Most of the Irish academic economists contributing this site are anti-NAMA in its current form, and Karl Whelan has expressed an interest in giving more balance to the site by generating some pro-NAMA threads. Goldman Sachs’ chief European economist was gracious in allowing me to quote his recent email on Irish bank bailout policies including NAMA (the email was mentioned in today’s newspapers). See below the fold.
Quote (with his generous permission) from email by Erik F. Nielsen, Chief European Economist, Goldman Sachs
Here is what’s on my mind as we head into the last full week of September:
- Further (good) details on the Irish scheme to clean up their banking system.
- Croatia and Norway inch closer to EU membership.
- The US abandoned the planned missiles in Poland and the Czech Republic; good for Europe.
- G-20 in Pittsburgh coming up at the end of the week; lots of stuff.
- Just one week to go before the German election; tax cuts seem more and more likely.
- The very important Eurozone PMIs will be out on Wednesday, and the Ifo on Thursday.
- UK MPC minutes out on this week; important on several issues including the marginal reserve rate discussion.
- Switzerland will be relatively quiet; only trade data this week.
- Norges Bank decides on interest rates on Wednesday; no change but will they alert us to an October hike?
- Likely drama coming up in the Czech Republic this week over the 2010 budget; and CNB meeting; no change.
1. This past week delivered one further step in the process of cleaning up the Irish banking system, a process so clearly helped by their membership of the Euro-zone. On Wednesday Irish finance minister Lenihan provided further details of the “bad bank” operation. He announced that NAMA (the National Asset Management Agency) will spend EUR54bn buying EUR77bn face value of impaired assets off the Irish banks. According to Lenihan, this is EUR7bn more than the present market value; a premium he justified by a longer-term valuation. The treasury will fund NAMA with EUR2.7bn (adding to the government deficit, so that will increase issuance by that amount), while the rest will be in the form of a bond issued by NAMA itself. The NAMA bond will not be traded in the open market, but used directly as payment to the banks for the assets. The banks can (and almost certainly will) in turn repo the bond at the ECB to take out the cash. In my opinion, the NAMA operation is just the latest in a series of impressive steps by the Irish government to clean up the mess, but it is also a reminder of the huge benefit to a small open economy of being inside the Euro-zone when shocks of this magnitude occur. Incidentally, on Friday (Sept 25), Irish governor Hurley steps down and professor Patrick Honohan takes over as governor of the Central Bank of Ireland, thereby taking his seat at the ECB’s Governing Council. The appointment of an independent academic to the governorship is a welcome break with Irish tradition of handing the job of central bank governor to a civil servant, and Honohan is indeed – by any yardstick – uniquely qualified. He is currently economics professor at Trinity College and an advisor to the World Bank, where he worked (among other places) in the past. He has written extensively on the crisis and – according to finance minister Lenihan – has advised the government in private during the last year’s restructuring efforts. I like the Irish!
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