Colm’s latest article is available here. The following phrase gives a flavour: “The French and German leaders have created instead a damaging rift with Britain without delivering any worthwhile advance at all…”
Hans-Werner Sinn replies to his critics in relation to Target 2 balances here. Readers of this blog will undoubtedly draw their own conclusions. At the heart of his fallacy is the conceptual absurdity of separate regional credit policies in a monetary union with perfect capital mobility.
See the following contribution here from Hans-Werner Sinn. It is certainly original but frankly alarmist. It focuses on the fact that National Central Banks within the euro system are lending bilaterally to each other though without changing the monetary base as a whole. Sinn jumps from there to draw apparently worrying conclusions: that these are “forced capital exports”; that they are the counterparty to current account deficits and that “the PIGS would have had a hard time finding the money to pay for their net imports”.
There is not a scintilla of evidence that the private non-bank sector in the PIGS has lost access to normal European financial markets. If the Bundesbank lends to the Central Bank of Ireland, it does not, in any sense, expand the availability of credit to the private non-bank sector in Ireland. Similarly, German households and firms do not suffer a credit contraction. This is, of course, because there is free movement of capital within the single currency area.
The second non-sequitur in Sinn’s article is the association of accumulated current account deficits in the PIGS with these bilateral loans. Ireland has, of course, a current account surplus so the point is completely irrelevant to at least one of the PIGS. Sinn notes that Italy has not availed of these inter NCB loans, despite its current account deficit, but mistakenly attributes this to virtuous policy on the part of the Italian authorities! It is of course because Italy so far has not yet suffered from a banking or sovereign debt crisis. And for no other reason.
My suspicion is that Target 2 credit is ultimately guaranteed by the ECB: that the Bundesbank loans to the Central Bank of Ireland should be considered as contingent items on the ECB balance sheet. In short, that Target 2 credit is simply a mechanism for implementing ECB policy. But I remain to be corrected on this.
I have been disappointed but not surprised by the lack of comment on Edgar Morgenroth’s blog about the threat to introduce a low rate of corporation tax in Northern Ireland.
We are all well used to IDA shibboleths about the Republic of Ireland’s advantages other than the low Corporate Tax rate. We are told about the modern infrastructure, the well educated labour force (sic), EU membership and the fact that the Republic of Ireland is English- speaking. Northern Ireland has all of these as well as a dramatically lower cost base: we’ve even stopped killing each other in large numbers.
The UK already has generous R&D incentives and intellectual property incentives are already trumped by other European countries such as the Netherlands. The Republic’s only remaining advantages may be its sovereign ability to skate close to the wind of tax haven status: relaxed rules on transfer pricing, absence of controlled foreign company laws, limited rules on thin capitalisation and its skill at negotiating double tax treaties.
Is that all the Republic has? Surely, I’ve missed something!