Author: Seamus Coffey

John Corrigan on OMT

In an interview broadcast today as part of RTE’s This Week show, NTMA chief executive John Corrigan made some comments on the OMT programme.

Colm Ó Mongáin: If we had applied for extra conditionality we would have qualified then for this European Central Bank bond-buying programme so was there any sense that applying for a credit line would offset the risk that were there trouble further down the line and a spike in European bond yields we would be ok because the European Central Bank would be able to buy Irish bonds?

John Corrigan:  Well, the take on that is … is unclear in the sense that the OMT, which is the jargon for it, which is the programme operated by the central bank, which hasn’t been triggered yet, the precise terms and conditions for accessing that haven’t been laid down, number one. And number two, that programme is designed to address systemic issues which might arise in the markets. So, if, even still we were caught up in systemic issues as part of a wider problem to the extent that OMT was triggered we would still be in line to benefit from that.

Most of the ‘what if’ scenarios raised this week following the decision not to pursue a precautionary credit line focussed on domestic concerns about the Irish economy rather than systemic ones for the euro area. 

The question seemed a perfect opportunity for John Corrigan to say that Ireland is already eligible to be considered for OMT without the necessity for the additional conditionality that a precautionary credit line might bring.  He is right that “the precise terms and conditions haven’t been laid down” but we do have this very brief outline of OMT which provides some guidance on which countries are eligible to be considered for OMT.

Coverage

Outright Monetary Transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programmes or precautionary programmes as specified above. They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.

It is pretty obvious that Ireland is covered by the second sentence.  As part of the existent EU/IMF programme there has already been strict conditionality imposed on Irish policy for 2014.  If there is an asymmetric shock that hits Ireland which can be alleviated by central bank bond purchases then the ECB’s Governing Council can decide to activate OMT for Ireland. This week’s decision had no impact on that.

As long as Ireland is “regaining bond market access” (which is admittedly subjective) then Ireland is eligible to be considered for OMT and a credit line is not a necessity for it.  It is not clear to me why John Corrigan did not say as much today.

Ireland to exit the EU/IMF Programme without further support

A Department of Finance statement is here and the Taoiseach’s statement to the Dáil is here.

EC: Annual Growth Survey

A lot of material was published today by the DG FIN in the European Commission including the 2014 Annual Growth Survey and the 2014 Alert Mechanism Report.  These and other documents can be accessed here.

Italy eyes ‘Google Tax’ to help fix public finances

Using standard provisions in tax codes internet companies face low or no corporation tax bills in the countries of their customers.  This issue has been repeatedly raised in the UK by Margaret Hodge, chair of the Westminster Public Accounts Committee.  In relation to Google in particular much of the focus has been on whether Google has a permanent establishment in the UK.

This issue is also agitating the chair of the Italian lower house Budget Committee, Francesco Boccia, who has drafted a bill to try and force companies like Google to engage with their customers in Italy through a party that has a permanent establishment in Italy.  See this report from Reuters.

The proposal would not tax the multinationals directly but would force them to use Italian companies to place their advertisements, rather than doing so through third parties based in low-tax countries like Luxembourg, Ireland or outside the European Union.

Doubts about the feasibility of such a proposal seem justified but it does show someone trying to take some action on this issue.

EC Autumn Forecast 2013

All the documents can be accessed from here.

The main figures for Ireland (“rebalancing on track”) are:

Among Euroarea countries six are expected to face a BoP current account deficit in 2014: Estonia, Greece, France, Cyprus, Latvia and Finland.  The largest deficit is expected to be in Estonia at 2.2% of GDP.  On the other side Germany, Luxembourg, the Netherlands and Slovenia will have a current account surplus of more than 6% of GDP.  The first three will have three-year averages greater than the 6% of GDP threshold set out in the Macroeconomic Imbalance Procedure.  In aggregate the euroarea is projected to have a current acount surplus of around 3% of GDP for the next two years.

The Spanish public deficit is forecast to increase to 6.5% of GDP in 2015 with France, Cyprus, Malta, Slovenia and Slovakia also projected to have deficits in 2015 over the 3% of GDP threshold for the Excessive Deficit Procedure.  In aggregate the Euroarea is expected to run a public deficit of around 2.5% of GDP for the next two years with public debt steady at around 95% of GDP.