I agree with Ryan Avent when he says that “the current situation reinforces the idea that strong, well-anchored automatic countercyclical stabilisers—fiscal and monetary—are the best hope for avoiding prolonged economic crises”.
Unfortunately, these days in the eurozone you are more likely to read stories like this one.
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?
If a picture is worth a 1000 words, what’s the value of a video? Google has put some effort into data visualization. This example works in 5 dimensions at once. It’s on government debt in Europe. The kinetics of Turkey and Ireland are astounding.
I had an op-ed in the IT last Thursday. Discussion is not great on their site. Here’s my edit.
The government aims to create a national water utility to install water meters and charge for water use. The general thrust is commendable, but it may become an expensive failure.
Taxes will need to go up and public spending down to close the government deficit. This will hurt the economy. However, consumption taxes do less damage to growth than income taxes. The government is right to introduce water charges.
A flat water charge would be unfair. Exemptions for those unable to pay are crude and expensive to administer. A flat water charge would not induce water conservation. We produce about 450 liters of drinking water per person per day (l/p/d). The average person probably uses some 150 l/p/d. It is not fully known what happens to the remaining 300 l/p/d. Part is lost through leaky mains, part is used illicitly, and part is lost through leaks in the house or garden. Experience in other countries, and in the group water schemes in Ireland, shows that water charges would substantially reduce household water use. People would also press the water providers to reduce wastage in the distribution network. As the number of meters increases, it will be easier to locate leaks and illicit use. The government is right, too, to introduce water meters.
The government wants to install water meters in 2012 and 2013. That is ambitious: 1.4 million meters in two years, 2800 meters per day. There is also a plan to replace all household electricity meters with so-called smart meters. This has been carefully planned and trialed over the last three years. The smart meter roll-out will be done by well-established companies. In contrast, the installation of water meters is to be led by Irish Water, a company that does not yet exist. I would be surprised if there will be a water meter in every home in Ireland by Christmas 2013. Flat charges may be with us for a long time.
In fact, there is a possibility that water meters will follow the path of voting machines, as learning from past mistakes is not the strongest point of the Irish government.
Water meters will be unpopular, as they remind people of water charges. Installers would need permission to put water meters in the home. Some homeowners will withhold such permission. The idea is therefore to install water meters just outside the property boundary. This is easier but much more expensive. 1.4 million connections will need to found, and 1.4 million holes dug. The water meters would be far from the smart electricity meters and therefore need a separate communications network. This may cost up to €800 per meter (€1.1 billion in total) according to one estimate.
There is a simpler and cheaper option that has worked well in other countries. Households can install water meters themselves, or ask their plumber to. Households with a meter would pay whatever water they use. Households without a meter would pay a flat charge. If the flat charge goes up over time, more and more households will install a meter. If the costs of water meters are a concern – a good plumber could install a certified meter for less than €200 – then Irish Water could give a voucher for €200 worth of free water upon registering the water meter.
The government has repeatedly promised that there would be free water allowances. Only excessive water use would be paid for. This is nonsense. It does not promote water conservation, and it is bad social policy. Like water, food is essential, but the government does not hand out sacks of potatoes. Instead, there are benefits for those without income and tax credits for those with. Benefits in cash are better than benefits in kind, because the household can choose what potatoes to buy, or pasta. Similarly, water should be charged from the first liter onwards. The revenue from the first 100 l/p/d or so should be used to increase benefits and tax credits.
The government may also seek to transfer the responsibility for drinking and sewage water from the county councils to a new, semi-state utility called Irish Water. There is merit in this too. Water treatment plants are largely build, designed and operated by private companies, but guidance and supervision by the county councils has not always been up to scratch. A new national water company would professionalize water management. If assets would be transferred from the counties, Irish Water should be able to borrow money at a lower rate than the government.
There are dangers too. In the past, semi-state monopolies have served their employees and their political masters well – but customers and owners got a raw deal. The government should create a Commission of Water Regulation at the same time as it creates Irish Water.
Or maybe sooner. The prospect of digging 1.4 million holes in the ground is great news for the construction industry – and a number of companies are actively trying to convince the government that this is the only option. It is not. It would be better if all options would be considered, and the best one selected after an open debate.
Jacopo Ponticelli and Hans-Joachim Voth have just published a CEPR Discussion Paper looking at the relationship between austerity and social unrest in Europe between 1919 and 2009.