Using the Eurosystem Household Finance and Consumption (HFCS) data, this paper identifies the key differences in borrowing behaviour between core and peripheral nations. As such, we focus on non-collateralized debt such as credit card loans, bank overdrafts and other forms of non-collateralized debt, which reflect daily borrowing behaviour more closely than does mortgage debt. We examine the differences in levels and prevalence of these debts, and break down these differences into two major components: financial perceptions and the economic environment. We aim to explain to what extent these influences contribute to the differences in debt ownership and levels of holding between core and peripheral countries in Europe. We found that differences in financial perceptions do contribute to the differences in debt in a significant way, while the economic environment contributes little to this outcome. Households in the European periphery are much more conducive to debt if they have the same financial perceptions as those in the core countries in Europe.
Sir, I read with interest Prof. Hans-Werner Sinn’s assertion (“Why Greece Should Leave theEurozone”, July 24, 2015) that Ireland’s austerity effectively ended in 2010. As an Irish citizen and an economist I can tell you it didn’t. Dr. Sinn says the bubble burst in 2006, it was 2007. Dr. Sinn says no fiscal rescue was available—there was, but it wasn’t enough. Irish debt relative to GDP went from about 35% in 2006 to about 124% in 2013. Dr. Sinn says Irish wages fell drastically. Not so. According to Ireland’s Earnings, Hours and Employment Costs Survey, private sector wages fell by about 4% while public sector wages fell by about 3% over the crissis. Not nothing, but hardly a drop justifying the term ‘drastic’. What actually happened was employers reduced their wage bills by reducing employment and average hours worked per employee. This is important because what is really going on in the Irish economy is a Keynesian adjustment in quantity of labour and not a neoclassical wage-rate adjustment, implying the ‘cure’ for Ireland’s problems was not so much a supply-side set of ‘reforms’ but a (an?) increase in demand, first from the rest of the world thanks to Ireland’s remarkable openness as an economy, and then from a demand response following the end of austerity in 2013--not 2010. The Greek economy is nowhere near as open as the Irish economy, and, as measured by the cyclically adjusted structural balance, has already endured more than double the amount of austerity than Ireland. The Irish story isn’t a price adjustment, it’s a quantity adjustment. Dr. Sinn gets the most important part of his diagnosis wrong. His prescription is likely to kill the Greek patient. I’m not calling him a quack but if it walks like a duck, etc.
Published in the NYT on the 11th of August.
I wrote a short piece on how one might make a bit of dosh in a low growth environment for RABO here.
Today I launched a report commissioned by Early Childhood Ireland called Footsteps for the Future, looking at appropriate and well costed policies which could, over time, deliver real changes to the system of early childhood education we have in this country. A summary of the report and a full download is here.
Together with Dan O'Brien and Constantin Gurdgiev I gave evidence to the Joint Committee on Finance, Public Expenditure and Reform, and a pdf of the opening statement is here.
Today I spoke at the IIEA on the theme of Consolidating Ireland's Recovery – What Next?, with EU Commissioner Pierre Moscovici, Minister Dara Murphy and Bank of Ireland's Loretta O'Sullivan. The event was chaired by Dan O'Brien and was really informative. Slides and video will be up here in due course.
I gave a talk last Wednesday at the Websummit's offices on Energy, Patterns, and Consumption, and enjoyed myself immensely. My talk slides are here (.pdf).
Last Friday I gave a presentation at ground rounds at University Hospital, Limerick. The feedback was fascinating, and my slides are here.
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.
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.
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.