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I will talk on this topic on Thursday at 6pm at the Royal Irish Academy.

Update:  I will post the paper and slides early next week.

Harvard’s Gita Gopinath is interviewed on these topics in the Review of Economic Dynamics Newsletter here.

Juergen Stark of the ECB spoke at the IIEA today and they have posted a video on their website:

http://www.iiea.com/events/crafting-monetary-policy-for-stability-and-convergence

The summary of the proceedings, from the IIEA website, is:

‘Dr Stark delivered a keynote address to a packed house in the Institute on the theme of Economic Adjustment in a Monetary Union. Commending Ireland as a “role model” for other countries embarking on programmes of austerity, he nonetheless acknowledged that “strong headwinds” in the global economy threaten to blow its recovery off course. “The sovereign debt crisis has re-intensified and is now spreading over to other countries including so-called core countries.”

Dr Stark delivered a keynote address to a packed house in the Institute on the theme of Economic Adjustment in a Monetary Union. Commending Ireland as a “role model” for other countries embarking on programmes of austerity, he nonetheless acknowledged that “strong headwinds” in the global economy threaten to blow its recovery off course. “The sovereign debt crisis has re-intensified and is now spreading over to other countries including so-called core countries.”

He went on to argue that the crisis was not confined to Europe and that it was in large part a crisis of confidence. It is important that advanced economies do not talk themselves into a second recession. That said, many of these economies urgently need to pursue fiscal consolidation or else their debts will sooner or later become unsustainable. Dangerous fiscal positions are often compounded by structural weaknesses and these too must be addressed. The fiscal outlook for many states threatens the broader economic situation, as do persistent macro imbalances.

Dr Stark recalled that there has historically been little urgency attached to the problem of heterogeniety across Eurozone economies by European leaders. Rates of inflation for example varied widely across Europe in the years leading up to the financial crisis. Risk was inappropriately priced up to 2007 and there are governments that have never properly adjusted to the demands of monetary union, which were well understood by its architects. As far back as 1998, finance ministers and heads of state and government agreed that economic and monetary union should never be used as a justification for financial transfers.

Speaking to journalists after the event, Dr Stark said that “Eurobonds, even if they’re called ‘stability bonds’, won’t solve the sovereign debt crisis in Europe, because they don’t tackle the structural problems some countries are facing.” They “seem to be feasible at a later stage, but only after the transfer of sovereignty.”’

Take a look. I promise to let you know what I thought of his presentation when France hits AA+. If this is avoided without a reverse tap  (in Italy or somewhere!) from the ECB, I will devote the rest of my life to writing, on bended knees, the definitive history of the Bundesbank.  

Wolfgang Münchau and Derek Scally each have thoughtful (and complementary) pieces on what it will take to solve the euro zone crisis.  (Apologies for linking to these so late in the day.)

Not mincing his words, Wolfgang Münchau makes it clear what won’t work:

The consensus view in Brussels and Berlin is that the crisis can be solved by technocratic governments imposing structural reform and austerity. That proposition is, in my view, insane. In any case, it will be tested shortly. Mario Monti, Italy’s new prime minister, is about to introduce a programme of reform and austerity. I wish him luck, but I doubt the bond markets will change their view on the sustainability of Italy’s debt in the absence of outside intervention. We have gone way beyond the point at which this crisis is solvable by standard instruments of economic policy. The survival of the euro will now depend on whether Ms Merkel or Mr Draghi, or both, will blink.

Derek Scally provides a useful window on German thinking.   I would be especially interested in thoughts on his closing paragraphs.

For Dr Merkel, limited treaty change to allow EU budgetary supervision is the sugar-coating she needs to sell to her voters the bitter pill of greater ECB market intervention or even eurobonds.

Far from holding the euro zone hostage to its hyperinflation history, some German analysts see Merkel readying herself for a euro zone deal, aided by her two new pragmatic allies in Frankfurt.

“Pushing for a new euro zone regime of rules is exactly what was to be expected from Berlin,” said political analyst Jan Techau, director of the Carnegie Europe think tank in Brussels.

“What people don’t understand is that this package of rules is the political price Merkel needs for German concessions on the ECB.”

The latest set of mortgage arrears data has been released by the Financial Regulator.  There are now 8.1% of mortgages in arrears of 90 days or more. 

There have been some suggestions that there is an increased number of “won’t pay” as opposed to “can’t pay” borrowers in the recent increase because of the debate about debt forgiveness and bankruptcy last August and September.  If someone decided not to pay at this time it is unlikely that they would have been 90 days in arrears when the data were collected. 

Most of the current quarterly increase is still likely to be as a result of those in the “can’t pay” category.  This may be different in subsequent updates.  Any change in bankruptcy law is not going to make provision for someone to be declared bankrupt because they won’t pay their debts.