Month: November 2011

New research on efficacy of active labour market programmes

The weeks to come will naturally be dominated by the usual leaks on the budget and the Euro crisis. In both cases it seems the public is to be boiled like frogs in bad news turning ever so slowly worse, day by day. Meanwhile, Ireland’s unemployment problems persist. The latest live register, rather than unemployment, figures are here, analysis here, and Constantin also has a decent analysis of recent job destruction here.

Today also sees the publication of some research on active labour market programmes in Ireland by the ESRI. The research looks in particular at job search assistance programmes, training programmes, and employment subsidies like the JobBridge scheme. The study naturally argues for more research and evaluation as well as institutional reform. It is a really useful document for those interested in active labour market initiatives, and, let’s face it, with a 14.4% standardized unemployment rate, that is more or less everyone.

The provision of water services

The Irish Times ran a series on water services in Ireland.

The first article is perhaps the most interesting. It leaks the yet-to-be-published report on the water sector by PWC. PWC will apparently be fairly critical of the current system, which nicely fits with the plans by the Minister for a radical overhaul. There will be more investment in water infrastructure. There will be a water regulator. Word on the street has that the Commission for Energy Regulation will have its mandate extended to water (but not to transport). There will be national water utility. Bord Gais, Bord na Mona and the National Roads Authority are bidding to run Irish Water. Only Bord Gais has experience in mass retail.

The piece discusses the transfer of Shannon water to Dublin, but the Minister disappears from the story at that point. I would think that we first want to promote water conservation and fix the leaks.

The piece is silent on the future role of the county councils in water. If Irish Water runs the show, what will happen to the water infrastructure owned by the county councils? What will happen to the civil servants who run this?

Another article wonders what will happen to the private water schemes. Will they be nationalized? Will households with a private well and a septic tank have to pay the water charges? That would be grossly unfair.

The inspection fees for septic tanks are unfair too. Us city folk poo for free — or rather, waste water services are covered from general tax revenues. That is, septic tank owners pay for urban waste water, but city dwellers do not pay for rural waste water.

The second main piece is on drinking water quality, the problems with which are typically overlooked even though they are serious.

The third main article is on water meters. It is summarized in an editorial, and repeats a number of points I made in August. My main concern is the plan for the centralized roll out of water meters. I think that it makes more sense to have people install their own meters and let these meters use the same communication network as the smart electricity and gas meters. See the discussion here.

Conor Pope cites 1000 euro per household per year. I said that. If we maintain the current spending on water (incl. investment), if we keep the business rates for water as they are, and if we exempt those on private schemes from the water charges, then full cost recovery (as required by EU legislation) implies an annual charge of 500 euro per household per year.

Regulating the Legal Profession Conference

As has already been noted the Government is in the process of implementing a commitment in the EU/IMF aid package to re-regulate aspects of the legal profession in Ireland with a view to enhancing competitiveness in the sector. The Legal Services Regulation Bill has been controversial in some of its aspects and UCD School of Law is hosting a conference, drawing in a variety of overseas and local experts, with a view to locating debates within a wider international context.The keynote speaker will be Lynn Mather, Professor of Law & Political Science, Buffalo University. Other speakers include Isolde Goggin, Chair of the Competition Authority, Julian Webb, Professor of Legal Education, University of Warwick and Ferdinand von Prondzynski, Principal of Robert Gordon University, Aberdeen. A full programme and online booking facilities are available at http://www.ucd.ie/reggov/.

Non-Intersecting Sets?

Searching for politically acceptable policies is fine if the set considered intersects with market-acceptable solutions. Can the Italian bond market be stabilised without mobilising the ECB balance sheet?

The alternative instruments available are essentially a combination of support from reluctant secondary market interventions by the ECB and potentially the EFSF (including its new SPIV) and a credible Italian commitment to cutting the (small) budget deficit. The trouble is that the ECB will not commit to open-ended secondary market support, and is in any event intervening at interest rates which are too high. The EFSF is severely constrained in the short-run and the new arrangements to extend its balance sheet are stuck on the runway. Italy appears to have rejected an IMF standby (or not), and it could hardly have been big enough to matter anyway.

Early fundraising for the EFSF went reasonably well but Monday’s issue was a disaster. The spread over bunds is now outside France, Belgium next stop, has risen over 100 bps since the market debut and lenders have been unnerved by the continuing re-definitions of the status and mission of this supranational borrower. Klaus Regling’s pilgrimage to Beijing the previous week failed to secure any commitment to the new borrowing vehicle and the old one could be on negative watch before France. In any event a balance-sheet-constrained vehicle will always be tested. A bail-out fund paying large spreads with continuing uncertainty about its structure and mission, and which competes with sovereigns in the market, is in danger of itself contributing to instability.

The €350 billion required by Italy over the next year to fund roll-overs and the prospective deficit may not be forthcoming even with a credible new fiscal adjustment programme. Worthy long-term measures to raise the potential growth rate in Italy will not inspire bids at bond auctions. There may be no equilibrium rate above 6% or so.

European policy could be characterised as seeking sequentially the set of previously unthinkable measures needed to stop the rot and continually falling short. Working backwards, the bond and interbank markets could be stabilised by the following shock-and-awe package, with lots of moral hazard: 

– Hard default for Greece and for any other countries (not including Italy or Spain) which need them, calculated to make them unambiguously solvent on exit from their programmes.

– Compulsory re-capitalisation for the banks

– An ECB reverse tap in the Italian bond market

If this set of actions is politically infeasible, and if no lesser package will work at this stage, the inference is inescapable and will be drawn soon.

Daniel Gros on Italian Growth

If Italy is to be the Euro’s last stand, then a huge amount appears to be riding on hopes that “structural reforms” can get Italian growth going.  This paper from Daniel Gros provides reasons to be sceptical.

I think Daniel’s focus on the link between governance failures and growth is a bit speculative. Still, his conclusion that “it will be difficult to organise a sustained effort to combat corruption, foster adherence to the rule of law and improve the efficiency of the administration in general” might be too negative.

If the worsening of governance and control of corruption is associated with the rule of Berlusconi, then Daniel’s arguments would imply that his departure may have greater economic benefits than currently anticipated. Alternatively, a return to short-lived and unstable coalitions may just make things worse.

Anyway, it’s worth reminding our readers that economists don’t have a good track record at explaining differences across countries in long-run growth rates. Those claiming to have the recipe to produce a spurt in Italian growth while simultaneously imposing fiscal austerity are largely relying on guesswork.