Year: 2012

RTE: Nation to Be Spared From Promissory Note Deal

RTE’s Nine O’Clock news are reporting Enda Kenny as explaining that promissory note negotiations are totally separate from the question of will the Irish people vote for the Fiscal Compact Treaty and that the Irish people will not bribed to vote for the Treaty.

RTE also noted that the latest Council meeting was “dominated by jobs and growth” which sounds like great news. And, best of all, reporter Tony Connelly helpfully explained that it was now felt that asking for a better deal on promissory notes was actually a bad idea because it would send a bad signal to financial markets that we were not able to cope with our debt burden and that there was no way this issue would be dealt with any time before the summer.

Ok, so be it. But I suspect that “the Irish people won’t be bribed” may prove to be the worst referendum slogan in history.

More on Fiscal Devaluations

This blog has recurrently featured the role of fiscal devaluations inside a currency union –  a good summary of the argument is here.  (HT Desmond Brennan).  There are traces of this in the Irish case (the increase in VAT and the reduction in employer PRSI for low-paid workers) but more could be done.

The Irish Financial System – Conferences

The papers from today’s ESRI Renewal conference are here.

The site for the Central Bank’s SME conference on Friday is here.

By the way, details of Dublin’s Central Library Lecture Series on the Irish Crisis are here.

Ireland to hold Fiscal Compact Referendum

The report is here.

IMF: Ireland and Automatic Stabilizers

The new IMF press release is available here.  An important segment is

At the same time, the challenges Ireland faces have intensified since the outset of the program, with growth expected to ease to about ½ percent in 2012 owing to a slowing in trading partner activity. The Irish authorities have responded by raising the fiscal consolidation effort adopted in Budget 2012, and the budget remains on track to meet an unchanged general government deficit target of 8.6 percent of GDP. If growth should weaken further, the automatic stabilizers should be allowed to operate to help avoid jeopardizing the fragile recovery.

This point has also been raised in this blog’s discussion of the new Fiscal Compact. If the government implements €X of discretionary fiscal adjustments in a given year T, the realised deficit/GDP ratio in year T will also depend on what type of (positive or negative) cyclical shocks affect GDP in year T  (in addition to the direct impact of fiscal policy on GDP).   Just as positive cyclical shocks would deliver an ‘over-performance’ in terms of the deficit/GDP ratio, so negative cyclical shocks would deliver an ‘under-performance’.  The spirit of the Fiscal Compact is that such deviations should average out to zero over time, rather than being eliminated within-the-year through mini-budgets.

In the current Irish case, there are some extra considerations:

  • spending/revenue plans for this year might include some implicit contingency funds, so that the 8.6 percent target can be attained even in the event of an under-shooting of GDP
  • given the downside risk, the government might have explicitly planned a larger fiscal adjustment, with the consequence that that the 8.6 target could be met even in the event of an under-shooting of GDP