Coppola Comment

Ah, productivity. Who knew that our whole prosperity was totally dependent on a concept as nebulous as this? To be sure, it doesn't sound nebulous. It is output per worker per hour. What is so difficult about that? The problem is how you define "output". Usually, we take this to mean GDP (gross domestic product), though we might use GNP (gross national product) or GVA (gross value added). In this post, I shall use GDP. As Diane Coyle has engagingly written , GDP is a deeply flawed measure. Yet we are obsessed with it. The Eurozone uses government debt-to-GDP and deficit-to-GDP ratios to justify harsh spending cuts and tax rises. In the UK, "WE MUST PAY DOWN THE DEBT!" roar the headlines, entirely missing the point that debt-to-GDP is a ratio, so even if we never borrowed another penny, it would rise if GDP fell. Even if GDP growth remained positive, but slowed down - say to 1.5% per annum instead of the predicted 2% -  debt-to-GDP would take longer to r...

The ECB has released this letter from its former President, Jean-Claude Trichet, to the Spanish Prime Minister in August 2011. It is excruciating reading. The letter starts with a reminder about the Spanish government's responsibilities: We recall that the Euro area Heads of State or Government summit of 21 July 2011 concluded that " all Euro countries solemnly affirm their inflexible commitment to honour fully their own individual sovereign signature....." Well, ok, this letter is about the threat to the Euro caused by spiking Spanish bond yields and the fear of default and redenomination at that time, so it is probably reasonable of the ECB to ask for assurance that the Spanish government intends to honour its debt obligations. But that's not all: "...and all their commitments to sustainable fiscal conditions and structural reforms." And the letter then goes on to explain in some detail exactly what "structural reforms" the ECB expect...

I really can't resist this. Via Brian Lucey comes this report that Allied Irish Banks (AIB) is having some difficulty servicing its debts. AIB was bailed out by the Irish government in February 2009 when its share price collapsed due to severe  liquidity problems and loss of market confidence. It was subsequently nationalised when the collapsing Irish property market destroyed its solvency. Currently, the Irish government owns over 99% of its ordinary shares. But it's not the shares that are the problem. In three weeks' time, AIB is supposed to pay a cash dividend on 3.5bn euros of preference shares held by the National Pensions Reserve Fund Commission (NPRFC). AIB can't afford to pay the interest on them, apparently, despite the fact that it made an operating profit of 445m euros in 2013. AIB has a creative solution to this. Cash shortfall? No problem. Issue some ordinary shares to pay the interest. Sounds wonderful, doesn't it? But the NPRFC is a govern...

The IMF has just produced a new report on Ireland . It is not happy reading. But it is interesting- not least because it says as much about the beliefs of the IMF economists producing the report as it does about Ireland. The report is structured in four parts: 1. Household consumption, wealth and saving 2. Access to credit, debt overhang and economic recovery: the Irish case 3. Medium-term fiscal consolidation in Ireland: growth-friendly, targeted, sustainable 4. Averting structural unemployment in Ireland Each of these is in effect a separate report in its own right, and there is no attempt to draw over-arching conclusions from the findings of the four reports. Consequently the recommendations from one report are contra-indicated by recommendations from another report. Really the IMF should do better than this. But that's not my main issue with this report. It's the appalling logic. Part 1, the Household Consumption, Wealth and Saving section, notes that Irish ho...