The Irish Economy

Courtesy of Broadsheet.ie, this looks convincing.

Some readers may be interested in this job opportunity at the IIEA. The deadline for applications is this Friday.

Michael Mussa, chief economist of the IMF during the various crises of 1991-2001, died this week.  This WaPo obituary provides a brief but interesting account of his tenure.

The ninth ISNE annual conference is being held in UCC on Thursday 23rd and Friday 24th of August.  This year’s organisers are David Butler, Robbie Butler and Justin Doran.

Researchers wishing to submit their work for consideration are advised to submit an extended abstract (300-400 words) to isne2012@gmail.com. Applicants are asked to include their name, institute or affiliation, current academic status (PhD, Young Professional, Masters) and JEL code(s) for their research on submitting an abstract.

The deadline for the abstract submission is Friday, 1st of June 2012.
Applicants will receive notification by Friday, 22nd June 2012.

There will be two plenary sessions:

• Professor Geoffrey Hodgson (University of Hertfordshire) Editor-in-Chief of the Journal of Institutional Economics, and
• Professor Bernard Fingleton (University of Cambridge) Editor-in-Chief of the Journal Spatial Economic Analysis and formerly co-editor of the Journal Regional Studies and a Fellow of the Regional Science Association International and the Spatial Econometrics Association.

For more details visit www.isne2012.com

Date: Thursday January 19th 2012
Topic: Economic crisis and the restructuring of wage setting mechanisms for vulnerable workers in Ireland
Speaker: Dr Michelle O’Sullivan, Department of Personnel and Employment Relations, University of Limerick
Venue: INTO Training Centre, 38 Parnell Square, Dublin 1 (map attached)
Time: 4-5:15pm (Tea and coffee from 3:50pm)

To register your interest in attending and for further details please e-mail info@eru.ie

Further seminars are planned for February 22nd and March 14th 2012 with others to follow throughout the year. Details will be circulated in advance of these seminars.

The ERU (Economic Research Unit) is a new research company/think-tank on the Irish Economy established in September 2011 and funded by a number of unions affiliated to the ICTU. It aims ‘to influence policy outcomes that have the greatest effect on the achievement of equity and fairness in the political economy on the Island of Ireland, to the benefit of working people, their families and communities and the enhancement of the quality of life of all people living on the island of Ireland, through the provision of high-quality macro and micro economic research and analyses, awareness raising and capacity building programmes’. The think tank is currently in its set-up phase and a formal launch will occur in March 2012.

For further details contact info@eru.ie

Over Christmas I read Ed Walsh’s excellent autobiography Upstart. Upstart details the creation of the National Institute of Higher Education, Limerick, which subsequently became the University of Limerick. Given where I work, but also because it’s a fine story, I found it unputdownable. In part Upstart details the political machinations required to get UL university status. I wonder if the Institutes in the Southeast saw an early draft?

Today’s ‘news’ as reported by Sean Flynn that the Minister for Education will announce the creation of a technological university for the Southeast might give the impression it was. Sean Flynn took to Twitter recently to say the Department of Education has denied it is going ahead, but “big wheels in Cabinet want it .it (sic) will happen!”

It sounds like there have been a serious discussion ongoing about a new university behind closed doors. Given the state of the State’s finances, and also the sector most of the contributors to this blog work in, as well as the contribution of universities in general to Irish life, I think this news, or leak, or whatever, is worth a thread on this blog.

The comments on the RIchard Tol thread refer to migration patterns. The graph below is from the December 2011 IMF report and highlight the growth in the net emigration of “native Irish” up to April 2011.

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Philip asked me to comment on the recent media coverage of my person (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17).

The background is as follows. I have regretted that I never wrote my memoirs of my time in Hamburg. I plan to write a multi-media text “book” and tweet the key messages. To hone my book-tweeting skills, I decided to tweet my memoirs (under the hash tag #cuimhnícinn). The chapter on the ESRI was tweeted early on January 1st. I had assumed that all Irish twitterati would be asleep, but Colm Keena was not. And then RTE called, and nothing much had happened that day, and so on.

All this is ironic for someone who has repeatedly warned against celebrity economists. And yes, the Late Late Show called too.

Among our reasons to leave are the economic prospects of Ireland, and particularly of families like ours with a triple exposure to public finances: two salaries and kids in education. I called that “10 more years of austerity”, where “10 years” really stands for “a long period”. This was apparently news to some. Although really not my area, the facts are simple. The programme for government and the deal with the Troika have that the primary deficit will be reduced to zero by 2014-5. Public debt will reach 125-135% of GDP by then, pension reserves will be depleted, and valuable state assets will have been sold. That means that, after 2015, a large share of tax revenue will go towards interest payments, debt reduction, and rebuilding of reserves – rather than to things that make life worthwhile. If debt is to be reduced to 60% GDP, then 10 more years of austerity seems fairly optimistic. I do expect, however, that the ECB will monetize part of the debt.

I also said a number of things about the ESRI. I enjoyed working there, and hope to pass to my students the things I’ve learned while there. However, I also think the ESRI should work harder on transparency and quality management. ESRI data and models should be in the public domain.

There has been no independent investigation of the accusations of racism against some ESRI staff. Indeed, ESRI management has repeatedly denied the possibility that there could be any truth in such allegations.

The ESRI is not as independent as it should be. The ESRI does not have a budget to pursue issues that no one in government wants to hear about. That is, government departments and agencies set the research agenda. That is fine in a way. Blue skies research belongs at university. The ESRI does policy-relevant research – that is, answers questions posed outsiders. However, it would be better if part of the ESRI budget would be reserved for projects identified by the opposition, by the public, and indeed by ESRI researchers (who often come across major and minor public policy mishaps but lack the resources to pursue them).

Funding agencies do not influence the conclusions that the ESRI draws.

Funding agencies do influence the conclusions that the ESRI draws attention to.

The grant-in-aid is about 1/3 of the ESRI budget. About 1/3 is international and corporate money. And about 1/3 comes in through competitive tenders from the various parts of the Irish government. The funding agencies often have a clear idea of the desired result, and award the contract to the bidder who is most likely to obtain that result. Can a bidder uphold her integrity and be loyal to her employees at the same time? One solution is to have a specialized government agency to manage research contracts. Tenders would tend be awarded on merit, recalling that pliability is not a merit.

That agency could also keep an eye on the output: Some projects never seem to reach a publishable result.

This does not require a new government body. The research managers (and their budgets) in the various government departments and agencies could be transferred to, say, Science Foundation Ireland.

As to academic freedom at the ESRI, the chronology of my contributions to this blog tells it all.

Jean Pisani-Ferry has written a useful essay.

Summary:

The search for solutions to the euro crisis is based on a partial diagnosis that overemphasises the lack of enforcement of existing fiscal rules. Europe’s leaders should rather address the euro area’s inherent weaknesses revealed by the crisis.

At the core of euro-area vulnerability is an impossible trinity of strict no-monetary financing, bank-sovereign interdependence and no co-responsibility for public debt. This Policy Contribution assesses the corresponding three options for reform: a broader European Central Bank (ECB) mandate, the building of a banking federation, and fiscal union with common bonds. None will be easy.

The least feasible option is a change to the ECB’s mandate; changing market perceptions would require the ECB to credibly commit overwhelming forces, and the ECB is simply not in a position to make such a commitment

The building of a banking federation, meanwhile, involves reforms that are bound to be difficult. Incremental progress is likely, but a breakthrough less so.

This leaves fiscal union. It faces major obstacles, but a decision to move in this direction would signal to the markets and ECB a commitment to stronger Economic and Monetary Union. One possibility would be to introduce a limited, experimental scheme through which trust could be rebuilt.

Last summer, the Dublin City Centre Business Association commissioned Felim O’Rourke and myself to examine how Dublin’s tourism product could be rejuvenated. Our report is at www.dcba.ie.  If short of time, skim the 33 pages reviewing existing tourist attractions, since each was afforded one page, regardless of its attractiveness. Among the conclusions and recommendations are, 

1. The Irish Government may not be able/willing to burn the bank bondholders, but it should liquidate Treasury Holdings, rather than allow NAMA to keep it alive. This would cause the 25 year PPP on the Irish Convention Centre to lapse, and save the Exchequer €0.7bn.
2. My colleague and I are retired, and thus our recommendations are not modified by the expectation of future work. But in 80 years of commercial activity, neither of us has ever come across such a combination of overspending and underperformance as is exhibited by the national tourism organisations (NTO’s). We did not make specific recommendations for organisational change, but your respondents may wish to take up this baton!
3. The Irish national tourism organisations (NTO’s) perform poorly when benchmarked against Scotland, Edinburgh and Amsterdam. In 2009, if Scottish rates of attracting tourists were applied to Ireland, the budgets of Irish NTO’s would have been reduced by two-thirds, or by c. €100m. p.a.. Amsterdam attracts eight times the tourist numbers per employee of Irish NTO’s, at just over one-half the cost per employee. Within Ireland, there is a mismatch between visitor numbers and NTO spending: Dublin accounted for 32% of tourist revenue in 2009, but only 6% of current spending by NTO’s was spent in Dublin.
4. This is sectoral stuff, microeconomics. At the micro, micro level, Dublin tourism is going to have to function in future with lots of ingenuity and with little finance. For example, the municipal food market should maintain cleanliness standards with frequent water sluicing on tarmacadam floors, rather than by (much more expensive) investment in ceramic floor tiling. Again, where a tourism product is space-constrained, such as the Book of Kells or the Anne Frank house, it is cheaper to extend visiting hours, rather than to invest in expanded waiting areas. Let’s have similar cost-constraining initiatives in other major areas of social expenditure, such as health, education and social welfare.

This industry and this report are too important for Ireland’s future to be consigned to the neglect of the authorities.

In today’s Sindo Colm puts the context around Willem Buiter’s comments earlier this week that Ireland might need a second bailout and should negotiate one in good time.

From Colm’s piece:

Economists who work for banks have acquired a bit of an image problem, well-deserved in many cases. Buiter is not one of these. Before joining Citicorp last year, Willem Buiter held economics professorships at Yale, Cambridge and the London School of Economics, three of the top economics departments in the world, and served a term on the Bank of England’s monetary policy committee. Along the way, he has built a reputation as a thoroughly competent analyst of the international monetary system, one of the best around. He did not come over to Dublin to shred his reputation with some off-the-wall comment about Ireland. With all due respect to Mr Noonan, Buiter’s comments are not “ludicrous”. They are consistent with the behaviour of interest rates on Irish bonds in the secondary market and with the arithmetic of debt sustainability.

It is difficult for politicians to stick with an unavoidable fiscal adjustment programme in the secure knowledge that it may not be enough to deliver its declared objective — an end to reliance on official lenders. That, unfortunately, is the position in which the Irish Government has been placed. The budget deficit needs to be eliminated, in any plausible scenario, and as quickly as possible. The small print in the Memorandum of Understanding with the EU and the IMF says that the temporary period of emergency lending will be over at the end of 2013 provided only that the budget tightening stays on track. Ireland will, according to the programme, be able to finance itself in the markets by 2014, without any support from official lenders. You either believe this or you do not. Most Irish economists do not, so Willem Buiter is not saying anything you have not heard before. The Government may well privately agree with this assessment, and their efforts to secure burden-sharing on the massive bank rescue costs suggest that they do. But they can hardly be expected to persist with tax increases and cutbacks while openly admitting that the planned deficit reduction will not be enough.

This is where Kevin O’Rourke’s work on the political trilemma is so useful. We have to consider the economic situation (and sets of constraints) at the same time as the political situation, with its attendant sets of constraints.

This is worth a thread on Irisheconomy: do commenters feel that a second bailout may be required? If so for how long? What conditions would you think might be attached to such a bailout? One really useful reading to think about this is the Fiscal Council report, pages 22-24 especially.

The WSJ has nice graphics here;  see also its euro blog here.

Another IMF WP - available here.

Summary: This paper presents a range of tools and indicators for analyzing fiscal vulnerabilities and risks for advanced economies. The analysis covers key short-, medium- and long-term dimensions. Short-term pressures are captured by assessing (i) gross funding needs, (ii) market perceptions of default risk, and (iii) stress dependence among sovereigns. Medium- and long-term pressures are summarized by (iv) medium- and long-term budgetary adjustment needs, (v) susceptibility of debt projections to growth and interest rate shocks, and (vi) stochastic risks to medium-term debt dynamics. Aiming to cover a wide range of advanced economies and minimize data lags, has also influenced the selection of empirical methods. Due to these features, they can, for example, help inform the joint IMF-FSB Early Warning Exercise (EWE) on the fiscal dimensions of economic risks.

An interesting new IMF WP available here.

Summary: This paper introduces a comprehensive database on bank ownership for 137 countries over 1995-2009, and reviews foreign bank behavior and impact. It documents substantial increases in foreign bank presence, with many more home and host countries. Current market shares of foreign banks average 20 percent in OECD countries and 50 percent elsewhere. Foreign banks have higher capital and more liquidity, but lower profitability than domestic banks do. Only in developing countries is foreign bank presence negatively related with domestic credit creation. During the global crisis foreign banks reduced credit more compared to domestic banks, except when they dominated the host banking systems.

The FT report on tonight’s announcements is here.

The new issue of the Economic Journal carries a fascinating study in the UK on the links between increased debt burdens and depression. Here’s the abstract of the paper:

Individuals exhibiting problems repaying their debt obligations also exhibit much worse psychological health. Selection into problem debt on the basis of poor psychological health accounts for much of this difference. The causality between problem debt and psychological health may be two-way. Using individual-level UK panel data, local house price movements exogenous to individual households are used to establish the causality from problem mortgage debt to psychological health. In addition, the social norm effects of problem debt are investigated using local bankruptcy and repossession rates. Results indicate there are sizeable causal links and social norm effects in the debt-psychological health relationship.

The study’s findings are somewhat in contrast to the recent work by Brendan Walsh on the Irish Economy which showed we were bearing up rather well, but to be fair Brendan didn’t look at this link explicitly. An ungated version of the paper by Dr John Gathergood of the University of Nottingham is here (.pdf), the tables at the back of the paper are worth going through if you’re feeling wonkish.

In response to a question from Pearse Doherty, Michael Noonan provided a useful summary of the sequence of bank recapitalisations so far: available here.

Arthur Beesley has a nice article on the Danish experience here.

• Joschka Fischer, former German Vice-Chancellor
• Paul Gillespie, columnist at The Irish Times
• David O’Sullivan, Chief Operating Officer of the European External Action Service

Date:                            Monday 23 January 2012 from 7.15 to 8.45pm

Venue:                         Edmund Burke Theatre, Arts Building, TCD

European integration has been described as riding a bicycle – if you stop, you fall off. Many claim that the only solution to the eurozone crisis is greater European integration, but it is clear that there is little popular appetite for this.

The event will be chaired by Elaine Byrne, Lecturer in the Political Science Department, TCD.

More details here.

The details are here, deadline February 1st.   Online applications should be made at this site.

Its annual competitiveness report is available here.

Randy Henning and Martin Kessler have a PIIE/Bruegel paper on this topic - available here.

Synopsis

European debates over reform of the fiscal governance of the euro area frequently reference fiscal federalism in the United States.  In light of European decisions to reinforce deficit limits and proposals for deeper fiscal union, we review US fiscal federalism from Alexander Hamilton to the present, highlighting relations between the federal government and the states and the operation of balanced budget rules.  Hamilton originally “assumed” the debt of the states and the powers of the federal government grew largely from that decision.  Once its authority was established, the federal government shifted to a “no bailout” stance in the 1840s and states became fiscally “sovereign.”  States adopted balanced budget rules of varying strength during the nineteenth century on their own accord and these rules limit debt accumulation.  However, before euro-area member states introduce strict limits on deficits in their constitutions, “debt brakes,” they should consider three important caveats.  First, debt brakes are likely to be more effective when “owned” locally rather than mandated centrally.  Second, maintaining a capacity for countercyclical macroeconomic stabilization is essential.  Balanced budget rules have been viable in the U.S. states because the federal government holds a broad set of fiscal powers, including countercyclical fiscal action.  Finally, because debt brakes threaten to collide with bank rescues, the euro area should unify bank regulation and create a common fiscal pool for restructuring the banking system.

Paul Sweeney argues for an alternative fiscal strategy in this op-ed.

Ned Phelps has an op-ed in today’s FT.  He argues that one reason that the periphery got into trouble is that household wealth rose quickly during 2001-2007, discouraging work effort and thereby contributing to the rise in wages relative to productivity.

As reported by the Irish Times, the legislation to reform the personal insolvency regime will soon be published.  Readers are invited to comment on the appropriate period of bankruptcy and the appropriate treatment of mortgage obligations.

ESRI Director Frances Ruane writes an op-ed in today’s Irish Times.  There is also a report, based on an interview with her.

Congratulations to Philip for the award of an INET grant in the Spring round of grants by the Institute.

So writes Morris Goldstein in this VOX article.

This IMF working paper looks at the topic of financial stability reports:

Summary: The global financial crisis has renewed policymakers’ interest in improving the policy framework for financial stability, and an open question is to what extent and in what form should financial stability reports be part of it. We examine the recent experience with central banks’ financial stability reports, and find—despite some progress in recent years—that forward-looking perspective and analysis of financial interconnectedness are often lacking. We also find that higher-quality reports tend to be associated with more stable financial environments. However, there is only a weak empirical link between financial stability report publication per se and financial stability. This suggests room for improvement in terms of the quality of financial stability reports.