The IMF WEO chapter on household debt is here.
Year: 2012
The 2012 review by SJI called Shaping Ireland’s Future can be read here.
The international debate on the wisdom of fiscal austerity has being heating up. Since the onset of the crisis, the consensus seems to have gone through different stages: initially there was widespread support for fiscal stimulus, followed by concerns that fiscal policy needed to tighten as debt to GDP ratios rose in many countries to worrying levels, followed more recently by concern that fiscal policies may tighten too much given the persistence of the crisis-induced recessions.
A useful aspect of the recent debate is greater differentiation between countries facing serious sovereign creditworthiness challenges and those that do not. Countries facing immediate creditworthiness problems face a dilemma: fiscal tightening tends to further weaken the real economy; but allowing deficits and debt to stay on a higher path further weakens creditworthiness. The fiscal council has been grappling with this dilemma in its first two reports (see here and here).
Drawing on recent work with a number of co-authors, Giancarlo Corsetti provides a useful framework in this VOX piece for thinking about the dilemma. He makes the important point that the appropriate fiscal stance can be quite different for countries facing a large market risk premium (e.g. Ireland) and those that don’t (e.g. the UK). Countries facing a large risk premium face a dilemma in setting the fiscal stance between supporting demand and supporting creditworthiness – a trade off that is absent or at least much less pronounced in countries with low long-term bond yields. Corsetti’s framework has the additional element that increases in the sovereign risk premium can feed through to the risk premium facing the private sector though the entwining of bank and sovereign balance sheets. While he does not believe that this additional element makes fiscal contractions expansionary, it does tend to reduce fiscal multipliers. On the other hand, for countries not facing an elevated risk premium, multipliers are likely to be large for countries in deep recessions with policy interest rates constrained by the zero lower bound, suggesting the appropriateness of a more stimulative fiscal stance.
Alan has a look at what might have been done to reduce the taxpayer’s exposure to Anglo’s losses in the indo here.
Alan’s point is pretty simple, but I think a lot more could be written on what else the government could (or should) have done in the wake of the 2008 crisis.
Colm’s Sindo wide ranging column this week takes NAMA and the disposal of its assets as its focus but also calls for an inquiry into several important matters. From the piece:
Viewed from behind the desk of an international investor with plenty of options around the world, this is not a pretty picture. The reputation of the country has been damaged and the perception created that Ireland is suffering from an acute outbreak of crony capitalism.
This may be unfair but perception is what matters and the perception needs to be altered decisively if foreign investors are to be re-assured. The sheer scale of the capital inflows required means that portfolio investors new to this country need to be involved on a massive scale. These people are perfectly entitled to be cautious about committing funds to a small country which must appear to them to tolerate a dodgy business and political culture.
In the circumstances the Government must focus on rebuilding reputation and has consciously made this a priority. There are other positives — the Irish commercial courts are seen as thoroughly independent and quite prepared to find against local interests, including the State, should the law and the facts point in that direction.
But progress has been slow under several headings. Four years after the emergence of the banking crisis, and given clear evidence of malpractice in some banks, there has been no definitive inquiry into their governance and behaviour, in particular no review of bank-by-bank lending policies in the years when the damage was done. Despite evidence in the public domain of insider lending, balance sheet window-dressing and share-support operations in some banks, no prosecutorial actions have been taken.
The referendum on restoring investigative powers to the Oireachtas was lost through a weak government campaign, but a parliamentary inquiry is nonetheless desirable. It should cover the Quinn Insurance affair as well as the banking collapse and should delve further into the failures of regulators and the mistakes made in the policy response. A well-resourced inquiry should be seen as helping to restore the country’s reputation.