Martin Wolf on the Irish Economy

The Sunday Tribune carried an interview with Martin Wolf yesterday.  Among the main points:

  • the importance of nominal wage reductions in order to promote export-led growth
  • funding risk in the sovereign debt market

6 replies on “Martin Wolf on the Irish Economy”

Re. Deficit
Our situation has become more stable and we are cutting in next budget. That must give us some credibility.
Re. Nominal wage cuts
Definitely needed in private sector. The UK are borrowing 14% but they have devalued. We need an internal devaluation.
Re. Banking
Blanket guarantee was catastrophe.
NAMA is disaster.
If budget is just a fiasco that is a positive trend.

Paying €54 Bn looks more criminal by the day. If Lenihan isn’t to be remembered as the Frank Drebin of Irish finance ministers he is going to have to pay €20 Bn less for those €77 Bn in loans.
The catastophic guarantee followed by a disastrous NAMA – his reputation would not survive.

Seems like most of the interview was devoted to a criticism of the bank bailout, the source of all the funding difficulties.

Wolf is paraphrased as saying that the ‘best solution to the crisis was to drive down nominal wages as this was the “best route to export led growth”’.

Lots of bests there, but export-led growth is hardly a plausible solution to a bank-induced crisis.

Martin Wolf is a sage observer, with whom I mostly agree, but he made some odd comments (if correctly quoted).

Debt level referring then to the Argentina default. It might have been Argentina’s smartest move ever, given the subsequent expansion of their economy. How did this hurt them?

Reduce nominal wages. The main negative effect of such moves is almost always on the bottom 80% of workers, who had little if anything to do with the fiscal fiasco.

I found this interesting even though it is stating the obvious:

“Wolf said the Ireland was a small open economy and simply did not have the national balance sheet to bail out all the institutions in trouble.”

Given that we simply can’t afford to honour the guarantee, it puzzles me how it managed to prevent a panic run on the banks. Is Europe underwriting it?

One has the feeling that like the Emporers imaginary clothes from Andersens tale, it is a fabrication which will collapse as soon as attention is drawn to the fact it can’t be honoured.

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