Some time back I was guilty of mentioning the rumour that the public might be hoarding “German” euronotes (X-rated!) and getting rid of those issued by the PIGS. My attention has been drawn to a trenchant piece by Willem Buiter that shows there is no logic behind this mischievous piece of British Euroscepticism.
See http://blogs.ft.com/maverecon/2008/11/eurosceptics-remedial-education-class-1/.
Influential Belgian economist Paul de Grauwe argues in a Vox piece that ECB should be buying Irish and other high-yield eurozone sovereign bonds in the secondary market to correct what he describes as “panic” pricing. I think he’s got a point and it would certainly help stabilize expectations about fiscal prospects here and in those other countries.
It’s certainly no more radical than actions currently being taken by the Fed to stabilize their markets. A promising idea?
Ministers Dempsey and Ryan yesterday presented the new transport plan of the government. The document is long on intentions and targets, and short on specific action. It promises significant increases in e-working (from home), public transport, cycling, and walking, but it does not specify the measures that would stimulate this. As far as I know, we do not know whether people would want to work in rural e-offices, or whether their bosses would allow them to. We also lack the empirical basis to predict the effect of, say, road pricing for cars on, say, cycling.
Frank Barry recently came out in favour of congestion charges and road pricing. I fully agree. The government plan, however, does not get beyond a tame “we will think about it”.
The first set of measures in the plan are all about planning. The growing distance between home and work is indeed one of the main drivers of increased transport demand. The underlying forces are simple and hard to control. We would all like to live in a beautiful yet affordable house that is close to our work, our spouse’s work, and our childrens’ school — but such houses are rare. Most of the announced measures are in the mandate of the Department of the Environment, Heritage, and Local Government. Minister Gormley was absent, however.
(Interestingly, Minister Gormley did pronounce on the pay increases at ESB, although Minister Ryan is in charge there.)
The Smarter Travel plan professes faith in the power of government. It announces “We will establish a car-sharing website which will help employers to encourage such initiatives in the workforce. We will also work with our counterparts in Northern Ireland to develop a website applicable to the whole island.” Putting the Northern component to the side, if there were demand for a car-pooling website, would the market not deliver it? (It does in fact, see here.)
The plan is silent on increasing competition for bus and rail, or privatising CIE. Indeed, it announces more subsidies (capital) for Dublin Bus, Bus Eireann and Irish Rail. The document also contains a Freudian slip: “Link increased PSO [public service obligation] subvention to growth in patronage.”
The parts on walking and cycling are interesting too. The Smarter Travel plan reminds the reader of the tax breaks on new bicycles, which supports the owners of bikeshops (e.g., the Belfield Bike Shop) but does not stimulate cycling. The plan proclaims that furthering cycling and walking for recreation and tourism would stimulate cycling and walking for commuting (sic).
It announces that “We will ensure improved road priority for […] cycling access to […] airports”. I cycle anywhere in Dublin, but rarely to the airport because of luggage (long trips) and travel hours (short trips).
The plan announces that, from now on, the government will “[e]nforc[e] the law relating to encroachment on pedestrian spaces by motor vehicles, cyclists, skips and other obstructions”. It is a great good that the government plans to enforce the law. (Minister Ahern was not there either.)
For cars and trucks, the plan is “by 2020” to “maximise the contribution from second-generation biofuels”. Second-generation biofuels are currently in the research stage, with the first demonstration plants planned for 2015. It is unlikely that they will be deployed at any scale by 2020.
The plans for electric vehicles are wishful thinking too. The Smarter Travel document says “We will provide further incentives to encourage a switch to electric vehicle technology with the aim of achieving 10% market penetration by 2020.” Previously, Minister Ryan wanted 10% of the car stockin 2020 to be all-electric. This would have required that at least 50% of the entire world production of electric cars be bought in Ireland. 10% of the cars sold in 2020 is substantially less ambitious, but still hard to achieve. The electric cars currently on the market have two doors at most. The big car companies are betting on hybrids, plug-in hybrids, and smart diesels. The wishes of the Irish government are unlikely to make them change their strategy.
In sum, pious pleas, wonderful intentions, and wishful thinking on technological progress. All measurable targets are for 2020, which is at least two elections away.
I was idly looking for patterns in the daily evolution of eurozone government bond spreads (like you do) and thought I would share some findings. The spread of Irish Government bonds over the 10-year German benchmark have of course trended upward during the period since early September 2008 to last week:
If we compute principal components of the spreads of ten euro-currencies we can try to isolate the different factors: separating factors that affect all countries from those that affect Ireland in relative isolation.
Using daily changes in the spreads, the first three principal components explain 80% of the total variation in the ten series.
All ten bonds have roughly equal loadings on the first PC (which alone explains 62%). We can therefore think of PC1 as measuring fluctuations in general aversion to credit risk.
PC2 seems to measure a component which is irrelevant to Ireland — from the loadings this one looks like Club Med vs the North.
But PC3 is an almost Ireland-specific factor, much smaller loadings on the other countries. The big action in PC3 is on just three almost consecutive days in January: the 16th (Anglo nationalization), 19th and 21st.
To me this illustrates just how easily spooked this particular market is. Anglo nationalization was not even demonstrably bad news. When will it settle down to a realistic assessment of Irish risks?
Note:
The linear regression equation explaining changes in the Irish spread in terms of three principal components is (t-stats in parentheses):
ΔIreland = 0.020 + 0.015 PC1 + 0.042 PC3 + 0.024 PC4
(17.7) (32.7) (32.0) (15.6)
RSQ=0.958 DW=2.16
The constant term reflects the general upward trend in Ireland’s spread (which is not explainable by this method).
(Of course there are many methodological tricks one could explore, but it’s getting late and this seems enough for the present. Probably some readers do this stuff for a living!)
It is a headline that was sure to be written by someone and this week’s Economist runs with it: the article is here. However, the content of the article correctly focuses on membership of the euro as the key reason why the Irish situation is fundamentally different to the tragic Icelandic situation.