The Shifting Macroeconomic Policy Debate in Europe

Mario Draghi is sure to be quizzed about this Jackson Hole speech at tomorrow’s ECB press conference.

I outline the shifting macro policy debate in Europe (and the implications for the Irish budget) in this Irish Times op-ed.

Also, David McWilliams writes about this optimistic prognosis for the Irish economy here.

Comments

comments

56 thoughts on “The Shifting Macroeconomic Policy Debate in Europe”

  1. “the new Renzi government can point to considerable progress in reforming its political system and labour market institutions, and argue that a programme of front-loaded tax cuts (with detailed expenditure cuts to follow later) is necessary to jump-start its economy.”

    Could somebody show me what labour market reforms, structural political reform beyond senate cosmetics promised, have happened in Italy, at all?

    The endless mantra of lets stoke demand now with ever more debt and somehow things will work out later, didn’t that lead, repeated so often, in Italy and France to the excessive debts now?

  2. Another question:

    What economics text books are mostly used in Ireland?

    What can I expect from somebody having an M.Sc. ?

  3. Interest rates will rise if EZ employment is sorted out. Banks and the “transmission mechanism” are still a problem. It’ll take serious hurling by the ECB to get things going. A start would be a change in how the market sees the EZ ‘s problem solving capacity- nothing would be better than a fall in the Euro to a more realistic level.

  4. @ francis

    Deutsche Bank economists support your arguments on investment in a recent briefing.

    Is Germany facing an investment gap? Likely only in the public sector!

    — Germany has an investment gap of up to 3% of GDP that needs to be plugged as quickly as possible in order to increase the country’s competitiveness and growth potential as well as give Europe an important growth boost – so goes a very common assertion. In our opinion, this assertion is untenable.

    — We believe that using historical investment ratios or international comparisons as benchmarks makes little economic sense here on account of country-specific factors and over-investment elsewhere.

    — The effects of investment-driven, higher German growth on Europe, and on the peripheral countries of the eurozone in particular, are minor. Moreover, with Germany’s competitiveness probably increasing as a result, the medium-term adjustment pressures there would intensify further.

    — While we do not see any significant investment gap in the private sector at present in view of the given economic policy environment, pent-up demand does exist in the public sector.

    — We estimate that the extra investment needed to at least maintain or slightly expand the current infrastructure will run to EUR 4-7 bn per year. This is noticeably less than other analyses claim, but considerably higher than provided for by the government in its financial planning to date.

    — Considering the introduction of the debt brake also at the Länder (federal state) level, however, it is imperative to clarify the funding issue. We believe debt financing would not beneficial.

    Germany does not invest enough – so goes a very common assertion. Germany’s investment ratio trended downward for a relatively long time and is low by international standards. This has allegedly caused an investment gap of up to 3% of gross domestic product (GDP), so there have been calls for it to be plugged as quickly as possible and thus increase Germany’s competitiveness and growth potential. It is claimed that this would also give the European economy a boost.

    Certainly, there is room for improvement. In our estimation, however, the above assertion is untenable. True, total gross fixed capital formation is lower in relation to GDP in Germany than in comparable developed economies, which at first glance does suggest an investment gap in Germany.

    Nevertheless, this does not apply to several subgroups of fixed capital formation, such as private investment in machinery and equipment, which are of key importance to economic growth. These lie at roughly the same level in relation to GDP as in the United States, and are in fact slightly higher than the average in the rest of the eurozone.

    Furthermore, when comparing investment in construction it must be noted that many countries saw a great deal of over-investment especially in the residential building segment in recent years. This was not the case in Germany. By international standards, Germany is a laggard only in the area of public investment. However, this gap would decline markedly with the inclusion of expenditure on research and development (R&D) in capital formation as part of the major revision of the national accounts in September.

    In our estimation, the argumentation that investment-driven, higher German growth would give the eurozone an important boost also goes too far. According to our calculations, the demand effects of higher investment in Germany on the other eurozone countries, and on the peripheral countries in particular, are minor.

    Higher investment would only be useful and appropriate in the public sector. We see a need not only for investment in infrastructure to at least maintain existing facilities but also, in view of the demographic challenges, especially in the area of research and development. We estimate that the required extra funds would run to €4-7 bn per year, and thus be noticeably less than other analyses claim, but considerably higher than provided for by the government.

  5. Italy embarking on tax cuts on the back of Renzi’s wading-through-mud reforms and a ‘plan’ to reduce expenditure at some other time (dated or not) is likely to be far less interesting to bond market participants than the question “Are we still assuming an ECB bid under this paper or not?”

  6. off topic, over lunch:

    Yats now wants to build a wall,

    “„Der ukrainische Ministerpräsident Arseni Jazenjuk kündigt die Absicht seines Landes an, eine Mauer zu Russland zu errichten. Damit würde eine “echte Staatsgrenze” entstehen, sagt er.“

    http://www.handelsblatt.com/politik/international/liveblog-ukraine-will-mauer-zu-russland-bauen-seite-all/10646218-all.html

    usually the Handelsblatt brings every nonsense claim from Kiev in real time,

    when they are not busy to distribute the greenie attac sven giegold fairy tales …. : – )

  7. It should be kept in mind that as some economies in the OECD’s mainly developed world are recovering, while several of the emerging economies are struggling.

    The Royal Bank of Scotland estimates that total reductions in lending to Eurozone business since 2009 has totaled €573bn, according to The Wall Street Journal.

    The Eurozone is in a possible worse predicament than Japan as France and Italy, its second and third biggest economies accounting for about 38% of the region’s GDP, are both in trouble and there isn’t a central authority to implement overdue policy changes.

    The ECB is expected to launch an asset-backed securities program on Thursday but buying sovereign bonds is expected to be left until later.

    Infrastructure programs are popular but Japan got the best infrastructure in the world, lots of debt and no solution for its economic crisis.

    On the Irish recovery, it’s real but many of the people who believed that the free lunch had been invented a decade ago are back sketching golden scenarios.

    Goodbody is recommending property investment as rising prices and rents are assured for years.

    There is a lot of fantasy material to use: manufacturing back to 1999 levels – it must be true that’s what the Irish Times reports and unit labour costs have fallen 20% – that must be true too because the European Commission says so but Patrick Honohan in 2010 termed such naive folk “superficial analysts.”

    The Irish Exporters Association (IEA) in another surreal event today named the top US tax evaders Ireland’s biggest exporters.

    Dell closed its Irish plant in 2009 and now books the output of its Polish plant in Ireland to avail of the tax advantages.

    It’s bit weird that 5 minute PMI surveys get more attention than official data.

    Jobs in industry are down 73,000 since 1999 and 3,000 in the 12 months to June 2014.

    Last night Ibec, the business lobby group, demanded tax cuts to boost demand – the folk in Baggot Street of course want pay rises for themselves but their members want to avoid pay rises and let the Government to take the lead like the good old days – any lessons learnt about the easy option of cutting taxes and the difficulty of raising them?

    Of course not: who cares about the long-run or who did?

  8. Who’s this Mac Williams chappie? Where’s he been for his holidays?

    “All economies recover at some stage, downturns don’t go on forever … …
    the economy is likely to rebound much more strongly …”

    So upturns can go on forever? Probably he means Permagrowth. Now, good luck with that one David. Even a dead cat, if it has the necessary terminal acceleration, will ‘rebound strongly’ when it impacts the pavement.

    @ MH: I suspect that income taxes (which are highly visible) will be ‘trimmed’ somewhat to placate the mid-income sector. However, those less than visible regressive consumption taxes; VAT, excise duties, property taxes, water charges, etc., will be increased. Universal benefits are reasonably safe, but all means-tested and targeted programmes face an uncertain future. Its all about perceptions – and election risks. So, lets see what political ‘magic’ strokes’ Michael Noonan has up his sleeve, and which useful idiots the government will send out to perform in advance of the main act, to ‘soften up’ the audience, you understand.

  9. How mad is it that it could be France and Italy, rather than Germany, who end up providing some fiscal stimulus to the eurozone! Especially if German exporters get a lot of the benefit — talk about free riding.

    On David McWilliams: like him I was slow to acknowledge that the recovery was for real, but the good employment numbers in 2013 convinced me that it was. So like Dan O’Brien I am a bit concerned at the recent numbers:

    http://www.independent.ie/opinion/comment/concerns-for-recovery-as-jobs-growth-slowed-to-snails-pace-in-first-half-of-year-30539658.html

  10. Will he, won’t he, can he? Draghi that is.

    http://www.ft.com/intl/cms/s/0/7620188a-2d22-11e4-911b-00144feabdc0.html#axzz3CAg4jt7Y

    The comparisons with the US, the UK and Japan in the matter of QE raises the obvious question; where is the Euro Zone equivalent to the US and UK Treasuries – and their Japanese equivalent- when it comes to issuing bonds?

    “While there is little prospect of an early fiscal expansion by Germany, a deepening of macroeconomic stagnation could see a revision in its fiscal strategy later.”

    Not if Scaheuble has anything to do with it! However with the Afd taking land seats for the first time – in Saxony – the possibility of his being overruled by Merkel recedes.

    “In one direction, if European policymakers fail to take the monetary and fiscal measures discussed above the 2011-2012 sovereign debt crisis could reignite as investors reassess the solvency of highly-indebted national governments.

    In the other direction, if the monetary-fiscal expansion takes place and successfully boosts nominal growth, investors could require significantly higher medium-term yields to buy government bonds since economic recovery would also raise the odds of a medium-term tightening of monetary policy.”

    In short, irrespective of the direction the Euro Zone takes, Irish budgetary policy has to remain ultra-cautious! The best chance of this happening seems to be reflected in Minister Noonan’s remarks on his budgetary intentions i.e. to present, in effect, a multi-annual budget with details for 2016 and beyond and the intentions of the government; if re-elected!

  11. @ Kevin O’Rourke

    Dan O’Brien’s line “jobs growth slowed to snail’s pace in first half of year” reflects statistics not the reality.

    The claimed jobs growth in 2013 of 61,000 was wrong and I wrote at the time that 30,000 (arriving at the total from IDA, Enterprise Ireland, tourism data etc ) seemed a more realistic total as there had been no growth in 2012.

    The 12 month jobs addition in June 2014 was 31,000.

    Colm McCarthy also in February/ early March expressed scepticism about the rise in farmer numbers by 27,000.

    The CSO has had a problem in incorporating the Census 2011 results in the employment data. The number of foreign migrants had been underestimated by 103,000.

    Numbers haven’t accelerated but in the real economy, instead of the ministerial mantra of the early months of 2014 “we are creating some 5,000 jobs a month” it should be revised to 2,500.

    Today’s Live Register data + activation scheme numbers show that there were 462,000 or 21.4% of the workforce in receipt of public employment welfare at end August.

    There remains a steep hill to climb; employment is down 245,000 since Q2 2008 and in Q2 2014, 130,000 people working part-time wanted full-time work.

    A net 124,000 Irish nationals emigrated in 2009-2014.

    Since March 2011 when the current coalition took power, 60,000 jobs have been added:

    24,000 are in 1-person self employment (some are not real jobs); 15,000 are in public schemes and 21,000 are as employees (both full-time and part-time).

    The Government’s July 2014 target for FDI jobs is a net 7,000 per year, with retail, distribution, tourism and construction providing the most of the rest.

    There is no sector today that could be realistically be called a jobs engine.

    Ireland: Recovery on track but fantasy economics endure

  12. @Kevin O’Rourke

    “How mad is it that it could be France and Italy, rather than Germany, who end up providing some fiscal stimulus to the eurozone!..”

    Its called freeloading.
    Freeloading on FED QE, freeloading on BOE QE, and now hoping to freeload on fiscal stimulus by otherwise feckless countries.
    Way to go, if you can get away with it!

    re: Growth:
    Anecdotal evidence of a slight slowdown in August, from a definite Q1, Q2, July, uplift. As much of the growth boost this year is investment led, particularly in relation to commercial buildings in Dublin, being bought cheap and refurbished to be occupied by export driven companies, such an investment splurge is likely to drop off. In that case we will be soon back to the consumer to feed growth, and unless there are wage increases consumers will not have increased funds to spend.
    Unless of course they are BTL landlords, collecting increased rents, are not bothering to pay back loans!

  13. @Joseph

    The additional 1300 or so per quarter buy to let mortgages being allowed to go over 2 years in arrears with only 90 or so corresponding repossessions, sends a clear message to this sector that a fiscal stimulus is available to go with the monetary stimulus of super-cheap tracker financing and booming rental income.

    No such generosity for the working poor, renters in general, or social welfare recipients though apparently…

  14. Gents, if you’ll indulge me. I’m no economist, a mere engineer.

    I would like to ask, what’s the purpose of QE?

    It seems to be passed off as a way to ‘increase lending’ or ‘reduce unemployment’.

    I have a friend who runs a small cafe with 10 staff. She says there’s a 100 factors that go in to deciding whether to expand/employee more at her current location or indeed open another location. Rent, number of customers now, potential for more in the future, quality of candidates, equipment cost and rates came way ahead of the cost/availability of finance.

    Better than that little anecdote, aren’t all huge multinationals sitting on piles of cash? They don’t even need credit and their not rapidly hiring.

    So I think it’s obvious that the cost and availability of credit is only one in many factors that determine whether a business expands. In other words, the cost and availability of credit is not directly proportional to employment levels.

    There is something that is directly proportional to the cost and availability of credit though. Asset prices. The trouble is when one increases asset prices today with cheap credit one is really taking the future earnings/price rises from the future gains/losses. Right? It’s not a free lunch, right? The whole processes creates huge winners and losers, right? In Ireland these winners and losers are respectively as the private sector and the state, right?

    So we know assets bubbles are bad. We know QE has a direct link to them. We know if as a tenuous at best link to employment. So my question is, why is QE good?

  15. That is, considering most of the money created goes to increase asset prices and not fund employment.

  16. @francis

    Yats is ‘Fu*k the EU’ Nuland’s rabid puppet …

    The EU looks more and more like Uncle Sam’s ‘bitch’ (h/t The Saker)

    @Mario Draghi

    40 Billion! You gotta be kiddin – U gave a Trillion to the Banks …

    @Philip Lane

    On quick IMF payback – I dissent. Ireland should play hard-ball – its Citizenry being screwed by ECB & Ordoliberalism.

    @all
    Who is this David McWilliams?

    @Kevin O’Rourke

    Germany’s ‘free ridin’ is screwing up the entire EU Project …

    @Michael Hennigan

    ‘Today’s Live Register data + activation scheme numbers show that there were 462,000 or 21.4% of the workforce in receipt of public employment welfare at end August.’

    Bit a Bandon realism is always welcome – if the numbers are not.

    The Minister for Jobs is simply a puppet of the TNC sector – as is the brudder.

    @FG/Lab/FFpd

    EU-nucks

  17. @The Engineer

    The argument viz the economy reduces to suppressing interest rates in an effort to make enterprises which make even slender returns seem worthwhile from a financial point of view. If you think those enterprises are in a cyclical downturn this makes sense. To the extent you think many of those enterprises represent failed, misallocation of resources, it damages the economy in the longer term and is an unwise delaying tactic.

    Unfortunately, what most people are really interested in is whether they are positioned to gain from QE or not. Owners of assets generally are positioned to benefit from it, and the relevance of that should not be underestimated.

    @All

    Pre-match build-up under way:

    http://ftalphaville.ft.com/2014/09/03/1954871/a-european-savings-glut-or-just-mis-priced-risk/

  18. @DOCm
    re: Spiegel article

    Extraordinary telephone call.
    Of course Merkel or Schaeuble would never have called Trichet to mark his card!!.
    Worth giving that piece a bit of air.

    “The result was a rather astounding telephone conversation last week between Merkel and Draghi. Normally, Merkel and her finance minister are at pains to avoid doing anything which might give the impression of political meddling with the ECB. But Merkel wanted to know what Draghi had meant with his Jackson Hole comments. Did it mark the ECB’s renunciation of austerity? Were that the case, Merkel would be all alone.

    After SPIEGEL made the phone call public on Sunday, a German government spokesman insisted that Merkel had not called Draghi, but that Draghi had phoned Merkel. He also said that “the assertion that the chancellor took President Draghi to task does not correlate to the facts in any way.”

    But according to SPIEGEL’s sources, Draghi sought to placate the chancellor, noting that the very next section of his speech had been devoted to the necessity of structural reforms in struggling euro-zone member states. He insisted that his comments did not represent a change of course. After his conversation with Merkel, Draghi called Finance Minister Schäuble in an attempt to placate him as well.”

    The independence of the ECB, from the influence of the great powers, is an illusion. The reality is that the ECB has been doing Germany’s bidding since its inception.

  19. On second thoughts, maybe Merkel and Schaeuble should have insisted that Draghi prostrate himself in front of a full session of the Bundestag, to atone for his mis-speaking.

  20. the Spiegel (International) piece is a classical desinformation piece.

    There was a call, but both sides descibe the content as completely different to the Spiegel lie.

    The Spiegel (International) does that on a routine basis. Claiming that Merkel is already sorting out her suceesor, that Eastern Germans die 2 years earlier than before Agenda 2010, and so on.

    Nothing new.

    Now where were we, after, as Schäuble said, the legal monetary tools of the ECB are exhausted, and the fiscal tools would be needed to finally do something.

    I asked earlier, what actually happened in Italy, with 10 years rule of the entrepreneur and economincs Expert Berlusconi, and valued academic economist Monti and Fornero (remember the tears ? I was nearly weeping with her) applied all their expert knowledge

    One thing I found:

    Elsa Fornero: “Italy’s Reforms Are Bearing Fruit”

    http://online.wsj.com/news/articles/SB10001424127887324063304578525231668975390
    And the one comment says, it is just a placebo, adding just another bureaucracy label to make absolutely sure, that nothing gets done

    No wonder, that the rich and companies are leaving the country.
    Fiat / Chrysler is incorporating neither in crazy US nor crazy IT, but im Netherlands, maybe on a houseboat, which could be moved to Ireland?

    “Russians cool on luxury London homes as Italians move in”
    http://www.ft.com/intl/cms/s/0/e8979174-2df7-11e4-b330-00144feabdc0.html?siteedition=intl#axzz3CEXBwoI1

    And France didn’t even bother to claim some “structural reform” happening

  21. Apparently the magic power of the words “structural reforms” is so great that even the powerful and fearsome Chancellor can be mollified by their invocation.

  22. Ernie,

    our “structural reform” god is bigger and badder than your “Keynes” : – )

    @ “That’s legal?!”

    Your said it all by yourself, you are no project manager, no distinguished ivy economist, but just a mere engineer.

    These common perception by mere lowly mortals and factory floor dwellers, that one has to balance ones budget. Outdated, a fallacy, a German conspiration.

    There are distinguished English economist experts, who know better. They all belong to Keynes’s Church and speak directly to him, but only in Churches in Oxbridge.

    They can easily convince you that balancing is bad, spending is good, black is white, and that red lines, drawn by lowly nitpickers, mumbling things like law and treaties, can not be only overstepped with ease and without repercussions (like being cut off Target 2), but they can also paint red lines in blue and transparent.

    Now you better stick to your guns and do as told, as it behooves an engineer “expert” : – )

  23. Nice article by Martin Wolf if anyones interested. I particular like his thoughts on how ‘The City’ operates:

    ‘The business model of contemporary banking has been this: employ as much implicitly or explicitly guaranteed debt as possible; employ as little equity as one can; promise a high return on equity; link bonuses to the achievement of this return target in the short term; ensure that as few as possible of those rewards are clawed back in the event of catastrophe; and become rich. This was a wonderful model for banks. For everybody else, it was a disaster.’

    http://www.ft.com/intl/cms/s/0/152ccd58-3294-11e4-93c6-00144feabdc0.html#axzz3CItyta6D

  24. @ francis

    Thanks for the link. Hilarious video. Sadly I’ve had my fair share of those kind of meetings.

  25. @ that’s legal ?

    Nice article from Wolf. It’s all a house of cards really. Banks have to fund government, so banks are stuffed with government debt. If the sovereign yields go up, the bank balance sheets go wallop. Companies are hollowed out, as equity is extracted in exchange for debt in merger deals. Property in metropolitan centres is the ultimate scarce good.

    This is a good read on the economic centrality of banking/government relationships and what it means to have power. Ripping off the commons is a very old game.

    http://press.princeton.edu/titles/10177.html#reviews

  26. Sorry for getting for a moment further on this tangent with world bank “rankings”,

    The World bank “rankings” are often implicit Anglo-American racist, and most the times noise

    1. Just scurrying over the data last night:

    a) rank Quality of electrical Supply Germany 33 vs US 24 ROFL
    When I was in the US, power went down every summer for 2 or 3 times for 2 hours after lightning / tornados, in upstate NY

    b) Hiring and Firing Germany only 109 vs US, we really have to work on becoming more neoliberal : – )

    c ) Business impact of Malaria 32 ? just 3 cases from travel
    Malaria cases (in 100 000) N/A how does that lead to rank 32 ??

    d) Tertiary Edcuation enrollment USA 3, Switzerland 47, Germany 49

    I remember

    2. having a discussion about why Germany is not so far up in this HDI ranking,

    it turned out that one part of this is education, and their data were from 1991, and they didn’t count the apprenticeships at ll, and that meant that “with just 9 years school” for about 70% of our population, that looked bad in their picture. We beg to differ.

    Specific example, an Irish nurse has a K-12 school, and then 4 years “study”, right? This counts for 16 years of education. A German nurse has 9 or 10 years school, counts for 9 or 10. Then she goes through 1 year prep and 3 years apprenticeship, but that doesn’t count for some Anglos at the World bank, because it is “on the job training”. Her education is more practical and she actually earns a little more, and we believe we get better nurses this way.

    3. “World Bank urged to stop ranking countries on ease of doing business”
    http://www.reuters.com/article/2013/06/24/us-worldbank-rankings-idUSBRE95N0I320130624

    4. Nonsense indicators

    e.g. http://fatasmihov.blogspot.de/2012/03/great-wall-and-chinese-reforms.html

    And then I went their, and in deed, if you do this correlation, it explains about half of the GDP, but if you do a multiple regression against all 6, you get negative values for ControlofCorruption, VoiceandAccountability, RuleofLaw

    In simpole, real world words: The Chinese Model is GOOOOOD :

    You have the stable rule of one party, and that means you can do lots of corruption, because whoever says something about it, gets banged on his head by law :- )

    And then you look at detailed values, and Political Stability much worse for UK vs Seychelles,

    Restricting to non-neagtive values and cutting this further and you get a better and the most significant fit for just only against the “Government Effectiveness”,

    Then you look up, how that might be defined, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682130 “capturing perceptions”

    and just start laughing, arbitrary. If a country has little GDP, then it can of course not provided “excellent services”, self referencing, every 4th grader understands that intuitively

    In other words:

    “If you torture the data long enough, they will confess”

  27. breaking it up into 2 parts:

    Sorry for getting for a moment further on this tangent with world bank “rankings”,

    The World bank “rankings” are often implicit Anglo-American racist, and most the times noise

    1. Just scurrying over the data last night:

    a) rank Quality of electrical Supply Germany 33 vs US 24 ROFL
    When I was in the US, power went down every summer for 2 or 3 times for 2 hours after lightning / tornados, in upstate NY

    b) Hiring and Firing Germany only 109 vs US, we really have to work on becoming more neoliberal : – )

    c ) Business impact of Malaria 32 ? just 3 cases from travel
    Malaria cases (in 100 000) N/A how does that lead to rank 32 ??

    d) Tertiary Edcuation enrollment USA 3, Switzerland 47, Germany 49

    I remember

    2. having a discussion about why Germany is not so far up in this HDI ranking,

    it turned out that one part of this is education, and their data were from 1991, and they didn’t count the apprenticeships at ll, and that meant that “with just 9 years school” for about 70% of our population, that looked bad in their picture. We beg to differ.

    Specific example, an Irish nurse has a K-12 school, and then 4 years “study”, right? This counts for 16 years of education. A German nurse has 9 or 10 years school, counts for 9 or 10. Then she goes through 1 year prep and 3 years apprenticeship, but that doesn’t count for some Anglos at the World bank, because it is “on the job training”. Her education is more practical and she actually earns a little more, and we believe we get better nurses this way.

    3. “World Bank urged to stop ranking countries on ease of doing business”
    http://www.reuters.com/article/2013/06/24/us-worldbank-rankings-idUSBRE95N0I320130624

  28. This is my general experience with stuff from the World Bank:

    4. Nonsense indicators

    e.g. http://fatasmihov.blogspot.de/2012/03/great-wall-and-chinese-reforms.html

    And then I went their, and in deed, if you do this correlation, it explains about half of the GDP (variation), but if you do a multiple regression against all 6, you get negative values for ControlofCorruption, VoiceandAccountability, RuleofLaw

    In simpole, real world words: The Chinese Model is GOOOOOD :

    You have the stable rule of one party, and that means you can do lots of corruption, because whoever says something about it, gets banged on his head by law :- )

    And then you look at detailed values, and Political Stability much worse for UK vs Seychelles,

    Restricting to non-neagtive values and cutting this further and you get a better and the most significant fit for just only against the “Government Effectiveness”,

    Then you look up, how that might be defined, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682130 “capturing perceptions”

    and just start laughing, arbitrary. If a country has little GDP, then it can of course not provided “excellent services”, self referencing, every 4th grader understands that intuitively

    In other words:

    “If you torture the data long enough, they will confess”

  29. David McWilliams is writing for the Indo’s mass audience and telling people what they want to hear. A confidence fairy story. Credit is, however, constrained, irrespective of interest rates, and Irish banks are still deleveraging. While employment may be increasing, wages are not, and Michael H has consistently exposed the reality of the new jobs.

    At a very simple level, the Irish state is not hiring. The era of new ‘safe’ jobs is over, so how do Joe and Jane Public feel secure these days. The tax take going up might be good news for Michael Noonan, but it is not likely to cheer up the taxpayer. Disposable income heading south.

    DMcW appears to disregard the disastrous US model, where credit was extracted from home equity. That might make sense in some nice Dublin suburbs, but it won’t wash beyond Newlands Cross. Unless some really mad stuff happens, like the governing parties using their control of AIB to disregard the NPLs and open the property credit tap as part of a pre-election Recovery Fiesta. Then we end up with another bust and another set of NPLs.

    Couldn’t happen here of course …Central bank wouldn’t have it…this is developed Europe……… 🙂

  30. The UK added more net jobs in the past 4 years than all the rest of the EU combined.

    The CBI says in an report today: “Total fixed investment as a share of nominal GDP has been among the lowest in the G7 since the 1970s, at just 14% over 2010-13 (against an average of close to 20% across the G7). While partly accounted for by private sector investment, this also reflects a long history of low residential and government investment relative to other advanced countries.”

    One or more metrics can be used to make an argument and whatever about competitiveness indicators, what matters overtime is how business and policy makers react to change.

    The UK has a flexible labour market with less security and lower pay. Other economies may just have the flexibility for young workers.

    Italy has been particularly hit by competition from China; France could have reacted better to competition in the global wine market and so on.

    @ paul quigley

    Michael Noonan in a radio interview yesterday tried to position Ireland as being closer to Stockholm than Paris – which is a joke.

    “The success now is not an accident of nature or an act of God, it’s a direct consequence of the policies that were pursued and they were the right policies,” Noonan told Today with Sean O’Rourke on RTE Radio 1 according to the Sindo.

    “If you look across Europe, the Baltic states, Germany, Denmark, Sweden all followed these kind of policies and they’re growing well now at this stage. If you look at the countries that didn’t follow, like Italy and France, who went down the road of tax and spend, they’re floundering and they’re still in difficulty.”

    Brian Lenihan took most of the key measures and the 2010 promise in the bailout memorandum to reform legal services remains pending – brave Paddy standing up to vested interests!

  31. Interesting article:

    ‘Fiscal Pessimism’

    Frances Coppola

    “The economic beliefs that underlie financial pessimism have become deeply entrenched. However, it is encouraging to hear a world-renowned economist advocating fiscal expansion to restore growth. And he was not the only Nobel laureate at Lindau promoting a greater role for fiscal policy in the quest for recovery: others included Peter Diamond and Eric Maskin. Let’s hope this new recognition of the vital importance of fiscal policy and the damaging effects of arbitrary fiscal constraints feeds through into real changes in economic policy-making.”

    http://www.pieria.co.uk/articles/fiscal_pessimism

  32. @ MH

    “One or more metrics can be used to make an argument and whatever about competitiveness indicators, what matters over time is how business and policy makers react to change.”

    Few would disagree with you there! Ignoring, or disparaging the authors of, those metrics that do not suit is also a well-tried technique.

    The possibility that both parties in this policy dispute might be wrong surely needs to be considered e.g. now is not the moment for Schaeuble to be seeking a balanced budget in Germany and France and Italy need to talk less and do more in the matter of structural reform.

    For me, it was heartening to hear an Irish minister for finance mention Scandinavia as a model to be followed. If he introduces fixed budgetary ceilings i.e. work from the top down in terms of available finance rather than the bottom up in terms of un-affordable demands, I will stand up and cheer.

    As to QE, the possibility of it being announced by Draghi seems to me to be very slim. All the bits and pieces of the grand monetary/fiscal grand bargain that he is proposing seem not yet to be in place.

  33. Significant rate move by ECB – not the small amount, but because it contradicts Draghi’s comments at the last reduction which clearly indicated further rate reductions were unlikely.

    Euro sinking like a stone.

    Regarding QE, there are leaks suggesting the already flagged ABS purchases target will be larger than prior consensus.

  34. It seems decision was not unanimous. Presumably Dr Pat voted against it on the grounds that the Celtic Phoenix does not need further stimulus.

    Good to see a more rational ECB albeit about 7 years too late. I presume Crazy Jens was locked in the Gents while the vote was taking place.

  35. @ All

    FYI the case against QE – defined as including bond purchases in the secondary markets – by the chief economist of Allianz (and a pretty convincing case it is!).

    http://www.ft.com/intl/cms/s/0/686aecc4-3353-11e4-85f1-00144feabdc0.html#axzz3CAg4jt7Y

    However, the conclusion implicitly includes the unanswered question; why is increased public investment necessary for other countries of the EA – if necessary by way of increased borrowing for those countries best placed to so – but not Germany?

    “Monetary policy alone cannot and will not return the eurozone to sustainable growth, as Mario Draghi, the ECB president, pointed out at the Jackson Hole gathering of central bankers last month. Improvements in labour markets and the investment climate, sustainable fiscal reforms and a shift of public spending towards growth-boosting investments in infrastructure and education are what Europe must focus on now.”

    http://www.bundesfinanzministerium.de/Content/EN/Pressemitteilungen/2014/2014-07-02-cabinet-adopts-2015-draft-budget.html

  36. The decision to buy ABS today by the ECB was not unanimous according to Draghi (albeit ‘a comfortable majority’) but, in answer to a question, denied that this was inconsistent with the statement that the Governing council is ‘unanimous in its commitment to using additional unconventional instruments within its mandate’. The ABS move will have little impact ( they are already buying covered bonds but with little seller interest) so it would appear that full-blown QE (i.e. purchase of govt debt) is not inevitable, unless the council was prepared to do it on a majority vote.
    Draghi also appeared to link ECB support for early repayment of IMF debt to the sale by the Central bank of bonds issued as part of Prom note deal in response to question on repayment from the Irish times.

  37. @Dan

    I took him to mean that there could be unanimous agreement in principle for the use of QE but that that could be followed by disagreement about the precise measures themselves.

    He seemed to go to some length to communicate that the ECB would regard proper QE as unlikely to be useful unless there were prior or accompanying ‘reforms’ in some economies.

    The comment about Irish monetary financing was interesting and I would again urge people to read the agreement about the minimum sales schedule and consider whether the Irish Central Bank really has to hold these in order to avoid financial instability.

    Negotiation that does not ignore that question may be required.

  38. Whomever said this:-

    ““Monetary policy alone cannot and will not return the eurozone to sustainable growth …”,

    – is either clueless about the actual physical basis of our Great Financial Crisis, or they do know, and a just being a mischievous, mendacious knave.

    How many times do I have to repeat this:- a real, physical economic process, which mandates a continuous exponential rate-of-growth, is completely unsustainable when that economic process is occurring in a closed system (our biosphere) and is consuming finite resources (carbonaceous fossil fuels) at the aforementioned exponential rate. Its impossible. Impossible. It will falter: and we are making satisfactory progress in that direction.

    What you need to do (and it will merely stop the rot, not jump-start our economies) is to promptly exterminate one of the real, exponentially compounding toxic pollutants – debt. Jubilee all debts: sovereign, corporate and personal.

    Sure there will be losers. But its mainly fiat-based virtual money you’re slaughtering, not people’s livelihoods and lives. No winners. And no! The sky will not fall in. Our economies would flat-line (achieve a max and remain on that max for about two decades). After that? Worry about it when it happens!

    But what will actually happen? The dozy illegitimates in charge will just continue, sine die, to emit more and more and more fiat credit! To what purpose exactly? To demonstrate their insanity? This could continue for the next decade.

  39. @Dan

    I thought it was odd that he went straight to it. I imagine there will be a debate within the GC about the extent to which printing has to be equal on a pro rata basis between member states. Ireland should be attempting to pocket the CBI holdings in that regard.

  40. @ DOCM

    http://ftalphaville.ft.com/2014/09/04/1956701/dear-eurozone-why-cant-we-all-just-get-along/

    “The German government has made the goal of a balanced headline budget in 2015 one of its central policy goals and priorities, which we think it will be reluctant to sacrifice absent a major shock”

    Would deflation in the EZ not count as a major shock? Christ, it’s all so reminiscent of Croke Park and the meaning of “budgetary deterioration”
    Where is Grumpy when you need him ?

  41. I have a near relative that was refused a mortgage by AIB recently, supposedly due to the employment being on a contract basis.
    Does anybody think that the reduction in in the ECB rate from .15% to .05% or that the purchase of ‘asset backed securities’, would make one iota of a difference to the AIB refusal of mortgage, a mortgage paying a 4.5% variable rate.
    Or would it make one iota of a difference to the insistence by banks on personal guarantees for all SME lending?

    Despite all the low interest rates and ABS purchases, all to the benefit of the larger players, I see the ECB is still in debt collection mode as far as Ireland is concerned. Debt collection mode for an odious debt imposed by none other than itself.

    Why LTRO, why ABS, why QE as currently practised?
    Why not a 10 year interest free loan of €1000 to every citizen in the EU at .05%. That’s about €400 billion. That would certainly give the real economy a boost.
    If the ECB is going to print, then print on behalf of real people for a change.

  42. @ DOCM

    “A “major shock” is, presumably, one experienced at a national, not an EA, level.”

    As if an EZ level outbreak of deflation would not hit Germany . Would it be the holy angels of Bratwurst that saved the Fatherland ?

  43. Since 5 years various folks are coming with some scare stories.

    To steal our gold, to steal our special drawing rights, to break treaties (no inflation, no bail out), to establish imaginary transfer unions, the investment gap scare, the panzer gap scare, the deflation scare, the lack of growth scare.
    Putin ante portas. what else ?

    How about something more scary or sophisticated?

    An Ebola Scare?

Comments are closed.