Friday 19/09/2014

On September 1st, the Italian Premier Matteo Renzi announced an ambitious plan of reforms known as the “1000-day plan” which is to be implemented by May 2017. The government’s reforms are aimed at addressing numerous problems in a plethora of different fields: job market, public service, civil justice, agriculture, energy, and infrastructure, tax schemes, education, and so on.

During the press conference in Rome, Renzi also praised Germany, stating that German reforms of the early 2000s represent a “model” that Italy should follow in order to increase flexibility in the job market and to relaunch the economy.

However, the Premier will have to deal with serious obstacles along the way and for this reason the success of the government’s plan is far from guaranteed.

So far Premier Renzi has had a couple of significant victories: the approval of a significant constitutional reform (ddl Boschi) on the first reading in the Senate, on August 8 and the 80-euro tax bonus on individual income tax (IRPEF) for salaries between €8.000 and €26.000.

Monday 15/09/2014

In many countries occupational plans are being reformed from Defined-Benefit (DB) to Defined-Contribution (DC) designs. In a Netspar discussion paper Lans Bovenberg and I explore the case of the Netherlands (, which features a particularly high ratio of occupational pension assets to GDP. Most occupational schemes are DB-funded and the value of assets in these schemes amounted to about 170% of GDP in 2013. This implies that unanticipated shocks in financial markets and longevity require large changes in pension contributions in order to shield pension rights in DB-plans from these shocks.

Therefore, Dutch occupational defined-benefit plans suffer from a number of serious weaknesses, including ambiguous ownership of assets, back-loading of benefits, and lack of tailor-made risk management. In particular, an intergenerational conflict may emerge about not only the ownership of capital in the fund but also the investment profile. These potential intergenerational conflicts are especially serious in the Netherlands due to the large stocks of wealth that have been accumulated. We will therefore focus on Dutch occupational pension plans and the need for reform. Our discussion may be of interest also to other countries who are transforming their DB-plans into DC-plans.

Friday 12/09/2014

‘Gouverner, c’est choisir’ (ruling means choosing). It seems that French Prime Minister Manuel Valls abides by this famous saying by Pierre Mendes-France, head of the French government from 1954 to 1955, and has forced it upon President François Hollande.

The government reshuffle of 26 August indeed shows that the illusion of a compromise between two radically diverging political and economic positions within the ruling Socialist Party has been crushed. The leftist Arnaud Montebourg, Benoit Hamon and Aurélie Filipetti (former Ministers of the Economy, Education and Culture respectively) are no longer part of the ruling team; Montebourg because he publicly claimed that the government’s economic policy was wrong and heading for disaster, Hamon and Filipetti because they backed him. The supporter of the ‘made in France’, of a diplomatic confrontation with Angela Merkel and of the ‘démondialisation’ is gone. Emmanuel Macron, a former investment banker, will replace him. ‘My enemy is the financial world’, Hollande said during his election campaign. But then, the President said many such absurdities in 2012.

Friday 05/09/2014

On the 1st of August 1975, the then Taoiseach Liam Cosgrave was one of the signatories of the Helsinki Final act governing relations between European states. He signed along the United States, all other European countries (except Albania), and the USSR, which at the time encompassed both Russia and Ukraine.

Article one of the Helsinki Final Act said that the signatory states would “respect each other’s sovereign equality, juridical equality and territorial integrity” and that they would refrain from the “use of force or the threat of the use of force against the territorial integrity or political independence of any state”.

As a small militarily neutral European state, Ireland has a greater interest, even than has a state which enjoys the comfort of a military alliance, in ensuring that these clear interstate principles are respected.

The Russian annexation of Crimea by force and its present increasingly overt invasion of Eastern Ukraine is obviously a flagrant breach of the Helsinki Final Act. It is the first of its kind since the end of the Second World War, unless one includes the NATO action against former Yugoslavia over the ethnic cleansing in Kosovo, which was then part of sovereign former Yugoslav territory. I argued at the time that this was a dangerous precedent.

Monday 11/08/2014

I have just finished reading 'Sleepwalkers - How Europe went to war in 1914' by Christopher Clark, Professor of Modern History in Cambridge. He describes the statesmen who stumbled into War in 1914 as “sleepwalkers, watchful but unseeing, haunted by dreams, yet blind to the horror they were about to bring to the world”.

A web of interlocking commitments, designed to give individual countries security and peace behind their own borders, ended up tumbling the whole continent into War.

Austro-Hungary had a defensive pact with Germany. Russia set itself up as the protector of Serbia. France gave Russia a blank cheque in the Balkans because it needed Russian assurances against Germany. Britain had a rather more vague understanding with France. It feared any Russian rapprochement with Germany because Russia could threaten British interests in India.

So, when Franz Ferdinand was murdered in Sarajevo by assassins that had come from Serbia, the possibility that all these dominoes might fall in the direction of war opened up. But it was only a possibility.

Serbia could have taken resolute action to root out the conspiracy behind the assassins before Austria issued any ultimatum. Austria could have issued a more temperate ultimatum. Serbia could have given a less evasive response. Germany could have restrained Austria.


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