IMF World Economic Outlook

The complete IMF World Economic Outlook April 2012 is now available (overview here).   See, in particular, the Foreward by Olivier Blanchard for a very useful stock taking.

Update: The IMF’s Fiscal Monitor was also released today (see here).   It has lots of useful comparative data and analysis.   Box 5 (page 27) has a useful overview of the Fiscal Compact.

33 replies on “IMF World Economic Outlook”

Thanks Eoin. Have just been reading through it. Some very useful analysis. Not sure what you see so interesting on page 55. Box 5 on page 27 provides a nice overview of the Fiscal Compact.

“The timely publication (in mid-2009) of the Commission
on Taxation report and the McCarthy review
of spending provided a menu of high-quality
measures which have been implemented progressively
in the last three budgets. Moreover, public
finance management, revenue administration, and
the debt management agency have been proactive,
anticipating problems and implementation
challenges, and recalibrating policies accordingly.”

Marks for insight anyone?

“Adjustment should be accompanied by broad and proactive communication strategies to fuel confidence and credibility”

Are they advocating BS

Interesting comment from Blanchard at the press conference…

“”Further measures must be taken to decrease the links between sovereigns and banks, from common deposit insurance, to common regulation and supervision. Now that the fiscal pact has been introduced, Euro countries should also explore the scope for issuing common sovereign bonds.”

That won’t go down wll with Dr. Merkel.


Box5 on the Fiscal Corset, p. 27

On a brief de-construction, it appears that the IMF staff made copious use of their lexicon of ‘qualifiers’ and ‘soft prescriptives’.


Help me out here, I’m only a humble Irish and European citizen_serf:

Any comment on the social scientific validity, in political economic terms, and based on sound empirical evidence, of the key constraints [0.5; 60.0; 1/20] within the ‘Fiscal Compact’, which has yet to be voted on in an Irish Referendum.

A brief research note would be helpful.

Keep up the good work. Mr O. Blanchard made a lot of sense in the press conference.


DOF must have taken them to Patrick Guilbaud’s several times when they were here.

I look forward to Colm McC’s accounting of how many Snips have been implemented.

I’m listening to the monitor as I write. Its full of this fiscal adjustment re high debt, high deficit, not too fast, not too slow prescription. Austerity is the way to sustainable growth is the message. They want this virtuous circle of austerity fueled growth.

WEO does skirt around the central problem, eg

“The most important priorities remain fundamental reform of the financial sector; more progress with fiscal consolidation, including ambitious reform of entitlement programs; and structural reforms to boost potential output. In addition to implementing new consensus regulations (such as Basel III) at the national level, financial sector reform must address many weaknesses brought to light by the financial crisis, including the problems related to institutions considered too big or too complex to fail, the shadow banking system, and cross-border collaboration between bank supervisors.”

If the IMF wants to be taken seriously, it will address the fundamental problems related to financialisation that, in my view, are leading to the current global crisis. What are those problems? They exist primarily in the financial markets and relate to their operation, the financial instruments themselves, their reliability and durability.

The question as to durability, reliability and authenticity including freedom from manipulation and contrivance has grown since the early 70’s with floatation of the dollar and derivative based investment. The subprime scandal in 1970’s showed a lack of transparency and accountability and verifiability of OTC’s that led to the meltdown and domino effect of this across markets. Such problems have not gone away but have been heightened since then. Now its a question of not how opaque such instruments are, but its now a question through the new European approach of no bank allowed to fail, QE and LTRO targeting the financial sector plus evidence of gross financial manipulation in the commodities markets, of how much more dangerous is the state of global financial markets.

Specifically, there is more uncertainty because little has been done to correct the alignment of financial markets with their corresponding underlying economic realities. For example, across Europe, unemployment and growth are sliding to a halt and reversing; but LTRO and government bond sales and support of the financial sector would appear to have invigorated and resolved problems in the financial sector. The banks are back betting in the financial markets, but are not lending to real business.

Indices of GNP and employment and austerity measures together with the concealment of debt eg in Spanish cajas, loose stress testing for banks, mean that financial multipliers similar in effect to subprime OTC’s now exist, that bear no resemblance to underlying realities. This effect is similar to what happened in Ireland’s property bubble; in relative terms, the only difference is, Europe is creating a new financial bubble; a financial bubble is the last thing Europe needs to take investment away from the real economy and into the casino economy.

Without the reforms to the financial sector loosely and vaguely highlighted by the IMF doc, the austerity measures exacerbating the problems of Europe’s creation of a financial bubble to recover growth, will soon fail.

To illustrate the need to globally pierce the financial bubbles occurring in sovereign bond markets in Europe, leaving aside the question of ‘who bought’ the Spanish bond issue (European banks with LTRO?), consider the following

“Pimco co-founder Bill Gross told CNBC Tuesday he’s steering clear of Spain’s auction of two- and ten-year bonds Thursday because its” an artificially controlled market” that he doesn’t trust.”

Interbank lending between US and European banks has come to a halt before LTRO fed by fears of the liquidity of European banks; now sovereign bonds can’t be trusted?

That’s the problem the IMF document doesn’t address. Fiscal deficits are a problem, but the real problem, not dealt with by the IMF doc, is the question of out of control manipulation of investment bond markets, commodities markets, through the abuse of naked credit default swapping, OTC’s and currently loosely regulated LTRO and QE. It is these financial multipliers that generate dangerous financial bubbles that sofar have given 2008 and its domino effect.

As these practices slowly corrode and erode the global, financial system, as austerity is transformed into the creation of further fuel for these financial markets; global financial markets have become debt fueled casinos sucking money out of the pockets of governments, public services, the lower class and the middle class.

The question is how long before the IMF and the global financial system can continue the smoke and mirrors to hide the casino’s fixing of rules in its favour. This question has been lying around since the origin of private banking. Those who have views on the issue of public vs private banking going as far back as the 19th century who spoke out on such issues, would certainly see the chickens coming home to roost.

@Michael Hennigan

That change in intellectual tone was well underway before the maid who milked the fianna_failers returned to take over the family farm across the big pond!


You should have started your extract a sentence further back:
“Ireland had a well-established institutional framework in place when the crisis hit, strengthening the country’s capacity to deliver on its targets and providing a firm control over local government spending.”

I’ve encountered it previously – and I thought, a la Michael Hennigan and David O’Donnell – that the mentality was undergoing some significant change. But it’s the same old IMF. If something they believe needs to be done has to be done pronto their unambiguous preference is for governments exercising excessive executive dominance, highly centralised and expansive statutory agencies that have a high level of competence but negligible democratic accountability, a supine parliament, totally ineffective local governance, weak labour representation and absolutely no representation of the collective interests of consumers.

The failure to recognise that it is precisely these institutional and procedural characteristics – and the resulting, inevitable, failings – that landed these countries in the mess they are now in is truly mind-boggling.

This is even worse than the Bourbons. You simply couldn’t make it up.

correction above there 10:03…subprime in 2008

@ Paul Hunt

Re ” But it’s the same old IMF. ” Don’t expect any calls for just and fair burden sharing or eg bank closures , they’ll merely pamper and groom markets and financial service industry to ensure as much debt gets repaid as possible , however great the democratic deficit is, doesn’t really matter to them one there’s money in the till. Their mandate is to maintain the status quo at all costs.

Hollande is having none of that Fiscal Corset stuff….

“Hollande says German crisis fix is misguided

French presidential candidate Francois Hollande delivered his call for a more activist European Central Bank to Germany, sharpening his disagreement with Chancellor Angela Merkel.

Hollande told the daily Handelsblatt newspaper that his strategy to fight the region’s financial crisis includes pushing euro-area bonds, dropping plans to anchor a deficit-reduction rules in nations’ constitutions and seeking new powers for the ECB. Germany opposes each of the proposals.

Hollande, the Socialist candidate against Nicolas Sarkozy, also said he would seek talks with Merkel on how to expand the powers of the ECB to combat speculation against sovereign bonds, Handelsblatt said. Hollande wasn’t more specific.

“It’s necessary to cut the deficit but everyone knows that without economic growth the debt quota will rise faster,” he said.”

Maybe no need for a Referendum.

@PR Guy

They are saying that Spanish property prices fell by 20% since 2008 and that 700,000 properties are on the market.
That 20% looks suspicious…..perhaps it should be 60%, but that would wipe out the banks.
You may be accurate with 14%?


“Hollande told the daily Handelsblatt newspaper that his strategy to fight the region’s financial crisis includes pushing euro-area bonds, dropping plans to anchor a deficit-reduction rules in nations’ constitutions and seeking new powers for the ECB. Germany opposes each of the proposals.”

And the Irish Strategy-Team-of-the-Marie-Celeste of course couldn’t possibly have anticipated anything remotely like that when choosing May 31st for a referrendum.


The Irish Strategy-Team-of-the-Marie-Celeste are up to their arses in water at the moment.

A couple of articles on Bloomberg today indicate stormy seas ahead…

Another report says Irish banks increased sovereign Bond holdings by 21% in three months to end of Feb. Italian and Spanish buying through the roof in the last two months with German and French banks unloading Irish, Portugese and Spanish debt.

So it looks like all debt will be socialized eventually.
Not very reassuring.

Tensions in De Troika!

IMF is a troublesome ally
18 April 2012 NRC Handelsblad Rotterdam

Last Christmas, IMF Managing Director Christine Lagarde offered the German Chancellor a trinket from Hermès. Angela Merkel also had a small gift for Christine Lagarde: a CD of the Berlin Philharmonic playing Beethoven.

Notwithstanding this thoughtful behaviour, the personal relationship between the two women is now being sorely tested: in the wake of two years of intense involvement in the struggle to overcome the crisis in Europe, the IMF has begun to openly express its discontent.

Perhaps more importantly, the IMF is increasingly uncomfortable with the role that has been attributed to it in the “troika” formed with the ECB and the European Commission. In the eurozone, the organisation, which is used to a high degree of autonomy, has become a “second tier partner”.

The British and the Americans have tightened their hold on a crisis, which has prompted two schools of thought on the issue of countermeasures: on the one hand, there are the proponents of budgetary discipline, and on the other, there are those who argue that austerity represents a danger to the economy. Angela Merkel has demonstrated her allegiance to the first of these, Christine Lagarde is now identified with the second.

Recently, all of these issues surfaced in speech delivered by Lagarde in Berlin. The previous evening, at a private dinner with Angela Merkel, she offered the German Chancellor an orange blossom scented candle symbolising “hope”. As Christine Lagarde later explained, it was intended to set the tone “in the wake of difficult discussions” prompted by a preview of the text of her speech, which was an extended critique of Germany’s European policy.

Wandering off topic, but solid article by Seán Ó Riain in today’s Irish Times.

‘Elements missing from Merkel’s vision of Europe’


“Public investment has stalled or contracted. Bailout programmes have emphasised competitiveness through cost-cutting and weakening social protections, rather than through industrial upgrading and worker involvement.

“Ireland’s experience of decline in all these key areas is all the evidence we might need that the European strategy is at present disastrously incomplete.

“European institutions could play a critical role here. The European Investment Bank and the structural funds could be mobilised in promoting an investment-led recovery. Policy decisions that could provide national governments with fiscal space to generate economic recovery, including rescheduling debt repayments, are largely ignored. The trillion euro or so in liquidity provided to banks comes with few strings attached in terms of the banks’ role in recovery.

“Cross-national investments in vital infrastructure for the knowledge economy could be encouraged further. Institutional changes in terms of financial regulation, promotion of active labour market policies and industrial upgrading could be advanced.

“European economies do have a distinctive approach based on a mix of fiscal and monetary caution and substantial, collective investments. Little wonder their leaders tire of lectures from the UK and US where looser fiscal and monetary policy combines with more individualised, speculative real economies. But if they don’t undertake the full package of measures that were at the heart of the European model then they simply prove those critics right.

“The European model provided social and economic measures that were counterweights to fiscal discipline – providing short-term stimulus, medium-term productive investment and long-term credible collective commitments to social and economic security.

“In the absence of these measures, the fiscal treaty simply institutionalises austerity – in practice and, arguably, even by rule.”

@Gavin Kostick,

Please don’t tell me you’re falling for this old guff. This, quite literally, is the ‘money quote’:
“European economies do have a distinctive approach based on a mix of fiscal and monetary caution and substantial, collective investments.”

The net contributors to the EU did the ‘substantial, collective investments’ stuff. Significant regional, cohesion, social and structural fund transfers helped to close the GDP per capita gap between the ‘peripherals’ and the existing members. Even on a GNP per capita basis, Ireland’s shot ahead of the average for the existing non-peripherals since 1992 – and is still ahead.

Is it little wonder that the ‘creditor countries’ look at Ireland and say “What is your problem?”. And that voters in these countries, in particular Germany, who have borne the burden of re-unification and significant wage repression to secure a global stratregic position among the huge emerging econonies, simply do not understand why they have to provide fiscal transfers or incur contingent taxation liabilities to support a nation with a high per capita income than themselves?

This is the usual left-wing guff with the hand out for ‘other people’s money’. There’s no question, of course, of examining what Ireland can do to help itself. It appears that income levels are high in Ireland, because, apparently, ‘it is an expensive place to live’.

@Paul Hunt,

Re “…simply do not understand why they have to provide fiscal transfers or incur contingent taxation liabilities to support a nation with a high per capita income than themselves?…”

I don’t think you understand either. Let me try to explain. The problem lies in your use of the word, ‘nation’. Its a common mistake. You see the ‘nation’ did not create the debt, the ‘nation’ assumed the debt.

Banking debt which was odiously grafted onto national debt by ‘the guarantee’ was not incurred by the people as a whole; a tiny minority, perhaps less than a hundred people drove the banks into the black hole. A smaller number of individuals under the criminally negligent pretext of assuming private debt of the banks was a solvency issue and not a liquidity matter, foisted the debt onto the backs of taxpayers.

Unfortunately, right wing capitalists didn’t behave as capitalists do and burn the banks; they switched sides and the right wingers have since been giving us ‘left-wing’ guff on the socialisation of banking debt 🙂 Alright, extreme version of national socialism if you will.

The fiscal transfers of which you speak have already happened. The troika framed these transfers as further loans to ‘help’ us repay IBRC and recapitalise the other banks. So the EU and the ECB have with the ECB conspired with the heist of Irish taxpayers by Govt and those hiding from PAC to conceal their role in the ‘guarantee’ and fleece taxpayers.

So, lets correctly redefine your usage of the term ‘nation’. Nation = banks in your use of the term. Its incorrect usage of the term. This is what makes our debt profile different. We could survive were it not for the unconscionable level of odious bank debt which needs to be written off.

The ‘nation’ doesn’t want other people’s money; it also does not want other people’s debt, especially the odious debt of the banks. But if other people’s debt is forced on the nation, the odious debt of eg IBRC; then, its perfectly reasonable to ask for other people’s money to pay it back, that is, if ‘other people’ decide we must pay it back, which is the case 🙂

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