Here is the latest from Barry Eichengreen, who is a busy man since he will be giving his Presidential Address to the Economic History Association this evening. Congratulations Barry.
But do be careful Barry, go too far down this road and you’ll have the Irish Times accusing you of being on the far left or far right.
This excellent post by Karl deserves a thread of its own.
Karl is quoted here as saying that the Franco-German proposal that we insert borrowing limits into the Irish constitution will not solve our current debt problems. This is obviously correct, as is the point that such an amendment would not have made a blind bit of difference during the bubble years.
There is also the point that a constitutional amendment is a much bigger deal in Ireland than in some other countries, since it can only be changed by means of a new referendum.
Here are two questions:
As per Derek Scally in the Irish Times, is this a taste of things to come, or much ado about nothing?
What are the chances of the Irish government winning such a referendum?
No.
In the drive to fiscal policy coordination, the potential of fiscal spillovers should feature more heavily, especially for small open economies like Ireland. Sadly they don’t, as this new research shows. Other models hold out more hope (but in a static setting), but the principal findings are that small open economies can’t rely on larger trading partners to help them overcome large cyclical slumps in output.
Money quote from the first linked piece:
“Even under very high multipliers, a 1% of GDP fiscal expenditure stimulus in Germany would raise the GDP growth in Ireland by only 0.3 percentage points after 2 years, in Portugal by 0.1 percentage points, and have virtually no effect on growth in Greece. Similarly, fiscal policy changes in Germany alone have only a small impact on the trade balance of the peripheral countries, and are thus unlikely to contribute to the reduction in peripheral countries’ imbalances.”
This is worth considering in the context of monetary, and perhaps fiscal, union in the EU. The source document for the spillover calculations is this IMF report.
Nick Cohen is gloomy here.
Roger Bootle gives a market perspective on potential endgames, one of which echoes Paul Krugman, here.
And here is Kantoos, echoing Olivier Blanchard, Ken Rogoff, and many others.
To those who think that an inflation rate of 5%, say, for a few years, would mean the end of the world, one has to ask: is this really the worst potential scenario that you can envisage us facing in the years ahead?