Month: July 2012

The current account is the sum of the balance of trade, factor income and cash transfers. It is one half of the balance of payments, together with the capital account. The current account matters in every country for a host of reasons, but it is especially important for small open economies like ours. Here’s the latest data on Ireland’s current account, here’s that data in chart form.

We see the imbalance within the current account throughout the crisis. Much of this imbalance came through the ‘services’ and ‘income’ channels, as we can see in this figure that simply decomposes the components of the current account over time.

There is a new working paper from the ECB by Ca’Zorzi et al which shows that, accounting for a host of other factors, the current account imbalance story is really the only one that matters. Once the current account become decoupled from what the authors call ‘fundamentals’, the wheels come off the bus. This paper should be food for thought for our policy makers.

The remarkable thing about this morning’s 3 month t-bill auction is how unremarkable it was. The whole thing seems to have gone off without a hitch. Happy days. We’re not back in the bond markets just yet, but it is a good first step towards a return to business as usual.

An article by Amartya Sen in the Guardian on European economic policy  – link here

Today the NTMA announced Ireland will resume treasury bill auctions, the first since September 2010. This is a really good thing.

But this does not mean Ireland is “back in the bond market”, with all the baggage that phrase has for Irish people these days. We’re back in the Bill market. Journalists in particular should understand the difference between bonds and bills.

While both bonds and bills are debt obligations, in other words when you buy either a bond or a bill you are lending your money to the Irish government, and both are auctioned, bills are used as short term liquidity instruments, typically repaying the bill buyer in 3 months or 6 months or something like that, while bonds carry much longer maturities, usually 2 years, 5 years, 10 years, even 30 years, and are typically used to pay down other maturing bonds or to finance state expenditure. See these lecture notes, slide 218 in particular, for more details. Update: these ones are way better.

Thus Bills differ in their form and their usage, it doesn’t make sense to confuse them. While today’s announcement is a good sign, we shouldn’t get too excited over their issuance. Portugal has been issuing T-Bills throughout its time as a programme country, and even Greece got some away in May.

For these reasons we shouldn’t read too much into the yield and bid to cover ratios of these bills. It’s still a positive first step, but it’s not Ireland dipping its toes in the water of the markets, more like us taking off our socks near the pool.