Year: 2010

Greek Bailout Unveiled

So finally we see the terms of Greece’s impending bailout. €30 billion to be made available from EU countries (€500 million potentially from Ireland) at an interest rate of about 5%. Apparently, a further €15 billion is available from the IMF. To my mind, the interest rate is a bit lower than might be expected for an emergency bailout that should be acting as a serious incentive to get the Greek fiscal house in order. The operation certainly seems to be slanted towards carrot rather than stick.

What next? Peter Boone and Simon Johnson discuss this issue and are not confident that Greece can emerge from the crisis with access to private debt markets. They worry about Portugal being next. We worry about something else.

Profile of David Drumm

The Boston Globe has published a piece about David Drumm of Anglo-Irish Bank. You may read it here.

Brendan Keane on Municipal Waste Management

Brendan Keane of the Irish Waste Management Association takes issue with Scott Whitney’s piece of last week.

You can see for yourself who has the better arguments.

A lot of people in this debate (incl. IWMA and DCC) seem to believe in the virtues of vertical integration of waste collection and waste disposal. I do not understand that at all. A collector should deliver waste to the disposer with the lowest cost, regardless of ownership. There are no economies of scope or issues with information or contracts that would favour vertical integration.

(There is a coordination problem between waste separation at source and final disposal. For example, mechanical-biological treatment (MBT) is more valuable for aggregated waste streams than for disaggregated ones.)

Mr. Keenan and Political Economy

A common jibe that journalists and politicians level at academics they disagree with, or perhaps just plain don’t like, is that the academics are disconnected from reality by virtue of their ivory tower employment. In relation to economists, this often takes the form of the tired line about the discipline originally being called “political economy” and academics putting forward proposals that are “good economics” but “bad politics”.

Brendan Keenan’s column in today’s Sunday Independent is a classic example of this genre. Mr. Keenan argues that the various economists associated with this blog (the “dissident economists” formerly known as “opinionated economics lecturers”) are politically naive and their advice unsound. Specifically, Keenan proposes that we would be better off if, contrary to recommendations emanating from this site, the government had paid more to the banks for the NAMA loans and demanded lower capital ratios.

There is such a thing as political economy. Anglo would still have been a nightmare, but a somewhat more generous payment from Nama, and a less stern view on bank capital, would have made the numbers a lot less frightening.

That might have made it easier to get the deal with the trade unions approved, and get another unpleasant Budget through in December. Not only better politics, but possibly better economics than worrying about Tier One capital and Long-Term Economic Value.

I’m not sure that either the politics or the economics of this column are particularly compelling.

Continue reading “Mr. Keenan and Political Economy”

Inflation once again?

Since the second half of 2008 this country has experienced the first sustained period of deflation in over sixty years. In 2009 the Consumer Price Index (CPI) fell by 4.5 per cent relative to 2008. Not since 1946 had the annual rate of inflation been negative. The record for deflation was in 1931, when the CPI fell by 6.4 per cent.

The accompanying Charts show the behaviour of the CPI and the Harmonised Index of Consumer Prices (HICP) over the past four years. (Am I only the only one to have the patience to enter Charts on this Blog?)



The CPI peaked in September 2008 at 108.4. By January 2010 it had fallen to 100.0, a cumulative fall of 7.7 per cent. The rate of deflation reached a maximum in January 2009, when a month-on-month decrease of 1.7 per cent was recorded. The HICP is less influenced by changes in interest rates, but it followed much the same pattern as the CPI, although varying within a narrower range. The month-on-month HICP deflation rate never exceeded 0.8 per cent, recorded in January and July 2009. It peaked at 110.0 in June 2008 and by January 2010 had fallen to 105.0, a cumulative fall of 4.3 per cent.

The rate of CPI deflation has tended to fall since early 2009 and the HICP since a few months later. By February and March of this year both were showing positive, if very low, rates of inflation (and seasonal patterns are in play). This reversal received little attention because most commentaries on the monthly CSO releases headline the year-on-year changes. Thus even as the monthly rate returned to positive territory in February 2010, the newspapers continued to discuss annual deflation rates in excess of 3 per cent.

In its latest Quarterly Bulletin (released last week), the Central Bank forecasts annual inflation rates for 2010 of -1.3 (CPI) and -1.1 (HICP). These are year-on-year forecasts and therefore reflect substantial carryover from the record deflation of 2009. If the CPI continued to edge up by 0.1 per cent a month from March to December 2010 – not implausible given that interest rates are on their way up, the euro is falling and oil prices rising – the annual rate of inflation for 2010 would be -1.3 per cent – exactly what the Central Bank forecasts. But by December the price level would be 1.4 per cent higher than it was in January.

This is another illustration of the tendency of Irish economy commentary tends to focus unduly on annual changes, to the neglect of significant indications from quarterly or monthly data, a phenomenon to which Rossa White drew attention in an Irish Times article last week.