I guess Colm has better things to be doing then putting links up on blogs but for those of you who haven’t seen it, Mr. McCarthy’s column in today’s Irish Times makes for interesting reading. Colm points out that “It would be unfortunate to celebrate the centenary of 1916 with macro-policy dictated from Brussels and Washington.” I wonder whether Martyn Turner had seen this column before producing today’s cartoon.
Author: Karl Whelan
Amid all the bond (and now equity) market excitement, it’s worth noting some economic news from home that’s not so bad and some news from abroad that’s positively good. Not so bad is today’s Live Register release which shows the standardised unemployment rate steady at 13.4% (though this is subject to all the usual caveats about whether this claims based measure is accurately capturing the underlying trends in joblessness) while the retail sales figures show some sign of stabilisation.
From abroad, the non-farm payrolls figures in the US showed 290,000 jobs added in April. While the unemployment rate from the household survey increased to 9.9%, this is partly due to a reversal of the decline in labour force participation. Payroll growth at this pace, if sustained, would start to reduce the unemployment rate.
Some good news. The exchequer returns for the end of April are essentially in line with the targets set out in the budget: The Exchequer Statement is here and the analysis of tax returns is here.
I wonder, however, whether evidence of sticking with our plan is quite enough right now to convince skeptical international markets that we can stabilise our fiscal situation. The yield on ten-year Irish government bonds moved out to almost 5.6% today, with the spread over Bunds reaching a new high of 2.7 percentage points. I think the next few weeks would be a good time to start to provide more clarity about the likely composition of this year’s budget, with indications about whether a property tax is likely, about the nature of the “universal social contribution” as well as the nature of further spending cuts.
I have never really understood the idea that the Greek fiscal crisis is “a threat to the euro” but have generally sensed the tide running against me on this one as serious people warn darkly about the wider repercussions of a Greek default. Still, I find the arguments in this new CEPR Policy Insight paper from Jacques Melitz (“Eurozone Reform: A Proposal”) to be pretty convincing.
Melitz argues that much of the damage to the Euro caused by the Greek crisis has been due to the inaccurate focus by EU officials on the centrality of fiscal discipline. Some quotes:
The European problem is largely self-inflicted. There have been repeated affirmations by the ECB and government officials in Eurozone member countries that fiscal discipline and the Stability and Growth Pact are the very foundation stone of the Eurozone. This can only mean that Greek default is a big problem for the euro. On this view, the Eurozone is partly a victim of its own self representation …
So far as I can see, there is little reason why Eurozone should view government defaults with any greater alarm than any other central bank management in the world would view government defaults within its territory. To the contrary, the Eurozone is particularly well armed to deal with such defaults, since its own central bank has no large central government to contend with, the Maastricht Treaty guarantees the central bank’s independence and member governments are explicitly forbidden to bailout one another …
Accordingly, must not the official doctrine change? Should it not be that nothing so manageable as a Greek government default can upset Eurozone? In the event of a Greek government default, the system would assure the stability of the Greek financial sector, and concern itself with any bank runs or bank failures in the country, but not with the Greek government’s difficulties. In step with this doctrine, government bail-outs will never be contemplated. The Stability and Growth Pact will continue to serve as a code of good fiscal conduct for all members of the EU. But if any individual member government engages in irresponsible fiscal conduct, contrary to the Pact, its taxpayers and the creditors will bear the consequences.
Melitz argues that rather than institutionalising bailouts, there should be EU-level financial supervision of banks under the auspices of the ECB to allow for more efficient containment of the effects of fiscal default on financial stability.
Not quite Irish Economy but of interest to anyone wondering how we got here. Calculated Risk discusses the newly released 2004 transcripts of FOMC meetings. Signs of a housing bubble are already clear. CR digs out a chart presented to the FOMC showing the yield on housing relative to long term real Treasury yields and then extends the chart to show what happened after 2004. CR also shows how the housing yield chart would have looked using the usually preferred Case-Shiller index.