Month: January 2013

European Banking Union

There is an FT op-ed today by Hau and Sinn, which is mainly about the importance of ensuring sufficient creditor bail-in to limit calls on taxpayers in the event of a crisis. However, it also argues that the ECB has gone too far in providing liquidity against distressed collateral in the periphery.  You can find it here.

There is a guest article by Avinash Persaud in The Economist here.  Persaud is concerned that a single supervisory mechanism will lead to “one size fits all” regulation of banks across the euro area, so that the response to country-specific asset bubbles may be inadequate.  It is not clear to me why a unified approach to regulation is inconsistent with the implementation of country-specific macro-prudential measures.

Conference on Irish Economic Policy Programme

Conference on Irish Economic Policy

Institute of Bankers, North Wall Quay, Dublin 1

February 1st

On February 1st 2013, the Dublin Economics Workshop, in conjunction with Economic and Social Research Institute (ESRI), the Department of Economics at the University of Limerick (UL) and the Geary Institute at UCD is hosting a conference on Irish economy policy at the Institute of Bankers.

The conference will explore current issues in economic policy in key areas:  Education and Children, Industrial Policy, Unemployment/Social Protection, Economics and Evaluation, and the Political Economy of Austerity. The outline programme is set out below.

The conference aims to provide a forum for discussion of new ideas on the conduct of Irish economic policy, including the extent to which economics and related disciplines can make a greater contribution to the conduct of economic policy in Ireland, and the extent to which policy can be designed more effectively. The speakers and chairs come from a range of institutions and disciplines and there also be online access to presentations to ensure to enable debate through blogs and twitter.  There is no charge for the conference. Coffee will be provided free of charge mid-morning and there will be a break at 12.45 to enable participants to take lunch.

To register for the conference, please email: emma.barron@ucd.ie . Advance registration is essential for attendance at the conference, i.e., is required for entry to the facilities.

9.15- 9.45

Registration and Opening

9.45-10.45

1. Education and Children

2. Industrial Policy

CHAIR: Minister Frances Fitzgerald (D/Children and Youth Affairs)

1. Orla Doyle (UCD/Geary) Experimental Evidence on the Early Effectiveness of Intervention in Childhood

2. Emer Smyth (ESRI) School factors and student outcomes: insights from longitudinal research

CHAIR:  Declan Hughes (Forfás)

1. Donal Palcic & Eoin Reeves (UL) Privatisation: past performance and prospects.

2. Fergal McCann SMEs in Ireland: Contributions, Credit and Economic Crisis (Central Bank)

10.45-11.15

Coffee

11:15-12:45

3. The Labour Market

4. Economics and Evaluation

CHAIR: John McKeon (D/Social Protection)

1. Eilish Kelly (ESRI), Seamus McGuiness (ESRI), Philip O’Connell (UCD/Geary) Activation in Ireland: Are we on the Right Path?

2. Bryan Fanning (UCD) Why did Ireland become so open to immigration?

3. Frank Walsh (UCD) The union wage premium in Ireland

CHAIR: Frances Ruane  (ESRI)

1. Ronnie Downes (D/Public Expenditure and Reform) Economics & Evaluation in the Public Service – Capacity and Commitment?

2. Gail Birkbeck (Atlantic Philantrophies) Evaluating Services and Expenditures in the Social sector

3. Helena Lenihan (UL), Evaluating the impact of enterprise/industrial policy supports: developing new methods and approaches

12.45-14.00

Lunch Break

14.00-16.00

Plenary Session: Political Economy of Austerity

CHAIR: Robert Watt (D/Public Expenditure and Reform)

1. Niamh Hardiman (UCD) The politics of austerity budgets

2. Michael Taft  (UNITE) The Great Stagnation

3. Frank Barry (TCD), European Integration and Austerity

4. Colm McCarthy, Dubrovnik International University, What Kind of Banking Union for the Eurozone?

(We’ll be updating the conference programme as provisional titles come in).

Ireland as a Global Financial Centre

Interesting story here.

Central Bank Publishes Research on Irish Non-Financial Corporations Debt Levels and Housing Equity Withdrawal Trends

Information Release 28 January 2013

The Central Bank of Ireland today published the signed articles Why are Irish Non-Financial Corporations so Indebted and Housing Equity Withdrawal Trends in Ireland from the Quarterly Bulletin 1[1] for 2013.

The research found that Irish Non-Financial Corporations (NFC) are the second most indebted in Europe after Luxembourg when debt is measured as a percentage of GDP[2]. However when debt is measured as a percentage of their balance sheet size, NFCs in Ireland are relatively less indebted and fall below the eurozone average[3]. Results show that aggregate indicators can mask some underlying problems within particular NFC sub-sectors and therefore the use of a single indicator for the sector as a whole, in isolation from other data, can be misleading.

Irish NFC debt increased from 147 per cent of GDP to 204 per cent between Q3 2008 and Q2 2012 despite the economic downturn. The rising levels of Irish NFC debt reflect the large and increasing activities of multi-national corporations (MNCs) in Ireland in recent years.

While NFCs have significantly reduced borrowing from credit institutions through net loan repayments and loan write-downs, their borrowing from non-residents has increased substantially by 160 per cent between Q1 2008 and Q2 2012[4]. This latter trend largely reflects the substantial increase in MNCs in Ireland.

The research into equity withdrawals uses a unique data set to track changes in aggregate housing equity withdrawal between 1978 and 2012 and found that prior to the recent housing boom, aggregate equity injection was the norm for Irish households, mainly through the repayment of mortgage debt over time.

However, the property boom saw households move from aggregate equity injection to aggregate equity withdrawal.  It is estimated that aggregate equity withdrawal reached a peak of €8 billion, or 10 per cent of disposable income, in 2006. This trend was driven by an increase in the number and value of top-up loans, an increase in the number and value of transactions during the boom and a relaxation of credit standards leading to lower deposits, longer loan terms and increased number of interest only loans.

The decline in the property market has led to a reversal of these factors with housing equity withdrawal collapsing and reducing to its lowest levels, driven mainly by the decline in the number and value of housing transactions.

Bogtec

Yesterday, Pat Rabbitte and Ed Davey signed a Memorandum of Understanding. The MoU is crafted in terms of the Renewables Directive, which allows EU Member States to pool their targets. Essentially, the MoU gives the UK an exclusive claim on any excess (wrt target) renewables that Ireland may have. A monopsony is good for the buyer, but less attractive to the seller. Either the Irish government has little faith in the emergence of a market for renewable obligations, or perhaps Ireland felt it needed to do the UK a favour, for instance in return for the bailout.

The MoU does not specify any project, but there is an expectation (see here and here) of large wind farms in the Irish midlands, transmitted to England and Wales via a dedicated grid.

This is intriguing. Midland winds are not particularly favourable, and definitely cannot compete with the winds of England and Wales once the costs of long distance transmission, including an undersea cable, are accounted for. This project only makes sense when you consider the difficulties in building wind turbines in the England and Wales. Ireland’s comparative advantage is the weakness of its planning regulations.

There have been some exaggerated claims about the benefits for Ireland. Few jobs would be created here. There is no reason to assume that wind turbine manufacturers would set up shop in Ireland. Even the more lucrative parts of construction may well be done by specialist teams flown in from abroad.

Export earnings depend on the price. In England and Wales, feed-in tariffs are about 25 c/KWh for small, domestic suppliers. It is unlikely that large, foreign suppliers will be offered similarly generous conditions.

Profits are likely to be taxed in Ireland, but need not benefit Irish shareholders. There are no royalties on wind (and EU competition law prevents the introduction of royalties on wind-for-export only).

The wind power companies would need to lease land, but as the name of Bord na Mona is often dropped, this may be at a concessionary rate.

From an English perspective, this agreement makes sense in a narrow way. The choice is between yet another conflict with Brussels (if the renewables target would be ditched — the sensible thing to do), a reform of planning regulations, or a deal with the Irish.

From an Irish perspective, it is hard to find anything to commend this plan.