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Colm McCarthy sums up the case for a third benchmarking exercise in his Sindo column. Read the whole thing, but this quote more or less sums it up:

The case for dismantling them is simple. The employer is bust, the good times are over and the financial stability of the State is on the line.

There are pros and cons to Colm’s argument, and second order effects to any change in public sector pay, just to pick two: given that the ESRI estimated in 2010 that for every €1 billion in public sector cuts, consumer spending falls by approximately €750 million. Our household debt levels are some of the highest in the world, so large drops in public sector pay might well lead to a spate of defaults. But a benchmarking exercise seems like a very sensible way to proceed in my opinion.

Readers might be interested in a medium-term perspective on Irish living standards.

Eurostat compiles a series on GDP per person measured in PP$. The values for each country are expressed relative to the average for the EU27 or EU15. This provides a time series that can be used to gauge the trend in relative living standards before and during the recession.

My first graph shows the values for Ireland, Spain, Portugal and Greece from 1999 to 2011.
As usual a caveat attaches to the use of GDP data for Ireland, where the gap between national income and GDP is unusually large and has been growing. In 1999 national income / GDP ratio was 86 per cent, by 2011 it had fallen to 80.7 per cent. Thus not only does the use of GDP tend to overstate the level of Ireland’s standard of living, it also distorts the trend. For this reason I include a series for Ireland that adjusts the GDP data downward by the national income / GDP ratio

The graph shows that according to GDP Ireland started from a position about 10 per cent above the EU15 average in 1999 and zoomed ahead to enjoy livings standards over 30 per above the average by 2007. According to the more realistic measure based on national income, Ireland reached the EU15 average in 2002 and was about 15 per cent above it by 2007. The other three countries achieved some modest catch-up over these years.

All four countries suffered a marked decline in living standards relative to the EU15 average after 2007. The scale of the decline is surprisingly uneven, with Ireland (on the GDP measure) suffering a 14 per cent drop from 2007 to 2011, while the drop in Portugal was only 1.6 per cent, 4.9 per cent in Spain and 8.0 per cent in Greece.

If we focus on the national income measure for Ireland the drop in living standards was almost 20 per cent. This implies that we are now one fifth worse off relative to the EU15 than we were four years ago. Our standard of living has fallen below the EU15 average for the first time since 2001.

The second graph compares Ireland with the UK. When the comparison is based on Irish GDP, it may be seen that we went way ahead of the UK between 1998 and 2007. After 2007 the Irish relative position deteriorated but by this measure we still remained almost 20 per cent ahead of the UK in 2011. When the comparison is based on national income the Irish performance relative to the UK is much less impressive. We drew ahead briefly between 2005 and 2008, but are now some 5 per cent behind.

The CSO have published their first estimate of the Q2 2012 National Accounts.  In line with the inherent volatility in the quarterly national accounts the overall directions from Q1 have been changed.  Seasonally adjusted real GDP was flat in the quarter after a fall of 0.7% in Q1.  The equivalent numbers for GNP are a quarterly rise 4.3% after a fall of 0.1% in Q1.

The Q1 2012 figures were also revised.  The 1.1% quarterly drop in real GDP has been revised to a drop of 0.7%, and the 1.3% drop in GNP initially reported for Q1 has been revised to a fall of just 0.1%.

The quarterly rise in GNP is largely the result of a drop in the net outflow of Net Factor Income rather than any improvement in the domestic economy.  The Balance of Payments release covers this in more detail which shows a €3.2 billion current account surplus for the quarter.

All of Consumption (-0.4%), Investment (-29.4%) and Government (-3.9%) fell in real terms in the quarter.  The large drop in Investment comes after a equally large increase in Q1.  All three are also below their 2011 levels.

Quarterly GDP rose because of an improvement in the balance of trade.  In real term quarterly seasonally adjusted exports fell 0.5%  but imports fell 5.2%.

In annual terms GDP in Q2 2012 was 1.1% lower than in the same period last year.  Constant price GDP for the first half of 2012 is just 0.3% higher than for the first half of 2011.

In nominal terms both GDP (0.5%) and GNP (4.3%) rose in the quarter.  Nominal GDP for the first half of 2012 is estimated to be €81.3 billion; for the equivalent period in 2011 it was €79.1 billion.

Vincent O’Sullivan and I spend some time thinking about the proposed new supervisory authority for the EU run from the ECB in this Vox article, and get worried about the uncertainty the proposal generates. It complements our Harvard Business Review piece earlier in the week.

The question for our blog’s readers is: would a pan European regulator have stopped (or substantially reduced) Ireland’s buildup of private debt during the boom? Obviously gaining an Eurozone-wide perspective is a good thing but detail may be lost in the process.

Meant to post this earlier. The CSO released its figures for August on the 13th of this month, inflation as measured by the HICP is rising at 2.6% year on year. The live register and the related unemployment picture released on the 5th is, frankly, horrendous. I haven’t seen a discussion of these figures on Irish Economy. Constantin has a nice post showing inflation stats in an historical perspective.

This chart is still shocking, despite there being essentially no new information within it.