Category: European economy

Economic Policy Advice to the Government Prior to the Financial Crisis

Economic policy advice on reducing the risks to macroeconomic and financial stability from the housing market, restoring competitiveness and preparing to adjust in a downturn was available to the Government prior to the financial crisis.

In a research paper which I presented in the plenary session of the Annual Economic Policy Conference in Kenmare on 13 October 2006 (attended by a good number of senior civil servants), after discussing the adjustment mechanisms available to Ireland as a member of the European Economic and Monetary Union, I pointed out four main challenges facing the Irish economy and suggested a combination of policy measures to respond to these challenges. The four challenges that I identified were as follows: 

a)      maintaining a high potential output growth rate

b)      restoring competitiveness

c)      managing potential risks to macroeconomic and financial stability from the housing market

d)      adjustment to a slowdown in the United States and an expected appreciation of the euro against the dollar

 The policy measures suggested to respond to these challenges included the following:

     a)      fiscal tightening to reduce domestic demand pressures

     b)      a wage restraint in the public sector

     c)      fiscal measures to reduce the risks to macroeconomic and financial stability such as phasing out the tax relief on mortgage interest payments, a tax on imputed rents, a broader capital gains tax, or  a property tax on vacant of secondary dwellings (as options available to the Government)

    d)      limits on the use of real estate as collateral to protect the banking system against over lending and bad loans

    e)      running a large fiscal surplus during the current boom to prepare for a downturn in the world economy

The Irish Times of 14 October 2006 covered extensively my main points. The paper was published in the Quarterly Economic Commentary in March 2007.    

European Parliament Briefing Papers: June 2010

The latest Monetary Dialogue briefing papers for the European Parliament’s Committee on Economic and Monetary Affairs are available here (click on 21.6.10). These papers are provided to help the MEPs on the committee prepare for their June 21 meeting with President Trichet, which promises to be an interesting one. My paper is titled “The Euro, the ECB and the Sovereign Debt Crisis”.  All the papers focus on different aspects of the European sovereign debt issue.

ECB Bond Purchases Falling Off

The ECB has released its latest weekly financial statement, the only source of public information in relation to what’s happening with its sovereign bond purchase program.

It is notable that the program has purchased smaller amounts with each passing week: €16.3 billion during the week ended May 14, €10.4 billion during the week ended May 21, €8.8 billion during the week ended May 28 and €4.9 billion during the week ended June 4. We know that some members of the Governing Council would like the program to end quickly. At this rate of decline, it will be over in a couple of weeks.

EU Finance Ministers Statements

Here‘s the text of the agreement on budgetary policies put together by the EU finance ministers yesterday. It seems pretty weak, with little by way of new concrete initiatives. It’s full of aspirations to reduce deficits. The new element that might have been expected in relation to an increased role for the European Commission is restricted to the following statement:

Ministers are committed to fully and strictly implement the surveillance framework defined by the SGP and to contribute actively to the Task Force set up by the President of the European Council, which will consider ways to strengthen the fiscal surveillance framework as well as the surveillance of competitiveness developments in the euro area.

A Task Force that’s going to “consider” things doesn’t sound like much to get excited about.

Here‘s the statement tasking the European Commission with running the €440 billion Special Purpose Vehicle. (You have to love how there’s a Special Purpose Vehicle at the scene of every economic disaster these days.)

The Lisbon Agenda: An Assessment

The CPB has come a long way since it was founded, as the Central Planning Bureau, by Jan Tinbergen shortly after WW2. Besides giving solicited and unsolicited advice to the Netherlands Government — polite but frank — it is acquiring a similar role in Europe. Their latest publication is bafflingly in Dutch, but relevant to anyone in Europe. It is an assessment of the Lisbon Agenda.

At the beginning of the decade, European politicians promised all sorts of wonderful stuff for 2010. The CPB report wonders what came of that, comparing progress in the period 1990-2000 to the period 2000-2010.

Here’s a summary:

-Income per capita (Geary-Khamis): Economic growth in EU15 was slower after 2000 than before; ditto for Ireland; US and Australia show same pattern, but economic growth accelerated after 2000 in China, South Korea, Japan and New Zealand

-Labour participation (share population 15-65): Increase in EU15 was slower post 2000; ditto for Ireland

-R&D expenditures (share GDP): Increase in EU15 was slower post 2000; ditto for Ireland; US increase before 2000 but decline after 2000; China decline before 2000 but sharp increase after 2000; Japan and South Korea small increase before 2000 and sharp increase after 2000

+Education expenditure (share GDP): Fell in EU15 before 2000, rose after 2000; ditto for Ireland; US and China increase before and after 2000; Japan increase before 2000 but decrease after 2000

+Domestic waste (kg/cap): Rose in EU15 before 2000, fell after 2000; rose in Ireland before 2000, rose very rapidly after 2000

+Particulate matter (load): Rose in EU15 before 2000, fell after 2000; fell in Ireland before and after 2000

-Carbon dioxide (kg/cap): Fell in EU15 before 2000, stationary after 2000; rose in Ireland before 2000, fell after 2000; US, Canada, New Zealand increase before 2000 and decrease after 2000; China decrease before 2000, virtually no change since 2000; Japan increase before and after 2000

-Trust in peope: Fell in EU15 before 2000, stationary after 2000; ditto for Ireland; US, Canada, South Korea fell before 2000, rose afterwards; Japan rose before 2000, fell after 2000

+Corruption: Increased in EU15 before 2000, stationary after 2000; increased in Ireland before and after 2000; increased in US before and after 2000; increased in China before 2000 but fell after 2000; decreased in Japan before 2000 but rose after 2000

-Poverty (share of population under poverty line, before transfers): Fell in EU15 before 2000, rose after 2000; ditto for Ireland

-Poverty (share of population under poverty line, after transfers): Fell in EU15 before 2000, rose after 2000; rose in Ireland before 2000, fell after 2000

-Children in jobless families (share of population 0-17): Fell in EU15 before 2000, fell slightly after 2000; fell in Ireland before 2000, rose after 2000

That’s 8 negatives and 4 positives for EU15, and 8 negatives and 4 positives for Ireland (albeit different positives and negatives).