Categories Uncategorized Post Programme Surveillance Post author By Seamus Coffey Post date November 21, 2014 24 Comments on Post Programme Surveillance EC/ECB statement. IMF statement. Related ← Research Assistant → Mental Health and Unemployment 24 replies on “Post Programme Surveillance” “The main downside risks to the short-term outlook are linked to a weakening in economic momentum in the euro area and the sustainability of high export growth.” understatement of the quarter. Deflation in the EZ is going to be a gamechanger. Asset prices have all been boosted but there has been no meaningful institutional reform at EZ level. Still no LOLR. In Ireland debt (both private and public) , unemployment and health overruns remain elevated and if the markets lose their mojo we’ll be back to critical analysis of fundamentals other than Dublin house prices. De Grauwe’s August 2011 FT piece is well worth a reread ” Eurozone nations issue debt in a “foreign” currency, over which they have no real control. As a result, they cannot guarantee to the bondholders that they will always have the necessary liquidity to pay out the bond at maturity. States which issue their own bonds, however, can guarantee that the cash will always be available, because they can always force the central bank to create the money. And there is no limit to the amount of money a central bank can create. This situation makes bond markets in a monetary union unusually prone to forces of contagion, very much like in banking systems. If one bank experiences a solvency problem, deposit holders start doubting the solvency of their own bank, and run to convert their deposits into cash. When everybody does this at the same time the banks will not have enough cash. This banking system instability was solved by mandating the central bank to be a lender of last resort – and the neat thing about this solution is that, when deposit holders are confident that it exists, it rarely has to be used. The problem faced by the member countries of a monetary union such as the eurozone is exactly the same. Therefore, the solution is the same. Contagion between sovereign bond markets can only be stopped if there is a central bank willing to be lender of last resort. The only institution able to perform this role is the ECB” http://www.ft.com/cms/s/0/4fd2a0c8-be10-11e0-ab9f-00144feabdc0.html Over in the UK meanwhile http://www.ft.com/cms/s/0/dcf631c0-6fd5-11e4-a0c4-00144feabdc0.html “Average weekly wages rose by just £1 or 0.1 per cent in the year to April, the smallest annual growth since data were first collected in 1997. However, after they were adjusted for inflation, weekly earnings in fact decreased by 1.6 per cent compared with 2013, a slightly larger drop than in the previous two years.” And that is supposed to be a sensibly run polity. The Commission has very little say over anything the ECB does or more likely doesn’t do. I think that was one of the great failures of the FF crowd pre 2008, not to understand this. There must have been agreement not to mention the war! Kathy Sinnott attempts to open another front. https://www.irishtimes.com/opinion/why-the-irish-government-is-not-required-to-implement-water-charges-on-households-1.2009288 A check of the wording in Article 9.4 of the framework directive reveals that the supposed opt-out is available to all member states (although there can be no doubt that it was inserted on the insistence of the then FF Irish government). “4. Member States shall not be in breach of this Directive if they decide in accordance with established practices not to apply the provisions of paragraph 1, second sentence, and for that purpose the relevant provisions of paragraph 2, for a given water-use activity, where this does not compromise the purposes and the achievement of the objectives of this Directive. Member States shall report the reasons for not fully applying paragraph 1, second sentence, in the river basin management plans.” Ireland is alone in seeing a justifiable need to avail of it which does not say much for the maturity of the debate on the subject. QE, riskier than efficient. http://www.latribune.fr/actualites/economie/union-europeenne/20141118trib28d2b0115/pourquoi-les-rachats-d-obligations-d-etat-par-la-bce-sont-plus-risquees-qu-efficaces.html#xtor=AL-13 Draghi wants to quickly boost inflation. The answer to a maiden’s prayer. Worth fingering the rosary beads for. http://www.lesechos.fr/finance-marches/marches-financiers/0203956361559-politique-monetaire-draghi-change-de-boussole-1066844.php What does one make of the following piece from the ECB/EC letter. “In the current low interest rate environment, the transmission of low funding rates to the real economy is key to sustain economic growth and create jobs. Government initiatives to boost SME financing are welcome but will need to be carefully evaluated, particularly in the context of weak demand from small businesses for funding.” In the fist sentence transmission of low funding is the key to growth. In the second sentence the concern is low demand for funding. Well, Mr Parole Officers, which is it? Or is it all just waffle to fill a page? I fairness the IMF letter has a little more meat. The piece brings up in forthright terms the lack of response/ ineptitude of the government to the housing shortfall. ” Housing completions remain low despite a 42 percent rise in Dublin house prices from their trough, which is also contributing to rising rents.” I wonder if the IMF ‘use it or lose it’ recommendation will be applied to NAMA and bank/ receiver land holdings any time soon. “In particular, the introduction of use-it-or-lose-it planning permissions together with vacant site levies could usefully help counter reluctance to develop properties owing to expectations of further price appreciation.” Having seen terms of sale stipulated by NAMA I am of the opinion that the last thing NAMA wants to do is to sell off its inventory. Developable land has stipulations attached wrt use post sale that could not be accepted by any sane person including the Solicitors doing due diligence for the purchaser. One could say they are putting developable land off the market which will help buoy the value of their remaining inventory. But as people say, that is the job of local and national gov’t and is not within NAMA’s remit. In a town of 5-6 thousand the opinion of locals is that half the properties have a NAMA lien on them. Probably exaggerated but it means people are holding off purchasing due to the perceived over hang on the market. Another widely held view is that new (post 2006) houses are badly built. There is some evidence of that in wind damage to roofs and buckling floors. Some of the sewer (vacuum) systems are comical and at some time will have to be replaced by local governments. From what I see NAMA is playing a pretend and extend game that will continue until there is a change of gov’t. The single minded focus is to prop up property values so as to give the impression that the Gov’t is not on the hook for the losses they accepted when they agreed to bail out the banks in 2010. Will we ever get a normal, competent gov’t. Two of the big Irish gov weaknesses are research-based policy and reforming deadweight practices and it sounds like there’s still a lot of footdragging going on “Government initiatives to boost SME financing are welcome but will need to be carefully evaluated, particularly in the context of weak demand from small businesses for funding. Structural reforms are progressing at varying rates. Reforms to further education and training are now advancing apace, even though it will take time before the new institutional setup and programmes are entirely effective in addressing skills mismatches. The implementation of the Job Path programme should provide additional activation support to the long-term unemployed starting in the second half of 2015. Key strands of reforms in healthcare are progressing, but further advances will be necessary to reap additional efficiency gains and better control health expenditure without compromising healthcare delivery. Enactment of the Legal Services Regulation Bill will not take place as planned in 2014 and the establishment of multidisciplinary practices faces increased uncertainty.” It was easy to reform and then shaft the taxi drivers but there are far better organised lobbies who won’t budge. Ireland is obviously an outlier in more ways than one in terms of economic developments. Rents are going in the opposite direction to what this analysis demands. http://www.ft.com/intl/cms/s/0/66189a7a-6f76-11e4-b50f-00144feabdc0.html#axzz3JEKaxryV http://euobserver.com/news/126605 BRUSSELS – Details have emerged indicating that both the Dutch and German governments were preparing emergency plans for a return to their national currencies at the height of the euro crisis. A “normal, competent gov’t ” that will take on these guys?… Though Ernie Ball will be around to deny these figures http://www.independent.ie/irish-news/education/25pc-of-university-academics-earn-more-than-100k-30766334.html “Irish universities may be slipping out of the top world rankings, but our college dons are still amongst the best paid professors in the world. New statistics from the Department of Education reveal that after six years of austerity budgets, 67 academic staff in the university sector have salaries in excess of €200,000. Despite efforts by a series of education ministers to bring university pay in line with international norms, 83 staff are still on salaries of €150,000 to €200,000, while a further 943 employees earn between €100,000 and €150,000. Overall, the figures reveal that 1,093 of the 4,327 academic staff in the university sector earn more than €100,000 per annum. The CEO of the Irish Universities Association, Ned Costello, said: “Although a number of professors are paid quite highly, take home pay of the average professor has gone down by about 23pc. . . all our universities are still amongst the top 500 in the world.” An investigation compiled for the Public Accounts Committee in 2010 revealed that the average pay levels of €113,000 for professors – the highest teaching grade in Irish colleges – surpassed comparable countries such as the UK, Canada and the US. Last week, the issue surfaced again after questions about academics’ high pay were raised in a parliamentary question tabled by Fine Gael TD Brian Walsh. Higher Education Authority figures supplied to the Sunday Independent reveal that despite cuts, Irish professors continue to be highly paid by international standards. Professors at the bottom end of the pay scale earn €106,516, rising to a final figure of €136,676. Professors can also assume senior management roles within the university, up to and including the presidential post, resulting in a higher salary. In very exceptional hiring circumstances, the Universities Act does allow universities to offer higher salaries to academics. The Sunday Independent has learned that 15 such appointments have been made under this framework this year. These include five appointees to University College Dublin (UCD), three appointees to Dublin City University (DCU) and two appointees to Trinity College Dublin (TCD). Currently, the highest salary paid under this framework is €256,930. Mr Costello said these rates could be offered “to hire a star international researcher who simply will not take employment here for the rate on offer”. Figures supplied by TCD and UCD reveal that the average pay for professors is €138,350 and €134,150 respectively. The Department of Education does not have any comparative data relating to salaries paid in other EU countries. However, the average pay for professors in high-profile competitor colleges continues to lag significantly behind their Irish counterparts. These include Oxford in the UK (€106,193), Cambridge (€111,445), American colleges such as Berkeley California (€124,002) and comparable sized European universities such as Twente in the Netherlands, where professors earn an average of €96,000. Commenting on the figures, the Minister for Education Jan O’Sullivan noted that 129 of the 150 third-level staff who earn more than €150,000 are academic medical consultants. Others who earn more than €200,000 include UCC President Dr Michael Murphy, TCD Provost Patrick Prendergast (€201,492) and NUI Galway President Dr James J Brown, according to the figures.” So when this data is broken down all of the highly paid “academics are doctors or administrators. These comparisons with the US are very suspect, now that everyone in TCD is an associate Prof will they stop comparing full profs here with all grades elsewhere? It’s interesting that in a few months the coalition will be in power 4 years but standing up to the top lawyers is beyond them. The State of course is their biggest consumer – spending about half a billion euros annually on them. There are of course bigger fish to fry and helicopter drops may not be enough to spur growth in the euro area. World Economy: Secular stagnation or a new normal Survey data consistently shows that access to funding is not a pressing issue for SME’s. For example the latest ECB survey http://www.ecb.europa.eu/stats/money/surveys/sme/html/index.en.html shows that only 13% of firms across the euro area rated it as their main concern. The figure for Ireland was 18%. For most SMEs in Ireland the main issue is lack of demand for their product or service and despite the IMF’s comments about consumer spending it is still weak; real spending rose by 0.5% in the first half of 2014, according to the National Accounts, and is still 8% below the late 2007 peak. @ Dan Mr Wolf started a recent article with 3 facts : 1. The Eurozone is in a depression 2. Lack of demand has played a crucial role 3. The European Central Bank (ECB) has failed to deliver on its own price-stability target I’m not disagreeing that the euro zone’s performance is dreadful Japan’s real GDP has risen by around 9% over the past decade while their population has fallen so real GDP per head is 9.6% higher. In the euro zone real GDP has risen by 9.9% but the population has also increased so real GDP per capita has risen by 4.9% i.e. at about half the Japanese rate, yet Japan is often seen as a basket case. For a topic a little closer to home but which seems to get little attention on this blog. https://www.irishtimes.com/news/politics/oireachtas/leo-varadkar-says-brendan-ogle-wants-to-tax-middle-class-more-for-water-1.2012346 It is truly remarkable that it is only after months of controversy that a minister has the gumption to point out the obvious i.e. the burning issue is how the accounts of Ireland Inc. are structured. There appears to be something of a conspiracy of silence about finding out, other than special pleading by one group or another attempting to obfuscate this central issue. The debate on third level education is a good example. There is no getting away from the fact that it gets an indefensible level of the increasingly limited funds available for education. Having parents collecting funds at primary level to pay for the missing share that that sector should be receiving is just one egregious example. Minister Varadkar could usefully have added that he will also be in receipt of an “unfunded public sector pension” as will the vast bulk of those employed in the education sector. The exception, of course, will be those on short-term contracts or simply locked out of the profession because of the lack of any market mechanism to match the supply (teachers, from university professors down) to the demand (for education at all levels). fyi Radical left is right about Europe’s debt – Wolfgang Münchau Let us assume that you share the global consensus view on what the eurozone should do right now. Specifically, you want to see more public-sector investment and debt restructuring. Now ask yourself the following question: if you were a citizen of a eurozone country, which political party would you support for that to happen? You may be surprised to see that there is not much choice. In Germany, the only one that comes close to such an agenda is Die Linke, the former Communists. In Greece, it would be Syriza; and in Spain, it would be Podemos, which came out of nowhere and is now leading in the opinion polls. http://www.ft.com/intl/cms/s/0/48e6fa76-70bd-11e4-8113-00144feabdc0.html#axzz3K18ggKFH @Wolfgang +1 @ Dan I saw a fairly interesting graph in one of the Swiss papers after the referendum to limit immigration in February. I think it was one of the banks who showed their projections for total economic growth out to 2020- plus 8% and compared it to total projected population growth- plus 6% and most of that was driven by expected immigration at 100K a year . So stop the immigration and CH is in stagnation territory. The political opposition to immigration is very strong now. But people want their pensions to be funded and rock bottom interest rates make that difficult. Plus the 1.20 link to the Euro is slowly strangling a lot of economic activity. They expected the CHF to weaken in value but it never did. It is all very tricky. In the comments from Munchau ‘I am not endorsing Syriza or Podemos, or anybody else. My point is a simple one: If you take the consensus view among international economists outside the eurozone, on the left and the right, the only parties in the eurozone that would support that consensus are parties of the radical left. This is a metric of how far the eurozone and its neighbours on the west are divering. The troubling thing is that if you are a Keynesian, then Podemos seems a natural choice for you. You may not be a Keynesian, of course, in which case the whole argument is irrelevant for you. The irony is that Keynes was in part motivated by a desire to keep the Communists out. Now you have to vote for Communists to get a Keynesian policy.’ fyi Páirtí Cumannach na hÉireann http://www.communistpartyofireland.ie/ fyi – useful timeline – Der Spiegel Summit of Failure: How the EU Lost Russia over Ukraine One year ago, negotations over a Ukraine association agreement with the European Union collapsed. The result has been a standoff with Russia and war in the Donbass. It was an historical failure, and one that German Chancellor Angela Merkel contributed to. http://www.spiegel.de/international/europe/war-in-ukraine-a-result-of-misunderstandings-between-europe-and-russia-a-1004706.html#ref=nl-international I can’t remember who it was that said that expecting people to put up indefinitely with failed economic policies was not realistic. http://www.theguardian.com/society/2014/nov/24/funding-crisis-newcastle-impossible-cuts-social-unrest @peadar coleman Allow me to deny those figures. 🙂 The numerator of 1,093 “academics” making over €100,000 is taken from the entire third-level sector (universities, institutes of technology, teaching colleges, etc.) and includes all staff (including a lot of senior administrators) and not just academics. The denominator of 4,327 is made up only of academic staff (not other staff) at universities only (not other third-level institutions). Imagine, if you will, that the Independent decides to find out what percentage of people in Dublin have more than two legs. In order to determine this they count the legs on all the people and dogs in IRELAND. And they arrive at the number of all those who have more than two legs. Then they divide that number by the number of people in DUBLIN in order to trumpet, in a headline, that 25% of all Dubliners Have More Than Two Legs. One thing we could be sure of is that Peadar Coleman would not only believe it, he’d come rushing over to The Irish Economy to trumpet the fact. If you want to compare like with like (and have a meaningful, rather than a meaningless, statistic), then the 1,093 in all of third level (all categories of staff combined) who make more than €100,000 per annum should have as their denominator the 22,638 staff (all categories) working in third level. If we do the maths that way, we come up with 4.8% of all staff making more than €100,000 per annum. Not 25%. The questions then are: 1) Why would the Independent publish such obviously absurd statistics? I repeatedly attempted to point out the highly misleading nature of the statistics in the comments to the article but I was censored every time. One wonders what they are afraid of. 2) Why are you, Peadar, and a great many others, so happy (even giddy) to believe such arrant nonsense? Is it because it confirms a set of prejudices that you very much want to believe despite having no evidence for them? Commissions’ assessment of the draft budget plans (DFB’s) of 16 EZ countries. http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/dbp/communication_to_euro_area_member_states_2014_dbp_en.pdf Comments are closed.