Eurointelligence has a couple of pieces on the eurozone crisis this week: the one by Philippe Legrain I linked to yesterday, and this piece by Barry Eichengreen.
And here is a newish blog dedicated to the crisis, produced by the Economist Intelligence Unit.
Paul Krugman has a thoughtful survey of the Euro crisis in this week’s New York Times Magazine (forthcoming on Sunday but available on-line now). This is not stockbroker-economist-type research, which tends to be long on buzzwords and hyperbole. It is a well-reasoned feature-length review with some policy suggestions. It has a central focus on Ireland and the other troubled peripheral states.
A friend of mine has just sent me this link, in which Sarkozy is saying that it is unreasonable for us to maintain our low corporate tax rates while seeking financial aid from Europe:
“I deeply respect the independence of our Irish friends and we have done everything to help them. But they cannot continue to ask us to come and help them while keeping a tax on company profits that is half (what other countries have),” he said.
For a more inflammatory version of the same argument, by an influential French economist, click here. And I was struck on my last trip to France by how ordinary people there are making the link between the Irish bailout and our ‘dumping fiscal’.
There are lots of obvious counters to all this, but I think the more important point is that such responses are inevitable, given the European response to the crisis to date. As two recent articles point out (here and here), the real cleavage in Europe is between European taxpayers and bank creditors (with the ECB being a third interested party, as another body which could help to fill the holes which have emerged in the European banking system). But since the powers that be are ruling out bondholder haircuts and quantitative easing, the only cleavage we are left with in practice is the one between core and periphery taxpayers.
Of course ordinary French and German taxpayers are going to be angry at lending their money to an insolvent state with lower tax rates than their own. Why wouldn’t they be? Of course ordinary Irish taxpayers are going to be angry at having to pay for high interest loans designed to bail out foreign banks. Why wouldn’t they be?
And while ordinary Europeans get angry with each other, with unpredictable political consequences, capital walks away scot free.
The report by Willem Buiter and colleagues on the eurozone debt crisis is available here.
One of the really strange things about economics reporting in Ireland is that once a politician has said something with enough authority, it becomes repeated as truth time and again by our financial journalists, no matter how untrue. An incredible example of this is the idea that NAMA borrows money from the ECB.
During the long tedious NAMA debates of 2009, every government politician was sent out with a spin line about NAMA involving the government getting cheap money from the ECB. Even though it was untrue then, the idea has remained amazingly popular. Now, as rumours of some form of NAMA 2 (perhaps for mortgages) start to circulate, our financial journalists are still busy misrepresenting the basic transactions at the heart of the original NAMA.
Today’s Sunday Times (not on the web as far as I know and I don’t think it would be free even if it was) contains the following two examples. First, we have Brian Carey and Tom Lyons:
The difficulty is who will fund the establishment of Nama 2. Nama is current funded by the European Central Bank.
Then we have Damien Kiberd:
The Irish state has accepted responsibility for both sides of the several banks’ balance sheets. It has done this by providing guarantees that cannot, in extremis, be honoured and by purchasing distressed bank assets using money from the European Central Bank.
Unfortunately, this is not at all how the government, in the form of NAMA, purchased distressed bank assets. The reality is that NAMA purchased the assets by swapping them in exchange for Irish government-backed bonds. There – that’s how it was done. Not so hard to understand really. In fact’s it’s hard to misunderstand. NAMA is funded by you and me.
Of course, one can – if you want – discuss the idea that NAMA bonds can be repo’d with the ECB, if the mood is on them. (And indeed, from the last time we discussed this, I know there are people who comment on this site who have the ability to twist words in such a way that they can satisfy themselves that somehow saying “the ECB funds NAMA” makes sense – but frankly I think those folk are having a laugh.) But that doesn’t change the basic reality of the NAMA transactions.
Given the importance of NAMA as well as the important role the ECB is playing in propping up the Irish banking system, it is really unfortunate to see the roles played by these organisations being misrepresented in this fashion.