Author: Karl Whelan

Ireland Out of Recession?

The CSO today released the Quarterly National Accounts for 2009:Q3. Consistent with other indicators such as a stabilising unemployment rate, the release is consistent with a bottoming out of the economy. Though the year over year patterns still show sharp declines (7.4 percent for GDP and a whopping 11.4 for GNP) the best read we have on what happened during the latest quarter—seasonally adjusted quarter-over-quarter changes—point to stabilisation. GNP was down 1.4 percent on a seasonally adjusted basis over the quarter and GDP was up 0.3 percent. So technically, one could argue that this release confirms commenter John the Optimist’s call in September that Ireland was already out of recession.

There are, of course, caveats to this. The seasonal factors are based on limited data and so not particularly reliable. And the increase in GDP occurred despite declines in consumption, investment, government spending and exports (this was offset by the decline in imports). But still, one has to welcome anything that looks like good news.

How do these figures square up with the government’s projections in the budget? One point to note is that the bottoming out means that next year won’t have the same negative carry-over that this year did. In other words, if quarterly GDP remains flat at its 2009:Q3 level up to the end of 2010, then the year average for 2010 will be essentially the same as the year average for 2009. This assumption also implies a year-over-year projection for GDP in 2009 of minus 6.8 percent.

Against this background, one could argue that the budget’s projection of a 1.3 percent decline in GDP next year is perhaps too negative. Alternatively, with €4 billion of fiscal adjustment to be applied and a banking system that will still be restricting credit, perhaps the government have it about right.

IT Article: NAMA Will Not Get Banks Lending

Here‘s an opinion piece I wrote for the today’s Irish Times. I’d add three points. First, I’d note that back in February, prior to Peter Bacon delivering his report recommending a National Asset Management Agency, I wrote the following about the idea of a bad bank or NAMA as it became known:

In addition to being unfair, it is questionable whether the bad bank proposal could achieve its goal of properly re-capitalising private sector banks. There may be limits on the price the Government can pay for impaired property loans under EU state aid rules. Banks may still have to write down their assets. It is easy to imagine a scenario where banks struggled with weak capital bases even after a bad bank scheme has been put in place.

I am in no way happy to report that it looks like this scenario is exactly what appears to be coming to pass. Indeed, I wrote the article—my first ever for a newspaper—because I hoped that some solid arguments expressed in public may prevent it from happening.

Second. I’ll freely admit that the article comes across as somewhat angry in relation to the government’s misrepesentation of the role, if any, of the ECB in NAMA. What I find amazing looking back on the period during the Summer and early Autumn when NAMA was being heavily debated in the media is the fact that Irish business journalists happily accepted the “free money from ECB” line and peddled it regularly in their columns and in the broadcast media. The Irish public would have been better served if it had even a few journalists willing to research this issue a little bit further, perhaps via a few Google searches.

Third, it seems that there is little appetite out there among journalists for admitting the true state of the Irish banks or for preparing the Irish public for what may be necessary to stablise the situation in the coming months. This may be related to the second point above.

Obama Asks US Banks to Lend

I know the parallels are not exact but this story is a reminder that our current banking situation—involving banks that don’t want to lend, governments exhorting them to do so and banks focused heavily on attempting to escape government control—is not exactly unique. Some highlights:

Bank executives say they itch to make profitable loans, as many as possible, but are struggling to find qualified borrowers. They also say that the administration is asking for increased lending even as it pursues financial reforms that will limit the ability of banks to make loans.

And, of course,

“America’s banks received extraordinary assistance from American taxpayers to rebuild their industry,” the president said after the meeting. “And now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.

And this:

This is the second time the president has convened bank executives to urge increased lending. The first meeting, in March, did little to slow the slide. The president said Monday that he continues to get “too many letters from small businesses who explain that they are creditworthy and banks that they’ve had a long-term relationship with are still having problems giving them loans.” But the White House on Monday defended the value of the rhetoric.

“I think that the bully pulpit can be a powerful thing,” said press secretary Robert Gibbs.

We’ll see whether asking nicely a second time works well for them.

Ireland and Scottish Independence

I found this story interesting. Clearly, the underlying story is just that Ireland is being used a political stick to beat Mister Salmond with. Beyond that, though, the exchange raises some interesting questions. Why are Scottish opposition politicians so sure that an independent Scotland would pursue policies that would lead it towards fiscal troubles of the Irish variety? How could Mr. Salmond assure them that this wouldn’t occur? Do the Scottish opposition believe that the Republic would be better off economically rejoining the United Kingdom?

And what about the banks? Would those two disastrous banks with the phrase “Scotland” in their names have been defined as Scottish banks to be bailed out by the Scottish taxpayer?  Presumably not but this raises the question of how one defines the fiscal responsibility for banking measures as one negotiates one’s way out of a united country.

Review Body on Higher Remuneration

The Department of Finance has now released the report of the Review Body on Higher Remuneration. The report here and a summary is here.