The Desirability of Fiscal Rules

The economic logic behind fiscal rules has been a major area of research in recent years.  (The general philosophy behind the Fiscal Compact did not just emerge in recent months.)

In the Irish context, I have written a couple of pieces:

A New Fiscal Framework for Ireland” (JSSISI 2010)

Background Study for Oireachtas Joint Committee on Finance and the Public Services” (2010, Appendix)

The desirability of fiscal discipline for small open economies (especially inside EMU) is a long-standing research interest of mine. An earlier contribution is

Irish Fiscal Policy under EMU” (Irish Banking Review 1998)

8 replies on “The Desirability of Fiscal Rules”


Footnote #1, 1998 says it all. You were on the ball.

Similar argument, in procedural terms, may be made on the universal, albeit nonsensical, nature of the so called ‘fiscal compact’. Or … The Deutsche General sure ain’t the Hibernian Specific.

Some trouble opening.
A New Fiscal Framework for Ireland” (JSSISI 2010)

Anyway there is a final settlement problem between nations now…. this crack in the monetary sphere is being used by the Darkest of Angels for their own evil purposes.

Hibernia should pull out of this evil experiment and create domestic money immediately.


The Fiscal Compact – informing the 50% who don’t understand it

OK, so according to the Sunday Times Behavioural and attitudes Survey on the 22nd April 50% of the electorate/those intending to vote (not sure which) in the upcoming Fiscal Compact referendum apparently do not fully understand the Fiscal Compact (downloadable here). This is a worry for me because if you are going to vote on something that will have profound implications for your fellow citizens you owe it to yourself and the rest of the country to fully inform yourself as to the implications of the treaty. Afterall, would you sign a contract without knowing it’s terms? Well, I suspect the answer would be no and as such therefore you should be approaching the fiscal compact with the same mindset. It is a contract between this state (through it’s citizens) and the EU.

That 1998 paper was Impressive Philip and very prescient….. however the noble aspirations of EMU held by some men as turned out to be a illusion.

Power always corrupts … and when the chain of command is no longer clear it is even more open to corruption.

Oddly enough I re-visited that 1998 Obstfeld paper “EMU, ready or not” not that long ago.

Reading it again reminds you just how much really insightful analysis was available pre-Euro, whether academic or investment based, and just how few excuses there were for the powers that were to close their eyes and ears and just barrel on ahead.

If you think you have a right to have been surprised to discover the Bundesbank won’t let the ECB act as a lender of last resort you should start at page 20. After hanging your head in shame for a bit, go back to page 16 at least 😉

Excellent paper Grumpy – it illustrates what a strange and corrupt euro system we are dealing with.

It was clear to me that by 1995 something was gravely wrong somewhere but I was too unsophisticated at the time (I am still am) to join all the dots.

The monetary crisis was cooked in 78 /79 and the political / fiscal aspect was baked into the system during the Mac the Knife years

To see the old and original 1973 beneficiaries coming out in support of this devilish brew today was quite something.

We could be on the verge of a major class / urban / rural war of a quite higher tempo soon as people fight for the remaining scraps with the sub rural encampments of the IFA making their loylaties to Mammon known to all.

This crisis is so very similar to the post Napolonic depression in so many ways…. its striking really.
Its the same guys behind the curtain of course.

A Must Read

Terrence McDonough is professor of economics at NUI Galway

Treaty not a safe option but a perilous experiment

Let’s consider again what’s on the table.

1. Structural deficits for Ireland should be about half of 1 per cent of GDP, with a 3 per cent top limit on the headline deficit even in the worst years. This requirement seriously compromises government ability to end recessions.

The implementation of the 0.5 per cent structural deficit rule in the new treaty is considerably more stringent than any of the existing “six-pack” regulations, which are themselves unwise. Eventually, a shortage of government bonds will emerge, forcing conservative investors such as pension funds into less safe investments, risking the reappearance of dangerous asset bubbles.

2. Debt should be 60 per cent of GDP. If debt is greater than 60 per cent, it will be reduced by 1/20 per year over the next 20 years. This would start in 2018, when the bailout terms expire, and could require up to €5 billion a year in savings to 2038.

3. Even after we reach this target, Ireland will be forced to run primary surpluses, that is excluding interest payments on the national debt, for many years, taking steam out of the economy.

4. If these conditions are violated, control over fiscal policy is ceded to Europe and the European Court of Justice.

Take a country at the bottom of a depression. Force it to run budget cuts and tax increases year after year after year. Force this same policy on its neighbours and trading partners. Run this into the foreseeable future and hope it results in stability, confidence and recovery. This is emphatically not the safe option. This is a dangerous experiment, completely without historical precedent.


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