Comments on: Krugman: Nominal Wage Cuts Necessary but Difficult

By: Ronnie O'Toole

Ronnie O'Toole — Thu, 22 Jan 2009 16:36:10 +0000

I think the point of lower nominal wages resulting in greater repossessions etc is greatly overdone. First, mortgage repayments have been the primary driver of lower inflation, so those with the greatest mortgage debt have the lowest inflation (e.g. someone on €60k with a recent €200k mortgage currently has a personal inflation rate of around -7%). Second, a 5% nominal cut in disposable income has the same effect as a 25 bps rise in interest rates in terms of the share of mortgage repayments in income - unwelcome, but not huge. The great threat to mortgage holders is unemployment, so nominal wage adjustment will be more of a help than a hindrance in terms of controlling delinquency rates.

By: Frank

Frank — Wed, 21 Jan 2009 12:20:28 +0000

It might be easier to achieve wage cuts if they were attached to an EU sponsored fiscal stimulus package - or even a precondition for the retention of our preferential tax rates. However, lower nominal wages is going to mean a lot of unpaid mortgages, repossessions, etc.!

By: Kevin O'Rourke

Kevin O'Rourke — Wed, 21 Jan 2009 10:09:06 +0000

Mexico without the tequila.

By: brendan walsh

brendan walsh — Wed, 21 Jan 2009 09:30:26 +0000

A pessimist would say that Ireland is Spain without the weather but with a banking crisis!