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.
Author Archives: P O Neill
The finance minister is unwell
What is the threshold for reporting on the health status of the Minister of Finance? Here’s a study in contrasts between Ireland and Japan.
Revisiting pension wisdom
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
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.
EU Lisbon jobs open thread
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.
Ireland’s slow motion fiscal crisis
There’s a “normal” path for a fiscal crisis. Some vulnerabilities build up. An external shock tips things over the edge. The country struggles along for a while but eventually refinancing or rollover risk forces the issue: new debt can’t be sold and the Impossible Missions Force is the only available lender. An ugly but usually effective correction takes place and eventually access to capital markets resumes. Of course there are exceptions but that’s the broad outline and some 2009 crisis countries may already over the worst. Then there’s Ireland.
Sweden politely lays down the law
Not since the glory days of Gustav Adolf the Great has Sweden wielded such power in Central Europe. It’s been a busy day. First, PM and European Council President Fredrik Reinfeldt held a meeting with under pressure Czech PM Jan Fischer to discuss the status of Czech ratification efforts on the Lisbon Treaty (in an omen, Fischer’s plane was delayed). The other two European “Presidents” (commission and parliament) were also there.  Reinfeldt’s careful formulation: “it is important that we are flexible and ready to act”, meaning that no more pressure on the Czechs on top of what is already there, but background preparations for treaty implementation will proceed nonetheless. Meaning specific job descriptions and candidates for the positions of permanent Council president and foreign policy representative.  So formally nothing gets done prior to ratification, but things move at lightning speed once Mr Klaus gets out his quill.  In the meantime, the Swedish minister for EU Affairs, Cecilia Malmström, will go to Prague to gauge the state of affairs on the ground.
But wait, there’s more. Sweden’s finance minister Anders Borg has put the cat among the pigeons on the fiscal restructuring package for Latvia, which is a complicated mix of support from IMF, EU, and Nordic countries. Essentially he argued that unless the promised cuts are delivered in the forthcoming budget, the Nordic component won’t be delivered as planned. And this as the Latvian government works on legislation to convert loans into the non-recourse variety. While the specifics of these moves may be somewhat surprising, the big picture is that the inevitable dynamics of choosing internal devaluation over external devaluation are playing out as Edward has been warning here for months.
That’s a lot of action over 4 days. We may not say it often, but keep a close eye on Stockholm for the next while.
UDPATE 8 OCTOBER: PM Reinfeldt had what sounds like a truly bizarre conversation with Czech President Klaus in which Klaus asked for a 2 sentence footnote to the Lisbon treaty. This looks rather mischievous since the footnote could easily have been agreed at the European Council summit which gave Ireland the treaty clarifications that it wanted.
Treaty of Lisbon: Endgame
Today is a key inflection point in determining whether the EU will be looking forwards or backwards over the next few months. Irish voters will have had their second run at approving the Lisbon Treaty by referendum. The count begins at 0800 GMT and it’ll be worth checking the Irish Election blog for early word of the “tallies” (informal survey of ballots as they are sorted) as well as general reaction to the result. There’s some possibility of anti-climactic process if the tallies or a reliable exit poll signal a clear Yes margin early on but there have probably been a few sleepless nights in government circles nonetheless.  Assuming a Yes vote, there will be 3 issues worth watching:
Mr Klaus? It’s Cameron on line 1 and Sarkozy on line 2
Only a guess of course but it’s a metaphor of the situation that will face the Czech Republic on the night of 2 October when the Irish voters approve the Treaty of Lisbon at the second time of asking in a referendum. And they will approve it. The opinion polls leave some latitude as to the final margin, but even a generous assumption about the voting behaviour of the “don’t knows” doesn’t alter the prediction that it will pass.
Mutual Incomprehension on Missile Defence
As has been widely reported, the White House has decided to abandon the planned radar/interceptor installations in Poland and the Czech Republic and replace them with mobile land and sea based missile interception systems. The reaction to the decision shows that different people were seeing vastly different things in what the original proposal represented.Â