Monday, 10 January 2011

Honohan on Irish debt uncertainty

The Governor of the Irish Central Bank, Professor Patrick Honohan, gave a lecture on the need to restore certainty regarding the Irish budget and on the banks to the IIEA.

It's well worth watching. Apart from some interesting insights into uncertainty, there seemed to be key messages which pose key questions for Irish and European politics:

1. The bail-out is just a stop-gap meeasure. It is a more secure, and cheaper, source of lending, but it doesn't solve any of the underlying problems of the Irish economy, nor the uncertainty that caused the Irish crisis. (Interesting to note is Honohan's thoughts on Europe insuring against the tail risk, which isn't part of the current bail-out. Should it be part of future Eurozone governance in these kinds of crises? Would an insurance element be enough?).

2. The Programme is drawn mainly from the 4 year plan already set out by the Irish government, and the next government would be in a position to change how the Programme is implemented after 2011 (since the next year's budget is set in more detail). This is not to downplay the fact that the IMF-EU bail-out limits Ireland's room for maneuver, but, as Honohan highlights, Irish policy making will be key.

It will be interesting to see how this will influence the policy and election debate.

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