It is understandable that a large section of the population welcomes the coming of the IMF and the EU. They can’t do any worse at running our economy and banks into the ground as the Government have. And maybe along the way they can tell us a little truth. Or can they?
1. This is from the IMF’s Financial System Stability Assessment Update published in July 2006 (thanks to Tom McDonnell for directing me to this gem):
‘The Irish financial sector has continued to perform well since its participation in the Financial Sector Assessment Program in 2000. Financial soundness and market indicators are generally very strong. The outlook for the financial system is positive. . . . Stress tests confirm . . that the major financial institutions have adequate capital buffers to cover a range of shocks.
Good progress has been achieved in strengthening the regulatory and supervisory framework, in line with the recommendations of the 2000 FSAP. The strategy of creating a unified approach to risk with common elements across different sectors where appropriate, but differentiated where necessary, is being put into practice well.’
Phew. That’s a relief.
2. Everyone, including the dogs in the fiscal street, knew that in 2007 the Government had a serious budget imbalance – relying too much on cyclical property-based taxed revenue. The structural deficit should have been obvious to anyone with a calculator. Everyone, anyone, that is, except the EU.
The EU Commission’s Directorate of Economic and Financial Affairs (the department headed up by our old friend Olli Rehn) produced a set of data in the Spring of 2007. They measured the structural deficit in Ireland – which should have been in real negative numbers. What did their calculators tell them?
- In 2006 Ireland had a structural surplus! For both the ‘cyclically adjusted budget balance’ and ‘structural budget balance’ the EU Commission stated we had a 3 percent surplus.
- Ditto for 2007 Ireland had another cyclically-adjusted and structural surplus – this time, 1.8 percent.
According to the EU Commission, the structure of the budget was no problemo.
3. In 2006 the OECD looked deep into the Irish property sector and came to the following conclusion:
‘In the past decade, house prices have risen faster than in any other OECD country: average prices have roughly tripled in real terms. Most of this increase is justified by the economic and demographic driving forces such as surging incomes, a rising population and changing living habits, with an additional fillip from low interest rates, but prices may have overshot to some extent. However, this does not imply that they will fall significantly: the housing market is not symmetric, and during a downswing people prefer to take their house off the market rather than sell at a loss. Thus, the most likely scenario is that prices will level out or decline slightly, housing construction will fall back gradually, turnover will decline and the market will remain subdued for some time.’
House prices justified? By demographic forces? May have overshot to ‘some extent’? Level out of decline slightly? The OECD returned to this theme in 2008:
‘Much of the exceptionally large increase in house prices can be justified by Ireland’s strong income growth, population expansion and the rising share of younger households.’
And even as the economy was entering into the worst downturn in the EU-15, the OECD insisted that Ireland had
‘ . . . strong economic fundamentals, including a business-friendly regulatory environment, a flexible labour market, moderate tax rates and sound fiscal policy.’
Sound fiscal policy?
Isn’t it great that such majestic international institutions are looking over our shoulder, ensuring that we pursue such sound financial, economic and fiscal policies?
Makes me warm all over.