The Irish Economy

The IMF has released three major studies on the fiscal situation in advanced economies.

The summary is here, while the papers are available at:

• Long-Term Trends in Public Finances in the G-7 Economies

• Default in Today’s Advanced Economies: Unnecessary, Undesirable, and Unlikely

• Fiscal Space

Jeff Sachs writes on fiscal policy in the FT: you can read the article here.

Jeffrey Sachs joins forces with George Osborne to make the case for a frugal fiscal policy in this FT article.

It is good to see the fiscal policy debate ramping up in advance of the December budget. One aspect of the debate that has received a good deal of attention – not least from the Minister for Finance himself – is the problem of compounding debt service costs. This concern is understandable given the scary arithmetic involved. But it is not something usually emphasised by economists and I think is distorting the debate. (more…)

The two volumes can be found here: Vol. 1 and Vol. 2.

An initial glance through suggests that it’s all meat and little padding. It will be for others to frame the wider implications of what is being proposed.

There can be no doubt that the decisions that will be taken on public spending in the coming months will shape our society for a long time to come. Let the debate begin. And let’s get the balance of analysis and polemic right!

Update: OK, enough is enough. The volume of disparate comments — over a hundred now on this strand — tells me that some specialization is needed here, so I am opening five new strands to facilitate a more coherent discussion of sub-issues.

One strand, then, on each on the three biggest areas by spend (Social Welfare, Health, and Education) one on specific issues in the remainder and one on the strategic and structural aspects.

No doubt some contributors will also be drafting substantive posts on particular aspects, and on the overall implications of the report and reaction to it.

Roel Beetsma, Massimo Guiliodori and Peter Wierts have just released a very interesting paper that examines the gap between announced fiscal plans and final fiscal outcomes for a panel of EU member countries.  These authors find that  ‘implementation errors’ are sizeable and in fact fiscal outcomes tend to be more correlated with these errors than with the original plans. Recommending reading: you can download it here.

Axel Weber made an interesting speech last night. He recognises that European fiscal assistance to a member state may be possible, but only under extreme conditions. Moreover, in order to comply with the ‘no bailout’ clause, any loan would have to be conditional (he does not specify the list of conditions).

Key part of the speech:

“It should be emphasised that the “no-bail-out” rule, as stipulated in the EC Treaty, is an indispensable instrument for preventing moral hazard behaviour by the member states. With that in mind, issuing blank cheques would definitely be the wrong course of action.

Yet, EMU is our common destiny. If any kind of help for a member state were necessary in the improbable case of an extreme emergency, the clear conditionality of such support would be essential in order to comply with the Treaty.”

Jim O’Leary provides an extensive analysis of the options for this not-so-mini budget here.

Colm McCarthy’s presentation to the Green Party conference this weekend is available here.
McCarthy Green Conference March 7th 2009

Written by Patrick Honohan and Philip Lane, there is a new essay posted on the VOX website that seeks to explain the current state of the Irish economy and recommends a shift in fiscal strategy: you can read it here.

Update:  A shorter version of the article appears in the March 1 edition of the Sunday Business Post.

Update:  The article is also cross-posted at Roubini Global Monitor.