The Department of Sociology and the National Institute for Regional and Spatial Analysis at NUI Maynooth are holding a symposium on May 6th on “Liberalism in Crisis: US, UK and Ireland”. The conference is free but we are asking that people register before Wednesday April 30th.
Registration form and details at:
http://sociology.nuim.ie/LiberalismInCrisis.shtml
Further details of the event below the fold
Since the second half of 2008 this country has experienced the first sustained period of deflation in over sixty years. In 2009 the Consumer Price Index (CPI) fell by 4.5 per cent relative to 2008. Not since 1946 had the annual rate of inflation been negative. The record for deflation was in 1931, when the CPI fell by 6.4 per cent.
The accompanying Charts show the behaviour of the CPI and the Harmonised Index of Consumer Prices (HICP) over the past four years. (Am I only the only one to have the patience to enter Charts on this Blog?)
The CPI peaked in September 2008 at 108.4. By January 2010 it had fallen to 100.0, a cumulative fall of 7.7 per cent. The rate of deflation reached a maximum in January 2009, when a month-on-month decrease of 1.7 per cent was recorded. The HICP is less influenced by changes in interest rates, but it followed much the same pattern as the CPI, although varying within a narrower range. The month-on-month HICP deflation rate never exceeded 0.8 per cent, recorded in January and July 2009. It peaked at 110.0 in June 2008 and by January 2010 had fallen to 105.0, a cumulative fall of 4.3 per cent.
The rate of CPI deflation has tended to fall since early 2009 and the HICP since a few months later. By February and March of this year both were showing positive, if very low, rates of inflation (and seasonal patterns are in play). This reversal received little attention because most commentaries on the monthly CSO releases headline the year-on-year changes. Thus even as the monthly rate returned to positive territory in February 2010, the newspapers continued to discuss annual deflation rates in excess of 3 per cent.
In its latest Quarterly Bulletin (released last week), the Central Bank forecasts annual inflation rates for 2010 of -1.3 (CPI) and -1.1 (HICP). These are year-on-year forecasts and therefore reflect substantial carryover from the record deflation of 2009. If the CPI continued to edge up by 0.1 per cent a month from March to December 2010 – not implausible given that interest rates are on their way up, the euro is falling and oil prices rising – the annual rate of inflation for 2010 would be -1.3 per cent – exactly what the Central Bank forecasts. But by December the price level would be 1.4 per cent higher than it was in January.
This is another illustration of the tendency of Irish economy commentary tends to focus unduly on annual changes, to the neglect of significant indications from quarterly or monthly data, a phenomenon to which Rossa White drew attention in an Irish Times article last week.
For Greece (or any other fiscally-challenged member) to ‘leave the Euro’ involves the launch of a new curreny. From scratch. People talk as if the drachma lives on, cryogenically preserved in some icy Limbo for Currencies.
So the Greek government could thaw it out overnight, at some devalued exchange rate, and Bob’s your Uncle. This is moonshine. The Eurozone is not a fixed-exchange rate system, it’s a common currency area. The drachma has been abolished. This parrot is deceased.
Launching a new currency is a formidable undertaking in calm circumstances. In current Greek circumstances, and abstracting from the enormous logistic challenges, it is not do-able. There would be little point launching a new currency unless people could be induced to hold it. The prospectus would have to mention the debt ratio at 113% of GDP and rising, weak competitiveness, the largest adverse sovereign spread in the EZ and so forth. Who could be compelled to hold this currency even briefly (while it is being devalued) apart from domestic Greek recipients of pay and social transfers? Does anyone believe that the Euro would disappear from Greek trade and payments? Existing debts would have to be honoured in Euro – there is nothing else at present. Not even lawyers could hold that contracts were to be enforced in a currency which did not exist at the time the contracts were entered into.
There are 16 countries in the Eurozone, but 17 European countries use the Euro, the 17th. being Montenegro, which decided, at independence in 2002, not to launch a new currency. They use the Euro, do not get any of the seignorage as far as I know, but don’t have to spend half their lives in Frankfurt at ECB meetings, which sounds like a reasonable deal. (Memo to Montenegro: You may not have a currency to worry about, but you do have banks. Watch it!).
Who can say that Greece, having ‘left the Euro’, would not become a bit like Montenegro, with admittedly an unloved drachma for government internal transactions but most of the economy dollarised (or Eurinated)? Lufthansa reduces capacity a little on Athens-Frankfurt business class, but what else changes?
David McWilliams has advocated in his SBP column that Ireland should choose to ‘leave the Euro’. Please explain, in great detail (this is not a transition-year project) precisely
– how the introduction of a new currency in current circumstances would be executed, and
– how it would pan out in macro-policy terms.
German and other advocates of an expulsion option might join David in this exercise.
A recurrent proposal in the ongoing debate about institutional reform in Ireland is that the number of members of Dáil Éireann be reduced from the current level of 166. Perhaps this particular proposal receives prominence because it’s relatively easily understood, and is seen by some as a satisfyingly visible response to widespread alienation from politicians and politics as practised in Ireland. It receives additional and weighty support from the most recent (and much more wide-ranging) article in the Irish Times series on political and economic renewal, by UCD Professor David Farrell which you can read here.
While appreciating that it’s perhaps unfair to evaluate any one such proposal in isolation from the broader set of ideas with which it’s typically linked, I’m genuinely puzzled as to why it seems to have such immediate resonance and support, beyond the generalised antipathy towards elected politicians, an antipathy which some of them seem willing to enable, by competing to support a culling of their present –and future–numbers.
Let me explain why I think the reasoning behind this sort of proposal is problematic, with a nod towards a little naive economics argument towards the end.
John Bowman has put together two clips based on interviews with R. C. Geary to commemorate the ESRI at 50. The first of these was broadcast on RTE last Sunday (March 21st) and may be played back here.
It is vintage stuff and well worth listening to. He tells a great joke about old age at the end of the clip.
Younger econometricians among you will be amused to learn that the reason he advocated the Geary tau test for autocorrelation as an alternative to the Durbin-Watson was that it saved on computational effort!
The next programme with be on Sunday morning (28th March).