Where competition fails…and where it works, A guest post by Paul Hunt

‘Competition and consumer choice’ has become a policy mantra to shake up dozy and inefficient industries and to benefit consumers.  EU and national policy-makers and regulators have expended huge effort – and continue to expend effort – to complete the internal EU markets in electricity and gas in line with this mantra.  But all that has been achieved is to move from vertically integrated national monopolists in the individual member-states to a pan-European oligopoly comprised of 12 members (responsible for 85% of EU energy supply) and some residual dominant national incumbents.  (Successive Irish government, not surprisingly, have implemented their own cunning variation on a theme.)

So how did this happen – and what can be done?  The Troika is demanding some action on electricity and gas in Ireland.  The solution outlined has relevance to sectors that, at first sight, appear unlikely candidates.

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The Role of Competition in Ireland’s Economic Recovery

A number of the papers/presentations from last week’s Competition Authority conference are now available: see here. 

Last night’s The Frontline programme had an interesting discussion on competition in the market for GPs, among other topics related to the functioning of the health care system: see here. 

Coming soon . . . a guest post by regular IE contributor Paul Hunt on the failures of the “competition model” in key utility industries.

Monetary Dialogue Briefing Papers: June 2011

The latest collection of briefing papers for the European Parliament’s Monetary Dialogue with the ECB are available here (click on 30.6.2011). One set of papers (including one by me) discusses the prospects for monetary policy in light of the wide variations in the economic cycle across different Euro area economies. The other set of papers discuss issues related to restructuring Greek debt.

I’ll repeat my final couple of paragraphs here. These were written prior to the comments discussed here

The relationship between the ECB and the peripheral economies has become extremely complex. However, it is clear that ECB officials have regularly used the implicit threat that they can withdraw their support for peripheral banking systems, or else continue to provide funds to “persistent bidders” at interest rates that are perhaps considerably higher than are charged to other countries, as a way to obtain actions they deem necessary.

In relation to Greece, ECB officials have been using the threat of the withdrawal of the eligibility of Greek sovereign debt as collateral for open market operations to put forward their argument against any debt restructuring. In the case of Ireland, it is known that Irish government officials have requested that assurances be provided that the ECB will continue to provide sufficient liquidity to Irish banks over the next few years, perhaps via a special medium-term facility. However, no such assurances have been provided. And without greater clarity on the timeframe for repaying their loans to the ECB, it will remain impossible for even recapitalised Irish banks to obtain market funding.

The ECB’s strategy of threatening peripheral banking systems (and the regular coverage this receives in the media) has become one of the destabilising factors that have contributed to worsening the current crisis. It is time for this poorly-thought-out strategy to cease. The ECB’s obligations under the European Treaty mean that it cannot help peripheral countries via keeping interest rates low for the next few years. But it can continue to act as a lender of last resort to the banks in these countries in a way that reassures (rather than worries) financial markets.

To my mind, the latest “anonymous ECB official” comments represent a new lowpoint for that particular institution.

Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies

Readers may be interested in this new CEPR report (I am one of the co-authors). A VOX summary article is here. The full report is here.

Alan Greenspan Interview

Charlie Rose interviews Alan Greenspan (see here, click on picture; 37 minutes long).   There are some interesting comments on Greece at the beginning.