Author: Karl Whelan

Proposals for a European Monetary Fund

There are lots of stories in today’s press about the German-backed proposal to introduce a new European Monetary Fund to help out EU states in difficulty. Setting up the fund would require a new treaty, which would take a long time. So, on the face of it, this isn’t about helping out Greece, though it could turn out that Greece becomes the “test case” for how an EMF would operate.

One aspect of this story that I’m having some trouble understanding is why the IMF cannot be used to assist an EU member. The Irish Times Cantillon column explains the argument as follows. Current circumstances imply that:

The only possible lender of last resort is thus the International Monetary Fund, but an IMF intervention in a euro-zone economy would be a mortal blow to the credibility of the euro.

Ok, here’s a question. What does “mortal blow to the credibility of the euro” actually mean? And if it means something concrete (and bad) why does an IMF intervention produce this bad outcome while an EMF intervention does not? Answers on an electronic postcard …

Empty Houses

Here‘s a new report from UCD’s Urban Institute by Brendan Williams, Brian Hughes and Declan Redmond titled “Managing an Unstable Housing Market” (summary here.)  It supports earlier calculations from NIRSA (see this post from the Ireland After NAMA blog) suggesting a very large stock of empty houses.

The Latest from Iceland!

The Icesave talks have collapsed (Update: Elaine Byrne is right. They didn’t collapse, they just didn’t come to an agreement prior to the referendum.)  Most likely, negotiations will resume after the referendum gets a resounding no. More positively, Iceland’s economy grew by 3.3% in the last quarter of 2009. This is good news. If indeed it is the case that the difference between Ireland and Iceland is one letter and six months, then we should see an economic recovery here during the summer.

Exchequer Returns for February

Here‘s a link to the exchequer returns for February and here‘s the release comparing tax outcomes to the targets set out in the budget. (Here are the full set of targets for the year.) Tax revenues are 1.3% behind target for the year.

If replicated over the year, that would imply a shortfall for the year of €310 million which isn’t such a big deal. That said—and I don’t claim to be an expert on the month-to-month stuff and I know lots of this stuff is really noisy—income tax receipts being down 6% relative to target seem like bad news, More generally, I’m starting to get worried at how we keep falling short of targets.

The GDP and unemployment statistics from last year showed the really steep declines in activity ended in the second quarter. I’m looking for an unwinding of the huge year-over-year declines by April or so. If that doesn’t happen, we could end up pretty far off target.

Slide 11

Sarah Carey’s column in today’s Irish Times does a good job of introducing the public to the Department of Finance’s thinking about the banks as articulated in Slide 11 of the slides from the Minister’s presentation last week. However, I think it will take a lot more than a few op-ed columns to slay the beast that is the Iceland! talking point.

As an aside, for those who can’t get enough of the Iceland!ic banking crisis, here are two reports co-authored by eminent economists written prior to the crisis endorsing Iceland’s fabulous banks. Here‘s one from 2006 co-authored by Columbia University’s Rick Mishkin, a former Fed Governor (Best section – “Could Bank Refinancing Be a Problem?”). And here‘s one from 2007 co-authored by Richard Portes of the London Business School. (Best section – “The banks:successful and resilient”.)

As another aside, I note that some people were poking fun at the slides. However, it is very unusual for a politician to usual visual aids like this to illustrate their arguments and, based on my observation of his talk at the McGill Summer School, Minister Lenihan uses this material very effectively. So politicians using slides is a good thing: Don’t encourage those who’d recommend the minister keep his head down and deliver a monologue without charts and tables!