Suchergebnisse

A popular narrative amongst European policymakers is that Eurozone members facing problems in the bond market are paying the price for past budgetary excess. Fiscal consolidation in these countries is seen as the principal remedy for the crisis. It is clear however that Ireland's problems derive mainly from a banking bust exacerbated by weaknesses in the design of Europe's monetary union and the policy response of both the Irish authorities and the European Central Bank. From the Euro's inception in 1999 up to 2007, both debt and deficit ratios in Ireland were comfortably within the Stability and Growth Pact ceilings. The gross debt ratio was only 25% of GDP at the end of 2007. The Stability and Growth Pact was the only macroprudential measure in place at Eurozone level, and Irish adherence reflected public finances flattered by a credit-fuelled property bubble. The banks experienced intense liquidity pressures in September 2008 and the Irish government provided a blanket liability guarantee. The banks were in reality badly insolvent, the bank guarantee has cost 40% of GDP and Ireland was forced from the bond market and into an EU/IMF programme just over two years later. There can be no presumption that it will emerge, and re-enter the bond market, on schedule at the end of 2013. This paper argues that the incomplete design of the currency union, with free capital movement and trans-border banking, but no centralised banking policy, contributed to the Irish debacle. The absence of bank resolution and any centralised system of liability insurance threw the burden of bank rescue on sovereigns. Countries in currency union are vulnerable to sovereign default, since they must borrow in what is, in effect, a foreign currency. Resort to official lenders enjoying seniority, combined with ECB insistence on sovereign repayment of bank senior bondholders, even in banks insolvent many times over, has undermined confidence in Irish sovereign debt. Closer fiscal union may prove necessary if the Eurozone is to survive. To avoid future sovereign debt crises, there is also a need for centralised bank supervision and resolution, as well as for a centralised system of liability insurance for banks. What happened in Ireland shows that sticking to purely fiscal rules is no guarantee of solvency for the sovereign in a currency union with inadequate mechanisms for the prevention and resolution of banking crises.

Victims of events including road accidents, workplace injuries and medical negligence are compensated in the Irish legal system through once-off lump-sum awards. In cases where victims have suffered incapacitating injuries but have extended life expectancy, these awards include provision for loss of earnings and life-long medical care that can run into millions. Where liability is contested, significant litigation costs also arise, but even where liability is admitted, the determination of quantum is complex, requiring evidence about future medical care costs, loss of earnings, life expectancy and the returns to be expected from the investment of the lump sum award. The once-off lump sum system of compensating successful plaintiffs has been criticised over the years from both legal and economic perspectives, and change was recommended in a Law Reform Commission report in 1996. Mr. Justice Nicholas Kearns, President of the High Court, established recently a working group to consider the issues involved and charged it to report by November 2010. Since 1995, courts in the United Kingdom have been free to award periodic payments, as distinct from once-off lump sums, where the parties agree, and since the passage of the 2003 Courts Act, whether or not they agree. It is opportune to consider whether periodic payments should be introduced in Ireland and this paper reviews the principal economic aspects of the issue. The paper also considers whether a move to periodic payments would require changes to the government bond market, specifically the issuance of long-dated index-linked Exchequer debt.