A Fiscally-Neutral Stimulus Package

Minister Brendan Howlin on RTE’s The Week in Politics has said the government are preparing a “stimulus package that is fiscally neutral”.  As a macroeconomist, this strikes me as a pretty strange concept. Pretty much everywhere else in the world, a stimulus package implies a set of measures that cut taxes or raise spending and are not “fiscally neutral.”

Still, one can hardly argue that the current set of tax and spending policies are optimised to generate as much employment as possible, so it may be possible to adjust policies to generate additional employment and I’d be interested in people’s suggestions for fiscally neutral measures that can boost employment. But shouldn’t we stop calling such changes “stimulus packages”?

Paul De Grauwe on austerity and implications of the ESM

The Sunday Business Post carries an interesting opinion piece by Paul De Grauwe in today’s paper.   Although articles are not available on the paper’s website until the Monday after publication, Cliff Taylor has kindly given us early access to article. 

The European Stability Mechanism will not not lead to more stability

After much hesitation and a lot of pressure exerted by financial markets, European leaders finally decided at the end of March to set up a permanent financial support mechanism which was given the name of European Stability Mechanism (ESM). From 2013 on, Eurozone countries will pool financial resources to be disbursed to member-countries in times of crisis. This historic decision illustrates the painful and slow way the Eurozone moves in the direction of more political integration in Europe.

Will the establishment of the ESM shield the Eurozone from future crises? My answer is unambiguous. It will not. In fact it is worse than that. Some of the features that have been introduced in the functioning of the ESM will make it more difficult for a number of countries, in particular Ireland, to attract funds in private markets.  These features will have the effect of increasing rather than reducing volatility in the financial markets.

Continue reading “Paul De Grauwe on austerity and implications of the ESM”

Troika Review Statements

The Irish government statement is here.

The EC/ECB/IMF statement is here.

A Tale of Two Trilemmas

I have a column today over at Eurointelligence which uses Dani Rodrik’s political trilemma as a framework within which to discuss the political economy of EMU and the EU more generally.

Honohan: Irish Times Interview

The interview is here.