The CSO recently launched a handy new site, which is a ‘one stop shop’ for a range of macro/financial data (clicking on the links brings you to more detailed data summaries).
Year: 2012
It has been a strange few days for Richard Tol and the ESRI. A working paper co-written by Richard and released by the ESRI was later withdrawn, because there were “serious concerns about the methodologies used in the paper“.
Brian Lucey has a useful summary of all of the back and forth on his blog, including some rebuttals of Tol’s paper.
This episode is unfortunate for everybody, but in a lot of the coverage it is clear the ‘working paper’ status of the document is not well understood. Working papers exist to facilitate discussion and dissemination of ideas. Just about every working paper series carries a disclaimer to the effect that any paper within the series has not been peer reviewed and so the conclusions are not to be taken as read. In fact a disclaimer is at the bottom of the first page of the working paper.
Really what the author is saying to their colleagues in the scientific community when they publish a working paper is “here, have a look, tell me what you think.” The working paper status of the document is overlooked in several pieces I’ve read, with many calling it an ‘ESRI Report’, as if Tol et al’s working paper was like the Quarterly Reports which do, in fact, speak for the ESRI.
In my opinion, the correct thing to do now is to organize a half day talk around these issues with contributions invited from interested participants. Rather than stifling the debate around what is obviously an important topic, explore the idea properly and with the minimum of drama.
The impetus for a banking union has been gathering pace. Frankfurt is a city blessed with two central banks and one of them seems to be getting nervous.
The Bundesbank fielded two executive board members today, expressing concerns about their perception of what a banking union would entail.
Courtesy Dow Jones Newswires:
‘Talk of a banking union in the euro zone is premature, a key member of the executive board of Germany’s Bundesbank said Tuesday, arguing that such a plan could only follow deeper fiscal union.
“The recent proposals of a so-called banking union appear to be premature,” Bundesbank board member Andreas Dombret told an audience of bankers at a conference in London.’
Fiscal union, in Bubaspeak, means political union, which takes forever. So Dombret is arguing for a continuation of a currency union without banking union for many years to come. He presumably believes that this will prove sustainable.
Courtesy FT.Com:
‘Sabine Lautenschläger, vice-president of the Bundesbank, said banking union could only work in tandem with fiscal union – meaning some common cross-border binding rules on how countries could set budgets.
Banks in Germany have already signalled opposition to having their existing deposit guarantee schemes potentially used to rescue banks in other countries.The “decisive question” of banking union was the “interplay between liability and control” because a crisis in one country’s banks could require financial help from taxpayers in other countries, Ms Lautenschläger said. “Whoever accepts liability also has to have a right to control, especially when it is potentially a question of very large sums as in the case of a banking crisis.”
Speaking at a Bundesbank conference in Frankfurt, she said banking union without fiscal union would, in particular, benefit banks in weaker economies with higher refinancing costs. If those banks then bought more of their own countries’ sovereign bonds, they would, in effect, pass on cheaper refinancing costs to their domestic governments, Ms Lautenschläger said.
“The extremely important discipline of the market would be partially lost. Even more seriously, joint liability for banks would, at least, partially extend to the sovereign bonds of these countries,” she said. “The result would be joint sovereign liability through the back door – without the possibilities for intervention and control, and therefore the protection, of a fiscal union.”
Ms Lautenschläger also cast doubt on how quickly any banking union could be implemented, saying “comprehensive EU treaty changes” would be needed.
Readers will be greatly encouraged to learn of the Buba’s late conversion to the merits of market discipline. Does this mean market discipline only for sovereigns or for banks also?. Did the Bundesbank oppose the policy of the ECB on this matter in October 2010 when the Irish government was coerced into payouts on zombie bank bonds by the other central bank in Frankfurt?
There have been some flaky versions of the ‘banking union’ notion, including mutualised moral hazard for banks. Banking union means (funded) deposit insurance, centralised bank supervision and, critically, proper bank resolution, including the de-commissioning of the ECB’s moral hazard machine. Without bank resolution the sovereign debt crisis is not soluble. Could the Bundesbank be prevailed upon to address two questions:
(1) Can the sovereign debt crisis be resolved with permanent moral hazard for banks and indefinite contingent liability for their sovereigns?
(2) What suggestions can the Bundesbank offer to resolve the current undercapitalisation of the Eurozone banking system?
The perception is inescapable that people who continually rule out the measures needed to rescue the common currency project are indifferent to its fate.
Brad DeLong and Barry Eichengreen have a really nice piece on the lessons today’s policy makers might usefully draw from the work of the great Charles Kindleberger.
It prompted the following two thoughts on my part, neither of which is perhaps relevant to Kindleberger.
The first is that the extremes are gaining in Europe because centrist parties are offering voters no meaningful choices. Pasok and ND are an egregious example, but the same is true in all the other programme countries, and to a lesser extent in other countries as well. So if you want to vote against the status quo policies, you have no alternative but to vote for Syriza, or whomever.
Second, right now in Europe, support for international institutions means, de facto, support for the current policy mix, just as being an internationalist in the interwar period, in too many cases, meant support for gold. And this is killing support for the very international institutions that, as Brad and Barry say, are in principle a solution to the crisis.
Update: Brad has a great response to this post here. Read it.