Author Archives: P O Neill

About P O Neill

is Irish and lives in America.

Can Japan cut public debt before it gets old?

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Today’s ratings downgrade by S&P for Japanese public debt has brought further attention to Japan’s huge and growing debt burden.  Yet with each round of concern, there’s always a viable response that says “So what, yields are still low.”  And it’s true; if you were looking for sustainability concerns to be expressed in the level of yields, it’s hard to find — and those low yields coupled with the yen policy provided the key ingredients of the boom-era carry trade.  An interesting working paper from the IMF looks in-depth at the reasons for the chronically low yields on Japanese public debt and comes to 2 conclusions. 

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Is the Eurozone an optimal language area?

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Some interesting linguistic thoughts from ECB President Jean-Claude Trichet in an interview with Focus –

FOCUS: Has the fact that you have learnt German helped you?

Trichet: It certainly has. At the ECB, we mostly talk in English. But in the corridors you’re just as likely to hear German, French, Italian or Spanish, and many other languages besides. Having some knowledge of the German language has enabled me to better understand the culture of the country. Oversimplifying, I would say that the French and English languages seem to be very much designed to “communicate”. My understanding of the German language is that it is very much designed to “think”, with its verbs at the end of the sentence. I am not surprised that it is such a good language for philosophy.

FOCUS: Are you trying to say that Germans are not as good at small talk?

Trichet: Not at all! I just want to say that the German language itself is particularly well suited to reflection. In speeches, for example, speakers let the audience think along with them. Only at the end of a sentence is the audience able to understand exactly what is actually meant. This is why it is pretty unacceptable for people in the audience to whisper during a speech.

Among other things, it highlights the huge backdoor influence of the Eurozone’s most significant non-member.  Which seems like an advantage for Ireland.

Government by Acronym

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Haiti is a country with at least 9 million people and GDP of $7 billion (pre-quake).  Think about that size of that latter number in relation to the usual magnitudes that we discuss on this blog.  But anyway, given its long-standing economic plight, Haiti also has extensive relations with international financial and development organizations and as part of that relationship, it has a poverty reduction strategy.  In February 2009, the government published a progress report on implementation of that strategy.  Here’s a paragraph on implementation (para. 37) –

Strategic-level entities: the Strategic Orientation Investment Council (COSI), the Donor Advisory Committee (DAC), and the Priority Arbitration Committee (CAP) are not yet officially up and running. At the operational level, the Interministerial Committee for Implementation Coordination and Monitoring (CICSMO) is up and running and is chaired by the Minister of Planning and External Cooperation. The Executive Secretariat of CICSMO, the key entity for the entire implementation mechanism, the Interministerial Subcommittee for Sectoral Coordination and Monitoring (SCTICSMO), and the Departmental Subcommittees for Implementation Coordination and Monitoring in the regions (SCDCSMOs) have been established. SCTICSMO is holding its ninth monthly coordination and monitoring meeting.

Does this sound like the kind of administrative weight that a country like Haiti could handle? And with the government now essentially destroyed by the earthquake, does it sound like the kind of thing they should rush to re-establish?  And yet as the demands come in for a “coordinated” approach to aid delivery, how does one avoid exactly this kind of structure emerging again?  There is going to be a clear tradeoff between getting aid delivered quickly and establishing any meaningful role for the government of Haiti in the crisis mitigation and recovery process.  Can you build a nation without a government?

 

 

When airport security is part of the problem

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A bizarre story from Dublin.  Short version: A Slovak agency was running a covert security check at an airport, which is presumably Bratislava.  The test involves planting explosive materials in the bags of unsuspecting passengers.  8 packages in total.  7 found.  One made it on to a plane to Dublin, and was brought home by the Slovak migrant who now lives there.  Apparently this was 3 days ago.  It’s not clear whether embarassment or delay in figuring out what had happened got us to today, when Irish police located the explosives and presumably various diplomatic notes are now being exchanged.  The timing suggests that the test was run into response to the Detroit bomb.  One wonders how much of this stuff goes on — perhaps the “someone must have put it there” excuse needs more credibility.

UPDATE: Initial word was sent by telex to the baggage handlers and not the Dublin airport authority.  Who uses telex anymore?

Special relationship, indeed

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For those of you who find the New Year’s celebrations too noisy and might be looking for an alternative use of your time, there’s lots of, er, fun to be had looking through the data in the latest IMF release of the Coordinated Portfolio Investment Survey (CPIS).  This is a survey that the Fund does to assemble data on cross-border holdings of equity and debt securities.  Unfortunately, some of the really juicy stuff is missing — don’t look here for data on overseas holdings of sovereign wealth funds or China, or assets held as official reserves.  And the new release only covers up to end-2008: financial markets had already fallen a lot, but much of the economic impact of the crisis was still to come.  But for the countries that do provide meaningful data, one learns quite a bit.

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Revisiting pension wisdom

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As Edward’s post below indicates, the ECB seems to be in a pre-Christmas rush of visibility to set out its opinions on various issues.  Jean-Claude Trichet delivered a speech on the topic of systemic risk at Clare College, Cambridge, today and it’s a nice roundup of the analytical progress so far and remaining challenges in understanding what the hell happened over the last year.   One of his incidental points worth noting –

What have we learned from this experience in terms of identifying those structural trends in financial systems that are important for systemic risk?  … Fifth and finally, as financial sectors develop, households may take greater risks, for example in mortgage markets and, more broadly, in their pension investments. While this also raises issues of consumer protection, from a systemic perspective, it becomes increasingly important to know how resilient the household sector and consumption can be in such a situation.

It would be hard to find a major report on pensions in any country in recent years that did not recommend a move towards a greater financial sector role in pensions (yesterday’s Irish budget made clear that this will be the future for new entrants to the Irish public sector as well as the established defined benefit system becomes a legacy program).   But as Trichet points out, no one has yet gone back and reconsidered what exactly this model of household investors does to financial market stability, and indeed to macroeconomic stability given the effects on household wealth.   In retrospect (and perhaps even at the time), such a lacuna in such a confidently expressed piece of conventional wisdom is amazing.

Ireland: The Reign of the Salaryman

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There is something very traditional about the Irish economic crisis.  If you consider the staples of 1980s economics, they were the ideas that nominal wages adjust very slowly downwards and that labour markets segment strongly into insiders who are able to hold onto jobs in recessions and outsiders who bear the burden of adjustment either through job loss or wage cuts.  That’s a fairly accurate description of Ireland over the last year.

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EU Lisbon jobs open thread

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It’s now clear that the Thierry Henry assist on the William Gallas goal last night is going to generate more commentary and interest than tonight’s filling of the new EU jobs (Council President, High Rep. for Foreign Policy, and Secretary General of the Council), but nonetheless, we could be stuck with these people for a while so no harm in keeping track.  What we know: Tony Blair is out of the running for Council President, but Catherine Ashton who arrived as Trade Commissioner in Mandy’s stead apparently on the inside track for the foreign policy job.  They’re probably still having dinner at the summit and perhaps Irish PM Cowen has already cornered Sarko to argue Ireland’s case from last night, so there could a lot of distractions.  But we’ll keep an eye on it.

UPDATE: Well, that was fast.  Once Blair was out, the deal fell into place.  Herman van Rompuy as Council President.   Almost as soon as Lisbon went live, the countries seem to be working to restrain its institutions.