Check it out here.
The report of the stress test of 14 Spanish banks has been published. The reports shows a capital requirement for seven of the banks of just under €60 billion. The report can be read here.
Those with an interest in aviation matters and policy should note that this year the European Aviation Conference takes place in Berlin on 22-23 November. Programme details and a list of speakers, along with booking arrangements and venue, may be found on the website, www.eac-conference.com.
The conference has been in existence in a slightly different form for more than 10 years. Neither a pure industry event, nor exclusively academic, it has succeeded in bringing together researchers, policymakers and many parts of the industry to discuss air transport issues from varying perspectives. The conference is also designed to stimulate research and to hammer out viable and acceptable solutions to industry issues. As in the past, it will be preceded by a more technical workshop of the German aviation research society (GARS); the call for papers is here: www.garsonline.de.
As in the past, the EAC will bring presenters from almost all continents. Many events promise to combine research, policy and industry; in my experience, few pull it off as well as this one.
You can catch up with the central bank’s research activity through this bulletin.
New CSO release here.
Callan, Keane, Savage, Walsh and Timoney have a new paper on the incentives to work in Ireland. This is an important topic and I am glad to see continued research on this.
For the first time, Callan et al. include the cost of working in their analysis. We showed earlier that this is an important consideration. Our paper was primarily intended to address a blind spot in labour economics (which disregards expenditure patterns); our calculations were illustrative only. Unfortunately, what was meant to be an academic contribution became a public issue.
Nonetheless, it is useful to compare numbers. Callan et al. use the latest available data, and their earnings and benefits data is the best available. Earlier McGuinness and O’Connell showed that our wage equations, which omitted age as that was absent from our data, were severely biased. Callan’s estimates of the costs of childcare are from the same source as their income data. More importantly, they have information on the age composition of the household, whereas we had to work with average costs for a typical family. In these regards, the new analysis is superior to our work.
The main difference, however, is due to transport costs. There, Callan et al. run into the same problem that we did: The primary data are incomplete and one needs to rely on secondary data. This introduces all sorts of biases.
I am not convinced that Callan et al. got this right. They include only the cost of commuting, disregarding extra school runs, social calls associated with work etc. They ignore that commuters would own a different car than people who stay at home. In our paper, we compared travel costs in work and out of work, correcting for income, regardless of whether travel was from home to work and back.
Callan et al. use three methods to compute the typical cost of travel to work.
Method 1 is distance times cost per kilometer. They find 17 euro per week. But that is for the cheapest car. The range is 17-41 euro per week.
Method 2 is public transport: 14-25 euro per week.
Method 3 is based on the National Travel Survey. The starting point is an unreferenced 78 euro per week in travel costs. They then attribute 1/3 of this to commuting, and find 25 euro per week. The language is vague, but 1/3 strikes me as the national average rather than the average of those in work.
I suspect that Callan et al. underestimate the travel cost due to work. According to their Table A1.1, travel costs in the range of 15-25 euro per week, increase the fraction of people who would be better off on the dole from 4% to 5% (a 25% increase). Extrapolating, this would be 6% for a cost range of 50-100 euro per week (a 50% increase).
Childcare raises the fraction of people who would be better off on the dole from 4% to 6% (for all) and to 12% (for those with children).
Combining childcare and transport costs, 6% x 1.5 = 9% (for all) and 18% (for those with children).
McGuinness and O’Connoll found 9% (no children) and 19% (1 child under 5).
I therefore think that, although the new estimates by Callan et al. are more carefully done than our initial estimates, the new numbers are too optimistic.
Note that all of these calculations ignore undeclared income.
The latest reports from the Nevin Institute are available here.
The joint statement of the German, Finnish and Dutch Ministers for Finance can be read here. It includes this section on ESM bank recapitalisation.
Regarding longer term issues, we discussed basic principles for enabling direct ESM bank recapitalisation, which can only take place once the single supervisory mechanism is established and its effectiveness has been determined. Principles that should be incorporated in design of the instrument for direct recapitalization include:
- direct recapitalisation decisions need to be taken by a regular decision of the ESM to be accompanied with a MoU;
- the ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities;
- the recapitalisation should always occur using estimated real economic values;
- direct bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM.
This is not EU policy and there does appear to be some contradictions with the June 29th Euro Area Summit Statement but it does give some important interpretations about how that statement could be implemented.
Required reading for sites like this. See here.
Chapter 3 of the October 2012 Global Financial Stability Report examines whether the regulatory reforms designed to make the financial system safer are moving the system in the correct direction, using a benchmark set of features that include financial institutions and markets that are more transparent, less complex, and less leveraged. The analysis suggests that progress has been limited so far, in part because many of the reforms are still in the early stages of implementation. Chapter 4 evaluates how aspects of current changes to financial structure, including those elicited from regulatory reforms, may be associated with economic outcomes. Both chapters stress that the success of measures to produce a safer financial system depend on effective implementation of reforms and strong supervision.
In this paper – part of a series on the institutional innovations of the 1950s, and related to my paper of last year on the 1956 introduction of export profits tax relief – historian Mícheál Ó Fathartaigh and I describe the circumstances surrounding the establishment of the Industrial Development Authority in 1949 and chart its evolution and expansion of influence over the following decade.
INFINITI is on the move from Dublin. In 2013, the 11th INFINITI Conference on International Finance will be held in Aix-en-Provence, France, organised by SciencesPo Aix, Trinity College Dublin and Euromed Management Marseille, in coordination with the Aix-Marseille School of Economics.
Keynote speakers this year will be René M Stulz, Everett D Reese Chair of Banking and Monetary Economics at the Ohio State University, and Geert Bekaert, Leon G Cooperman Professor of Finance and Economics at Columbia University.
Please see www.infiniticonference.com for more information.
The new TCD academic year begins tomorrow. In terms of public seminars, the blog readership may be interested in
- Tuesday, Sept 25, 12.30-2, IIIS Seminar Room, Bob McCauley (BIS), Risk-on/Risk-off, Capital Flows, Leverage and Safe Assets
- Thursday, Sept 27, 6.15-7.30, Long Room Hub, Philip R. Lane, Banks and Cross-Border Capital Flows: Policy Challenges and Regulatory Responses (CIEPR Report)
- Monday, Oct 1, 4.30-6, IIIS Seminar Room, Francesco Giavazzi (Bocconi), The Output Effect of Fiscal Consolidations
Colm McCarthy sums up the case for a third benchmarking exercise in his Sindo column. Read the whole thing, but this quote more or less sums it up:
The case for dismantling them is simple. The employer is bust, the good times are over and the financial stability of the State is on the line.
There are pros and cons to Colm’s argument, and second order effects to any change in public sector pay, just to pick two: given that the ESRI estimated in 2010 that for every €1 billion in public sector cuts, consumer spending falls by approximately €750 million. Our household debt levels are some of the highest in the world, so large drops in public sector pay might well lead to a spate of defaults. But a benchmarking exercise seems like a very sensible way to proceed in my opinion.
Readers might be interested in a medium-term perspective on Irish living standards.
Eurostat compiles a series on GDP per person measured in PP$. The values for each country are expressed relative to the average for the EU27 or EU15. This provides a time series that can be used to gauge the trend in relative living standards before and during the recession.
My first graph shows the values for Ireland, Spain, Portugal and Greece from 1999 to 2011.
As usual a caveat attaches to the use of GDP data for Ireland, where the gap between national income and GDP is unusually large and has been growing. In 1999 national income / GDP ratio was 86 per cent, by 2011 it had fallen to 80.7 per cent. Thus not only does the use of GDP tend to overstate the level of Ireland’s standard of living, it also distorts the trend. For this reason I include a series for Ireland that adjusts the GDP data downward by the national income / GDP ratio
The graph shows that according to GDP Ireland started from a position about 10 per cent above the EU15 average in 1999 and zoomed ahead to enjoy livings standards over 30 per above the average by 2007. According to the more realistic measure based on national income, Ireland reached the EU15 average in 2002 and was about 15 per cent above it by 2007. The other three countries achieved some modest catch-up over these years.
All four countries suffered a marked decline in living standards relative to the EU15 average after 2007. The scale of the decline is surprisingly uneven, with Ireland (on the GDP measure) suffering a 14 per cent drop from 2007 to 2011, while the drop in Portugal was only 1.6 per cent, 4.9 per cent in Spain and 8.0 per cent in Greece.
If we focus on the national income measure for Ireland the drop in living standards was almost 20 per cent. This implies that we are now one fifth worse off relative to the EU15 than we were four years ago. Our standard of living has fallen below the EU15 average for the first time since 2001.
The second graph compares Ireland with the UK. When the comparison is based on Irish GDP, it may be seen that we went way ahead of the UK between 1998 and 2007. After 2007 the Irish relative position deteriorated but by this measure we still remained almost 20 per cent ahead of the UK in 2011. When the comparison is based on national income the Irish performance relative to the UK is much less impressive. We drew ahead briefly between 2005 and 2008, but are now some 5 per cent behind.
The CSO have published their first estimate of the Q2 2012 National Accounts. In line with the inherent volatility in the quarterly national accounts the overall directions from Q1 have been changed. Seasonally adjusted real GDP was flat in the quarter after a fall of 0.7% in Q1. The equivalent numbers for GNP are a quarterly rise 4.3% after a fall of 0.1% in Q1.
The Q1 2012 figures were also revised. The 1.1% quarterly drop in real GDP has been revised to a drop of 0.7%, and the 1.3% drop in GNP initially reported for Q1 has been revised to a fall of just 0.1%.
The quarterly rise in GNP is largely the result of a drop in the net outflow of Net Factor Income rather than any improvement in the domestic economy. The Balance of Payments release covers this in more detail which shows a €3.2 billion current account surplus for the quarter.
All of Consumption (-0.4%), Investment (-29.4%) and Government (-3.9%) fell in real terms in the quarter. The large drop in Investment comes after a equally large increase in Q1. All three are also below their 2011 levels.
Quarterly GDP rose because of an improvement in the balance of trade. In real term quarterly seasonally adjusted exports fell 0.5% but imports fell 5.2%.
In annual terms GDP in Q2 2012 was 1.1% lower than in the same period last year. Constant price GDP for the first half of 2012 is just 0.3% higher than for the first half of 2011.
In nominal terms both GDP (0.5%) and GNP (4.3%) rose in the quarter. Nominal GDP for the first half of 2012 is estimated to be €81.3 billion; for the equivalent period in 2011 it was €79.1 billion.
Vincent O’Sullivan and I spend some time thinking about the proposed new supervisory authority for the EU run from the ECB in this Vox article, and get worried about the uncertainty the proposal generates. It complements our Harvard Business Review piece earlier in the week.
The question for our blog’s readers is: would a pan European regulator have stopped (or substantially reduced) Ireland’s buildup of private debt during the boom? Obviously gaining an Eurozone-wide perspective is a good thing but detail may be lost in the process.
Meant to post this earlier. The CSO released its figures for August on the 13th of this month, inflation as measured by the HICP is rising at 2.6% year on year. The live register and the related unemployment picture released on the 5th is, frankly, horrendous. I haven’t seen a discussion of these figures on Irish Economy. Constantin has a nice post showing inflation stats in an historical perspective.
This chart is still shocking, despite there being essentially no new information within it.
Policy failures often lead to regulatory reform. In a pathbreaking new study the National Economic and Social Council have published their evaluation of the regulatory regime over residential care homes for the elderly in Ireland, examining closely the regime put in place following the Leas Cross scandal of 2005. Serious failings both of provision and oversight at Leas Cross, uncovered in a RTE Prime Time investigation, led to considerable soul searching about the care of the elderly, and the establishment of a new independent regulator, the Health Information and Quality Authority.
The report makes for very interesting reading. Substantively it finds evidence of demanding standards being effectively applied both by providers across public, private and voluntary sectors, and by the regulator. It provides pointers as to how the regime might be further enhanced, but notes that confidence in the sector has already been significantly enhanced. Of greater general signficance is an approach to the research which asks to what extent there is evidence of a search for continous improvement both in provision and regulation of services. Within this analysis regulation is no longer a zero sum game of government imposing costs on businesses. Rather it is a shared process of learning about what can and should be done.
The report is one of a number of reports which NESC is publishing on the regulation of human services in Ireland. Taken together they are likely to offer a sea change in the evaulation of regulatory governance, creating expectations that regulators should be responsive and smart and above all capable both of learning and supporting the learning of regulatees. The approach, developed from cutting edge regulatory research internationally, could usefully be applied across both economic and social regulation as starting point for effectively evaluating regulatory performance.
A draft was leaked a few weeks ago but here is the Commission’s Summer 2012 Review of the Economic Adjustment Programme for Ireland which was officially published this morning.
In August, the RBA and BIS co-organised a conference on this topic, which featured some interesting papers – downloads are here.
The latest BIS QR is here. Includes articles on ” Do debt service costs affect macroeconomic and financial stability?” and “Have public bailouts made banks’ loan books safer”
Last week I spoke in Iceland (.pdf of slides) about the similarities and differences between our two countries.
Both countries had experienced booms caused by inflows of cheap credit, and both had experienced societal upheaval as a result of the inevitable crash. Iceland differed sharply from Ireland in its approach to resolving the crisis. Where we are currently floundering, praying for a deal on our banking debt from Brussels, Iceland is moving on, with a set of relatively clean bank balance sheets, a falling unemployment rate, an increase in economic output, and a national sense that the economy and the society is healing.
What can we learn from the Icelandic experience? Should we even compare ourselves to them? I think there are many lessons to learn, but you have to look a bit beyond the numbers.
I am not sure that these findings are surprising, but quantifying these effects is very useful. It also seems worth mentioning that Italy has just introduced a system of involving non-Italians in their academic appointments committees. And that it is probably not surprising that the UK, which has a competitive model, is so successful when it comes to ERC grants and other quantitative measures of academic success.