The Future of EMU

The European Commission sponsored a project on the future of EMU over the last few months: this Economic Brief by Robert Kuenzel and Eric Ruscher provides an overview. Some of the papers are now available in the European Economy Economic Papers series (including my own paper “Capital Flows in the Euro Area”):



30-4-2013 Department of Finance Publishes the Irish Stability Programme April 2013 Update
30-4-2013 Stability Programme Update – April 2013


Guest Post: The Payments Molehill

This guest post is written by Ronnie O’Toole, who is Project Manager for the National Payments Plan in the Central Bank

While the focus of policymakers continues to be fiscal and monetary policy, the need for further micro-economic reforms was highlighted by Richard Tol in the recent Het Financieel Dagblad article. Richard identified legal services, energy and transport as some of the ‘molehills’ that when added together can help tackle the national competitiveness ‘mountain’. The payments industry should be added to this list.

Quite simply, making a payment costs money. A recent ECB study estimates that the cost of payments among EU countries is spread within a range of 0.61%-1.43% of GDP, based on a common methodology. The most efficient countries are intensive users of electronic payments such as debit cards and EFT, while the least efficient remain dependent on paper-based payments such as cash and cheques. There are also non-financial costs linked to a high culture and cheque usage. Cash as a bearer instrument will always pose a physical security threat which is not as prevalent in other forms of payment crime such as card skimming. Further, there is a clear association between cash usage and tax avoidance, with studies showing that around one-third of all cash used in Scandinavia is in the shadow economy.

Ireland is one of the most inefficient users of payments in Europe. We withdraw more from an ATM in a month than a Dane does in a year, and are one of the few countries remaining who still use cheques. The National Payments Plan (NPP) was developed as a response, and launched last Wednesday by Stefan Gerlach in the Central Bank.

The challenge of promoting electronic payments is to a significant extent one of technology lock-in. This occurs when a particular technology is dominant because of scale economies, not because of its inherent qualities. You may want to use no cheques, and prefer e-banking. However If I send you payment by cheque you won’t decline it. What’s more, since I don’t give you my bank account number you can’t pay me electronically.

Technology lock-in can be overcome if a co-ordinator signals a change in behaviour. For cheques the NPP envisages the Government playing this role, ending all B2G and G2B payment by cheque from next year. This will be a powerful signal – all businesses have at least some payment transactions with Government.
Price incentives are also likely to be critical. As my paper in the last Central Bank Quarterly Bulletin showed, the banking sector is currently typified by a huge cross-subsidisation of cash/cheques by electronic payments. Only 46% of all cash related costs are covered by fees, with the shortfall being made up on the highly profitable card side of the business. The fees banks earn relating to card payments are two-fold – not just the consumer fees we all pay, but also the ‘swipe’ charges the merchant must pay.

The way we pay Social Welfare is in sharp contrast with practice on the continent. In Ireland around half of all social transfers are paid over in cash from post offices, while paying into a bank account is the norm elsewhere. This antiquated practice has led to Ireland retaining a high rate of financial exclusion. According to the 2011 CSO SILC data 17% of Irish households don’t have a current account, compared to less than 1% in most other northern European countries. This creates an unnecessary barrier to the world of work which operates largely with electronic payments. It also closes off options for people such as the ability to pay online or to access an appropriate level of credit from formal sources rather than moneylenders. Not only do cash payments result in this negative societal outcome, it is also more expensive for the public service to provide than the electronic alternative – a clear lose-lose situation.

Behavioural economics also has a role in promoting migration – can we ‘nudge’ people to use electronic payments? For example, if we want to lower the average ATM withdrawal then only smaller amounts should be presented as the default options on ATMs, and preferably on the right hand side. Smaller denominations in ATMs can also play a role. Further, when you are down to the last 5 cheques, the insert on the chequebook shouldn’t read “Don’t do anything, we’ll send you a new cheque book even if you don’t want one” (I’m paraphrasing) but instead “If you want a replacement cheque book then ring this number, though we won’t send you one if we don’t hear from you”.

While behavioural change using existing technologies represents the thrust of the NPP, there are also new technologies emerging that can greatly assist. Contactless debit cards are currently being rolled out by the banks, which will greatly speed up the time to serve in retail outlets. Further P2P payments using mobile telephones can act as a useful alternative in a number of circumstances to cash and cheques.
However, the NPP didn’t (and shouldn’t) pick winners when it comes to payments. The world of a single European market for payments (SEPA) is almost upon us, which could greatly increase the level of competition and choice in electronic payments. Already there are many firms based in Ireland – both indigenous and multinational – that are very successful in this space.

Research shows that different electronic forms of payments are ‘friends’ – countries that have adopted one form of electronic payment are far more likely to try out new innovations when they arise. For us, that means that we need to reduce our cash and cheque usage if we want to join the innovation revolution that is transforming payments globally.


Central Bank Annual Report

The 2012 Annual Report of the Central Bank has been published.


Ireland: Bleak houses

Jamie Smyth explains Ireland’s household mortgage situation to the FT readership in this Analysis piece.


Reminder: Finance Conference Announcement

2013 FMC2 Finance Conference

May 1, 2013, Dublin, Ireland

The Financial Mathematics and Computation Cluster (FMC2) is pleased to announce that the 2013 FMC2 Finance Conference will be held in Dublin on May 1, 2013.

Papers will cover the areas of real estate risk, asset pricing, trading and portfolio performance.  The speakers include Andrew Karolyi, Matt Spiegel and René Stulz, The FMC Scientific Advisory Board (see below for membership) will be present at the conference.


08.30 – 8.50 Registration (tea and coffee)

08.50 – 9.00        Douglas Breeden (Duke) Conference Opening

09.00 – 13.00 Talks

09.00 – 09.55      G. Andrew Karolyi (Cornell), The Role of Investability Restrictions on Size, Value, and Momentum in International Stock Returns

09.55 – 10.50      Semyon Malamud (Swiss Finance Institute) Decentralized Exchange

10.50 – 11.10 Break (tea and coffee)

11.10 – 12.05      Matthew Spiegel (Yale) Human Capital and the Structure of the Mutual Fund Industry

12.05 – 13.00      René Stulz (Ohio State) Why did financial institutions sell RMBS at fire sale prices during the financial crisis?

13.00 – 13.05      Michael Brennan (UCLA) Conference Closing

13.05 – 13.30 Lunch and networking

REGISTRATION: Registration for the conference is free.  To book a place at this conference please complete this form

CONFERENCE ORGANISERS: Chair: John Cotter (University College Dublin);

Vice-Chairs: Anthony Brabazon (UCD), Gregory Connor (NUIM), David Edelman (UCD), Paolo Guasoni (DCU), Michael O’ Neill (UCD);

FMC2 Scientific Advisory Board: Douglas Breeden (Duke), Michael Brennan (UCLA), Maureen O’ Hara (Cornell), John McConnell (Purdue), Matthew Spiegel (Yale), René Stulz (Ohio State), Hassan Tehranian (Boston College).

European economy Fiscal Policy

Taxation Trends in the EU

Eurostat have published a news release with some summary tables of taxation trends in the EU.  The data are taken from the 2013 Statistical Book on the same topic.  The section on Ireland in the book opens with the following summary.

At 28.9 % in 2011, the total tax-to-GDP ratio in Ireland is the sixth lowest in the Union and the second lowest in the euro area. In recent years this ratio gradually decreased from a 2006 high of 32.1 %, but has increased again in 2011, apparently on foot of budgetary measures aimed at raising tax receipts.

The taxation structure is characterised by a strong reliance on taxes rather than social contributions. Direct and indirect taxation make up 43.4 % and 39.4 % of the total revenue in 2011 respectively, whereas the social contributions raise only 17.2 % of total tax revenue. The share of social contributions is the second lowest in the EU. The structure of taxation differs considerably from the typical structure of the EU-27, where each item contributes roughly a third of the total. As in the majority of Member States, the largest share of indirect taxes is constituted by VAT receipts, which provide 54.1 % of total indirect taxes (53.3 % for the EU-27). The structure of direct taxation is similar to that found in the EU-27. The shares of personal income taxes and corporate income taxes are in line with the EU-27 average and represent 9.2 % and 2.4 % of GDP. Social contributions represent a meagre 5 % of GDP (second lowest in the Union after Denmark), compared to an EU-27 average of 12.7 %. Employers’ and employees’ contributions are at 3.5 % and 1.3 % of GDP, respectively.

Ireland is one of the most fiscally centralised countries in Europe; local government has only low revenues (3.5 % of tax revenues). The social security fund receives just 16.4 % of tax revenues (EU-27 37.3%), while the vast majority (79.2 %) of tax revenue accrues to central government. This ratio is exceeded only by Malta and the UK.


Trust in the EU, again

It has been evident for quite some time that citizens right across Europe are losing faith in the European Union, and the fact is making the headlines today. If the Euro experiment needs meaningful banking union, including some element of fiscal union, and probably other “deepening” reforms as well in order to survive, and if citizens are becoming increasingly hostile to “Europe”, meaning that such reforms are politically impossible, then the Euro may be doomed in the long run. In the meantime the never-ending Eurozone crisis, caused by a flawed currency, a dysfunctional central bank, and a perverse macroeconomic policy response, is dragging the entire European project down with it.

Update: bang on cue, Spain’s unemployment rate has reached 27 percent this morning. Solving the periphery’s economic problems rather than saving the Euro really has to become the continent’s top priority. Apart from anything else, you won’t be able to do the latter if you don’t do the former.


Inside Merkel’s Bet on the Euro’s Future

The WSJ provides an ‘insider’ view here.


EC Winter 2012 Review of Irish Programme

The details of the Commission’s quarterly reviews tend to get into the public domain in draft form a couple of weeks before their official release.  The ninth staff review has now been published.


Financieel Dagblad on Ireland

Yesterday, Het Financieel Dagblad published an interview with Michael O’Leary and me on the future of the Irish economy. I said much else besides, and some colorful language was cut out. For those who cannot read Dutch, here’s what Google Translate made of it:

Ireland has not really learned from the crisis

Reforms in Ireland have not been substantial enough to lift the economy on a higher level and to make more resilient to shocks. Through weak political leadership and an indulgent attitude of the troika of IMF, ECB and European Commission, opportunities have been missed, leaving the country in the long term to continue to perform below par. A repeat of the scenario of a severe economic downturn that Dublin cannot get to the top of on its own, cannot be excluded.

This say two connoisseurs of Irish society, Michael O’Leary, CEO of Ryanair, and Richard Tol, originally a Dutch professor who because of the crisis moved from Dublin to Brighton.

“A crisis is an opportunity for reform, but in Ireland there is only cuts,” says Tol. “Even this very big crisis was no need for structural reforms, where there should have been.” O’Leary agrees with him.

“We had the opportunity to exploit the crisis to reform the labor market and to remove job-growth barriers. “Never waste a good crisis.” But we have missed every opportunity. In Ireland there is not much appetite for real, structural reforms. ”

Rebound effect

Because nothing has changed, Ireland remains a “very inefficient, third-rate economy with a high cost structure,” thinks the CEO of the price fighter in aviation. Professor Tol takes into account an economic acceleration by the rebound effect, but then foresees a new crisis. “If confidence returns, for example in 2015, another period of rapid growth follows.

We might get another ten years growth rates of 5%. But because the structural problems are not addressed, this can produce a similar crisis in 2025 or 2030. Which can be much worse than the current one if the Irish by that time have not sufficiently reduced their debts. ”

Dublin has a long way to go, even if the country is by year-end released from the troika, as is widely expected. Some key figures illustrate this. The government expenditure fell, but are still well above the level of 2005. The debt has grown so much that the IMF warns that it can be unsustainable if there is no a real economic recovery soon. A major problem is the steady increase in the number of homeowners who can no longer bear their mortgage.


O’Leary does not understanding that Ireland has not faced up to reality the beginning of the crisis. “The government gets  €35 billion in taxes, but spend €45 billion.

This is the first thing that should be reformed. Why are we still wasting perhaps €2 billion by giving everyone in this country child support. I’m a multi-millionaire, but my wife gets four checks each month to support our four children This is insane. ‘

The entrepreneur, who elevated efficiency in his business to a religion, is annoyed by the combination of high wages and strict labor laws that take the dynamic out of the economy, according to him.

“Why should an Irish doctor earn two or three times as much money as a German doctor? That would not be bad if productivity is proportionally higher. But you cannot be treated between 5 pm and 7 am.”

Shut tight

Tol regrets that important sectors of the economy such as legal services, energy and transport in practice are as closed as before the crisis. Furthermore, the 42-year-old professor knows from personal experience how high wages in Ireland are still.

“My net wages dropped by 30% between 2010 to 2012. When I started working in Brighton my salary was matched. I am now the highest paid professor in Brighton.”

That Dublin fails to get itself together, even if a crisis manifests itself as the ‘excuse, O’Leary as well as Tol explain by a chronic lack of expertise and leadership in Irish politics. The electoral system promotes that the government and parliament consist of populists.

Who please their electorate, shrink from painful measures and generally lack the knowledge and experience necessary to steer the country by a crisis. Tol: “The Dáil is full of people who can talk very well. Many have been lawyers or teachers. Expert backbenchers are not there.

No strong opposition

The professor points out that there is no separation of powers. Ministers retain their seats in the Dáil, and are the spokesmen of their own party. Moreover, there is no strong opposition, because the two major parties, Fianna Fáil and Fine Gael, are like two drops of water. What separates them historically is not idealogy, but their position during the Irish Civil War.

The troika also do not mind anymore. “The problem of the Troika,” O’Leary says, “that when the worst of the crisis had passed and the idea was established that the country was saved, focus on reforms disappeared.” According Tol especially the IMF was full good intentions, but the ECB has taken over the control. “They just want their money returned.”

Economic history

Call for papers: Economic and Social History Society of Ireland conference 2013

The annual Conference of the Economic and Social History Society of Ireland 2013 will take place in NUI Galway, on Friday 22nd and Saturday 23rd November. Cormac Ó Gráda will give the Connell Memorial Lecture. The deadline for paper proposals is 31st July.

Details of the call for papers downloadable from


Guest Post from Marios Zachariadis: Fairness and Sustainability for Cyprus

Marios Zachariadis is an economist at the University of Cyprus.  Here is his guest post:

Fairness and Sustainability for Cyprus

The Cypriot economy is being shocked via numerous channels. First, the loss of working capital by Cypriot businesses: 40%-90% of their deposits over 100,000 euro held at the two main banks. The second is a liquidity shock due to the remaining deposits in these banks being frozen for months. Overall, 90%-100% of deposits above 100,000 have either been confiscated or frozen in the two banks. The third channel relates to a significant loss of confidence in the banking system. The last two shock channels are amplified by unprecedented internal and external capital controls forced upon Cyprus. The fourth channel relates to the loss of a good part of a major sector i.e. banking, finance and related services. The fifth relates to the adverse wealth effect on a number of households and professionals who saw most of their wealth in the form of savings disappear overnight. One last adverse shock has also been in place for a while as Cyprus implemented austerity measures several months before the recent agreement for a Memorandum of Understanding (MoU) with the Troika. Moreover, the current rescue plan’s obvious non-sustainability makes it rational for households and firms to expect more austerity, which affects current consumption and investment plans.

The overall likely outcome is a double-digit dip in GDP growth for 2013 with positive growth rates out of reach for several years thereafter. This might explain why the IMF refrained from publishing forecasts for Cyprus in its most recent World Economic outlook as these would either contradict optimistic Troika forecasts in Cyprus MoU or look bad down the road.

What can be done to remedy the situation? It goes without saying that Cyprus needs to implement measures agreed in the MoU in a timely manner, and do more to implement growth-enhancing reforms by fixing structural problems that pre-existed before the arrival of these shocks. But this will not suffice. The burden undertaken by Cypriots is unsustainable. It has become so large due to the indecisiveness of the previous government but also because of the intrinsic unfairness of the solution imposed.

Why is the magnitude of this burden unfair and as a result unsustainable? To begin with, one simply needs to ask the question: Why were the deposits at the branches of the two Cypriot banks in Greece excluded from haircuts? These amounted to about 15 billion euro of deposits as compared to 26 billion in the same two banks in Cyprus (Dixon 2013), which suggests that about a third of the haircut, i.e. up to three billion euro, could have come from depositors of these banks in Greece. One might understand why the banking system in Greece and the Eurozone should be protected in this manner. After all, the will of the ECB and the Commission to avoid any direct contagion risk was evident in their insistence that Cyprus sold its bank branches in Greece, or the Troika would not agree to a bailout. But Cypriot depositors and taxpayers cannot afford to offer insurance that costs them a couple or more billion at such heavy discount.

One can also understand that the Central Bank of Cyprus and the Eurosystem could not just realize a loss by selling inadequate collateral of a bad Cypriot bank (LAIKI) that the ECB appears to have funded via Emergency Liquidity Assistance (ELA) for a long time after it was apparently insolvent, without impairing ECB’s ability to keep doing the same for other Eurozone banks. Xiouros (2013) argues that ELA has claims only against the collateral so what was done to avoid a loss could be illegal. On the other hand, realizing such a loss would amount to illegal monetary financing and would have exposed the ECB, undermining its ability to help troubled banks just a few months before the German elections. Thus, the need to push the envelope by adding the ELA of a bank that was shut down (LAIKI) to the balance sheet of another private bank (BoC). The ELA that was used for liquidity of LAIKI depositors in Greece should not permanently burden another private bank. It would even be preferable to have this loss placed on the government’s shoulders.

In that case, it would become obvious that Cyprus needs debt restructuring, either Private (PSI) or Official Sector Involvement (OSI), which the European Commission is also trying to avoid for political reasons e.g. PSI for Greece supposedly a unique event (Gulati and Buchheit, 2013) and OSI a forbidden word before German elections. It should, however, become clear to Europe that if there is no PSI so as to insure the euro zone from contagion, there will have to be OSI later.

In the absence of a Marshall-type plan in the form of targeted EU transfers of 2-3 billion euro and some form of retroactive application of the Banking Union or PSI/OSI for Cyprus, we are looking at a Great Depression disaster. Cyprus’ hope is that, if anything, by resolving the moral hazard issue this bail-in precedent makes Banking Union more likely. In that case, Cyprus needs and deserves some sort of retroactive implementation of the Banking Union for part of its ELA burden. These numbers should be understood in the context of a country with a GDP of less than 18 billion euro that, driven by its bankers and politicians short-sightedness, has already contributed to Greece’s rescue program a quarter of its GDP (4.5 billion) due to the European political decision for a PSI for Greece in 2011.


Dixon Hugo, April 2013, Bad Resolutions, Reuters Breaking Views

Gulati, Mitu and Lee C. Buchheit , March 20 2013, Walking back from Cyprus, VOX EU article

IMF World Economic Outlook, April 2013

Xiouros Costas April 2013, Handling of the Emergency Liquidity Assistance of Laiki Bank in the Bailout Package of Cyprus, SSRN

Environment European politics

Where in Donegal?

This document reached me by way of the European Commission. It shows that some people are working hard to convince the Commission that Bogtec is a transnational infrastructure project of European importance (and thus qualifies for subsidies). It also shows that the Spirit of Ireland refuses to die.

There is mention of a glacial valley near Kilcar, Co Donegal. A dam, 1300 meters wide and 120 meters high (in the middle), would create an upper reservoir with a surface of 4 squared kilometers; assuming that the valley is triangular, the reservoir would be 6150 meters long. The sea would be the lower reservoir. Surplus wind power would pump the water from the sea into the reservoir. Releasing the water back into the sea, power would be generated when there’s demand.

I’ve been hiking in Donegal only a few times. Is there a glacial valley near the sea, of the above dimensions, uninhabited, and not full of archaeological treasure?

UPDATE: I’ve had one vote for Glenaddragh River Valley, which is a good way from the sea.

UPDATE2: Another correspondent forwarded this map, discussed by Donegal County Council. The hydro plan was apparently rejected as it failed to meet the requirements of the SEA Directive on procedural grounds.


Government Finance Statistics

The CSO have launched a new series of government finance statistics.  Press release here with links to the releases and datasets here.


Maastricht Returns

Eurostat have published the first notification of government deficit and debt data in the EU for 2012.  The euroarea had an aggregate budget deficit of 3.7% of GDP and an aggregate gross debt of 90.6% of GDP and “Eurostat has no reservations on the data reported by Member States.”

The detailed figures on Ireland are here (all countries  here).  The Department of Finance have released an information note on the Irish figures.

The 2012 deficit is estimated to have been 7.6% of GDP with the gross debt at year end equivalent to 117.6% of GDP.  For 2013, the projections are a deficit of 7.4% of GDP and a year-end debt of 123% of GDP.

The 2012 deficit benefitted from some once-off revenue factors while, in comparison, the 2013 deficit is negatively effected by the end of the ELG, reduced income from assets sold (BOI CoCo notes) and the deficit impact of the ongoing IBRC liquidation.


Portes: The euro and its discontents

The slides of the presentation by Richard Portes at the IIIS-TCD euro crisis roundtable are here.

[Sinn and Taylor did not use slides.]


The optimal design of fiscal consolidation programmes

The ECB recently held a high-level seminar on this topic, with contributions from the various institutions involved in the Troika and some academics.  The presentation files are here.


Beware the Ides of March

The fateful Eurozone finance ministers meeting which signed off on the plan to haircut guaranteed depositors in Cyprus convened at 17.00 hours on Friday the 15th, the Ides of March, in Brussels. The meeting was attended by the seventeen finance ministers but also by Mario Draghi and Jorg Asmussen of the ECB and Christine Lagarde from the IMF with Reza Moghadam, the head of the European division at the Fund. Cypriot president Anastasiades left the meeting with, he clearly believed, the consent of those present for the since-abandoned scheme to haircut guaranteed depositors (accounts below €100,000) in all Cypriot banks, including some that were solvent.

The Cypriot parliament threw out the plan and guaranteed depositors were spared. The substitute Plan B sees very large write-downs for unguaranteed depositors in the bust banks as well as write-offs for shareholders and bondholders. But deposits in Cypriot banks were frozen and could not be used, beyond low thresholds, for withdrawals, or for external payments. Remarkably, internal payments within Cyprus were also restricted. The thresholds have since been increased but the suspension of internal convertibility for the Cypriot Euro was an astonishing event, going beyond the re-introduction of exchange controls and the inability to transfer funds abroad. The Nicosia business was effectively told ‘you may not use your money to purchase dollars, or Euro deposits outside Cyprus’ (exchange controls) but also told ‘you may not pay a bill over a specified amount owed to a business in Limassol either’ (suspension of internal convertibility).

On March 25th the ECB issued a statement which included the following (after Plan B had been cobbled together and insured depositors spared the threatened haircut):     

‘Today, the Governing Council decided not to object to the request for provision of Emergency Liquidity Assistance (ELA) by the Central Bank of Cyprus, in accordance with the prevailing rules. It will continue to monitor the situation closely.’

The Purpose of Plan B was to resolve the Cypriot banks, through creditor haircuts and other re-capitalisation measures. Banks which have been resolved are solvent – their liabilities have been reduced to the point where their (written down) assets exceed their liabilities. If they face a depositor run when they re-open, a proper central bank will provide them with liquidity without limit, since the run is unjustified. With the bank’s assets now written down to realistic values, there is no question mark over collateral quality.

 What appears to have happened in Cyprus is the following:

1. prior to the rescue deal, the ECB deemed the main Cypriot banks to be insolvent, and declined to approve ELA through the Bank of Cyprus.

2. The deal (Plan B) was done. The Cypriot authorities, fearing a run, froze deposits, creating internal as well as external, inconvertibility.

3. The ECB must have interpreted the ‘prevailing rules’ referred to in its March 25th statement as forbidding ELA for the (supposedly now solvent) Cypriot banks.

If this interpretation is correct, the Eurozone now has a de facto bank resolution scheme with the following feature: the day the resolved bank re-opens, with creditor haircuts to whatever degree is needed to make the bank solvent, the lender of last resort will go missing. Deposits will be frozen (up to some limit) and the domestic economy can get by on cash, trade credit and barter. At a recent press conference, Mario Draghi was asked about the ECB’s role in the Cyprus debacle and responded thus:

‘Cyprus is not a template; Cyprus is not a turning point in euro area policy. We have said many times that our resolution – and I said the very same thing when I was Chairman of the Financial Stability Board – is to resolve banks without using taxpayers’ money and without disrupting the payment system. That is why we have to have a resolution framework in place. So, it is not a turning point. That is exactly the resolution framework that all other countries have and the euro area will have.’

Sorry Mario – you did disrupt the payment system, you closed it down. Does the ECB president intend that ‘…the resolution framework that all other countries have and the euro area will have’ will include the refusal by the lender of last resort to stop deposit runs on solvent banks? On further questioning, he elaborated: ‘On Cyprus – I expect many more questions on Cyprus, so that I will only respond to your question narrowly, the fine question as to what the position of the ECB was. The ECB had presented a proposal that did not foresee any bail-in of insured depositors. And let me also tell you that this was exactly the same for all the other proposals – the proposals by the Commission and the IMF had exactly the same feature. Then there were prolonged negotiations with the Cypriot authorities, represented at that meeting, the outcome of which was what you know, namely a levy also on insured depositors. That was not smart, to say the least, and it was quickly corrected in a Eurogroup teleconference on the next day. But that is what is past.’

Everyone is entitled to their own version of history. Here’s mine: it was the Cypriot parliament on the following Tuesday evening, and not some teleconference on the Sunday, which scuppered the Anastasiades plan to haircut insured depositors. The ECB, the European Commission and the IMF allowed the Cypriots to leave a meeting at 3 am on Saturday morning with a plan to haircut insured deposits and to freeze accounts in banks supposedly resolved.

It would be nice to hear the IMF’s version of what they think happened at the meeting on the Ides of March.

Environment European politics Regulation

Swords v DCENR

The case of Pat Swords versus the Department of Energy etc continues. See here and here for its history. The media is strangely quiet. At stake is an injunction to halt the National Renewable Energy Action Plan (NREAP), but this case has ramifications for all relations between the rulers and the ruled, and for Ireland’ sovereignty.

There have been two sessions of the High Court, one on April 12 and one of April 16.

State argued that the case should be thrown out because the Aarhus Convention does not apply as it had not been ratified at the time the NREAP was accepted by the European Commission in 2010. This argument was rejected. Even though Ireland did not ratify the Aarhus Convention until 2012, the European Union had ratified it in 2005. Therefore, Ireland must comply with Aarhus.

Read that again: Ireland is subject to an international treaty it did not ratify.

The session is adjourned till June. State now has to engage substantively with the ruling of the Aarhus Compliance Committee, which has that Ireland failed to properly inform its citizens about NREAP and its impact and did not allow them sufficient time to engage with policy making.


Gavyn Davies: How can the ECB fight fragmentation of the eurozone?

Interesting proposals here.


Reinhart & Rogoff: The Rejoinder

There has been plenty of commentary over the past day or so on  insights into the statistical work undertaken by Reinhart and Rogoff in their paper on growth and debt published in the Papers and Proceedings of the 2010 AEA Annual Meeting. 

Their conclusions on public debt are represented in this chart (below the fold) from the paper, with the subsequent emphasis put on the (slightly) negative average growth rate for countries with a Debt/GDP over 90%.


Reminder – Euro Crisis Roundtable, 4pm, Thursday

Euro Crisis Roundtable

Chair: Kevin O’Rourke, Chichele Professor of Economic History, University of Oxford

Speakers: Richard Portes, Hans-Werner Sinn, Alan Taylor

Date: Thursday, 18th April
Time: 4pm
Venue: The J M Synge Theatre, Room 2039, Ground Floor Arts Building, Trinity College Dublin

This is a jointly organised lecture by the IIIS and the Trinity Long Room Hub. This lecture series is an associated event of the Irish Presidency of the Council of the EU. The series will run from January to June. Admission is free and all are welcome.

A discussion of the future of the euro area with leading experts.  Hans-Werner Sinn is President of the CES-ifo Institute and one of Germany’s most prominent economists. Richard Portes is Professor at London Business School and President of the Centre for Economic Policy Research.  Alan Taylor is Professor of Economics at the University of Virginia and an expert in financial economics and economic history.


Economic Policy Panel

The Economic Policy Panel will be held in Dublin later this week – the papers are here.


Rethinking Macro Policy II: Getting Granular

The IMF has released a new paper here, in tandem with its major macro conference today and tomorrow.


Lies, damn lies, and statistics

Rarely have statistics been misused so much for political purposes as when recently the ECB published the results of a survey of household wealth in the Eurozone countries.

Thus begins a new column by Paul De Grauwe and Yuemei Ji, which points out, inter alia, that the median household wealth statistics currently being used by some German economists and commentators to justify future wealth grabs in the Eurozone periphery are in fact telling us something important about German inequality.

But it gets worse. Tim Worstall (H/T Eurointelligence) quotes the ECB report as follows:

This section shows how households save for retirement using voluntary private pension
plans and/or whole life insurance contracts. Public pensions and occupational pension plans
are not considered in this report, as the value of some public pensions and occupational pension
plans can be difficult for households to evaluate. Cross-country comparisons are challenging in the sense that institutional arrangements across countries with respect to the different modes of retirement savings, such as voluntary private versus public or occupational, can be quite substantial. A deeper analysis of these differences falls outside the scope of this report.

As Worstall says, this means that many households’ major asset is being excluded, essentially on the grounds that including them would be really rather difficult.

Time for the report to be consigned to the dustbin, surely, and for those people currently abusing it to spend even five minutes or so reflecting on what the likely political impact would be if their proposals were implemented.


Mario Draghi: The role of monetary policy in addressing the crisis in the euro area

This speech by Mario Draghi is generating some interest in comments.   It usefully puts the ECB’s approach to monetary policy during the crisis in a comparative perspective. 

Some complementary reading: Paul Krugman on euro area macro policy; Simon Wren-Lewis and Antonio Fatas on the dual mandate; Janet Yellen on communication/expectations management at the Fed; and Gavyn Davies on inflation targeting.   On the subject of inflation targeting, this new Vox ebook contains a number of interesting perspectives, including chapters by Stefan Gerlach and Karl Whelan (pdf here). 


Conference on “Understanding the Changing Worlds of Capitalism”, May 1st

Understanding the Changing Worlds of Capitalism:
New Perspectives on the Political Economy of Work, Production and Employment Regimes

A Research Conference
NIRSA/ Sociology
May 1st 2013, Renehan Hall, NUI Maynooth

Sponsored by the European Research Council and the Irish Research Council

The various forms of capitalism are in crisis, as are many of the theories that have dominated understandings of capitalism in recent decades.  This conference draws together leading international scholars to examine changing European capitalisms, with a particular focus on how the organisation of work, employment and production regimes is changing. We explore how theories must shift to account for changing capitalisms.

Speakers include Dorothee Bohle, Rossella Ciccia, Bernhard Ebbinghaus, Eoin Flaherty, Béla Greskovits, Peer Hull Kristensen, Frances McGinnity, Lars Mjoset, Mary Murphy, Seán Ó Riain, Luis Ortiz, Karen Shire, Markus Tünte.

Full programme and information here.

The conference explores a variety of theories of political economy (e.g. Polanyian, institutionalist, pragmatist); different forms of capitalism in Europe (liberal, Christian democratic, social democratic, post-socialist, Mediterranean); and various institutions shaping work (e.g. welfare regimes, industrial relations, family, transnational work and technological change).

Registration is free but places are limited.

Please register here.

Enquiries to

Click here for information on how to get to NUI Maynooth Campus by road or rail

Economic Performance

Institutional Sector Accounts: Non-Financial

The CSO have published the Q4 2012 and 2012 (preliminary) non-financial ISAs.  The preliminary annual data are not included in the release (they can be roughly derived from the online quarterly dataset) but the commentary indicates that there were annual rises in the household sector for all of income, consumption and savings.

Gross disposable income displayed an annual rise 2.5% to €86.3 billion, with increases in wages (+1.0% to €68.8 billion) and, in particular, self-employed profits (+11.1% to €19.5 billion) accounting for the rise.  Household expenditure rose 0.5% to €77.9 billion and the household gross savings ratio increased from 10.7% in 2011 to 12.5% in 2012 with gross savings of €11.1 billion.

The measure of the government sector in the accounts recorded a net borrowing requirement of €12.2 billion in 2012.  Gross savings increased in the NFC sector, rising from €14.7 billion in 2011 to €16.4 billion in 2012.


Keynes at UCD

This week marks the eightieth anniversary of Keynes’s inaugural Finlay lecture at UCD.

Charles Lysaght has a background piece about it in today’s Irish Times.