Sunday, July 5, 2009

Economics 05/07/2009: EU Report on Euro area... Ireland's Banking obligations

The EU Commission has published its quarterly report on the Euro area economic performance. There is really very little new in the report relative to Q1 report, but some things worth highlighting (available here).

The Commission report providers two tables worth considering in more details. Table 3 below is not new - it has featured in January report by the IMF and then subsequently in other IMF/OECD/EU commission reports since.
But Table 4 is now published alongside Table 3 (if only a handful pages below), which provides for an interesting comparison. Suppose we take as a measure of affordability of banking measures, the projected overall health of the real economy, as reflected in the expected growth rate in real GDP. We compare this against the total level of liabilities assumed by the states in respect to the banking crisis... we plot the two things:
Oh yes, you've got it right - the country that is least able to pick up the tab takes upon itself the greatest level of liabilities... And, in case you wonder who is that lingering in the +/+ quadrant (combining economic growth and no bailouts):Yeps, that low tax export-oriented economy, called Slovakia and Financial Services exporting powerhouse of Luxembourg. Ever wondered if there is any proof that, contrary to Messrs Cowen, Lenihan and Mrs Coughlan's assertions, our failure is neither in our exposure to Global Finance, nor to Low Tax. Our failure is in our policies exposure to the likes of Messrs Cowen, Lenihan and Mrs Coughlan...

1 comment:

MK1 said...

Hi Constantin,

I think if we look at Table 3 again and analyse the figures without the state guarantee amounts, as these are 'promises' that may not be called upon, then the effective costs table would showa different picture.

However, what is lurking for us is NAMA, and a movement of private sector (banking) debt/bad debts to public debt. Where or how bad that will get is anyone's guess. We may have to review the table in 5 years to know how bad we were.

But all this is analysing the effects, not the causes nor remedying the causes and preventing them for the future. Most countries have stabilsed their systems/banks by taking on the problem onto the governments books, ie: by taking on the symptoms of the 'disease', not yet by fixing the cause. There is a long way to go in terms of financial systems reform, and governments have been too busy minding their own backyards in firefighting mode rather than fixing the problems.

I didnt say it was gonna be easy!