The Banking Crisis and the Real Economy

Jim Stewart08/05/2009

Jim Stewart: Recent reported commentary in the media from the ESRI, drawing an analogy between Zimbabwe and Ireland is unhelpful in terms of analysing the current crisis in Ireland and developing solutions. The recent ESRI report (Spring 2009) in describing the impact of current policies in terms of rising unemployment, falling tax revenues, etc. is very valuable However, forecasting growth rates is in general a very inexact science. Even estimating past growth rates in the case of Ireland is problematic given the large impact of transfer pricing, and profit outflows from, multinational companies can have on measured GNP.

Other commentary within Ireland on the financial and economic crisis has also been exaggerated. Some examples:

1) Nationalising Anglo-Irish Bank would double the national debt. Wrong, because Anglo-Irish bank will be treated as a semi-state company whose debt is excluded in measuring Government debt for EU and other purposes;

2) The ratio of bank liabilities to GNP is 900%. Wrong, because bank liabilities of IFSC companies should be excluded. If excluded one estimate for this ratio is 309% of GDP (Davy Research Feb 17, 2009), but the total amount guaranteed by the State is 230% (€436 billion) of GDP (Annex I to supplementary Budget p. 17).

But more fundamentally some commentators are wrong in assuming certainty for what is uncertain. The overall impression is one of dogma rather than analysis.

Posted in: Banking and financeFiscal policyPolitics

Tagged with: esribankingmedia

Prof Jim Stewart

James Stewart

Dr Jim Stewart is Adjunct Associate Professor at Trinity College Dublin. His research interests include Corporate Finance and Taxation, Pension Funds and financial products, Financial Systems and Economic Development.

He is widely published and his titles include Mutuals and Alternative Banking: A Solution to the Financial and Economic Crisis in Ireland (2013), Choosing Your Future: How to Reform Ireland's Pension System (co-author, 2007) and For Richer, For Poorer: An Investigation of the Irish pension system (2005).



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