(This is an unedited version of my Sunday Business Post column from yesterday)
Today’s Red C/Sunday Business Post Poll shows us one uncomfortable truth: when you’re the incumbent, you can buy an election. Look closely. The results are stark. Fine Gael and Labour are experiencing a bounce in their fortunes as more and more people feel a bounce in their pay packets. Despite the Taoiseach’s approval ratings falling faster than the price of a pint of crude oil since he took office, 42% of respondents trust the government to stabilise the public’s finances, up from 37% in 2011. Almost half-47%-of respondents are worried a change in government would actually stall a recovery.
And this is before the real giveaway begins.
(This is an unedited version of my Sunday Business Post column from last Sunday).
You know you’re living in interesting times when central bankers are objects of fascination. Normally so boring they send valium-dependent accountants to sleep, central banking is where modern monetary policy is being made at speeds that would give previous generations nightmares. The key problem is how interconnected every asset class, every currency, and every banking system is today. Complexity, contagion and the problems of coordination
The economies of the West are either stagnating or in danger of stagnating, and the Eurozone is falling slowly into deflation. The yields (or percentage return) on the sovereign debt of the periphery and core of the eurozone look very, very odd at the moment. Have a look at the chart showing yields for major and minor countries. It really shouldn’t look like this. In many cases the yields are actually negative, meaning if you invest 100 euros into the short term, 2 year, debt of a country like Germany, you’ll get something like 98 euros back. In Switzerland, you have to lend their government money for more than 9 years before you’ll see any positive return on your investment. The only places you’ll earn a positive return on your investment of any kind is the European periphery. That’s nuts. You have sophisticated investors queuing up to lose money. That’s nuttier than the stomach of a nut-loving squirrel with an appetite. And yet this nuttiness is a persistent feature of the economies of Europe.
Last night I spoke to the UCC economics society on the subject of the banking inquiry, and what we might learn from it. My slides from the talk are here. I'm more hopeful than most, but then it seems I'm less of a cynic than most, too. It was a fun talk and the organisers of the seminar series are to be congratulated for putting it together so well.
(This is an unedited version of my Sunday Business Post column from yesterday.)
'To be Irish is to know that in the end the world will break your heart.' You can usually tell a lazy opinion writer by the number of pithy quotes they use. But it’s worth breaking my rule this one time because Daniel Patrick Moynihan’s words give me pause when thinking about Ireland’s recovery.
I live in Limerick and I can hear the chest thumping from the government all the way down here. “Ireland is the fastest growing economy in Europe, yes it is”. Thump. “We did that”. Thump.
My slides from Friday's keynote address to MABS in the Marino Institute are here. A video will be up later and I'll pop that up here too.
Many thanks to everyone who participated in the event, particularly the Minister for Social Protection and, of course, the graduates themselves.
(This is an unedited version of my Sunday Business Post Column from yesterday).
Nothing is ever learned for long.
It has been denied so strenuously by all and sundry so we can take it as read the collective wage bargaining arrangement known as social partnership is back as part of a new national social and economic dialogue process. The influence of the Juncker Commission in reviving the process at the European level is important to note, but we need to see the details of this process as it will work in the Irish context. Will it be a forum for constructive dialogue, a talking shop, or a veneer for collective wage agreements of old?
(This is an unedited version of my Sunday Business Post Column from yesterday.)
International Airlines Group’s bid to purchase Aer Lingus is bringing out the worst in the political classes and showing precisely why ownership of state assets should be externally monitored and all divestitures examined for conflicts of interest. Chests are being puffed up to harvest-frog levels as Ministers and TDs in shaky seats whose constituents have a chance of being effected by any change line up to bash the bid. IAG’s Willie Walsh had a bit of a grilling at the Oireachtas transport committee, but let’s be fair, it was like watching someone getting mugged by a band of squirrels. Lots of noise, little real impact, lots of nuts.
Our new FESSUD Working Paper is here.
We examine the macroeconomic factors associated with financialisation in Ireland and Iceland from the perspective of international capital flows. To understand financialisation in the two countries we construct three ARDL models using three aspects of financialisation: financial depth, credit growth and deposit liabilities of the financial sector. Focusing on the current account, we find that financialisation is associated with an increase in foreign rentiers’ profit due to excessive international borrowing. Our measures of financialisation indicate that trade openness, also a measure of globalisation, has a negative relationship with financialisation in Iceland, while in Ireland the relationship is positive. Our results also suggest that both countries experienced an increase in the wage share along with rapidly increasing household debt in Ireland and increasing non financial corporate debt in Iceland. We conclude that institutional differences played a vital role in the solutions to the crises which destabilised the economies of Ireland and Iceland. We use the institutional differences between the two economies and suggest policy prescriptions to limit the scale and scope of similar crises in small open economies.
(This is an unedited version of my Sunday Business Post column from last week).
If you are a 20 year old Greek man, Greece has been in a depression for all of your adult life. You have never had state-sponsored health care. More than 50 percent of your generation are unemployed. Greece has now endured more austerity and economic misery than Germany did after World War 1.
There is now no comparison which can be made to the sacrifices the Greek people have made in service of a large primary budget surplus to pay off its creditors without invoking wars. That should tell us something.
Greece is an economy with an unsustainable stock of debt. Everyone knows that. All of the parties involved have done their analysis of the sustainability of Greek debt. Every independent analyst’s spreadsheet has ground out a big fat Greek ’no’ to the question of whether this tiny, embattled economy can ever hope to pay off its debts.
(This is an unedited version of my Sunday Business Post Column from yesterday.)
Iceland knows how to deal with bankers who commit illegal acts in the course of their duties. This week, four former bank officials from the Kaupthing bank were sentenced to between four and five and a half years in prison, and asked to pay their full legal costs of close to €700,000. Ouch. The same bankers face further charges of fraud and market manipulation. Corporate malfeasance meets personal consequences for those who break the rules.
Iceland is an outlier in its treatment of bankers, as it is in many things.
(This is an unedited version of my Sunday Business Post on the 8th of February)
Credit. Economies can’t live with it, and can’t live without it. Credit greases the wheels of the economy, gets investment going, changes household and firm’s expectations about the future. Credit also blows up economies on a semi-regular basis. As a nation of 4.58 million reformed credit junkies, we should know our limits when it comes to using this potent stuff, but, in the end, nothing stays learned for long, and we’re back asking for more before we’re really ready for it.
A property market bubble shouldn’t be able to start without access to lots of credit. But that might be happening in parts of Ireland right now.
(This is an unedited version of my Sunday Business Post column from the 1st of February).
The media have exhausted every possible Greek cliché and trope, and are now spilling into Roman ones as the crisis rumbles on. We’re told the Greek government is crossing the Rubicon when it announces that, for it, the bailout is over. The President of the Eurogroup, Jeroen Dijsselbloem, has held talks with the newly elected Greek government this week to discuss the approach Greece will take to dealing with its creditors.
(This is an unedited version of my Sunday Business Post column from the 25th of January.)
ECB President Mario Draghi’s announcement of quantitative easing (QE) was like the Late Late Toy Show for monetary policy geeks. Having leaked the fact that the ECB would begin asset purchases of around 50 billion euros for 18 months to restore inflation to the flagging eurozone, Mario then announced 60 billion’s worth of purchases until at least September 2016.
An old hand I spoke right after the announcement to found it hilarious, calling it an old trick US corporates used to do in the 80s when announcing their earnings—leak a lower number then beat the leaked number to juice the stock, and to avoid the crucial announcement being greeted with a ‘meh’ by the markets. Mario’s body language, even joking with the Press, said it all: ‘relax folks, I’ve got this.’
Presentation is here.
Links we will use in the presentation are below, in case they don't work within Rpubs.
ECB Bulk downloads | Manual
US Flow of Funds
(note: this is an unedited version of my Sunday Business Post column from last week).
Currency trading is not for the faint hearted even at the best of times. At the end of this week, most currency traders are probably a year closer to their first heart attack. Switzerland’s Central Bank removed its currency ceiling against the euro it instituted during the euro crisis and cut its base interest rate to -0.75% in order to avoid deflation. Now not only is the currency going wild on the markets, actually leaving money on deposit with the central bank will cost you money. Negative real interest rates are going to be a feature of central banking for the foreseeable future. It’s a weird time to be a central banker, and a frankly scary time to buy and sell currencies.