the euro zone finance ministers. The position set out by Dutch minister Jeroen Dijsselbloem is in defiance of the Government’s claim for further aid to ease the cost of propping up Allied Irish Banks and Bank of Ireland.

Although the IMF has strongly backed Dublin’s push for the ESM rescue fund to bear historic debts of the two banks, Mr Dijsselbloem indicated in an interview with The Irish Times yesterday that a decision on that front might not be taken for at least another year.

That is well beyond Ireland’s anticipated return to private debt markets at the end of the bailout and means he expects the Government will be able to do without a specific pledge of bank debt relief from the ESM fund.

Asked if the return to market financing would be eased by a definitive commitment of ESM aid, Mr Dijsselbloem insisted that the two issues should be separated. "The access to the markets is relevant right now, and this year, and we will try to help Ireland and Portugal in exiting the programmes," he said.

"The direct recap instrument ESM isn’t available at the moment," he added. "What we can do is to look at the maturities of the EFSF loans and that’s why we are . . . discussing a proposal by the troika on more time for Ireland and Portugal [NB: 7-year extension since granted]. That would greatly help both countries going back to the markets and finding their own funding."

While agreement on whether the ESM can retroactively bear historic debts is anticipated in June, Mr Dijsselbloem said a decision on which countries can use the scheme will only be taken after a common bank supervisor is set up in the middle of next year.

The Government campaign for ESM aid relies on a pledge by euro zone leaders to break the link between bank and sovereign debt, but Germany and like-minded allies, such as the Netherlands and Finland, remain sceptical.

Last week, the IMF reiterated its call for the ESM to take equity stakes in the two Irish pillar banks, arguing that it could play "an invaluable role in marking prospects for recovery and debt sustainability more robust". However, Mr Dijsselbloem said he could not predict whether the retroactive application of the direct recapitalisation instrument would be sanctioned at all.

In other words, there's now a substantial stretch of financial no man's land in Europe. The EU still doesn't have its newest "direct recap" instrument, the ESM Stability Mechanism, ready yet while its predecessor, the EFSF, is still sort of active, though it can't take on any new commitments, and what's – still – being discussed is in what shape EFSF loans can be transferred to the ESM – if they can at all – . Of course a banking union could play a large role in all this, but that looks as far away as ever.

Meanwhile, affording Ireland and Portugal more time to pay back loans appears to be seen in Brussels as some kind of end solution, but how realistic is that? Ireland would need to cough up, what, €10 billion a year over that 7 year period (?!), while, in the short term, ingesting another €30+ billion into its banks. Anyone who doesn't think of Dijsselbloem, Lagarde and Draghi as the next reincarnation of the genius of Albert Einstein might come away with some doubts as to whether this is going to work out.

Nor does this stop at Ireland, of course, or Portugal. Take for instance this loud warning about Spain from everyone's favorite right-wing anti-Europe correspondent for the Telegraph, Jeremy Warner:

Spain is officially insolvent: get your money out while you still can

I'd not noticed this until someone drew my attention to it, but the latest IMF Fiscal Monitor, published last month, comes about as close to declaring Spain insolvent as you are ever likely to see in official analysis of this sort. Of course, it doesn't actually say this outright. The IMF is far too diplomatic for such language.

Let's take the projected budget deficit first. This is expected to decline quite steeply this year to 6.6% of GDP, but that's mainly because the cost of bailing out the banking sector fell substantially on last year's budget. On a like-for-like basis, there has in fact been very little fall in the underlying deficit. And nor on the present policy mix is there ever likely to be, for that's where the deficit is projected to remain until the end of the IMF's forecasting horizon in 2018. Next year, the deficit is expected to be 6.9%, the year after 6.6%, and so on with very little further progress thereafter. [..]

The situation looks even worse on a cyclically adjusted basis. What is sometimes called the "structural deficit", or the bit of government borrowing that doesn't go away even after the economy returns to growth (if indeed it ever does), actually deteriorates from an expected 4.2% of GDP this year to 5.7% in 2018. By 2018, Spain has far and away the worst structural deficit of any advanced economy, including other such well known fiscal basket cases as the UK and the US.

So what happens when you carry on borrowing at that sort of rate, year in, year out? Your overall indebtedness rockets, of course, and that's what's going to happen to Spain, where general government gross debt is forecast to rise from 84.1% of GDP last year to 110.6% in 2018. No other advanced economy has such a dramatically worsening outlook. And the tragedy of it all is that Spain is actually making relatively good progress in addressing the "primary balance", that's the deficit before debt servicing costs.

What's projected to occur is essentially what happens in all bankruptcies. Eventually you have to borrow more just to pay the interest on your existing debt. The fiscal compact requires eurozone countries to reduce their deficits to 3% by the end of this year, though Spain among others was recently granted an extension. But on these numbers, there is no chance ever of achieving this target without further austerity measures, which even if they were attempted would very likely be self defeating. In any case, it seems doubtful an economy where unemployment is already above 25% could take any more. [..] Spain is chasing its tail down into deflationary oblivion.

All this leads to the conclusion that a big Spanish debt restructuring is inevitable. Spanish sovereign bond yields have fallen sharply since the announcement of the European Central Bank's "outright monetary transactions" programme. The ECB has promised to print money without limit to counter the speculators. But in the end, no amount of liquidity can cover up for an underlying problem with solvency.

Europe said that Greece was the first and last such restructuring, but then there was Cyprus. Spain is holding off further recapitalisation of its banks in anticipation of the arrival of Europe's banking union, which it hopes will do the job instead. But if the Cypriot precedent is anything to go by, a heavy price will be demanded by way of recompense. Bank creditors will be widely bailed in. Confiscation of deposits looks all too possible.

I don't advise getting your money out lightly. Indeed, such advise is generally thought grossly irresponsible, for it risks inducing a self reinforcing panic. Yet looking at the IMF projections, it's the only rational thing to do.

Let's cautiously summarize it this way: Europe's finances – still – are in tatters. Ireland and Spain are just two examples. We can come up with similar stories about a handful (or two) of other countries. Perception for now remains that Draghi will do whatever it takes – re: buy buy buy – to rescue anyone and everyone. But that perception rests on the idea that he can, in the first place. Jeremy Warner puts his finger on a sore spot that doesn't get nearly enough attention anymore:"… in the end, no amount of liquidity can cover up for an underlying problem with solvency".

The illusion of central bank omnipotence, be it in setting interest rates or in buying up any and all kinds of paper, will continue until it doesn't; we have our media, our politicians and our own gullibility and wishful thinking to thank for that. In the meantime, though, hardly any of the problems in Europe are truly being solved. Moreover, those that are even attempted will increasingly involve bail-ins as a way of funding bail-outs.

It's just a matter of time until the walls come down, and of course it's ironic that the longer reality can be kept hidden underneath the carpet, the less real it seems. But that's simply a predictable consequence of having short attention spans. And we should be able to look beyond that.

Picture top: Vincent van Gogh – The Potato Eaters – 1885


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    Ireland was one of the first European countries to get hit by the financial crisis. It decided to bail out its banks at the direct cost of the taxpaye
    [See the full post at: If The Rest Are Only Half As Bad As Ireland …]


    Ireland’s population still hasn’t recovered (will it ever?)

    If the goal is to increase the population at all costs,then by all means, yes, it might recover. The rest of the world stands as a fine example that, if that’s your particular goal, you can achieve it by using a combination of traditional and industrial religion


    It’s just a matter of time until the walls come down, and of course it’s ironic that the longer reality can be kept hidden underneath the carpet, the less real it seems. But that’s simply a predictable consequence of having short attention spans. And we should be able to look beyond that.

    It may be kept hidden from those who have no money but those who have money and managing their investments sure as hell do know what is happening.

    The financial data and news company, whose computer terminals are widely used on Wall Street, had allowed journalists to see some information about terminal usage, including when customers had last logged in, and how often they used messaging or looked up data on broad categories, such as equities or bonds.
    Senior Goldman executives argued that while the information Bloomberg reporters had was limited, a trader could easily make money just by knowing what type of securities some high-profile users were looking at, or what questions a government official raised with Bloomberg’s help desk, people with direct knowledge of their views said.
    Bloomberg’s terminal has various command codes that with the click of a few buttons allow users to look up news about specific companies or topics, and data on specific securities or broader markets. Subscribers can also see information on fellow Bloomberg users, such as phone numbers, work titles, email and Bloomberg messaging addresses. Inside Bloomberg, some employees have access to much more detailed and current user data, for sales and marketing purposes.

    Ken Barrows

    in the end, no amount of liquidity can cover up for an underlying problem with solvency”.

    TPTB would disagree. Wouldn’t an elite politician or bureaucrat say that liquidity will lead to growth to pay off the debts? Of course, that’s nonsense if one looks at debt productivity (GDP/total credit market debt). I call it the Bernanke Rationale.


    Long time reader and uber bear. Haven’t posted for years though.

    I have felt for years that Australia would follow the real estate crash path of Ireland. Australia had no recession during the GFC or since. With the exception of some regional and South East Queensland markets, real estate has remained strong in Australia. This is despite the fact that Australia has the highest home loan debt to GDP ratio in the world and some of the highest debt to median household income ratios in the world.

    In the last 18 months interest rates have been falling and now that home loan rates are down to around 5.25% (RBA cash rate is 2.75%) the media is all excited about another housing boom. Go figure. I am starting to think that the media may be right, as RBA interest rates trending toward zero could stimulate one last housing bubble fling.

    The caveat on this is what happens around the globe. If the world economy falls into a deep recession/depression then Australia will not buck the trend, despite zero interest rates. It all swings on how long it takes for the real economy to give up on the fantasy of borrowing more money to paper over the endless losses on failed borrowings.

    If the Ponzi lasts two more years, Australia is headed for another housing bubble on top of the already years of bubbles. If the global Ponzi ends in 2013 Australian real estate will be in the toilet within two years.

    Again I wait and watch. Frozen like a kangaroo in the headlights.


    Quantitative Necrophilia – The 3 Month T-Bill Is Telling Us The Economy Is Dead


    Its all the rage here (not ireland) for cost-cutting businesses and government to sack their employees and swap them for unpaid inturns, sometimes people are laid off and get immediately rehired as poorly-paid inturns doing the same job, without previous labour protection. Inturnship is being marketed as an advantage to avoid long-term unemployment, often promising desirable paid positions after inturnship, positions which seem ever-receding and never materialising.

    Im thinking that saturating the labour market with barely paid inturns will tend to undercut minimum wage and collapse wage pressure, keeping some businesses solvent by eliminating wage-expediture and perchance increasing aggregate production, but lowering consumer income and spending, causing deflationary pressure on prices and destroying profit-margins elsewhere. Also, inturns are largely mortgage-ineligible, further collapsing the housing market, the popped housing bubble in turn feeding back into banking, wiping out capacity for business loans.

    There is rampant fiscal deflation here and no end in sight beyond the comprehensive reevaluation of the monetary system and political economy.



    That process – of using interns – instead of full-time employees has been around in France for decades. I am sure it is the same in some other European countries as well. It is called “travail à durée déterminée” (“fixed term employment”)

    Here is a Google translation:

    Frankly, it has become so expensive and risky for small companies to take on anyone in France that it is quite understandable. The “rights” which employees have are totally out of line. Only very large companies (quasi-monopolies) and the government can handle it. The result is self-evident:


    Nassim post=7298 wrote: Frankly, it has become so expensive and risky for small companies to take on anyone in France that it is quite understandable. The “rights” which employees have are totally out of line.

    I get that part of the equation, there’s been much talk of overprotected expensive labour, its resulted in diminished labour protection/rights in recent years. In holland they call it ‘flexibilising of labour’, shortening the duration of unemployment benefit payouts [partially paid for by employers] indexed to one’s previous wage, and making it easier for business to lay people off, allowing for less risky expansion during growth and maintaining profit margins if business contracts. In those ways where labour rights are out of control, such flexible labour should increase job availability.

    But it has a huge downside; this arrangement shifts business risk onto the employee away from the employer, banks and other lenders increasingly see flexible job arrangements as an income security risk for the employee, making them risky or ineligible for mortgages or loans. Housing sales here dropped another 20% yoy last month, in part because there are too few mortgage-eligible people with permanent jobs left.

    As you said, at least the quasi-monopoly of government should be able to maintain expensive permanent positions, but even they are switching out civil servants for [less skilled?] inturns, for greatly diminished pay and rights.
    If I interpret correctly, That french law does prohibit permanently filling vacancies related to normal business activity with temporary positions, but just that is happening here. Not just unforseen business activity or rapid expansion is supplemented with inturns, long-existing permanent positions are suddenly substituted for inturns simply to cut wage costs.
    It does confer an advantage to such business, but it seems to damage other parts of the economy.

    The phenomenon of inturnship seems to be growing explosively here, and it will be deflationary if overscaled inturnship undercuts [minimum] wage, pressing down average wage, causing prices to drop and other business to fail by collapse in aggregate demand and lack of disposable income. In addition, insolvency of pension schemes will accelerate if inturns aren’t forced to pay into that.

    One of the results of overly high minimum wage is lagging business expansion and lack of available jobs, but it wouldn’t do to lower minimum wage during a deflationary depression, its exactly the wrong method to boost employment, only deepening a deflationary wage-spiral. The effects of overscaled inturnship could cause the equivalent.



    Part of the reason – in France and much of Europe – for the huge gap between employment for the young and the middle-aged is due to it being almost impossible to sack people with permanent jobs. Older people with “permanent” jobs (“durée indéterminée” – unlimited duration) will never leave for a better job elsewhere – since even “permanent” jobs come with a trial period where the employer can change his mind without breaking any laws. The system is entirely screwed and seemingly designed to misallocate scarce labour resources.

    The vast numbers of people employed by government, quasi-government and the monopolistic sectors (trains, planes, medicine, education, electricity, gas, water etc.) are subsidised by the wealth-creating sector. The parasites are far larger than the host. It is perfectly unstable.

    I do not subscribe to the viewpoint that there is a fixed amount of labour needed in the economy – far from it. I do believe that if small companies (fewer than 10 employees) were allowed total exemption from these labour laws and companies with fewer than 100 people given something much less onerous, the whole dynamic would change. These companies would get all the smarter young people and one could have a real renaissance. France is basically a very rich country – not like England.

    The last time I worked as an IT manager in France was almost 30 years ago. I remember well one occasion when I was looking for a secretary (the previous secretary had to leave to a secret location on the advice of the police as her ex-boyfriend had attacked her at work). I was inundated by applications from young ladies who wanted to work for me. The number of applications was astounding. I interviewed a few of the most promising. One of them – a very attractive young lady of North African origin – offered to have sex with me then and there if I would recruit her. I felt really sorry for her, but felt obliged to choose someone else.

    If you check out the ethnicity of those working in the monopolitic sectors, you will find that all the senior positions are ethnically French or assimilated North-African Jews. It is quite striking. The present arrangement is obviously to the great advantage to the incumbents who run it. Just check out how many girlfriends/mistresses/wives guys like Mitterand, Chirac, Sarkozy, Hollande have had and it all becomes crystal clear. These guys never did an honest day of work in their lives – they are parasites to the nth degree. It is precisely as it was in the Soviet Union before the breakup.


    Nassim post=7301 wrote: I do not subscribe to the viewpoint that there is a fixed amount of labour needed in the economy – far from it.

    I agree, there’s something called the which I sometimes fall prey to, but the natural demand for labour tends to settle itself in a dynamic equilibrium relating to supply and demand factors of credit and capital goods, and there are correct and incorrect ways to change/force this equilibrium.

    Nassim post=7301 wrote:
    I do believe that if small companies (fewer than 10 employees) were allowed total exemption from these labour laws and companies with fewer than 100 people given something much less onerous, the whole dynamic would change.

    You might be right, but again, there are incorrect and damaging ways to change the labour equilibrium, which my deflationary inturnship premise pertains to. Monetary aggregates or industrial throughput might be disturbed in unforseen ways by changing labour costs in the wrong way.

    The cost of labour is too high for small business, but the general cost of living is also becoming crushingly high for employees.
    Overly expensive labour may not be exclusively caused by overprotected labour rights, costly administrative burdens are also imposed by government without directly improving employees or business’ position. There are myriad taxes levied on all stages of production and consumption, sometimes with deeply negative fiscal multipliers, actively shrinking the economy so that government spending the tax money cannot compensate for the initial damage.

    In holland there’s a minimum wage, enough to afford a decent standard of living. I’m not sure if france currently has one, but imposing a minimum wage obviously has huge influence on the labour dynamic. Lowering minimum wage right now would likely exasperate deflationary wage-price spirals, but some countries have recently increased their minimum wage, maybe to boost consumer spending, although it may also lower business’ profit margins or job availability at first.

    Its also a problem that big business consistently outcompetes small business by state-sanctioned monopolisation and structural tax evasion. Monolithic business has altogether drained past decades’ productivity gains away from the public good and treasury towards shareholders, crowding out marketspace for smaller competitors while their methods of globalised outsourcing contribute far less to domestic job availability than viable small business would.

    Any method that small business might employ to reduce the cost of labour should be allowed, only without reducing net income or basic economic security for (settled) employees, these ends ought not be contradictory.
    Its just important to realise that people in most of the west are financially so close to the edge that ‘take-home’ pay or job security/loan eligibility cannot be further reduced for the masses without completely collapsing consumer spending, home purchases and business startups.
    I still contend that this phenomenon of coerced inturnship is reducing net pay and job security for too many people at once, generating another deflationary impulse we don’t need.

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