The new MOU between the Irish government and the EU/IMF has been released: it is available here.
The IBEC submission for next weeks “jobs budget” is available at this link. Details include suggestions on extra data collection, changes to the FIS scheme, national internship programmes, sectoral-specific recommendations in areas like energy and farming, change to bankruptcy laws and a loan guarantee scheme.
For those interested in behavioural economics, and its relevance to public policy, the recently released book by Congdon, Kling and Mullainathan, published by the Brookings Institute press, is essential reading. Entitled “Policy and Choice: Public Finance through the lens of behavioral economics”, the full book is free to download as a pdf file from the website. This is the best summary of the application of behavioral economics to public policy questions that I have read. There are chapters on asymmetric information, externalities, poverty and taxation, as well as summary and overview chapters. Ireland is in the process of fairly dramatically redesigning our health and pension systems and the insights from this book are extremely important to consider in this process. The first three chapters, in particular, are concise and clear descriptions of the main directions in this literature.
This post is well worth a read, if necessary using google translate. It essentially takes the well-known point that moderate inflation can be beneficial in that it helps downward real wage adjustment, in circumstances when this is necessary; and extends this to the context of real exchange rate adjustments in a diverse currency union. It also cites some supportive evidence from the history of the classical gold standard, courtesy of Flandreau, Le Chacheux and Zumer.
The text below is a secret draft of the opening scene of an upcoming Hollywood movie. The movie opens at some date in the near future with a conversation between a finance minister, let’s call him Baldini, and a European bureaucrat of Scandanavian origin, let’s call him Wally. (Any resemblance between the characters below and real individuals is purely intentional.)
Wally: Greetings Mr. Minister.
Baldini: Ahh, tis yourself Wally.
Wally: Mr. Minister, I bring a proposal from your European partners.
Baldini: Pray tell, Waldo, what’s the deal?
Wally: Well, as you know, our Greek sovereign debt restructuring has gone fantastically. Combined with the sale of Macedonia to the Former Yugoslav Republic of Macedonia, we’ve practically solved all our problems there. So we’re thinking it’s your turn. We’re proposing that you lengthen maturities on your debt and cut back on some of the principal to reduce your debt burden by over €30 billion. And, to be honest, you’re not getting another red cent from us unless you agree.
Baldini: Is that so? Well you know what Waldo, we’ve got a different plan, one that also reduces our debt by €30 billion but doesn’t involve defaulting on our sovereign bonds.
Wally: Really Minister, this isn’t a time for gallows humour.
Baldini: Indeed, there’s nothing funny about it. No, I’ve been talking with the brains trust here at the Ministry and they’ve explained to me that apparently we’re going to be writing a cheque every year for €3.1 billion until two twenty three and then a bit more after that. Now I’ve been trying to get my head around this business, but I’m just a simple fella, and I can’t figure out for the life of me what we’re getting in return for this money. So, I’ve decided to cancel it. I hear your Eurostat boffins have been counting all of these payments as part of our national debt, so we’ll give them a call in the morning to let them know they can forget about that.
Wally: Really Mr. Minister, this isn’t a time for jokes. I’m sure you’re well aware that the, ahem, promissory note payments are the main asset of a certain Anglo Irish Bank and, its terrible twin, the Bank of Fingers. And I’m sure you’re also aware our beloved ECB is owed a fortune by those two institutions. You can’t really expect to endanger the ECB in this fashion.
Baldini: Hold your horses Wally! Sure aren’t the ECB’s loans to these banks fully collateralised, over-collateralised in fact. Sure I’ve met those ECB eggheads many’s the time and there’s no flies on them lads. I’m sure that’s lovely collateral they have, so no need to worry.
Wally: But, Mr. Minister, don’t you know that the promissory notes have been used as collateral for the loans from the Irish Central Bank to Anglo and the Bank of Fingers?
Baldini: Is that so? Ah well, sure that’s Paddy Honohan’s problem.
Wally: Ah now Mr. Minister, come off it. You know well that without the promissory notes, these banks can’t pay back the emergency liquidity loans they got from the Irish Central Bank and your predecessor has guaranteed that state funds would be used to pay these loans back if necessary.
Baldini: Really? Ye think? I’ve wondered about that. Wouldn’t you imagine there was a major debate in the Dail about that guarantee? But you know what, I couldn’t find anything in the records. And we’ve had the lads here in Merrion Street scouring the place for that guarantee and still nothing’s come up. Sure ye can’t find anything anymore since we introduced that new PPARS2 IT system … No, I’m afraid me mind’s made up. No more promissory thingybobs anymore.
Wally: But this will mean that Anglo and INBS’s debts will have been monetised!
Baldini: I dunno Wally, you’re a quare fella. What’s monetised mean?
Wally: I’m going to have to talk to Mr. Drago about this. I suspect he won’t want to keep lending all that money to your other banks.
Baldini: Well sure we’ll see about that won’t we?
[Baldini raises one eyebrow at the camera. Fade to black].
The question is what happens next?
Suggestions for the casting of Baldini and Wally are welcome. Leonardo di Caprio has expressed an interest in playing the minor but crucial role of Lorenzo Beeni Silly.