The last week has seen a lot of coverage of the announcement by Brian Lenihan that there will be an external review of the Department of Finance. Some media responses:
Author: Philip Lane
The IMF has posted the concluding statement on its recent mission to Ireland: you can read it here.
The idea of establishing some kind of fiscal council seems to be gaining momentum. Minister Lenihan expressed interest in this idea last week; it featured in speeches by Eamon Gilmore and Joan Burton last week; it is also Fine Gael policy. An editorial in today’s Irish Times also endorses the idea – you can read it here.
This new IMF working paper by Luc Laeven and Fabian Valencia compares the current banking crisis to previous episodes across a range of dimensions – it is especially interesting on the fiscal and output costs of banking crises. You can download the paper here.
Summary: This paper presents a new database of systemic banking crises for the period 1970-2009. While there are many commonalities between recent and past crises, both in terms of underlying causes and policy responses, there are some important differences in terms of the scale and scope of interventions. Direct fiscal costs to support the financial sector were smaller this time as a consequence of swift policy action and significant indirect support from expansionary monetary and fiscal policy, the widespread use of guarantees on liabilities, and direct purchases of assets. While these policies have reduced the real impact of the current crisis, they have increased the burden of public debt and the size of government contingent liabilities, raising concerns about fiscal sustainability in some countries.