Okay, in news from elsewhere… Willem Buiter with what we should and should learn from Dubai… In comparing Ireland the UK in a basket of other countries he identifies the greater independence of the ECB from Irish government control as a positive factor in favour of Ireland’s chances of a credible recovery:
From Dubai to Iceland, Ireland, Greece, Hungary, Italy, Portugal, Spain, Japan, France, the UK and the USA, the sovereign debt burdens have been at current levels during peacetime only on the way down from even higher public debt burdens incurred during wars. Watching the public debt to GDP ratios rise to levels likely to reach or exceed 100 percent of GDP by 2014 is deeply worrying, especially with structural primary (non-interest) deficits as high as they are. The political economy of fiscal burden sharing, inside nations and between nations, will be a major field of enquiry for economists and political scientists during the years to come. I am pessimistic in that regard about countries characterised by deep polarisation and political gridlock. This includes nations as different as Greece and the USA.
It is clear that nations whose public debt is mainly denominated in domestic currency and whose central bank is either not very independent or can be make dependent by the government of the day are likely to choose inflation and exchange rate depreciation over default as a way out of fiscal-financial unsustainability. That category would include the USA and, to a lesser extent, the UK. Because the ECB faces 16 national governments and national ministries of finance, the power and independence of the ECB are much greater vis-a-vis any Euro Area member state than the power and independence of any central bank facing a single national government and Treasury. That is regardless of the formal independence criteria laid down in laws, treaties or constitutions.
So the very thing that is likely to maximise pain in the short term in the Irish economy is likely to deliver real recovery in the medium to longer term… And that’s not even factoring in the predominance of the short termist mentality in form of the City and Wall Street in the UK and US respectively… Otherwise known as ‘retail therapy’…