QNA Release for 2010:Q2

The quarterly national accounts for 2010:Q2 have been released. They show seasonally adjusted GDP declining 1.2% quarter over quarter and seasonally adjusted GNP down 0.3%.  Year over year, real GDP is down 1.8 percent and GNP is down 4.1 percent. Nominal GDP is down 3.6 percent year over year while nominal GNP is down 6.2 percent over the same period.

There were also revisions to the first quarter figures. Seasonally adjusted quarter on quarter growth in GDP was revised down from 2.7 percent to 2.2 percent, while the decline in GNP was revised from 0.5 percent to 1.2 percent.

Anglo Subdebt, Again

It is now pretty clear that the government and Anglo management are shaping up to do a buyback deal on Anglo’s outstanding €2.5 billion in subordinated debt after the original CIFS guarantee expires at the end of the month.

Here’s my question. Given that

(a) The terms of these securities allow for the possibility of them not being paid back if the bank is insolvent (this is why banks get to count these securities as part of their regulatory capital).

(b) None of this debt matures until 2014 at the earliest (see page 56 of Anglo’s interim report).

(c) These bonds will no longer be covered by a state guarantee.

why would we do this? Why not let the bonds sit as an obligation of the Asset Recovery Bank, let it go about its business of recovering value from assets, and then let the next government make a decision in 2014 as to whether we want to put in taxpayer funds to pay off these bonds?

Those of you who want to comment that you think a bond buyback is a good idea might help clarify things a bit by explaining what type of deal you would offer (i.e. how much of our money you’d give the hedge funds and other distressed debt outfits that now own these bonds.)

Exporting Irish Education

The Government has just announced its plan to increase the number of non-Irish students in higher education by 50% between now and 2015, and to increase the “value” of the university sector by one third to 1.2 bln euro. The news bulletin and press release emphasize the targets, but are hazy on the implementation. After some digging, the underlying report can be found too. In this regard at least, education has something to teach to the other departments.

The report has a snappy title and great graphics, but is a bit hazy on the actual plan. It would of course be great if tens of thousands of non-EEA students would flock to Irish universities and pay a hefty fee that would cross-subsidize Irish students. But why would they? Ireland has the advantage that it teaches in English — but so do Australia, Canada, New Zealand, South Africa, the United Kingdom, the United States and, indeed, the Netherlands. Parents who wonder where to send little Yuan or precious Sujata may look at one of the university rankings and decide that there are more prestigious universities elsewhere. Ireland could compete on price, but that defies the purpose. Why would the Irish taxpayer subsidize the education of foreigners?

These considerations are not part of the report. In fact, little thought is given to the students or their parents. Two concrete measures are proposed. First, it will be easier to obtain a student visa. Second, there will be a major branding campaign. While branding is largely in your own hands if you sell butter, lager or dance, education is a harder sell. Substance should back up the image. Sending your kid abroad for 3-4 years is a major decision. The potential client is well-informed.

The report has an interesting factlet: Ireland has the highest proportion of students in the EU who study abroad. If our own students have so little confidence in the Irish universities, why would foreign students want to pay for the same?

How Yields are Set in Bond Auctions

We’ve had lots of comments about yesterday’s bond auction, many of them from people confused by headlines about the “heavy demand” for the bonds. If the demand was so heavy, these folks are asking, why couldn’t we have sold the bonds at a lower interest rate? We’ve also had some good responses from people who know the answer but it’s perhaps worth putting the answer on the front page.

Take the €1 billion euro 8-year bond that was issued yesterday. The interest rates that we pay on these bonds are determined in an auction. People submit private bids detailing how much of the debt they want to acquire and what rate they are willing to pay. NTMA want to pay the lowest interest rates possible, so they allocate the bonds to those offering to take the lowest interest rates until they have handed out the full €1 billion of bonds.

Yesterday’s auctions featured €2.9 billion in bids (this is what is meant by the bid-cover ratio being 2.9) and the widely-advertised rate of 6.046% was the highest rate offered that received a full allocation of debt. The business about the “heavy demand” relates to the fact there were €1.9 billion in bids from people who were not allocated bonds. Pretty clearly, however, the existence of these bids can’t lower the rates that we are actually paying since these people weren’t willing to purchase the bonds at lower interest rates.

Also, we don’t know how serious all of these unsuccessful participants were. For all we know, some could have submitted bids at 10%: NTMA don’t release information about the nature of the unsuccessful bids. In the absence of this information, I’d recommend not reading too much into bid-cover ratios.

(Note, for those who want to be picky, I’m deliberately not getting into technicalities about Dutch and non-Dutch auctions and the like but informed commenters can fire away on this stuff if they wish.)

Implied Default Rates

Today’s bond auction has attracted a lot of media attention. However, quite a lot of the comment has been a bit confused. Let me set out the usual framework that economists use to think about bond yields. Our more financially sophisticated readers know this stuff anyway but it’s still worth briefly spelling out.

Consider an investor who has two options for their investment.

Option A is to purchase a risk-free bond which carries an interest rate of RF.

Option B is to purchase a bond with potential default risk. This bond delivers two possible outcomes. The first outcome occurs with probability p and in this case, the bond is defaulted on and the investor only recovers a percentage c of their original investment. The second outcome B occurs with probability 1-p and in this case the bond delivers the promised interest rate of RR and also repays the principal.

(Weighted) averaging over these two outcomes, the expected return from option B is

p(c-1) + (1-p) RR

Now assume that investors are risk-neutral, meaning they will pick the bond with the highest average return (and won’t shy away from option B just because it carries some uncertainty).

In this case, for investors to be willing to purchase both bonds, they must have the same average expected return. Setting the above return for option B equal to RF and re-arranging, this determines the interest rate on the risky bond as

RR = RF / (1-p) + p (1-c)

If one knows what the “recovery rate” parameter c is, then one can also back out the implied probability of default as

p = (RR – RF ) / (1 –c + RR)

Now to our current situation. As of this evening, the FT is reporting yields on ten-year Irish bond at annualised rates were 6.3% while the comparable German bond was yielding 2.46%. Let’s use 0.5 as the implied recovery rate should Ireland default. Now plug in RR = .063, RF = .0246, C = 0.5

p = (0.0630 – 0.0246) / .563 = .0682

When considering ten-year bond yields, this tells us the implied probability that the bond will not default over the 10 years is (1-.0682)^10 = 0.493.

In other words, this simplified calculation would suggest that investors are pricing in that a default is more likely than not at some point in the next ten years.

So, when one hears a Fianna Fail TD say on Prime Time say that if international investors didn’t have confidence in Ireland, they wouldn’t be willing to invest in the country (i.e. purchase sovereign bonds) it needs to be kept in mind that the rates on longer-dated sovereign bonds suggest that these investors believe that it’s as likely as not that the country will default over the next ten years. Not much of a vote of confidence.

Now, of course, the framework above is very basic. One can assume that investors are not risk-neutral which would mean there would be a risk premium in addition to the one related to default probability. This would lower the estimated default probability but it wouldn’t change the damage that perception of the possibility of default is doing.

Also, the 50% figure for recovery rate might be kind of low. A recovery rate of two-thirds would give a higher implied default probability of also about two-thirds from the above framework.

The other line I heard going round today was how we shouldn’t be surprised that the auction was successful because the rates being offered were “very attractive.” This is wrong on two counts. First, the rates were determined in an auction—the NTMA didn’t set a high minimum rate that they were willing to pay to attract interest. Second, once we know the market is factoring in default risk, there’s no point in judging bond yields as being “attractive” just because they are high. The high rates are compensation for the possibility that you might lose a lot of money if things go badly.

A key point to keep in mind is one that has been stressed recently by Willem Buiter. When perceived default probabilities rise there can be two possible self-confirming equilibria. In the good one, the government calms the nerves of the markets, borrowing rates decline and the day is saved. In the bad one, the high yields due to high default probabilities start to make fiscal stabilisation seem more difficult, which further raises estimated default probabilities until borrowing from the bond market becomes unfeasibly expensive or else simply impossible.

ISNE Conference 24/25 September

The 7th annual meeting of the Irish Society of New Economists (ISNE) will take place in Trinity College Dublin on 24-25 September, 2010. This year’s conference is organised by Trinity PhD students Christian Danne, Benjamin Elsner and Eoin McGuirk; and features 28 sessions over two days with 112 presentations in total. The keynote speaker is Professor Philip Lane. The conference programme can be viewed and downloaded here; the schedule of talks is on pages 12-19 of the Pdf.

More information: http://www.tcd.ie/iiis/isne

QNHS for 2010:Q2

Results from the Quarterly National Household Survey for 2010:Q2 are now available (press release here, full release here.)

Employment is still falling, though at a slower pace than previously. The seasonally adjusted unemployment rate for the second quarter is 13.2 percent, which is the same as the average for these months that has been estimated by the Live Register figures over those months, so there will be no great revision to those figures (which last showed a standardised unemployment rate of 13.8% in August.) The decline in the participation rate seems to be easing, with the seasonally adjusted rate falling from 61.2 percent in 2010:Q1 to 61.1 percent in 2010:Q2.

Governor Honohan’s Address on the Banks and the Budget

Patrick Honohan’s address to the SUERF conference (Dublin), “Banks and the Budget: Lessons from Europe”, is available here.

While the address contained important observations on the interaction between the budgetary and banking crises, I expect it is his comments on the fiscal adjustment programme that will make most news:

I have recently been looking more closely though at the multi-year prospects for the budget. Of course it can be said, if the economy stays close to the track originally envisaged, the deficit would come close to 3 per cent by 2014. But as the IMF and others have noted, the real economy, the price level and also interest rates on Government borrowing, have evolved in a less favorable way. Servicing of the additional debt related to bank restructuring is also a negative factor.

Some explicit reprogramming of the budgetary profile for the coming years is clearly necessary soon if debt dynamics are to be convincingly convergent. Recent movements in the yield spread on Government debt – both for Ireland and for some other countries – readily demonstrate the costs that can result unless international lenders remain convinced that the budget is going to be kept on a convergent path, as indeed the Government is committed to ensuring.

During the 1980s Ireland paid a high price in terms of borrowing costs because the markets feared much steeper exchange rate depreciation than actually occurred. An equilibrium of pessimism, with the economy struggling, and investors requiring a risk premium that imposed additional costs on the taxpayer, displaced what could have been an equilibrium of self-fulfilling optimism. It is important now to re-set the fiscal path to ensure a virtuous cycle of lower borrowing rates contributing to even faster fiscal adjustment and a lower overall cost of the adjustment to society at large.

While there has been an international debate on this matter for larger countries, there seems to me to be no question, for Ireland and for other small financially-stressed sovereigns, but that national growth is best served by ensuring that the public finances are convincingly on a convergent path: the impact on funding costs and confidence surely more than offsets any short-term adverse impact on domestic demand from lower net public spending.

The Mechanics of Buybacks

The Sunday Business Post reports the government intends to launch a buyback from Anglo bondholders (available here). 

The government is expected to launch a bond buyback for Anglo Irish Bank in the coming weeks, as part of a restructuring plan agreed with the EU Commission. 

The buyback, which will reduce the bill for taxpayers, will offer some bondholders in the new Anglo asset recovery vehicle the option of a bond, or a term deposit, in the new funding bank at a significant discount.

In the discussion of buybacks, or negotiating with bondholders”, it sometimes seems to be forgotten that the only way these negotiations succeed is that there is a credible threat that losses will be directly imposed on bondholders.   One particularly strange example was when the Minister for Finance took credit for the earlier round of Anglo subordinated debt buybacks, even though these buybacks only took place because of the lack of credibility of the governments policy of protecting bondholders.   The main reason the bondholders were willing to accept the buyback must have been the risk of a change of government.  

A good cop, bad cop routine may be going on at the moment, with the opposition parties being quite explicit about their intentions.   The Post reports,

Last week, Fine Gael leader Enda Kenny wrote to the EU competition commission saying there was, in his partys view, no sound legal or economic case for the Irish taxpayer to repay bond investors in Anglo Irish Bank following the expiry of the guarantee.

The letter made it clear that he was referring to those bondholders who invested before the September 2008 guarantee, both subordinated and senior debt holders. 

In considering what the threat point in buyback negotiations should be, I have also been surprised by the lack of curiosity about the details of the proposed Anglo split.   Most commentators have been content to repeat the mantra about the need for certainty on the cost and timing of resolving Anglo.   

It will take some time before these uncertainties can be resolved.  But surely we should be told now exactly how the mechanics of the split will work.   What will be the value of the claim that the funding bank will hold on the recovery bank?   Will this bond be guaranteed?   How will capital be divided between the two entities? 

On the last question, a number of reports make the point that the funding bank will only need light capitalisation given that it wont be making new loans.   This strikes me as a strange claim.  The main purpose of capital is to protect depositors from losses.   Surely a key objective of the split is to protect depositors so that they are willing to keep their funds in the funding bank, potentially weakening the need for guarantees of deposits or the bond issued by the recovery bank.   On the other hand, if the goal is to encourage the bondholders to accept buybacks, shouldnt the recovery bank be capitalised as lightly as possible?  Some harder questioning about the mechanics of the split seems warranted. 

Creditworthy?

Donal OMahony provides a robust defence of Irelands creditworthiness in today’s Irish Times (article here; supporting Davy Research Report here).  Dan OBrien is more worried.   While it is always worth some pause when second guessing the markets average judgement, I’m inclined to agree with OMahony: I believe Ireland can avoid default, should avoid default, and will avoid default. 

It is a pity he spoils things a bit with the straw man that many politicians and academics are advocating default.

In truth, foreign misrepresentation of the Irish story is being partly fuelled by domestic coverage. Given the clarion calls of many opposition politicians and academics for a default of Irish liabilities as a legitimate policy “solution”, the self-fuelling impression conveyed abroad is one of heightened insolvency risk.

I dont see this chorus.   Both Fine Gael and Labour were quite explicit this week that Ireland should not default.  Even if the reporting is sometimes confused, the bright line between defaulting on sovereign debt/guarantees and allowing non-guaranteed investors in failed companies to bear losses is now well accepted. 

Comptroller and Auditor General on the Universities

The Comptroller and Auditor General released a special report on the resource management and performance of Irish universities.

The report is 161 pages long. One part attracted a lot of attention: pay (here, here, here and here). The solution is rather simple: Introduce a special tax, rated at 100%, for unauthorized payments.

The report is not just about pay, though. The title has “performance” and Appendix C is supposedly all about that, but it is not. It is a qualitative assessment of the procedures in place and planned. All is fine if there is a committee to discuss it and a report going forward. Measuring academic performance is not the core task of the C&AG, but they could have hired a consultant. The report does lament that the universities are so bad at collecting data (about themselves) that any quantitative assessment of value for money would be impossible.

The report also describes resource allocation, which is by and large driven by the number of students. Quantity over quality.

The scale of the system is telling too. There are 27 institutes of higher education in the Republic. Seven universities have a total of 100,000 students. When I joined Hamburg U, we had 40,000 students (and one university president), but we merged with a neighbouring IT to gain economies of scale.

NAMA Presentations

The presentations at the Cantillon School by NAMA CEO Brendan McDonagh and at the Fianna Fail think-in in Galway by NAMA Chairman Frank Daly are available online.

I don’t have time to discuss these presentations today but I would refer anyone interested in NAMA to the always excellent NAMA Wine Lake blog. How our friend Mr. Singh finds the time to keep on top of it all is a mystery but, however he does it, we are very lucky to have him.

The value of public transport

Alanna Gallagher has a piece on the impact of the Luas on house prices in today’s Times. It’s a mix of facts and anecdotes that reminds us of some of the positive effects of proper public transport in a city. At the same time, the fact that people are willing to pay a hefty premium for being near a Luas station reflects badly on transport options in the rest of Dublin.

The Domestic Banking System

Eoin Dorgan’s letter in the FT this morning provides a useful reminder of the distribution of assets in the Irish banking system. Monday’s FT article used the Central Bank data on ‘domestic credit market institutions’ – the total assets of this group stood at €776 billion at end June.  Eoin Dorgan points out that the total assets of the ‘six domestically owned banks’ (I presume he means the six institutions covered by the guarantee) was €523 billion at end June.  The non-covered institutions (Ulster Bank, Danske, Bank of Scotland Ireland etc) account for one third of total assets and any comprehensive analysis of the expansion, collapse and restructuring of the Irish banking system needs to incorporate this category.

The full list of domestic credit market institutions is available here.

Politics in hard times

The FT is full of depressing news stories this morning, none of which are surprising.

In the US, a Tea Party candidate won the Republican nomination for the Senate elections in Delaware.

In France, Sarkozy suggested that Luxembourg (home of the Commissioner who sharply criticized him for the Roma expulsions) would do well to welcome a few Roma itself.

In Sweden, the Sweden Democrats, a party with roots in the neo-Nazi movement, may be on the brink of an electoral breakthrough that might see it hold the balance of power after the elections there.

And the Japanese decision to weaken the yen is provoking tension with Europeans and Americans.

Lots of zero sum thinking out there this morning: history rhyming.

More uni rankings

THE and QS are now divorced, so more rankings for all.

The Times Higher Education ranking is out too (the number in brackets is QS):

TCD: 72 (52)

UCD: 94 (114)

Cork: >199 (184)

Numbers 200-399 can only be had with an iPhone.

The THE ranking is of course far superior than the QS ranking because the Vrije U Amsterdam does much better according to THE (139 v 171) and ranks higher than U Amsterdam.

See Indo and Times.

Government Paid PWC €4.95 Million for Advice on Banks

The Irish state paid Price Waterhouse Coopers €4.95 million for advice and professional services in relation to the banking crisis.

PWC were commissioned after the state guarantee was put in place to assess the balance sheets of the covered banks. As I have noted here before, PWC finished their fieldwork in December 2008 and concluded in relation to Anglo:

Under the PwC highest stress scenario, Anglo’s core equity and tier 1 ratios are projected to exceed regulatory minima (Tier 1 – 4%) at 30 September 2010 after taking account of operating profits and stressed impairments … We used an independent firm of property valuers (Jones Lang LaSalle) to value a sample of 160 properties held as security in relation to the top 20 land & development exposures on Anglo’s books as identified in our Phase II review and report. The results of this work indicated that impairment charges over the period FY09 to FY11 would fall in a range between the two PwC impairment scenarios but closer PwC’s lower impairment scenario.

Can we ask for our €5 million back?

Notes on Banking and Central Banks

I know this website attracts a lot of readers who are interested in banking and in monetary policy. Often, these people are regular members of the public trying to understand what’s going on in the world but starting out from a somewhat hazy understanding of the various technicalities. So (hopefully without being too patronising) I thought I’d point people towards the course webpage for my UCD module “International Monetary Economics.”

This is a final year undergraduate module that covers banking, financial stability, monetary policy and some issues in international finance. Probably most readers will find the material pretty basic but for those of you who would like to have some material to study, it’s intended to help those with a limited background get up to speed with current events in banking and monetary policy. The focus is largely international but Irish banks get the odd shout out. This is the first week of classes (out of a total of twelve), so I’ll be adding lecture notes and other material as I go along.

Constructive criticism of the notes is welcome. (Long deranged rants about fractional reserve banking are not.)

Call for Papers

Next May 20th, the Financial Mathematics and Computation Cluster (FMCC) will again hold a conference on financial risk modeling of European investable assets (see below).  Once again the conference will be held in Dublin, Ireland, poster child for the flaws in Eurozone financial risk architecture.  As was the case last year, we hope to attract papers covering the full span of Eurozone risk modeling and analysis.  In addition to the Call for Papers, the FMCC is actively seeking industry partners for this conference and our other research-practitioner outreach programmes. For more details contact gregory.connor@nuim.ie or irene.moore@ucd.ie.

Continue reading “Call for Papers”

Basle 3 Agreement

The Basle Committe has announced an agreement for higher capital proposals. The agreement is, unsurpringly, somewhat watered down relative to earlier proposals and components such as a countercyclical capital buffer don’t seem to have much substance. Implications for the Irish banks seem minimal, as the total common equity requirements announced are the same as those set down by the Central Bank in its PCAR exercise.

FT: No Irish Lazarus

The FT has a new editorial on Irish banking policy and it is perhaps surprisingly harsh. Text below:

Just shy of the second anniversary of the Lehman collapse, the Irish government last week issued its latest plan for Anglo Irish Bank. It reveals how little Dublin – and most other governments – have learnt from the crisis.

Back then, there were good reasons to offer taxpayer crutches to toppling banks. Contagion could bring the system to its knees. Panic made market valuation useless: even solid banks looked wobbly on a mark-to-market basis. It made sense to tide them over until the insolvent institutions could be distinguished from the illiquid.

Uncertainty is now receding. Unhappily, what is emerging in Ireland is how staggering bank losses are. It is time to let them fall where they should: on unsecured creditors once shareholders are wiped out. But Irish leaders are prolonging the uncertainty in the hope that zombie banks will, Lazarus-like, come back to life.

Dublin has poured €23bn into Anglo. The new plan – to split deposits from a “recovery” bank with loans not yet transferred to the government – looks like another round of three-card monty. It does not clarify the final size of the hole to be filled (S&P thinks it can reach €35bn), and continues to make citizens protect bondholders from their own folly.

Dublin fears that cutting loose Anglo’s bondholders will kill demand for Irish sovereign debt. The opposite is true, as record-high sovereign spreads show. Its huge fiscal deficits are manageable – just. It is the open-ended exposure to private liabilities across the banking system that drives up sovereign yields. Dublin must get its priorities right.

Irish depositors must be protected, but they fund less than half of the €776bn domestic banking balance sheet. Bondholders are owed €98bn, some of it guaranteed. Explicit state guarantees must be honoured. But the extension of a scheme to guarantee new debt issues to maturity forces taxpayers chained to a sinking ship to build lifeboats for exiting creditors.

The guarantee scheme should be cancelled for new issues, and sweeping resolution authority put in place immediately. It should apply to any bank that cannot refinance itself privately, and ensure that viable business continues while assets secure the claims of depositors and already-guaranteed creditors. Any shortfall thus crystallised should be put on the public balance sheet once and for all.

This will be painful. But investors who know the bleeding has stopped will soon prove that there is life after death.

Reading this, it strikes me as interesting how quickly we’ve gone from a situation where the government’s defenders were complaining about domestic malcontents and pointing to increasingly receptive audiences overseas to one where the exact same people are blaming the international press for our problems on the grounds that they don’t understand the situation as well as those who are living here.

AIB Sell Stake in Polish Bank

AIB have (finally!) sold their 70% stake in Polish bank Bank Zachodni for €3.1 billion (press release here). The bank reports that the disposal

will generate c. €2.5bn of equivalent equity tier 1 capital towards meeting AIB’s Prudential Capital Assessment Review requirement set by the Irish Financial Regulator.

As I understand it, there are two elements to this €2.5 billion figure.

Page 225 of the bank’s 2009 annual report states

The market value at 31 December 2009 of the shareholding in BZWBK S.A. of €1.5 billion (2008: €1.3 billion) exceeds the carrying amount including goodwill of the investment by €0.09 billion

In other words, the stake in Bank Zachodni was valued at €1.4 billion on AIB’s balance sheet. So AIB has sold this asset for €1.7 billion more than this carrying value, triggering a corresponding increase in the bank’s equity.

In addition, because the Polish bank’s balance sheet was integrated into AIB’s consolidated balance sheet, the disposal allows AIB to deduct €10 billion from its risk-weighted assets (see page 35 of the 2009 annual report). With a target Tier 1 equity ratio of 8%, this implies a reduction of €800 million in the amount of equity the bank is required to have to meet its target (this is the part of the general Honey I Shrunk the Bank survival strategy). Added to the €1.7 billion gain on the sale, you arrive at the €2.5 billion figure.

This is a positive outcome but it’s not too far ahead of expectations as I understood them. For instance, a nice analysis from Barclay’s Capital a few months ago assumed the sale would generate a profit of €1.3 billion, which would put this €400 million ahead of that. The Barcap analysis foresaw the bank converting €3.3 billion of its €3.5 billion in preference shares into common equity, with the state then having €3.3 billion of €5.5 billion in common equity for a 60 percent ownership stake.

Keeping everything else unchanged, the additional €400 million from today’s sale would see the state converting €2.9 billion to common equity, which would still see it having a 53 percent stake (2.9 / 5.5 = 0.53).

Of course, the baseline 60 percent stake of that analysis may have been a bit low (others have been more pessimistic) and there’s lots of other moving parts to this analysis. However, today was a step in the right direction for AIB in its quest for the ultimate prize: 49.999% state ownership.

Monetary Dialogue Briefing Papers: September 2010

The latest collection of briefing papers for the European Parliament’s Monetary Dialogue with the ECB are available here (click on 27.09.2010). They focus on a range of interesting questions provoked by the sovereign debt crisis, such as what follows after the current bailout funds expire in 3 years and how to reform and implement the Stability and Growth Pact.

Landfilling waste

The EPA has released a new report on landfill, showing that environmental and nuisance management is much, much better than it used to be. It also contains an action plan to further improve things.

In an interview with the Irish Times, Dara Lynott adds that Ireland is likely to meet its landfill target for 2010 (I disagree) but not after that (I agree) as too little effort is made to provide alternatives to landfill.

International Differences in Fiscal Policy During the Global Crisis

In this new IIIS DP,  Agustin Benetrix and I looked at the covariates of the shifts in fiscal outcomes between  2007 and 2009.

The abstract is:

We examine the cross-country dispersion in fiscal outcomes during 2007-2009. In principle, international differences in fiscal policy may be related to differences in optimal fiscal positions, funding constraints, political economy factors and fiscal control problems. We find that the decline in the overall and structural fiscal balances have been larger for those countries experiencing larger increases in unemployment and where credit growth during the pre-crisis period was more rapid. However, there is no systematic co-variation between fiscal outcomes and a larger number of other macroeconomic variables and country characteristics.

Goldman Sachs on Ireland

Kevin Daly’s piece is below:
European Views: Ireland – Old News, New News, and Breaking the ‘Vicious Circle’

September 9, 2010

Irish bond spreads have widened significantly in recent weeks, driven by fears over the cost of bailing out the banking system and the nationalised Anglo Irish Bank in particular. Some of this is old news (the government’s estimate of the cost of bailing out Anglo was first announced six months ago) and the Irish government argues – credibly, in our view – that the costs of bailing out the bank are “infuriating but manageable”. However, the rise in Ireland’s borrowing costs has now created a dangerous dynamic of its own, which needs to be addressed with some urgency. Providing an independent estimate of the bailout costs will be an important first step. In addition, the Irish government should (and, we expect, will) accelerate the speed of its fiscal adjustment.

Background: Rise in Irish Bond Spreads on Costs of Anglo Bailout

Continue reading “Goldman Sachs on Ireland”