22 replies on “European Commission spring forecasts”
I don’t know what it is about economists that makes them think they can predict the future. They can’t. One should place as much faith in economists’ forecasts as in Heineken Cup semi-final forecasts made by rugby ‘experts’. On the basis of what is now known to have actually happened in the first two months of 2009, some of the individual items in these EU forecasts are looking very dodgy. For example, they forecast that in 2009 Ireland’s exports will fall by 8.9% and imports by 12.5% (both volume figures). But, we now know from figures published by the CSO last week that in the first two months of 2009, Ireland’s merchandise exports rose by 0.2% and imports fell by 23.3% (both value figures). Even allowing for the fact that the CSO figures are for merchandise trade values (all that’s been publshed so far), and the EU forecasts are for all-trade volumes, the difference in net exports between the forecasts for 2009 and the actuality so far in 2009 is so large that it casts very serious doubt on whether the EU forecasts will prove at all accurate.
A further interesting feature in these EU forecasts are the figures they give for General Government Gross Debt (as a %age of GDP) at the END of 2009. On the basis of these figures, it would seem that the hysteria about Ireland’s financial position is somewhat overdone:
Luxembourg 16.0%
Denmark 32.5%
Finland 39.7%
Sweden 44.0%
Spain 50.8%
Netherlands 57.0%
Ireland 61.2%
U. Kingdom 68.4%
Austria 70.4%
Germany 73.4%
Portugal 75.4%
France 79.7%
Belgium 95.7%
Greece 103.4%
Italy 113.0%
Can any bright person here explain this chart on cnbc?
A large part of it must be IFSC related, and therefore not very strongly connected to the general operation of the economy.
You also need to take into account assets as well as liabilities.
As Ireland is one of the most globalised economies in the world, Ireland Inc has both huge foreign assets and huge foreign liabilities. A large chunk of both are IFSC-related. The net balance is published by the CSO annually. This is it for end 2007.
As the CSO figures show, net liabilities at end 2007 were about 31 billion.
John, I wondered about that debt ratio figure too. However there is a small catch, which is in the main text:
“From only 25% of GDP in 2007, the debt ratio should triple over the forecast horizon. This is due to the large primary deficits as well as increasing interest expenditure and falling nominal GDP. No impact on the public finances of the September 2008 bank guarantees (none called on to date) is included, while the February 2009 bank recapitalisations are assumed to be fully financed from existing resources. Nor do the projections reflect any impact of the National Asset Management Agency, which is to be set up shortly to deal with banks’ impaired assets.”
Thanks for the insights….
Im no economist but, I guess, that given the figures for all countries were arrived at using the same methodology and Ireland is so far out of line with everyone else; this must tell us — something — about the Irish economy listed at #1, and indeed the US economy listed at #15.
Even if that something is not the implication from the slideshow.
Thanks again folks, food for thought there
@John the other thing is to look at where we were versus where we are now because I saw some figures recently that showed Finland being in a good surplus last year so while their numbers may not look as large the actual amount of damage is somewhat equal.
@garry
as far as i recall the UK doesn’t include things like disability in their unemployed stats and they have c.3-4% classified as such so it paints a far more rosy picture.
a) I love when we count the assets of the IFSC and the flow (tax, employment etc) therefrom but not the liabilities….can anyone explain this asymmetry?
b) 2009 Gross GGD is okish for ireland. And 2010, 2011 etc will show? At very best our relative position will markedly deteriorate
The projection of unemployment at 16% in 2010 will naturally grab the headlines but the ESRI’s Spring QEC predicted 16.8% so this is not news, just a reminder of an impending disaster.
I think the most significant figure is the projection of a General Government Deficit (GGD) rising to 15.6% in 2010. This contrasts sharply with the ESRI’s forecast of 11.5% and, most importantly, the supplementary Budget’s figure of 10.75%. The Commission’s figures are on a “no policy change” basis but they also ignore the impact of the Bank Guarantee and NAMA and they assume the recapitalisations will be from own resources.
Until the March Exchequer figures emerged, I was calling for a budget which would maintain the 9% deficit we promised the Commission in January. We simply cannot afford to bring be the target of a full-blown exceessive deficit procedure under the SGP (yes, the big boys play by different rules).
The supplementary Budget aimed at a deficit of 10.75% this year and next (two points lower than the expected deficit this year without policy changes). The overall aim was to bring us back within the Stability and Growth Pact threshold of 3% by 2013.
Does the Commission lack confidence in our plan or is it simply putting the scale of the challenge squarely to us? It seems we are expected to take measures which would reduce a GGD of 15.6% back to 10.75% next year. If so, the budgetary stringency we have experienced to date will seem to have been a walk in the park. If NAMA, the Bank Guarantee or recapitalisations add substantially to the GGD, do we have any hope of satisfying our EU partners?
Garry, for the umpteenth time on this website, the CNBC figure includes the debt of the offshore banking sector. The number seems to come from BIS data. It means nothing at all, except that CNBC are careless.
Forecasts??? Several years ago, whilst wandering through the Digital World*, I happened upon two Tables (data type) listing countries and their, er, wealth. Table I: Irl was No.2 (L was No.1). Table II: IRL was number last! The author was forecasting, that in less than a generation, our standard of living would be at 1950s level. I thought the guy was bats – so I started to poke about. The info I uncovered was very disturbing indeed. Looks like this author knew a thing or two about Irl.
Hi Colm. Greetings from ECON 10040! Hope to see you in ’09.
Brian P
* Can’t recollect the source, might have been theOildrum.
@John
Although Ireland looks like it is relatively OK now in a debt to GDP ratio you really need to look at the trend to see where we will be in five years time.
Running deficit of well over 10% of GDP for the next 3 years and adding at least another 20% for nama and recapitalisations of our banks will put Ireland very close to the top of the list.
That second derivative is a killer!
Since this post went up, I have (between grading essays and related work) been scanning every single relevant government department website and googling frantically as well as emailing various people and yet I still cannot find a single sensible policy statement on this issue other than the Union document. What are DETE doing?? Given the upcoming summer recess for the Dail, it looks possible that there will be no policy whatsoever in the area of unemployment in the next six months. This cannot happen. You cannot leave well over 100,000 people under the age of 30 sitting at home – its just flies in the face of anything rational or humane. The consequences of prolonged mass unemployment among this group are far stronger than any negative consequences that might occur from trying some active labour market interventions – and I mean really active ones. Downward wage adjustment is not going to do this – this is one of the few areas where we genuinely need a government response. That response may be to stimulate private sector hiring – whatever it is it needs to start. Looking at what FInland did in the early 90’s or whatever is fine. We just need to get 100,000 people out of the house and into something. The most productive things possible but for now just something.
FAS does not seem to have a strategy for this. The budget document was completely ridiculous in terms of an employment response with 10-week training courses being the main feature. As an economics profession, our response has been desultory. Whether one agrees with Karl Whelan’s position or not, the image of him going toe-to-toe with Peter Bacon in open debate is one of the best images of the current recession in terms of demonstrating the vitality of economics. Yet, people who are supposed to be accountable for employment strategies are watching over this unfolding mess without so much as a strongly worded letter. Young people in this country working in the private sector, and upcoming graduates better start making themselves heard because you are being shunted aside and nobody is fighting your corner.
Is it time for the Irish people to realise that their national government is not up to the job (no pun intended) and it’s time to try and build their local communities at county, parish and street levels? This is going to be tough in commuterville where people don’t know their next door neighbour but what’s the alternative? Waiting for Brian Lenihan to come back from maths grinds during the summer?
Liam Delaney
Yes, that is the problem.
There are possibilities of informal apprenticeships. The idea is to:
one occupy them and stop them from hanging around on corners where the divil will get em
two let them see what things in their selected field are really like
three volunteerism is coming, so dole for work will be the least of it
four it may annoy the public service enough for more of them to leave….that seems to be the intended effect of telling folks they will pay tax on their compensation payment. It is not taxable under current law and the complexities of this area are real, as opposed to expropriation of worthless shares
five it will inspire many to flee as emigrants, an old and trusted policy
six it will motivate 5% to start up in competition to their ex-sponsors…..
seven it may prompt more sensible policy from the pols and executive once they realize just how bad things are
eight I better stop there you have to get back to work!
@liam
“Given the upcoming summer recess for the Dail, it looks possible that there will be no policy whatsoever in the area of unemployment in the next six months. This cannot happen. You cannot leave well over 100,000 people under the age of 30 sitting at home”
Why ever not? Liam – this not only can happen it WILL happen. This is your first recession as a professional economist observing the irish policy response. Sit back, break out the popcorn and enjoy the show. Its better than the circus….im afraid
I wouldn’t be too hard on the forecasts, and certainly not the forecasters. It is a bit like blaming the doctor for not saving the patient. And while you ought to know that you are eventually going to die, you still don’t want to do without the medicine, however imperfect it may be.
The EC forecasts, as ever, are particularly important as many decisions are taken on the back of them. Already the EC forecasts seem heavily influenced by the IMF, so few surprises. Governments around the EU – and throughout the world – will make use of them in their own budgeting decisions (they will possibly update them a little because already two/three months out of date).
And we may not like decisions, or like having to take them, but we do need to. And for governments, like for doctors and patients, that requires some rational idea of what is going to happen. It may be wrong. But economists try to do their best.
The EC report asks how bad and how long the global recession will be. Its answer blows hot and cold. The EC’s report is fairly non-committal on the outlook, seeing grave risks ahead but qualifying that with reasons for hope.
On the monetary front, its sees a good deal of reason for hope in ever greater injections of liquidity.
The Commission report sees “world growth at -1.5% in 2009 and just below 2% in 2010”. Eurozone growth is forecast at -4% in 2009, flat in 2010. This is similar to IMF forecasts. But even then, “unemployment rates are forecast to settle above 10% in both the US and the EU in 2010”. And 16% in Ireland. We could see these figures as quite optimistic – unemployment is less than what the ESRI is forecasting, but the EC ones were done probably a bit earlier. And the expected forecast errors are large anyway.
The upward revisions in debt and deficit forecasts are massive, particularly for 2010. On average, the forecast error is 2.4pp for 2010 and 1.6pp for 2009. Spain, Portugal and the Netherlands are among the countries seeing the biggest upward revisions. So Ireland, while it still stands out like a sore thumb, is no longer so much an outlier.
The EU’s forecast for a 9 % contraction in the Irish economy this year
“is a more pessimistic figure than the one taken into account by Irish government when it did its deficit forecast.” …
“We think the Irish government is doing a good job in tackling the consequences of a deep recession of the Irish economy.” …
“The improvement of the situation will be slower than in the rest of Europe.” …
“The EDP requires the Irish authorities to correct the excessive deficit before the end of 2013. We believe this deadline continues to be appropriate and we look forward to adequate action by the Irish authorities that will be assessed at the end of October.”
All this of course is diplomatic language, and hides deep worry.
EC’s Almunia 23 April “We’re opening excessive deficit procedures for all countries with a deficit above 3 percent. These elements of the pact are not suspended but are being implemented. We’re giving these countries longer periods of adjustment.”
So just about all countries now have an EDP hanging over them. The EC is making no noise about this, for fear of being accused of zealotry. “Let him who is without sin, throw the first stone”. Instead the EC is cautiously selective… and still talks about an EDP on minnows like Ireland.
These forecast revisions exclude many of the costs of bank rescues. The cost of bank recapitalisations and asset purchases (e.g. NAMA in Ireland) are not taken into account. For some other countries – guess who – these costs are likely to prove enormous
Governments, I firmly believe, need to come clean on the scale of the crisis.
It is not naïve but dangerous to pretend that bank rescues can be largely cost-free to the taxpayer (a belief still widely held in the US, the UK, France and Germany, although in Ireland the penny has dropped on this score), to the creditor, and even to equity holders (at current prices). That means private capital will boycott banks.
The prospect then is zombie banking à la Japan, and years of stagnation. For there will be no strong recovery without stronger banks. What finally got Japan out of its morass was putting banks bank back on their feet, not the adoption of quantitative easing.
Central bank governors on both sides of the Atlantic have been speaking on bank rescue measures with tones of increasing desperation. “Troubled banks must be allowed a way to fail,” was the title of an FT op-ed by Kansas’ Hoenig. Or another headline (BN) “Bullard Says Bankruptcy an Option for Financial Firms,” And in Europe, “Papademos Says No Strong Recovery Until Balance Sheets Repaired”. Axel Weber warned of the “persistence” of the announcements of further bank sector losses. He added that a German recovery depends on finding the best solution for dealing with toxic assets. And he said that a “handful of glimmers of hope is not a reliable sign that the global economy is out of the woods”.
It is indeed remarkable that the central bankers feel entitled to come out in dispersed order … and just ahead of the stress test results in the US. The press reflects the confusion… banks “have to raise less capital than previously feared” says the FT today. Hmmm.
Karl Marx, thou shouldst be alive at this hour. As ever the choice is between observation, analysis and comment and participation to effect change. Unfortunately, the economists who drew attention to the rattling of the wheels before they came off had little traction in the policy sphere then and are likely to have even less now. And even if some traction were to be secured the ability to convey a coherent message is vitiated by a genuine and fully justifiable divergence between those whom for convenience and simplicity one may describe as “progressives” – possessing a belief in the efficacy of well-designed and structured Government interventions – and “liberals” for whom such interventions are fraught with unintended – and, frequently, counter-productive – consequences.
Squaring this circle may require the “progressives” to focus on areas where the State is heavily involved, while the “liberals” focus on making markets work.
The FT article below should have an 18s rating – Its very scary.
98 billion capital shortfall estimate for the Irish banking system!
Brian – it would be a good start if we began to discuss these issues openly based on data, and also identified who is accountable. At microlevel, consumer debt and the pattern of unemployment are the key things that needs to be put out for discussion in terms of what has changed utterly in the last year.
On the employment side, to get people back into the market in the immediate sense will require relatively cost-neutral redirections of capital programmes toward “shovel-ready” (to use Bell and Blanchflower’s phrase) labour intensive projects as well as downward public sector pay adjustment to finance increases in either numbers of temporary public workers or employment subsidies to the private sector. Brian – you seem to have already signed off on this issue. Why bother getting so worked up about nationalisation then? Why should Peter Bacon warrant your scrutiny when there is probably not a single person reading these comments outside FAS who could name its new Director despite the enormous budget he controls and the strategic importance of such an agency during a downturn of this magnitude?
On the consumer debt side, why is Ronan Lyons the only one that I can find who has written anything sensible on negative equity, and by his own admission a blog-post that he is building up in his spare time based on data from a property website? Are the Central Bank doing work on this? Are they formulating suggested policies for the several thousand people who are likely to hit difficulties in the next two years?
22 replies on “European Commission spring forecasts”
I don’t know what it is about economists that makes them think they can predict the future. They can’t. One should place as much faith in economists’ forecasts as in Heineken Cup semi-final forecasts made by rugby ‘experts’. On the basis of what is now known to have actually happened in the first two months of 2009, some of the individual items in these EU forecasts are looking very dodgy. For example, they forecast that in 2009 Ireland’s exports will fall by 8.9% and imports by 12.5% (both volume figures). But, we now know from figures published by the CSO last week that in the first two months of 2009, Ireland’s merchandise exports rose by 0.2% and imports fell by 23.3% (both value figures). Even allowing for the fact that the CSO figures are for merchandise trade values (all that’s been publshed so far), and the EU forecasts are for all-trade volumes, the difference in net exports between the forecasts for 2009 and the actuality so far in 2009 is so large that it casts very serious doubt on whether the EU forecasts will prove at all accurate.
A further interesting feature in these EU forecasts are the figures they give for General Government Gross Debt (as a %age of GDP) at the END of 2009. On the basis of these figures, it would seem that the hysteria about Ireland’s financial position is somewhat overdone:
Luxembourg 16.0%
Denmark 32.5%
Finland 39.7%
Sweden 44.0%
Spain 50.8%
Netherlands 57.0%
Ireland 61.2%
U. Kingdom 68.4%
Austria 70.4%
Germany 73.4%
Portugal 75.4%
France 79.7%
Belgium 95.7%
Greece 103.4%
Italy 113.0%
Can any bright person here explain this chart on cnbc?
http://www.cnbc.com/id/30308959
specifically slide 16
http://www.cnbc.com/id/30308959?slide=16
Well, CSO data on external debt for December 2008 says €1,661,079m, which comes out close to $2.311 trillion, depending on the exchange rate you use. See: http://www.cso.ie/releasespublications/documents/economy/current/externaldebt.pdf
A large part of it must be IFSC related, and therefore not very strongly connected to the general operation of the economy.
You also need to take into account assets as well as liabilities.
As Ireland is one of the most globalised economies in the world, Ireland Inc has both huge foreign assets and huge foreign liabilities. A large chunk of both are IFSC-related. The net balance is published by the CSO annually. This is it for end 2007.
http://www.cso.ie/releasespublications/documents/economy/current/iip.pdf
As the CSO figures show, net liabilities at end 2007 were about 31 billion.
John, I wondered about that debt ratio figure too. However there is a small catch, which is in the main text:
“From only 25% of GDP in 2007, the debt ratio should triple over the forecast horizon. This is due to the large primary deficits as well as increasing interest expenditure and falling nominal GDP. No impact on the public finances of the September 2008 bank guarantees (none called on to date) is included, while the February 2009 bank recapitalisations are assumed to be fully financed from existing resources. Nor do the projections reflect any impact of the National Asset Management Agency, which is to be set up shortly to deal with banks’ impaired assets.”
Thanks for the insights….
Im no economist but, I guess, that given the figures for all countries were arrived at using the same methodology and Ireland is so far out of line with everyone else; this must tell us — something — about the Irish economy listed at #1, and indeed the US economy listed at #15.
Even if that something is not the implication from the slideshow.
Thanks again folks, food for thought there
@John the other thing is to look at where we were versus where we are now because I saw some figures recently that showed Finland being in a good surplus last year so while their numbers may not look as large the actual amount of damage is somewhat equal.
@garry
as far as i recall the UK doesn’t include things like disability in their unemployed stats and they have c.3-4% classified as such so it paints a far more rosy picture.
a) I love when we count the assets of the IFSC and the flow (tax, employment etc) therefrom but not the liabilities….can anyone explain this asymmetry?
b) 2009 Gross GGD is okish for ireland. And 2010, 2011 etc will show? At very best our relative position will markedly deteriorate
The projection of unemployment at 16% in 2010 will naturally grab the headlines but the ESRI’s Spring QEC predicted 16.8% so this is not news, just a reminder of an impending disaster.
I think the most significant figure is the projection of a General Government Deficit (GGD) rising to 15.6% in 2010. This contrasts sharply with the ESRI’s forecast of 11.5% and, most importantly, the supplementary Budget’s figure of 10.75%. The Commission’s figures are on a “no policy change” basis but they also ignore the impact of the Bank Guarantee and NAMA and they assume the recapitalisations will be from own resources.
Until the March Exchequer figures emerged, I was calling for a budget which would maintain the 9% deficit we promised the Commission in January. We simply cannot afford to bring be the target of a full-blown exceessive deficit procedure under the SGP (yes, the big boys play by different rules).
The supplementary Budget aimed at a deficit of 10.75% this year and next (two points lower than the expected deficit this year without policy changes). The overall aim was to bring us back within the Stability and Growth Pact threshold of 3% by 2013.
Does the Commission lack confidence in our plan or is it simply putting the scale of the challenge squarely to us? It seems we are expected to take measures which would reduce a GGD of 15.6% back to 10.75% next year. If so, the budgetary stringency we have experienced to date will seem to have been a walk in the park. If NAMA, the Bank Guarantee or recapitalisations add substantially to the GGD, do we have any hope of satisfying our EU partners?
Garry, for the umpteenth time on this website, the CNBC figure includes the debt of the offshore banking sector. The number seems to come from BIS data. It means nothing at all, except that CNBC are careless.
Forecasts??? Several years ago, whilst wandering through the Digital World*, I happened upon two Tables (data type) listing countries and their, er, wealth. Table I: Irl was No.2 (L was No.1). Table II: IRL was number last! The author was forecasting, that in less than a generation, our standard of living would be at 1950s level. I thought the guy was bats – so I started to poke about. The info I uncovered was very disturbing indeed. Looks like this author knew a thing or two about Irl.
Hi Colm. Greetings from ECON 10040! Hope to see you in ’09.
Brian P
* Can’t recollect the source, might have been theOildrum.
@John
Although Ireland looks like it is relatively OK now in a debt to GDP ratio you really need to look at the trend to see where we will be in five years time.
Running deficit of well over 10% of GDP for the next 3 years and adding at least another 20% for nama and recapitalisations of our banks will put Ireland very close to the top of the list.
That second derivative is a killer!
Since this post went up, I have (between grading essays and related work) been scanning every single relevant government department website and googling frantically as well as emailing various people and yet I still cannot find a single sensible policy statement on this issue other than the Union document. What are DETE doing?? Given the upcoming summer recess for the Dail, it looks possible that there will be no policy whatsoever in the area of unemployment in the next six months. This cannot happen. You cannot leave well over 100,000 people under the age of 30 sitting at home – its just flies in the face of anything rational or humane. The consequences of prolonged mass unemployment among this group are far stronger than any negative consequences that might occur from trying some active labour market interventions – and I mean really active ones. Downward wage adjustment is not going to do this – this is one of the few areas where we genuinely need a government response. That response may be to stimulate private sector hiring – whatever it is it needs to start. Looking at what FInland did in the early 90’s or whatever is fine. We just need to get 100,000 people out of the house and into something. The most productive things possible but for now just something.
FAS does not seem to have a strategy for this. The budget document was completely ridiculous in terms of an employment response with 10-week training courses being the main feature. As an economics profession, our response has been desultory. Whether one agrees with Karl Whelan’s position or not, the image of him going toe-to-toe with Peter Bacon in open debate is one of the best images of the current recession in terms of demonstrating the vitality of economics. Yet, people who are supposed to be accountable for employment strategies are watching over this unfolding mess without so much as a strongly worded letter. Young people in this country working in the private sector, and upcoming graduates better start making themselves heard because you are being shunted aside and nobody is fighting your corner.
Is it time for the Irish people to realise that their national government is not up to the job (no pun intended) and it’s time to try and build their local communities at county, parish and street levels? This is going to be tough in commuterville where people don’t know their next door neighbour but what’s the alternative? Waiting for Brian Lenihan to come back from maths grinds during the summer?
Liam Delaney
Yes, that is the problem.
There are possibilities of informal apprenticeships. The idea is to:
one occupy them and stop them from hanging around on corners where the divil will get em
two let them see what things in their selected field are really like
three volunteerism is coming, so dole for work will be the least of it
four it may annoy the public service enough for more of them to leave….that seems to be the intended effect of telling folks they will pay tax on their compensation payment. It is not taxable under current law and the complexities of this area are real, as opposed to expropriation of worthless shares
five it will inspire many to flee as emigrants, an old and trusted policy
six it will motivate 5% to start up in competition to their ex-sponsors…..
seven it may prompt more sensible policy from the pols and executive once they realize just how bad things are
eight I better stop there you have to get back to work!
@liam
“Given the upcoming summer recess for the Dail, it looks possible that there will be no policy whatsoever in the area of unemployment in the next six months. This cannot happen. You cannot leave well over 100,000 people under the age of 30 sitting at home”
Why ever not? Liam – this not only can happen it WILL happen. This is your first recession as a professional economist observing the irish policy response. Sit back, break out the popcorn and enjoy the show. Its better than the circus….im afraid
I wouldn’t be too hard on the forecasts, and certainly not the forecasters. It is a bit like blaming the doctor for not saving the patient. And while you ought to know that you are eventually going to die, you still don’t want to do without the medicine, however imperfect it may be.
The EC forecasts, as ever, are particularly important as many decisions are taken on the back of them. Already the EC forecasts seem heavily influenced by the IMF, so few surprises. Governments around the EU – and throughout the world – will make use of them in their own budgeting decisions (they will possibly update them a little because already two/three months out of date).
And we may not like decisions, or like having to take them, but we do need to. And for governments, like for doctors and patients, that requires some rational idea of what is going to happen. It may be wrong. But economists try to do their best.
The EC report asks how bad and how long the global recession will be. Its answer blows hot and cold. The EC’s report is fairly non-committal on the outlook, seeing grave risks ahead but qualifying that with reasons for hope.
On the monetary front, its sees a good deal of reason for hope in ever greater injections of liquidity.
The Commission report sees “world growth at -1.5% in 2009 and just below 2% in 2010”. Eurozone growth is forecast at -4% in 2009, flat in 2010. This is similar to IMF forecasts. But even then, “unemployment rates are forecast to settle above 10% in both the US and the EU in 2010”. And 16% in Ireland. We could see these figures as quite optimistic – unemployment is less than what the ESRI is forecasting, but the EC ones were done probably a bit earlier. And the expected forecast errors are large anyway.
The upward revisions in debt and deficit forecasts are massive, particularly for 2010. On average, the forecast error is 2.4pp for 2010 and 1.6pp for 2009. Spain, Portugal and the Netherlands are among the countries seeing the biggest upward revisions. So Ireland, while it still stands out like a sore thumb, is no longer so much an outlier.
The EU’s forecast for a 9 % contraction in the Irish economy this year
“is a more pessimistic figure than the one taken into account by Irish government when it did its deficit forecast.” …
“We think the Irish government is doing a good job in tackling the consequences of a deep recession of the Irish economy.” …
“The improvement of the situation will be slower than in the rest of Europe.” …
“The EDP requires the Irish authorities to correct the excessive deficit before the end of 2013. We believe this deadline continues to be appropriate and we look forward to adequate action by the Irish authorities that will be assessed at the end of October.”
All this of course is diplomatic language, and hides deep worry.
EC’s Almunia 23 April “We’re opening excessive deficit procedures for all countries with a deficit above 3 percent. These elements of the pact are not suspended but are being implemented. We’re giving these countries longer periods of adjustment.”
So just about all countries now have an EDP hanging over them. The EC is making no noise about this, for fear of being accused of zealotry. “Let him who is without sin, throw the first stone”. Instead the EC is cautiously selective… and still talks about an EDP on minnows like Ireland.
These forecast revisions exclude many of the costs of bank rescues. The cost of bank recapitalisations and asset purchases (e.g. NAMA in Ireland) are not taken into account. For some other countries – guess who – these costs are likely to prove enormous
Governments, I firmly believe, need to come clean on the scale of the crisis.
It is not naïve but dangerous to pretend that bank rescues can be largely cost-free to the taxpayer (a belief still widely held in the US, the UK, France and Germany, although in Ireland the penny has dropped on this score), to the creditor, and even to equity holders (at current prices). That means private capital will boycott banks.
The prospect then is zombie banking à la Japan, and years of stagnation. For there will be no strong recovery without stronger banks. What finally got Japan out of its morass was putting banks bank back on their feet, not the adoption of quantitative easing.
Central bank governors on both sides of the Atlantic have been speaking on bank rescue measures with tones of increasing desperation. “Troubled banks must be allowed a way to fail,” was the title of an FT op-ed by Kansas’ Hoenig. Or another headline (BN) “Bullard Says Bankruptcy an Option for Financial Firms,” And in Europe, “Papademos Says No Strong Recovery Until Balance Sheets Repaired”. Axel Weber warned of the “persistence” of the announcements of further bank sector losses. He added that a German recovery depends on finding the best solution for dealing with toxic assets. And he said that a “handful of glimmers of hope is not a reliable sign that the global economy is out of the woods”.
It is indeed remarkable that the central bankers feel entitled to come out in dispersed order … and just ahead of the stress test results in the US. The press reflects the confusion… banks “have to raise less capital than previously feared” says the FT today. Hmmm.
http://blog.ohagan.fr
Karl Marx, thou shouldst be alive at this hour. As ever the choice is between observation, analysis and comment and participation to effect change. Unfortunately, the economists who drew attention to the rattling of the wheels before they came off had little traction in the policy sphere then and are likely to have even less now. And even if some traction were to be secured the ability to convey a coherent message is vitiated by a genuine and fully justifiable divergence between those whom for convenience and simplicity one may describe as “progressives” – possessing a belief in the efficacy of well-designed and structured Government interventions – and “liberals” for whom such interventions are fraught with unintended – and, frequently, counter-productive – consequences.
Squaring this circle may require the “progressives” to focus on areas where the State is heavily involved, while the “liberals” focus on making markets work.
The FT article below should have an 18s rating – Its very scary.
98 billion capital shortfall estimate for the Irish banking system!
http://blogs.ft.com/economistsforum/2009/05/the-capital-shortage-is-global/#more-661
or on vox at
http://www.voxeu.org/index.php?q=node/3517
Brian – it would be a good start if we began to discuss these issues openly based on data, and also identified who is accountable. At microlevel, consumer debt and the pattern of unemployment are the key things that needs to be put out for discussion in terms of what has changed utterly in the last year.
On the employment side, to get people back into the market in the immediate sense will require relatively cost-neutral redirections of capital programmes toward “shovel-ready” (to use Bell and Blanchflower’s phrase) labour intensive projects as well as downward public sector pay adjustment to finance increases in either numbers of temporary public workers or employment subsidies to the private sector. Brian – you seem to have already signed off on this issue. Why bother getting so worked up about nationalisation then? Why should Peter Bacon warrant your scrutiny when there is probably not a single person reading these comments outside FAS who could name its new Director despite the enormous budget he controls and the strategic importance of such an agency during a downturn of this magnitude?
On the consumer debt side, why is Ronan Lyons the only one that I can find who has written anything sensible on negative equity, and by his own admission a blog-post that he is building up in his spare time based on data from a property website? Are the Central Bank doing work on this? Are they formulating suggested policies for the several thousand people who are likely to hit difficulties in the next two years?