Gillian Tett’s Financial Times column today praising the Irish government’s approach to fiscal adjustment relative to that of Greece, Spain or Portugal is welcome. Without doubt, the government has taken a brave approach to fiscal adjustment and the public reaction to it has been one of remarkable tolerance. However, I think we need to be careful about overdosing on external and self-praise and concluding that we’re somehow out of the woods on the fiscal front.
I previously argued that wave power would, if anywhere, be commercialised first in Ireland — because our waves are second to none (in the populated world) — but that there is no reason to assume that it would be an Irish company that does the commercialisation.
Indeed, Ocean Power Technologies of Pennington, New Jersey, has kindly offered to accept the generous subsidies for wave power offered by the Irish government (see Irish Times).
As is customary these days, OPT promised to create “ten of thousands” of jobs. The jobs are in construction and therefore temporary.
OPT also called for a streamlined approval process.
Here‘s an interesting set of charts from Spiegel Online describing the debt problems of the countries who make up a certain animal-related acronymn. The graphs on the maturity profiles of the debts for each country provide a useful perspective on the stabilisation deal.
After the excitement of the weekend’s EU announcement, the question most people will ask is “will it work?” I think the answer to this question depends on what we mean by “work”.
There are obvious parallels here with the banking crisis. As markets began to doubt the solvency of many institutions, including the Irish banks, access to short term liquidity dried up for these institutions. Governments provided various liability guarantees to help these banks regain access to markets (ours being the most extensive) but these guarantees did not change the underlying solvency picture. Ultimately, the problem of insolvent banks had to be dealt with via costly recapitalisation measures, a process that we in Ireland have yet to complete.
The size of the funds announced in the EU deal are large enough to most likely ensure that, for a while, no EU country will fail to roll over its sovereign debt. In that sense it will most likely work. But it doesn’t change the fiscal reality.
Last week’s €110 billion Greek deal wasn’t well received by the markets because it still seemed to imply a Greek default was on the way. Last night’s announcement is being well received but then it doesn’t actually come with a concrete fiscal restructuring plan for Portugal, Spain or Ireland, so the plan can be taken good news without having to question any dubious underlying assumptions about fiscal sustainability. If the time comes when this fund is tapped but the markets don’t buy the stabilisation plan announced, the situation could unravel again.
Most of the thoughtful reaction elsewhere points to it being a long and complicated road ahead. The Baseline Scenario guys give their reaction to the plan here. Arthur Beesley also has a nice piece in the Irish times here.