Month: April 2010

Recent Trends in Earnings and Employment

The CSO released its latest survey on Earnings and Labour Costs on Thursday.

The following summarizes the changes in the main aggregates between Q3 2008 and Q3 2009:

Whole economy:
Employment: -8.4% Average weekly earnings: -0.8% Average hourly earnings: +1.8%

Private sector:
Employment: -10.3% Average weekly earnings: -2.7% Average hourly earnings: +0.6%

Public sector:
Employment: -2.2% Average weekly earnings: +1.9% Average hourly earnings: +2.2%

(The earnings figures are gross, and take no account of income taxes or levies.)

Hourly earnings in the private sector peaked in Q1 2009 and declined by 4.7% over the following two quarters. In the public sector, hourly earnings continued to rise until Q2 2009 and declined by 1.1% in the following quarter.

Krugman and Wells on Reinhart and Rogoff

Paul Krugman and Robin Wells have a lengthy discussion of Reinhart and Rogoff here.

Technicalities

The domestic response to yesterday’s Eurostat announcement has been fairly predictable. Opposition politicians are treating it as a substantively bad development that makes our fiscal problems worse. The government are calling it a mere technicality that is nothing to worry about.

I’ve generally been critical of those who seek to ease our fiscal problems via accounting gimmicks. So, on this point, I’m more inclined to agree with the government than the opposition. There may be some particularly uninformed bond traders out there for whom it was news that the government’s €4 billion recapitalisation of Anglo last year wasn’t actually an investment but I wouldn’t imagine there’s too many. Irish government bond yields may have risen a bit yesterday but this may be more related to increased jitteriness about the Greek situation and its potential spillovers than the fact that our headline deficit figure has been changed.

Of course, one problem that the government has in making its “just a technicality” argument is that this same government practically bent over backwards to create the strange beast that is the NAMA SPV and then emphasised how important this accounting gimmick was. For instance, we were told that Brian Lenihan “heartily welcomed” Eurostat’s decision to keep the NAMA debt off balance sheet and that he said the SPV “is an essential device for ensuring that our national debt is off balance sheet in Eurostat terms”. So I think there’s an element of live by the sword, die by the sword about this situation.

More on the Revised GGB

The Department of Finance explains the data revision here.  In terms of the GGB in 2010 and subsequent years, there is an interesting set of communication issues.  As per the DF note,  one approach is to make a sharp distinction between the ‘headline’ and ‘underlying’ GGB with the difference consisting of the ‘unrequited’ capital transfers into Anglo-Irish etc. (as opposed to the equity-type investments in AIB and Bank of Ireland).  This distinction may be effective if the bank-related capital transfers are a ‘once off’ event or a “twice off” event (ie 2009 and 2010) but may lose its force in relation to a steady sequence of capital transfers over the next decade.  To the extent that the promissory notes spread out the capital transfers over a long period,  this may be a downside to this approach relative to making a larger-but-final capital transfer in 2010.

Update/clarification:  The promissory note approach will not affect the timing of when capital transfers hit the GGB  (once the capital transfer is decided, it hits the GGB in that year in line with accruals accounting) or when the fiscal cost of bank re-capitalisation hits the gross government debt (again, it hits the gross debt at the time of the commitment, since the liability has been accrued).  Moreover, the impact on the gross debt happens immediately even if it takes time (as in the 2009 case) to determine whether the re-capitalisation is an equity-type investment or a capital transfer. The promissory note approach just spreads out the timing of the cash payments.

Eurostat Revises Irish Deficit to 14.3%

Eurostat has today announced that the Irish general government deficit for 2009 was in fact 14.3% rather than the 11.7% figure that the government has been reporting. Reuters report

Irish Finance Minister Brian Lenihan said this was a result of a technical reclassification associated with government support provided to the banking sector.

“It is important to note that the underlying 2009 general government deficit for Ireland is 11.8 percent of GDP, which is broadly similar to that projected in December’s budget,” he said.

“There is no additional borrowing associated with this technical reclassification. This is a once-off impact, and will not affect the government’s stated budgetary aim of reducing the deficit to below 3 percent of GDP by 2014,” Lenihan said.

Though the Eurostat document does not state this, the revision appears to be related to reclassifying the €4 billion used to recapitalise Anglo Irish Bank as part of the deficit (at this point, I can’t resist an I told you so moment.) If this is indeed the case, I’m not sure that the once-off impact comment is correct since there’s more money going in this year.  Hopefully it is indeed the case that we’re not still pouring money into Anglo in 2014.

Oh, they also revised the Greek deficit upwards and said mean things about Greek budget statistics. So nothing new there.