The policy challenges posed by the appreciation of the Swiss Franc has been a fascinating theme in international monetary economics in recent months: this NYT article reports on a new twist.
This Bloomberg article is a useful update on the Greek situation.
There has been ongoing interest in the yields available on Irish government bonds. Using actual trades Bloomberg calculate an implied 10-year yield. This surged to over 14% in the run up to the Brussels summit on the 21st of July. The yields have fallen on almost everyday since and yesterday finished at 9.5%.
However, little attention has been given to the trading volume on these bonds. Here is a little insight into trading volumes from the start of the year to August 9th.
For most days the trading volume is very low. The average daily trading volume for the year is just 0.28% of the total number of bonds outstanding (c.89.6 billion). For the January 2014 bond the average trading volume in 2010 was six times larger than it has been in 2011. Trading volumes in Irish bonds in 2011 have generally been very low.
There has been an increase in the time since the EU summit when yields also began to fall. The average daily trading volume has been 0.82% since the EU summit. The other occasion when trading volumes increased slightly was the first two weeks in April. This was immediately following the March 31st publication of the bank stress tests and again was a time when bond yields were falling.
The Vanity Fair article is now online here.
I assess the implications of the new phase of the global crisis for Ireland in this Irish Times article.
Jacopo Ponticelli and Hans-Joachim Voth have just published a CEPR Discussion Paper looking at the relationship between austerity and social unrest in Europe between 1919 and 2009.
This new IMF paper provides an interesting perspective on the demand for short-term AAA-rated assets.
With the exception of labelling the Irish central bank as the “Bank of Ireland”, this CEPS note is an excellent primer on the Target2 debate.
Owen Callan of Danske Bank has an op-ed on this topic in the Irish Times: you can read it here.
Paul Krugman has a nice little post using the idea of multiple equilibria to explain how such interventions might work, even with what could actually be relatively modest bond buying.
If your appetite for multiple equilibria models is whetted, here is a fascinating paper by Paul in which he explains the self-fulfilling crisis logic in much greater detail, though it is in the context of a currency rather than a debt crisis. The comments at the end by Kehoe and Obstfeld are also well worth reading. Interestingly, Paul is quite circumspect in the paper about the quantitative importance of multiple equilibria, putting more emphasis on steady deterioration in the fundamentals.
In case you haven’t seen it yet, the “Europe on the Brink” article by Peter Boone and Simon Johnson is a must-read for anyone grappling to understand the Eurozone crisis (see here). Oversimplifying their argument a bit, they contend the feasible exit routes from the crisis involve either the extremes of decisive debt restructuring or a committed lender of last resort (something that they refer to more explosively as a “moral hazard regime”). Paul de Grauwe’s Irish Times piece from today makes the argument for a committed LOLR, but he cautions it is only conceivable with much greater central control over fiscal policy. I think Willem Buiter’s FT piece from earlier in the week can be read as saying the intermediate route combining a more modest LOLR function with private sector involvement is still most likely – and may succeed. Readers might also be interested in this more recent Citi Economics paper by Buiter and others urging more decisive LOLR action from the ECB.
The new Department for Public Expenditure and Reform is looking to fill this senior position. Details are here.
(I would add two comments. First, that when people talk about fiscal union they can mean many different things. And second, that we already have the politically noxious conditionality which Kantoos is worried about.)
A little bit more detail has emerged (via press interviews rather than detailed technical documents) about the Nama property price insurance scheme as it is currently proposed. The basic design was leaked to the press in early July, and was discussed in my earlier thread. The emerging details of the scheme as announced so far are not reassuring. The scheme has considerable potential to manipulate recorded property sales prices, to damage confidence in Irish property market openness, and to build up a hidden future cash flow liability for Irish taxpayers. The motivation given by Nama for implementing the scheme is not entirely convincing.
Eichengreen and his collaborators delve into the details of the Greek debt plan in this Bloomberg article.
In a recent Blog on Reuters, ‘Europe’s Dangerous New Phase‘, which also appeared as an article in the Financial Times (July 18th), Lawrence Summers claimed that
“… no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors. Meeting debt burdens at rates currently charged by the official sector for credit – let alone the private sector – would involve burdens on Greece, Ireland and Portugal comparable to the reparations’ burdens Keynes warned about in The Economic Consequences of the Peace.”
The economic history behind these comments is shaky. Total reparations demands made on Germany in the Versailles Treaty were in the region of 132 billion Marks, equivalent to over €600 billion in today’s money. This was about four times Angus Maddison’s estimate of Germany’s GDP in 1919. The burdens placed on Greece, Ireland, and Portugal today are not comparable. Moreover, President Clemenceau wanted to reduce post-war Germany to an impoverished agricultural nation, whereas all President Sarkozy wants to do is to raise our corporation income tax rate.
More importantly, though, it is wrong to claim that ‘no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors’. Ireland did exactly that to get out of the mess we were in by the mid-1980s. We ran a primary budget surplus for over 15 years – from 1984 to as recently as 2007. This surplus exceeded 7% of GDP for several years at the turn of the century and helped us reduce our debt/GDP ratio from a peak of 120 per cent in 1986 to less than 25 per cent in 2007. Foreign borrowing had been paid off by 2002.
In a recent article in the Sunday Business Post Dónal de Buitléir makes the case that the challenges facing us now are more manageable that those we overcame in the 1980s.
Hans-Werner Sinn returns to this topic here.
Willem Buiter provides a vision of the post-crisis euro area in this FT article.
The highly-cultured readership of this site will be interested in the programme for the 2011 Dublin Theatre Festival which is available here.