It’s make your mind up time

Like many people, I suspect, I usually check in on Sunday night to see what Wolfgang Münchau has said this week. This week’s article was a cracker, and it’s hard to see where he’s wrong. Either governments decide to make the radical reforms that are needed, or monetary union collapses: the news from Brussels this morning suggests that they are not going to do the necessary any time soon. The Government and Central Bank have had a long time now to get contingency plans in place, and it would be nice to think that they had actually done so.

Update: for similar views, see Sony Kapoor here, and Karl Whelan here.

Irish Governance in Crisis

In a piece in yesterday’s Sunday Business Post my colleague Dr Niamh Hardiman  makes a plea for better understanding of the roots of our current crisis in weaknesses in governance institutions. Such an understanding is a precondition for effective reform. She addresses weaknesses in parliamentary scrutiny, the capacity of the civil service for appropriate engagement over policy making, and the effectiveness of the public service itself. She highlights institutional explanations for tendencies for public policy to favour sectional interests, but argues that understanding the institutional weaknesses is the key to addressing them. The article is behind a paywall, but a fuller, multi-author examination of the issues is available in a book arising from a UCD project on governance, Irish Governance in Crisis, edited by Niamh Hardiman (Manchester University Press, 2012).

Colm McCarthy: Fours years on yet not even a parking ticket issued

Colm writes in today’s Sindo on the outstanding problem of obtaining satisfaction from those responsible for the banking crisis within the banks. As usual there is a lot to think about and digest, but one piece stood out for me:

In Ireland, almost four years after the balloon went up, not so much as a parking ticket has been issued. Inquiries are under way by the Director of Public Prosecutions, An Garda Siochana, the Criminal Assets Bureau and the Office of the Director for Corporate Enforcement but none has yielded fruit. The Irish banking bust has been described by Central Bank governor Patrick Honohan as one of the largest, relative to the size of the country, which has ever occurred anywhere.

The snail-race by the investigating bodies is an embarrassment, has fed public cynicism and the belief that those responsible for the disaster will never be brought to account.

The socially corrosive effect this delay is having cannot be estimated. There has been at least one file prepared and sent to the DPP, but that’s it as far as we go. Colm has a gloomy outlook on the possibility of any redress coming via the Oireachtas:

It does not matter which Oireachtas committee undertakes the next incomplete inquiry.

The importance of the current account

The current account is the sum of the balance of trade, factor income and cash transfers. It is one half of the balance of payments, together with the capital account. The current account matters in every country for a host of reasons, but it is especially important for small open economies like ours. Here’s the latest data on Ireland’s current account, here’s that data in chart form.

CSO.ie

We see the imbalance within the current account throughout the crisis. Much of this imbalance came through the ‘services’ and ‘income’ channels, as we can see in this figure that simply decomposes the components of the current account over time.

Components of the current account.

There is a new working paper from the ECB by Ca’Zorzi et al which shows that, accounting for a host of other factors, the current account imbalance story is really the only one that matters. Once the current account become decoupled from what the authors call ‘fundamentals’, the wheels come off the bus. This paper should be food for thought for our policy makers.

Successful Bill Auction

The remarkable thing about this morning’s 3 month t-bill auction is how unremarkable it was. The whole thing seems to have gone off without a hitch. Happy days. We’re not back in the bond markets just yet, but it is a good first step towards a return to business as usual.