Category: Uncategorized

Peter Sutherland and Fintan O’Toole disagree.  Peter Sutherland’s FT article is here; Fintan O’Toole’s IT article is here.  [Reminder – my own op-ed from a while back is here; while my DEW slides are here.]

Fintan O’Toole argues that the Fiscal Compact is anti-Keynesian.  The treaty has to be read in conjunction with the “six pack” regulations, which allows considerable latitude for Keynesian fiscal policy:

The Council and the Commission shall take into account whether a higher adjustment effort is made in economic good times, whereas the effort might be more limited in economic bad times. In particular, revenue windfalls
and shortfalls shall be taken into account.

So long as Keynesian principles are followed in good times (pro-active tightening to guard against overheating), activism during downturns is possible.

Fintan O’Toole (along with others such as Colm McCarthy) criticises the insertion of the structural balance concept in the treaty.  Since the intention is to avoid the pro-cyclical dangers of using the overall balance (which would anti-Keynesian for sure), the structural balance concept is preferable.  Since there will be inevitably a wide range of plausible estimates for the structural balance in any given situation, the Compact will only rule out extreme fiscal mis-behaviour.

The Fiscal Compact Treaty has been accepted by many social democratic parties across Europe. For example, Sweden was among the early adopters of fiscal rules, since its political system recognised the importance of fiscal sustainability in preserving the government’s ability to manage the economy.

Of course,  it is obvious that the Fiscal Compact is only one of the required reforms in Europe, with the European-isation of banking policies, the introduction of risk-sharing mechanisms and the adoption of pro-growth strategies also important.  In a sequential process, the Fiscal Compact increases the likelihood of other reforms down the line.

(I am offline the rest of today but will try to respond tonight.)

Eamon Quinn reports on an interesting interview in this Dow Jones piece.

The WSJ carries an interesting report on how multi-country banking groups are using LTRO to ring fence affiliates in troubled economies (including Ireland), in order to limit the exposure of parent banks.

Some of the Central Bank’s main contributors to Friday’s SME conference report on how debt overhang is constraining bank lending to SMEs in this VOX article.

Colm takes a realpolitik look at the fiscal treaty in the Sindo today, and takes aim at the ECB and EU Commission towards the end. He argues that despite the treaty’s many flaws we should vote for it. From the piece:

Opposition parties appear to be limbering up for a referendum on austerity. There can be no referendum on austerity. The Irish budget deficit is far too big and will have to be reduced sharply, and soon, in any plausible scenario. That means more expenditure cuts and more tax increases.

Many voters will see the referendum as an opportunity to register a verdict on the behaviour of the ECB and EU Commission towards Ireland. They have done abysmally, culminating in the insistence by the ECB that a bust Exchequer should pay unguaranteed bondholders in a bank that has already closed.

No central bank has ever imposed such a burden on a bust sovereign anywhere in the world, to my knowledge. Fortunately, this negative verdict is shared by the International Monetary Fund, which called on Friday for a straightforward reversal of this extraordinary ECB policy.

The referendum should be supported. There will be later and better opportunities to reconsider the terms of engagement with the new Europe.