You can find it here. They usefully distinguish between short run and long run responses to the crisis, and correctly stress the need to maintain aggregate demand in the short run.
As for the long run reforms: if the euro survives, there will have to be “a broad-based dialogue about what a fuller fiscal union would imply for the sovereignty of member states and the accountability of the center,” and we may as well start thinking about these issues in Ireland now.
38 replies on “IMF Eurozone Concluding Mission Statement”
Yes, indeed. Why not focus on these wide-ranging and longer term deliberations in which Ireland will have a voice so as to avoid consideration of the inevitably broad-brush recommendations in terms of economies and regions, but quite specific in terms of sectors?
“To restore growth across the union, long-standing structural rigidities need to be tackled to raise long-term growth prospects. In many countries, labor market reforms are needed to raise participation and address disparities in protection that confine “outsiders” (typically younger workers) to low-wage, temporary jobs. Southern Europe needs to increase competitiveness in the tradables sector. In addition, targeted investment in infrastructure and human capital will support growth and employment. In northern Europe, product market reforms would help generate a more vibrant services sector and help raise overall productivity.”
I agree that reinforcing the democratic legitimacy of the Union is a vital task. It will probably require that the Commission be fully elected by the European Parliament (with some reduction in the number of Commissioners), that the Commission engage with the Council in a similar manner to the way the US House of Representatives engages with the Senate to decide on legislation – while remaining fully accountable to the Parliament, that the various national electoral cycles be brought in to line with the Euro cycle and that MEPs are made accountable to national parliaments in the same way that national government ministers are – though, perhaps, not as frequently.
But this effort will be a total labour in vain if relevant structural reforms to boost economic growth, performance and competitiveness are not pursued as a matter of urgency.
It would make far more since to start focusing on the relevant aspects of the menu outlined by the IMF than to start wittering about the ‘accountability of the centre’.
Mostly waffle. For example: “A strong commitment toward a robust and complete monetary union would help restore faith in the viability of EMU.” No doubt it would; and a strong committment to virtue would diminish the prevalence of vice. There’s quite a contrast with the much more forthright statements which Olivier Blanchard puts his own name to.
As for “the sovereignty of member states and the accountability of the center” it’s pretty clear that the trend is towards diminishing both. I think that trend will continue, unless and until it creates a really fierce Eurosceptic reaction.
It wouldn’t be economics if this wouldn’t be suggested:
“Lowering unit labor costs in the tradables sector is essential for deficit countries.”
Salaries in tradables sectors are already competitive – wages for the ones in employment do not have to go down. High unemployment usually leads to lower wage demands for new hirees. Is the problem really that wages are too high for the people working in, as an example, the Greek tourism industry?
“Services sector reforms in the surplus economies could improve disposable incomes and lead to higher external demand, including for deficit economies.”
Reforms leading to higher wages? Most labour reforms result in lower wages.
“More fiscal integration, with risk sharing supported by stronger governance, can reduce the tendency for economic shocks in one country to imperil the euro area as a whole”.
The word ‘shock’ implies a bit of a surprise, that something happened suddenly and without much warning. Was there a big surprise about Greece? Or about the property bubbles in Ireland and Spain?
“systemically-important banks” – is it not time to break them up and separate out the systemically important bits from the rest?
@Kevin ORK
“there will have to be “a broad-based dialogue about what a fuller fiscal union would imply for the sovereignty of member states and the accountability of the center,” and we may as well start thinking about these issues in Ireland now.”
Too f£Ckin right! Long, long overdue.
I think there are many fantasists out there in Ireland and the other piigs that think they will essentially be allowed to carry on regardless as long as they keep making the right noises and that derogations for every Irish sacred cow will be forthcoming because the Germans are really, really scared of an appreciating currency – ‘cos they’ve never had one before.
As docm might put it, they are waiting for the Germans to come out with their hands up.
What, if anything is Ireland prepared to put on the table in exchange for a transfer union. Lets have a list – anyone got any suggestions, any at all?
Tax rates?
Professional fees paid by the state or semi-states to be brought in line with German ones?
Existing ensions paid to ex-TDs, ex-Ministers, ex-bankers adjusted down to be comparable with German equivalents (not a problem once the constitutional amendment is ratified as long as these are “necessitated by an obligation under the treaty”)?
Public sector and semi-state defined benefit pension contingent liabilities to be brought in line with German ones?
TD’s salaries to be significantly reduced?
Public sector wages to be brought in line with German ones?
I would guess not a single one of these. What do you think?
@Kevin ORK
“there will have to be “a broad-based dialogue about what a fuller fiscal union would imply for the sovereignty of member states and the accountability of the center,” and we may as well start thinking about these issues in Ireland now.”
Too f£Ckin right! Long, long overdue.
I think there are many fantasists out there in Ireland and the other piigs that think they will essentially be allowed to carry on regardless as long as they keep making the right noises and that derogations for every Irish sacred cow will be forthcoming because the Germans are really, really scared of an appreciating currency – ‘cos they’ve never had one before.
As docm might put it, they are waiting for the Germans to come out with their hands up.
What, if anything is Ireland prepared to put on the table in exchange for a transfer union. Lets have a list – anyone got any suggestions, any at all?
Tax rates?
Professional fees paid by the state or semi-states to be brought in line with German ones?
Existing ensions paid to ex-TDs, ex-Ministers, ex-bankers adjusted down to be comparable with German equivalents (not a problem once the constitutional amendment is ratified as long as these are “necessitated by an obligation under the treaty”)?
Public sector and semi-state defined benefit pension contingent liabilities to be brought in line with German ones?
TD’s salaries to be significantly reduced?
Public sector wages to be brought in line with German ones?
@grumpy
What makes you think the European Committee for Managing the Common Affairs of the Bourgeoisie (MaCABre) is at all interested in the particular measures you list?
More centralised control = more economic neutron bombs dropped.
The central problem with Europe is the lack of redundancy as a result of this centralising process which makes formerly semi sovergin states extremely vulnerable to various banking interests.
Now with peripheral countries being the customers for the Ruhr / Rhine industrial focus……
In nature overly specialized creatures become extinct when they experience a environmental shock….ditto for countries foolish enough to believe anything the IMF says which was at the vanguard of the prototype strip mining operation that was the UK during the 60s – mating the IMF and Labour functionaires in one unholy alliance of entropy.
So Ireland just made the houses
Germany made the cars.
The French made the Nukes.
Spain made the apartment blocs
And the English made nothing.
This is the possible failure of the market state – we should be happy that it is coming to a end but fearful of the actors behind the scenes maneuvering for one final extraction operation.
Europe is the most advanced and evil market state construct ever devised – we should pray for its breakup.
This Reuters report fits into the mix.
http://uk.reuters.com/article/2012/06/25/us-eu-summit-proposals-idUKBRE85N0ME20120625
Number 7 is the only move likely to act as the necessary catalyst cf. Soros in today’s FT.
http://www.ft.com/intl/cms/s/0/e0a2799c-be51-11e1-83ad-00144feabdc0.html#axzz1ykT846wn
There are also some cryptic references to “regional” solutions e.g.
“A deposit guarantee scheme needs to be established at the regional level to help break the links between domestic banks and their sovereigns, and support depositor confidence”.
On the institutional front, it is worth noting that there is sufficient leeway in the existing treaty to provide for a reduction – to be agreed unanimously – in the number of Commissioners.
Sorry the EU not Europe….. I am drifting into British Eurosceptic territory.
@Grumpy,
You’re on a roll. But is there anyone paying heed?
As I’ve commented previously, a significant proportion of the Irish population are displaying a determination to preserve sectoral inefficiencies, the capture of monopoly profits and rent-seeking – and have captured government to that effect. External politcians, policy-makers and regulators are not blind, even if their Irish counterparts (including many of the academics, opinio-formers and commentators) are adept at putting on a sophisticated version of the ‘three monkeys’ act’ – with self-determined impairmant of the relevant faculties.
Even the IMF has bought in the line that meaningful structural reforms cannot be pursued lest ‘industrial peace’ be threatened. Those who prevent a government from governing are the government. This is something Irish people eventually get very cross about; they, and they alone, decide who governs. But the majority tend to bide their time until they can deliver an appropriately withering judgement at the polling booths.
A majority of voters, eventually, will put this government out of its, and their, misery. The tragedy is that almost another four years will have elapsed while the domestic economy continues to be ground in to the dust – making it 7 and 1/2 years since Sep. 2008 – and no meaningful economic growth enhancing and peformance and competitiveness boosting structural reforms will have been implemented.
The best that can be hoped is that the Government will be forced to call a general election earlier than 1916 – but you can be sure it is determined to stay the course. (14 years was a long time out of office and there are ministerial pension entitlements to be maxed for those who are unlikely to stand again, after all.) All we can do is pray for a number of ‘events’.
@Kevin Donoghue
Par sur! I think Irish conservatives are a little bit naive about the intent of the EU. One type of European unity that Merkel and the ECB will not challenge is that between the politicians and European legal types across the continent.
In fact the Irish legal and political professions (often one in the same) share identical class interests with DG Oligarchy and so the EU will continue its shockingly immoral focus on wage repression, discredited free market dogma, forced migration (sorry, “labour mobility”) and undemocratic reforms in order to create a European investors paradise.
This is a class war in the American style, the connected and wealthy are winning and the attack will not end unless they and their Irish fifth columnists feel threatened.
@IMF
Debunking The Conflationist Fallacy – Cutting the Financial Banking System Chains from the Sovereigns
+1
First StepUp to a phase change in European Integration .. Discussion is OPEN
IMF Eurozone Concluding Mission Statement:
Are the IMF trying to tell us something by the juxtaposition of “Eurozone Concluding” in the heading.
It is as bleak an analysis and outlook as one could expect to find but it does call for certain immediate actions:
“The immediate priority is concrete action toward a banking union for the euro area. The proposed EU framework for harmonized national bank resolution processes is a necessary first step. But it needs to go further. A deposit guarantee scheme needs to be established at the regional level to help break the links between domestic banks and their sovereigns, and support depositor confidence. A common bank resolution authority is also needed. It should be backed by a common resolution fund to ensure burden sharing and to limit fiscal costs. ”
You cannot get any more clear than that.
And to those people who rightly see the log in Ireland’s on eye, the removal of the log is unlikely to change the bleak analysis of the IMF.
“The financial and economic environment continues to deteriorate. Investors are withholding funding from member states most in need, moving capital to safe havens and driving risk premiums to new records. Demand is weakening and unemployment increasing across the euro area.”
They could have been less polite in their report. They should have told the institutions and countries they consulted with in writing the report that.
You have managed to screw up completely almost an entire continent through sheer stupidity. Even at this late stage you could possibly try to stop the situation getting worse. He is what you need to do. If you do not do it, the situation will get much worse and you will manage to complete the destruction that you have so successfully commenced.
@Paul Hunt
Right bang slap in the middle of a global crisis in capitalism and with the EU threatened by epic market failure, sado-monetarism and German political dogmatism and your view remains completely parochial.
The European component of the global financial crisis and Ireland’s currently dire fiscal outlook have almost nothing to do with the professions (and I despise the legal profession), nothing whatsoever to do with semi-state inefficiencies (and they could be more efficient), nothing at all to do with our social welfare system and nothing to do with the vested interests of anyone outside the European political elite and the feudal network of the EU financial sector. Ireland’s problems are related to competitiveness only in so far as EMU with a determinedly deflationist Germany can not be made to work.
If only every country in Europe could move into positive trade balance with every other one, eh?
It is simply bizarre that after Ireland and most of the western world was crippled by rolling market failure you believe that what we need is not less markets with stricter rules but more markets with less rules.
@Kevin O’Rourke
“if the euro survives”
Tut, tut. You’ll be spreading panic and bank runs before you know it!
Oh, they are already in evidence.
@Kevin D
Forget my list if you like – I am just trying to get people to think more about ‘fiscal union’ or ‘transfer union’.
Pretend I am a German swing voter. Seduce me, with your list, into a transfer union with Ireland.
A Englishman’s worst nightmare.
A for Andromeda
S for Scotland
A boffin era parody now sadly gone the way of the dodo.
http://www.youtube.com/watch?v=L1sYgknWGSA
But look on the bright side lads (and lasses) of the Troika. House prices rose 0.2% in May – the first time since 2007, er, but they declined 15.3% in the year to May, er, but the rate of decline is er, slowing down, er, that’s it for now.
Maybe it’s true that every silver lining has a cloud! Or maybe my detached retina is making things look more positive?
@Grumpy,
If you were a German swing voter, you would be racked – racked I tell you – with guilt about the way poor, lil, ole Ireland has been treated. And you couldn’t wait for the day when you could rush to the polling booth to vote for the party that would transfer buckets of money to Ireland to allow it to continue to have the third highest cost of living in the EA (behind Finland and Luxembourg – each with its own particular approach to the mix of direct and indirect taxation, but with a rock-solid fiscal position and AAA rating).
The Great powers will not permit a downward adjuetment to Irishe public debt until all other obligations are brought into line with European norms. Pay, pensions and welfare both individual and corporate will have to be cut by a third at least. Then we shall be in primary surplus and able to negotiate all other contracts.
Leo V is thinking about suspending increments. James Reilly is wonering about further cuts to public services v reducing double time on Sunday. Think harder lads, think harder. You are on the right track.
grumpy : the CCTB will come in before any sheltered sectors are unshelterd.
@grumpy: “Pretend I am a German swing voter. Seduce me, with your list, into a transfer union with Ireland.”
If you’re a German swing voter you hardly matter at all. Steve Randy Waldman’s “median influencer” is the person with the clout:
(The full post, at the link below, is worth reading.)
So how do we persuade the median influencer that control of EU fiscal policy should be federalised? (Assuming we want to, although actually I don’t.) Easy: place control of fiscal policy in the hands of a bureaucracy like the ECB, constrained by rules which preserve the real value of financial assets. Get those smelly voters out of the picture. At a time of high unemployment voters (even German swing-voters) are far too likely to prioritise job creation over the preservation of the median influencer’s nest-egg.
Nothing special is required of Ireland that isn’t required of other states. For such a small peripheral state you can replace your list with one containing a single item: unquestioning obedience to the will of a European fiscal council, an ECB-like body directed by VSPs and staffed by the sort of economists Robert Barro can relate to.
http://www.interfluidity.com/v2/3212.html
http://www.youtube.com/watch?v=-XQELsFbHJk
Two celtic people , different goverment….although to be fair our non consumption is feeding the cores slowly beating heart.
Anyway Its good to see happy people satisfied with new services but I suppose there is a element of a forced state happy clappy nature to such events.
So, the once mighty Cyprus is asking for an EU bailout.
SPIEGEL Interview with Finance Minister Schäuble
‘We Certainly Don’t Want to Divide Europe’
German Finance Minister Wolfgang Schäuble believes that only further EU integration can save the euro. SPIEGEL spoke with him about how the currency can be strengthened, the hurdles presented by Germany’s constitution and what the 27-member club might look like in five years.
http://www.spiegel.de/international/europe/finance-minister-schaeuble-euro-crisis-means-eu-structures-must-change-a-840640.html
CARTOON OF THE DAY
Qui_hoto-esques … !!
Debt crisis
In the saddle
25 June 2012 Le Monde Paris
http://www.presseurop.eu/en/content/cartoon/2239921-saddle
During their June 22 meeting in Rome, Angela Merkel, François Hollande, Mario Monti, Mariano Rajoy sought to clarify the Growth Pact, which will be finalized at the European Council of 28-29 June. Although they agreed on a financial transactions txt, they failed to reach agreement on strengthening the monetary union or on concrete measures to address the debt crisis.
And let’s face it – A Trillion for The Banks done – and a mere 100billion or so for the serfs and such signals may be interpreted as where the neo-liberal right places its emphasis ….
Emerging: THE GERMAN REFERENDUM
Germany
Growing support for referendum on Europe
25 June 2012 PresseuropDer Spiegel, Frankfurter Allgemeine Zeitung
“Anyone who listened to the constitutional court ruling will know that there is no other solution.” The remark made by the social-democratic former finance minister, Peer Steinrück, highlights an opinion that is increasingly prevalent among Germany’s politicians: a change to the Basic Law for the Federal Republic, ratified by referendum, may well be necessary for the further development of Berlin’s European plans.
In an interview with Der Spiegel, the country’s current Finance Minister Wolfgang Schäuble advocated the appointment of a European finance minister with the power to veto national budgets, and the creation of a union of major banks under the control of a single European regulator.
The transfer of sovereignty implied by these measures will necessitate the reform of the German constitution. However, Schäuble believes that a referendum, which can only be launched if it has the support of two thirds of the Berlin parliament, could be organised “faster than expected“.
http://www.presseurop.eu/en/content/news-brief/2239211-growing-support-referendum-europe
Is German Kantian Pragmatism waking up to challenge romantic illusions and outdated ideologies?
Schäuble: Excuse me, but the desire for improvement is a basic condition of human existence. In “Faust,” Goethe writes: “If the swift moment I entreat: Tarry a while! You are so fair! Then forge the shackles to my feet, Then I will gladly perish there!” That’s how it is.
@luder_amamdáns
Great Graphic on EURO BREAK UP and why it won’t happen …..
http://www.spiegel.de/international/europe/bild-840640-368108.html
A Friend Speaks:
‘Pessimism is just shorthand for defeatism’
Monday, June 25, 2012
On Friday night, former US President Bill Clinton addressed the annual dinner of the Worldwide Ireland Fund at Ballymaloe House in Cork. In the audience were Taoiseach Enda Kenny, Nobel Laureate Seamus Heaney and 250 delegates from around the world. The following is an abbreviation of his 30-minute unscripted address
http://www.irishexaminer.com/analysis/pessimism-is-just-shorthand-for-defeatism-198598.html
@Kevin Donoghue
That interfluidty piece is very good, some of the austerians are fools like Osborn or zealots like Weidmann but many are simply conservative, comparatively well off, a little selfish and at an age where they are past worrying about their next job.
I wonder what were there any breakdowns of the age profile of the pro Fiscal Treaty voters here in Ireland?
@ All
Merkel demonstrates, to quote Margaret Thatcher, that the lady is not for turning.
http://www.focus.de/politik/weitere-meldungen/debatte-um-gemeinsame-euro-haftung-merkel-lehnt-schulden-vergemeinschaftung-ab_aid_772669.html
There has been much discussion of the Hotel California aspect of euro membership. The real California moment has now arrived. The putative United States of Europe is no more likely to accept a joint and several responsibility for the debts of its member states than the good old USA in respect of its member states.
For a touch of la recherche du temps perdu (and de l’argent perdu) how about this to put NAMA in context?
Edward Hugh is a Barcelona based economist and ‘Bank expert”. Quoted in the FT he says Spain’s banks should be forced to take capital now “in order to jump start the economy” (ie get credit flowing Copyright P Bacon) and in addition he thinks a bad bank structure would be a good idea. Sure why wouldn’t he? Of course this time around there is no mention of the all conquering Swedish bad bank of the 1990s. That was just for a localised blow up of 4% of GDP which wouldn’t even cover one year’s worth of payments to bondholders of dead Irish banks.
http://www.ft.com/intl/cms/s/0/188b82cc-bc86-11e1-a111-00144feabdc0.html#axzz1yq8Za01I
That is how your Ponzi scheme works. Get the dumb government money in with some sh$te about jumpstarting the credit. Allow enough time for the important people to get their money out and it’s trebles all round with repeated doses of austerity for the taxpayer.
And look at this comparison of Spanish and Irish stress assumptions
http://im.media.ft.com/content/images/187af81c-bc95-11e1-a470-00144feabdc0.img?width=803&height=666&title=&desc=stressed out. spanish banks stress test
46% write offs on developer loans in Ireland. The only way to manage such generosity is to minimise your retail mortgage loss ratio- get it as close to 10% as you can.
@DOCM
A tad disingenuous there perhaps?
The unsustainable debts of the EU’s members are mainly due to the European component of the global financial crisis, a banking crisis that has been allowed to contaminate sovereigns by a European establishment more concerned with the “health” of financial sector and the protection of creditors than the health of the unemployed or the stability of the economy.
The United States however, for all its many problems, has some form on dealing with banking crises at a federal level (not to mention a central bank with a proper dual mandate).
Krugman on What A Real External Bank Bailout Looks Like
The key line on the scale of the Federal aid spent on dealing with the Texas Savings and Loans crisis:
Just to make it clear the US does in fact give direct aid to states to deal with banking crises.
Greece has other problems but they are a minnow of an economy and without German intransigence and their very selective idea of what constitutes “moral hazard” and the ECB’s insistence on trying to protect creditors at all costs they could have been put back on their feet two years ago.
*RED LINE ALERT*
This year’s cave-in was quick!
Compare and contrast:
Exhibit A
http://www.independent.ie/national-news/incometax-rise-cant-be-ruled-out-say-ministers-3147866.html
“But Public Expenditure Minister Brendan Howlin refused to re-state these commitments, and Transport Minister Leo Varadkar also adopted a cautious approach yesterday.
He said he had not heard about any plans to increase income tax yet — but warned, “nobody can predict the future”.
Last night, Communications Minister Pat Rabbitte also declined to give an assurance on income tax or social-welfare rates, saying that the economic situation was “so difficult” and the task of complying with the bailout deal was “so major”.
“Other than saying that fairness ought to be the central criterion, I really would not want to get in to ruling in or ruling out,” he told ‘Week in Politics’.
Children’s Minister Frances Fitzgerald said the Budget presented an extraordinarily difficult situation. “Clearly there are huge challenges facing the Government and very tough decisions to be made,” she said.
Exhibit B
“Taoiseach Enda Kenny has said promises made in the Programme for Government will be honoured.
http://www.rte.ie/news/2012/0625/ministers-budget-cuts-tax-social-welfare.html
Mr Kenny’s comment appears to quash speculation that the Budget might target income-tax increases or social welfare cuts to bridge the financial gulf in the country’s balance sheet.
Earlier today, ministers talked about the possibility of cuts in overtime pay and the deferral of increments for public servants.
Union representatives have pledged to resist any cuts in pay or conditions.”
@ Shay Begorrah
It took the United States decades to agree on a central bank and a federal income tax.
As for austerity, check out San Jose in Silicon Valley.
There doesn’t appear to be much interest in EU federal taxes.
@ All
Labour reforms may seem a longterm issue but successful companies also tend to be the best employers.
The highest rates for early exits from school and training are in Greece, Spain, Italy and Portugal — all countries with high youth unemployment.
In countries such as Denmark there appears to be a lot of collaboration between the public sector and private companies in seeking to raise worker’s skill levels.
Skill levels is not only an issue in IT but is also of growing importance in manufacturing.
@ All
The agreement between the federal government and the laender on debt issuance is of great interest. It may help demonstrate that such an approach can result in a win-win situation for all concerned as it taps into the desire of investors for safe assets.
http://www.irishtimes.com/newspaper/finance/2012/0626/1224318726053.html?via=rel
@Michael Hennigan
Dear reason yes – proposition 13 and then arch enemy of modern civilization Grover Norquist has left California in a hell of a state. America has never really recovered from the damage done during Reagan’s period of office and the revolt of the wealthy.
I can think of several very successful companies (Walmart, Foxconn and Ryanair) with not terrific records as employers but it would be nice if that were true.
As for labour reform we are clearly a long way in Ireland from the situation where there could be fruitful movement between the private and public sectors and obviously a portion of the public sector is very badly institutionalized. We would also need a much better mandatory public pension scheme, as you frequently point out.
Ireland is stuck with the rigid (but functional) administrative structures of our former British government, which additionally has inefficiencies of scale in a country as small as Ireland. The civil service could do with quite radical rearrangement.
Not being bolshy but is that a cause or an effect of the weakness of the economy? Is is possible that people leave training because they can not support themselves during it or see little opportunity recouping their investment in education or training after it?
That fits in with Stiglitz’s structuralist-lite belief that we are simultaneously experiencing a financial crisis and a shift in employment between different sectors of the economy but as Krugman points out the data (in the US at least) tends to support a general fall in employment caused by a lack of demand rather than unfilled demand for workers in some sectors and a surplus of workers in others.
2 previous visits by the Fund
http://en.wikipedia.org/wiki/Topographia_Hibernica
This people then, is truly barbarous, being not only barbarous in their dress but suffering their hair and beards to grow enormously in an uncouth manner, just like the modern fashion recently introduced; indeed, all their habits are barbarisms. But habits are formed by mutual intercourse; and as these people inhabit a country so remote from the rest of the world and lying at its furthest extremity, forming is it were, another world, and are thus excluded from civilised nations, they learn nothing and practise nothing, but the barbarism in which they are born and bred and which sticks to them like a second nature. Whatever natural gifts they possess are excellent, in whatever requires industry they are worthless”. All these passages are taken directly from this source [4]
http://www.yorku.ca/inpar/conquest_ireland.pdf