Category: Uncategorized

Brian Lucey’s Irishdebate session from today is available at this link Brian ran it pretty much like an office hour fielding questions and it was a lively session with good questions. The questions asked to Brian are not visible on the screen as in the live version so some of the youtube video might be unclear but it is mostly easy to figure out what the questions were.

Description;

Professor in Finance Brian M Lucey will be discussing “Planning for a post Euro Economy” With every week that passes it is becoming unfortunately clear that under present arrangements the euro cannot continue. We have seen political dithering of the worst kind, persistently, with the resulting vacuum in terms of policy being taken up by the European Central bank. Although one can criticize the ECB for many of its activities (not least the bewildering refusal to contemplate the other side of the fence in relation to Anglo) is to its credit that has at least stepped into the breach. However of all of the European institutions it is probably the least democratic, as independent central banks have to be. Every ECB action, no matter how well-meaning, in the absence of political and therefore democratic-based approaches further undermines the democratic legitimacy of the euro. Trust in the ECB has and will continue to dwindle. In any case ECB intervention in bond markets has at best only a temporary effect, and it is ultimately up to governments at national and European level to implement policies that restore fiscal discipline. The academic research on bond yields is thus while in the short term like any asset they can be moved by speculative positions in the medium and long-term contract very well against economic fundamentals.

Morning Ireland this morning carried an interesting exchange with Minister Rabbitte and his interviewer Cathal Mac Coille. At about 8 minutes in, talking about the EU-wide debt situation and Enda Kenny’s meeting with Dr Merkel, the Minister says the following:

Rabbitte: …. The Minister for Finance has hinted at areas where we are trying to alleviate the burden of debt that is on Ireland as a result of the legacy and the circumstances we’ve inherited from the last government and within the terms of the Memorandum of Understanding. I think he has set that out for example in maybe not explicit terms but significantly explicit terms in respect of the promissory notes arrangement entered into by the previous government where in excess of 30 billion debt—private debt—is expectedto be born by the government here. In the general arrangement, you know, it is a circumstance that this burden was placed on Ireland in order not to infect the banking system of the Eurozone. Now that is a very unfair burden and given the way we have complied with the strictures on us we are looking for alleviation on that.

The interview continues:

Cathal MacCoille: What about Treaty change? What is our position? It seems to be getting closer and closer, and the Germans are talking harder and harder about it.

Rabbitte: …no Irish political party wants a referendum, but I don’t think we shouldn’t dismiss sight unseen. I’ve great confidence in the common sense of a majority the Irish people. If there was a pathway out the morass we find ourselves in now, and if there was a significant alleviation in terms of the debt burden promised as a result of whatever Treaty changes might be contemplated then we would have to look at that situation very seriously. We’re not looking for a referendum we don’t want a referendum  but I’m not prepared to dismiss the idea of a referendum out of hand without knowing the context and without knowing what it would offer the Irish people.

Cathal MacCoille: It sounds like the money terms would need to be right.

Rabbitte: Debt sustainability is still an issue, but yes.

Is this the new talking point? Is it that case that Ireland’s promissory notes are the price of a ‘yes’ from the government to a possible Treaty change? If so: what should the ‘discount’ be? Karl (and indeed Lorcan) have been spending quite a bit of time on the promissory note story, and given the sums of money involved, it’s something we should keep an eye on.

The FT has an extended editorial on the euro crisis today – it advocates turning the EFSF into an ECB-funded bank.

The role of long-term debt in the funding of banks is addressed in this article in the latest ECB Monthly Bulletin.

The CGFS has put out a new report on this topic.

Abstract

Global liquidity has become a key focus of international policy debates over recent years. This reflects the view that global liquidity and its drivers are of major importance for international financial stability. The concept of global liquidity, however continues to be used in a variety of ways and this ambiguity can lead to unfounded and potentially destabilising policy initiatives.

This report analyses global liquidity from a financial stability perspective, using two distinct liquidity concepts. One is official liquidity, which can be used to settle claims through monetary authorities and is ultimately provided by central banks. The other concept is private (or private sector) liquidity, which is created to a large degree through cross-border operations of banks and other financial institutions.

Understanding the determinants of private liquidity is of particular importance. As many financial institutions provide liquidity both domestically and in other countries, globally, private liquidity is linked to the dynamics of gross international capital flows, including cross-border banking or portfolio movements. This international component of liquidity can be a potential source of instability because of its own dynamics or because it amplifies cyclical movements in domestic financial conditions and intensifies domestic imbalances.

Policy responses to global liquidity call for a consistent framework that considers all phases of global liquidity cycles, countering both surges and shortages. Measures to prevent unsustainable booms in private liquidity are linked with micro- and macroprudential policies as well as the financial reform agenda. Country-specific or regional liquidity shocks, in turn, may effectively be addressed through self-insurance in the form of precautionary foreign exchange reserves holdings and existing arrangements which essentially redistribute liquidity. However, truly global liquidity shocks necessitate direct interventions in amounts large enough to break downward liquidity spirals. Only central banks have this ability.