22/8/2012: Globe & Mail: The Good, the Bad & the Ugly

My tongue-in-cheek piece for The Globe & Mail on Euro area crisis: here.

3/2/2012: De Kaufman Door 2

Another set of interesting survey results from the Kaufman Econ Bloggers Outlook Q1 2012:

John Cochrane asked: should the eurozone become: 1) a currency union without fiscal union, allowing

sovereign default; 2) a currency union with strong fiscal union; or 3) Broken up

(no euro) into national currencies or smaller units?

So let's set aside the political feasibility of each option, in the first-best economics world:

• Euro as a currency union without fiscal union, allowing sovereign default is an option for 22% of the respondents.
• Euro as a currency union with strong fiscal union is preferred by 27% of respondents
• No euro with national currencies returning or smaller sub-blocks emerging is favored by 51% of respondents

There are, really, only 2 surprises in the above:

1. Relatively large number of economists who believe that sovereign defaults can be sustained in a currency union with no automatic transfers specified (I presume that many could have simply thought that transfer systems can be established either under an EU Commission umbrella or via ECB) and
2. Only 51% of the respondents recognize that there is, under current institutional set up, no real chance of managing an economically effective functional monetary union. And that there is no need to do this either.

12/12/2011: What if - the value of the punt nua?

For those of you have been reading recent (weeks old) reports that Irish punt, were it to be reintroduced, can witness appreciation relative to the dollar or 'old' euro, here's the table from Nomura research that, in my view, more accurately reflects what's going on:

Even the above estimation suggest long-term equilibrium value (5 year horizon post-introduction) for the punt, in my view, which means that on the downward adjustment path it is likely to undershoot the new equilibrium level and first move to a devaluation of more than 28.6%. The problem in terms of predicting the actual short-term movement in the punt is that we will have to deal with a number of problems that will take place simultaneously upon re-introduction of the new currency. The analysis is also sensitive as to the nature of transition from euro to the punt, as well as to the assumptions on debt to be carried over into new currency against the debt remaining in foreign currency.


Note: specially for those trigger-happy readers, this is not, repeat not, my view on viability of the punt or the desirability of exit from the euro or retaining the common currency. This is simply 'what if' argument.