Author: John McHale

The ECB Responds

After a turbulent week, RTE’s This Week programme provides a useful stocktaking with Mark Gilbert (Bloomberg), Dan O’Brien and Brian Hayes.   (You can listen here; starts min 5:19).   Part of the background is a Sunday Times front-page story on the ECB’s reaction to Michael Noonan’s Washington statements (no web link).   The paper quotes an unnamed ECB source,

“In the meantime, we may have to come to the conclusion that it doesn’t really make sense for the ECB to keep putting €100 billion into Irish banks.   What we are doing is actually illegal, but we have being doing it because we want to help Ireland.  Maybe we might come to the conclusion that we should stop,” said the ECB source.

Given the vulnerability of the funding situation facing Irish banks, this reaction from the ECB to the Minister’s comments is unhelpful in the extreme, yet quite predictable. 

Quarterly National Household Survey, 2011:Q1

The QNHS release is here.   Some analysis of the figures from the Irish Times here.  Overall, some modest good news.   I would say Ronnie O’Toole has it about right,

“This does not indicate that unemployment is on a downward path, and only reverses the surprise rise in the fourth quarter,” said National Irish Bank’s chief economist Dr Ronnie O’Toole.

“However, it does indicate that the labour market is very close to stabilising, with half of all industry categories showing year-on-year increases in employment. These increases, however, were not large enough to offset the continued loss of jobs in hospitality and construction.”

FT: Ireland revives ‘haircut’ demand

The FT reports on Minister Noonan’s IMF initiative here.   I would be interested in reactions to the Minister’s tactics.

Sony Kapoor: A plan to rescue Greece and save the Euro

The FT carries has an op-ed with an interesting proposal for resolving the eurzone crisis.  (A shorter version of the article appeared following the Roubini piece that Kevin linked to yesterday.)

The essence of the proposal is a selective Greek default, with preferential treatment given to official creditors.   Whatever the merits of such selectivity, the proposal does offer a way for Ireland (and Portugal) to differentiate itself from Greece.   This is done through the use of explicit triggers before invoking restructuring under the ESM. 

[C]ontagion to Ireland and Portugal can be avoided through the introduction of an ESM clause that allows debt restructuring only when the debt/GDP ratio and debt servicing/GDP ratios exceed 110 per cent and 6 per cent respectively, levels that neither Ireland nor Portugal are expected to breach. The markets recognise that Greece is different.

The proposed debt/GDP ratio looks too low based on current projections.   It would probably need to be in the vicinity of 130 per cent to allow for adverse shocks.    But an explicit trigger set at reasonable level would give confidence to markets that a country following its programme would not be forced to impose a restructuring as a condition of any future programme.   (However, the preference given to official creditors would make a restructuring very costly for non-official creditors in the event that the trigger was breeched.)   The threat of restructuring is now making it almost impossible for Ireland to regain market access.   The proposal offers a way of both resolving the Greek crisis and avoiding rolling contagion through policy precedent.

Wolfgang Münchau: Why debt rescues will boost the scenario of a closer union

Wolfgang Münchau concludes his two-part series on the end game for the eurozone crisis: see here.  

Update — A couple of complementary articles from the Irish Times: John McManus argues perceptively that Europe is already well on the way to a transfer union (see here); Dan O’Brien does not pull his punches in an assessment of Greece’s structural problems (see here).