Bundesbank Criticism

I see that the German Bundesbank has criticised Ireland and other countries for running large balance of payments deficits over the years. Countries that are developing rapidly, as Ireland was from 1994 on , have a potentially good reason to run a payments deficit, because they need to import machinery and capital to build a bigger productive infrastructure to support a bigger economy.

There is a problem only when the imported money is used to buy things that do not build future earning capacity. From 2002 on, Ireland started to make that mistake. It borrowed money from abroad to invest in second homes and other luxuries, that were not likely to yield a future income that could service the debt incurred to buy them. That was not tackled by the Irish authorities or by most of its economics profession.

I would suggest that the Bundesbank should not criticise balance of payments deficits as such because ,if Germany is to continue its policy of running huge balance of payments surpluses, it needs someone else to run a deficit somewhere to balance off the German surplus.

German commentators also need to recognise the risks of being a country with a big surplus. Having a big surplus of cash can lead one to make foolish investment decisions, as many German banks did when they bought the bonds of countries whose deficits they now criticise so much. Both lender and borrower have a responsibility if a foolish lending decision is made .

That said, I think the economists who are demanding that the German Government stimulate its economy by encouraging more private spending should ask themselves how to reconcile this with two major concerns of the present time

The ageing of western societies and

Climate change

Given that the cost of pensions and healthcare will rise as German society ages, it makes sense for Germany to accumulate surplus cash to meet these costs. Those who ask that Germany spend and import more need to come up with an answer to that.

More spending means more carbon emissions. If Germans save, they emit less. The debate about economics and the debate about climate need to be joined up. At present the two subjects are treated as if they had nothing to do with one another.

Religion and the Economy

I went to Birmingham last week to speak at a meeting of the European Laity Forum. This organisation brings together representatives, from all over Europe, of lay Catholic organisations. Such organisations do a lot of important charitable work. One such organisation is the Society of St Vincent de Paul. With the decline in vocations to the priesthood, lay organisations will find themselves taking on a bigger day to day role in the running of the church.

I spoke about the relevance of religious thought in general, and of Pope Benedict’s recent encyclical in particular, to the dilemmas of modern politics, economics and daily life. He emphasised the importance of trust to a workable market economy, and the fact that trust derives from a shared belief in common ethical standards. Government rules and sanctions can only go so far. If people do not have a basis for trusting one another, the market will collapse.

The current economic crisis can be seen as a function of a breakdown of trust. The whole notion of credit, so vital to the economy, rests on trust. In fact that is what the word “credit” means. I believe that people are more likely to trust one another if they feel they share a common ethical belief system with one another. For many people that sense of having a shared ethic is reinforced by having a shared religious belief. Remove religious belief and it becomes more difficult society to have mutual trust. A society based exclusively on scepticism would not be able to support a market economy.

I made my speech in the beautiful St Chad’s Cathedral, which was designed by the architect Augustus Pugin, who also designed the Palace of Westminster, Maynooth College, St Michaels Church in Ballinasloe, and St Marys Cathedral in Killarney.

I was delighted to meet many Irish people now living in Birmingham, including the Administrator of the Cathedral, Canon Patrick Browne from Ferbane in Co Offaly

London

Last week, Finola and I were in London.

We met our daughter, Juliana who lives there, and who has recently taken up an appointment with a public relations/public affairs company, Blue Rubicon. She previously worked with Cadburys and at the Royal Institute of International Affairs (Chatham House).

I always enjoy visiting London, especially London’s pubs, which have retained a character that has been lost in other cities where such establishments have become too big and too anonymous.

We also were invited to go to the Wimbledon tennis finals. This was a brilliant experience.

On the business side, I visited Lloyds. I am a director of a reinsurance company and this was part of my education. I was struck by the quiet efficiency of the operation, whereby brokers can interact with providers of insurance in face to face way, while still availing of the most up to date technologies. Lloyds is more than a market place because it insists that participants have sustainable business plans as a condition for participation. I met Lord Levene, a former Lord Mayor of London, who has overseen the transformation of Lloyds in recent years.

This Sunday, I will be going to Croke Park for the Leinster Gaelic football final between Meath and Louth. I see that Meath are strong favourites but this is an uncomfortable position to be in. In recent years, Meath have been the more dominant force, but historically Louth have won these encounters almost as often as Meath have.