Monday, January 05, 2015

Readings on the Irish Economy post-2007: Suggestions welcome

Below is an incomplete list of articles from various sources that I think are important for understanding what is happening in the Irish economy at present.  Suggestions welcome. The podcasts and slides from January 2012's session  February 2013 session  and January 2014 session contain a wealth of information about the Irish economy.

Cormac O'Grada's brilliant non-technical summary of the five major economic crises faced by the Irish state since its formation gives the historical context. A good reference book for the Irish economy is the 11th edition of Economy of Ireland edited by John O'Hagan and Carol Newman. Standard of articles high in general but Jonathan Haughton's history of the Irish economy is particularly recommended. Patrick Honohan's short history of the Irish pound, written just as Ireland entered the single currency, is well-written and informative. In the spirit of "twas ever thus", Moore McDowell's piece on the devaluation of 1492 is an excellent read.

Morgan Kelly's UCD working paper on the Irish credit bubble is a very clear discussion of the collapse. His famous paper predicting the collapse of the Irish housing market is available here For a sense of the details of how Anglo Irish bank's loan book expanded so much during the 2003-2007 period and the subsequent unravelling, see two books by Tom Lyons/Brian Carey and Simon Carswell.  Michael Lewis's Vanity Fair article is one of the most detailed accounts written by someone in the international press.

The currently available documents relating to advice provided to the Department of Finance in the run-up to the bank guarantee are available here 

Patrick Honohan's ESR paper on the the Irish banking crisis, written before he took over as Governor of the Central Bank, is the definitive account of what happened and I believe will be cited in 100 years time when people seek to understand what went on.

One of the main policy decisions taken by the FF/Green government was the creation of a 'bad bank' called NAMA, National Assets Management Agency, to take property development loans out of the banking system. The blog Namawinelake contains extraordinarily detailed accounts of several aspects of the assets being managed by NAMA. Will add more readings on NAMA at a later stage.

Karl Whelan's 2010 article "Policy Lessons from Ireland's Latest Depression" gives the policy context of the period leading up to the economic collapse (thanks to Dan Davis for suggestion).

UCD Politics academic Niamh Hardiman has written a number of pieces on the political and institutional context of the Irish economic crisis. Her JSSISI paper on this topic is here

Philip Lane's article the Irish Crisis (working paper here) (other version here) examines origins of Irish crisis and conclusions for other countries in monetary unions (h/t Rob Farhat). His ESR paper from 2009 on a new fiscal strategy for Ireland is linked here

Morgan Kelly's May 2011 Irish Times article argued that the bailout deal would bankrupt Ireland and the main hope for rescuing the economy was to break out of it. "Cutting Government borrowing to zero immediately is not painless but it is the only way of disentangling ourselves from the loan sharks who are intent on making an example of us. In contrast, the new Government’s current policy of lying on the ground with a begging bowl and hoping that someone takes pity on us does not make for a particularly strong negotiating position."

Lorenzo Bini Smaghi's famous (at least in Ireland) FT article makes the case that Irish taxpayers should shoulder the bank debt as a fair consequence of having their own national bank regulator. His article in Foreign Affairs July 2011 gives a sense of his general view of what caused the euro crisis and might be a good hint as to what has been driving ECB policy.

Constantin Gurdgiev has been a strong critic of government policy throughout the period. An example of his critique is this December 2010 article about the inevitability of an Irish default under the bailout conditions "Instead of resolving the core problem of catastrophic losses within our banking sector and the related problem of the fiscal insolvency of our Exchequer, the ECB/EU/IMF loan created an internationally binding agreement that officially transferred the debts of our private banks onto the shoulders of Irish taxpayers. By doing so, the EU, with the complicity of the Irish Government, has delivered a full-blown contagion across the entire Irish economy.(see also  Debt Restructuring: Orderly, Selective and Unavoidable )

Gurdgiev, Lucey, Mac an Bhaird and Kelly (2011);  "The Irish Economy: Three Strikes and You’re Out?""We examine the three interlinked Irish crises: the competitiveness, fiscal and banking crises, showing how all three combined to lay a lethal trap for Ireland. Starting from a point of economic balance, a series of poor government decisions led to the country once dubbed the Celtic tiger become the second eurozone state after Greece to seek a bailout, with the EFSF/IMF intervening in late 2010."

Kevin O'Rourke's irisheconomy posts also give a lot of details and food for thought on the problems with austerity and the poor evidence on expansionary fiscal contractions. 

Colm McCarthy's recent article on the potential of the bailout process in Ireland recently is also important reading. The key point from many commentators is that, while the Irish are sticking to the programme, the nature of the programme has piled so much banking debt onto the sovereign that it has made the programme self-defeating.

Stephen Kinsella's recent article in Cambridge Journal of Economics on austerity in Ireland critiques the policy. His recent article in Foreign Affairs a lay account of austerity in Ireland.

Pretty much all of Karl Whelan's irisheconomy blogposts and on his own blog are important for understanding what has been happening over the last three years.

Frank Barry's December 2011 Bloomberg article makes the case that the euro project contains substantial design flaws that are damaging the prospects of recovery in Ireland.

The Target 2 debate has been a big part of the recent debate about Ireland in europe. See the article by Tornell and Westermann arguing that Germany's banks are propping up the periphery banks and Karl Whelan's refutation of this.

Karl Whelan's briefing note to the Irish Parliament on promissory notes is one of the most lucid and cogent accounts of how to solve Irish economic crisis.

June 2012 briefing from the INET council on the euro discusses potential rescue plans.

The "Manifesto for Economic Sense" outlines another model of rescuing the European economy.

The most recent IMF statements on the Irish economy are linked here by Philip Lane

Philip Lane's summer 2012 JEP paper on the the European Sovereign debt crisis is a must-read

Donal Donovan and Antoin E. Murphy "The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis"

Philip Lane's statement to the Irish Banking inquiry and list of his relevant papers are here


Daniel Davis said...

Karl's ESR paper from 2010 is good. The banking and propoerty stuff is covered by what you have already but he makes some good points on how we got to where we are fiscally and what lessons can be taken from this.

Liam Delaney said...

Good suggestion Dan. Have added to the list. Will be updating this throughout the week

Martin Ryan said...

Great compilation of resources; thanks Liam. Some suggestions are as follows.

1. Colm McCarthy's 2010 piece comparing austerity in the 80's with austerity over the last number of years: "Ireland‘s second round of cuts: a comparison woth the the last time", in John Springford, ed. Dealing with Debt: Lessons from Abroad. The article is accessible on page 41 of this Pdf.

According to Colm, the first Irish Fiscal Crisis took far longer to emerge than the second (and more recent) Crisis of 2008. "Significant deficits began to be incurred in the early 1970s after the first oil shock. In January 1980 (following the second oil-price shock of 1979), Taoiseach Charles Haughey made a famous TV broadcast in which he opined that “…we are living beyond our means”. He went on to promise an immediate austerity programme, but relented quickly". According to Colm, if Ireland's previous fiscal crisis had been acknowledged in 1978, and spending curbs implemented immediately, it could have been over by about 1982 or 1983. Of course, Colm's work with the first incarnation of "An Bord Snip" occurred in 1987.

Colm also discusses the 1988 tax amnesty: "a tax amnesty brought in the remarkable and unexpected sum of 2% of GNP in a single year (1988). It was one of the most successful tax amnesties anywhere at the time, and attracted attention from policymakers internationally." The amnesty is an important factor to consider in arguments about 'expansionary fiscal contraction' in Ireland, at the end of the 80's. Of course, earlier work by Karl Whelan (in 1997) is critical of the case for an EFC. Karl draws attention to external factors, such as the "Lawson Boom" in the UK.

2. While digging out Colm's article, I found a paper published last year in the journal 'Social Policy & Administration' by UCC scholar in social policy, Fiona Dukelow. "Economic Crisis and Welfare Retrenchment: Comparing Irish Policy Responses in the 1970s and 1980s with the Present".

Dukelow's paper "juxtaposes the impact of the current economic crisis on the Irish welfare state with the impact of the international economic crisis of the 1970s which had a sustained effect in Ireland during much of the 1980s." She argues that "welfare retrenchment has more readily occurred (in recent years) and, it would appear so far, at a potentially deeper level than during the 1980s."

Martin Ryan said...

3. I have found Colm McCarthy's columns in the Sunday Independent (often on the banking crisis) to be enjoyable to read as well as very informative. He has argued the case well that the IMF has a different outlook on several matters compared to the other members of the Troika. Many of these articles have been flagged on the Irish Economy blog by other contributors, and can be retrieved by putting "Colm McCarthy" in the search facility on the blog:

4. This isn't a link relating to the Irish case per se. But following on from Frank Barry's Bloomberg article, this (recent) special report from Reuters is a substantial overview on the history of the euro; and the nature of its design flaws: Special Report: Architects of a currency in crisis.

5. Following on from point #4, Kevin O'Rourke has made the point that many Irish experts (in the university setting) were against the idea of Ireland being part of the euro-area monetary union. This was noted by Kevin on the Irish Economy blog earlier last year: Jacques Delors is in agreement with those critics now: Euro flawed from start claims former EC president. I recently dusted off my undergraduate textbook on 'The Economics of Monetary Union', by Paul De Grauwe. I imagine there must be a strong appetite for courses like this at present.

Liam Delaney said...

Great, thanks Martin. I think the EFC argument is an important one here. Will add these refs and attribute you later. Colm McCarthy's Sindo articles have been vital in understanding things the last year or so.

More suggestions welcome.

Martin Ryan said...

Of course, the Irish pound was devalued in 1986 too. (David Madden mentions this in a comment on Karl Whelan's blog-post on EFC). So that also weakens the argument that there was an EFC in the wake of the 1987 adjustment. It also serves to highlight the absence of a currency de-valuation tool now. And as Colm outlines in his 2010 piece on Dealing With Debt, there is much else that is different this time around aswell:

"The circumstances of Ireland’s current fiscal crisis are markedly different from that of the 1980s. The 1987 to 1990 consolidation did not coincide with a banking collapse, nor did it coincide with a global credit crunch and a rapid world trade contraction. It also arose from a fiscal crisis that had been building over the entire previous decade."

Returning to the issue of the (aforementioned) design flaws in the euro, some commentators see these as an immovable barrier to anti-cyclical fiscal policy; in particular, with respect to the reluctance of the eurozone to borrow as a collective and use the resulting debt-finance for productive investment in high-unemployment countries. And so those commentators put forward their prescription for what they see as the most realistic demand-side solution: Adam Smith Institute, David McWilliams. Taking on board the need for capital controls and debt write-downs in such a scenario. As well as recognising that the Single Market is different to the eurozone; and that another IMF (only) package could be required after a eurozone departure.

Martin Ryan said...

The absence of federal borrowing by the eurozone, and the language impediment to labour mobility, are of course major items in any "compare and contrast" with the USA. The members of the North American currency-union can all speak the same language (I think that counts for a lot). Also, the federal machine in the U.S. can bail out state-level banking and industrial operations. That doesn't happen in the eurozone; countries have to borrow individually to provide relief for troubled assets in their financial institutions (without having any real autonomy over the special resolution regime).

Granted, Irish banks survive on a massive amount of liquidity provided by the ECB. But European banks won't lend to each other at the moment, so that domain is very problematic in general - and is not just an issue for Ireland. Yes, there have been some ECB sovereign-bond purchases, but those have been ad-hoc and highly criticised by senior German politicians.

There has also been the eurozone-17 guarantee to back the EFSF; but that is an emergency fund. One can argue that the EFSF is a stimulus of sorts (without it there would be less activity); but it is a drop in the ocean compared to the $787 billion stimulus initiated by Obama in 2009. Obama's $787 billion federal stimulus was explicitly counter-cyclical, predicated on collective borrowing, and was targeted towards the constituent states in that monetary union that needed help most.

Anonymous said...

Pete Lunn's "Role of decision making bias in the Irish banking crisis" is another suggestion

Enda Hargaden said...

"Gurdgiev, Lucey, Nic an Bhaird and Kelly (2011)"

Not sure a lad named Ciaran would like being named Nic an Bhaird :)

Liam Delaney said...

Thanks Enda. Just did a quick sex change there.