Philippe Legrain

I debated the fiasco at the summit of EU leaders on 8-9 December on BBC Radio 4′s The World Tonight with Angela Knight, former Conservative minister and now lobbyist for the British Banking Association. Listen here

Read my new article for Project Syndicate

“The notion that migration is a one-way movement of permanent settlement is outdated. Most of it is temporary—and it’s time the debate about immigration recognised this reality,” argues Philippe Legrain, an analyst of immigration and the author of “Aftershock”, a recent book analysing economic changes in the wake of the financial crash. Read the full article here.

No. I won the debate against David Goodhart on The Economist’s website, by 51%-49%. Thank you to everyone who voted No.

Headlines from a poll this week suggested nearly half of British people think there are too many immigrants in the UK.

But the findings change when people are presented with the facts.

The average respondent thought 3 in 10 people in the UK are foreign-born.

When told it’s actually 1 in 10, more than twothirds thought this was either “not many” (36%) or “a lot but not too many” (31%). Just 30% thought it was “too many”.

Read my column for EuroIntelligence

The debate in the UK about whether to tax bank bonuses (Labour) or balance-sheets (Conservative) is a sideshow.

Both are stopgap measures.

The key issue is that banks need to be broken up on competition grounds so they don’t earn huge profits in the first place.

Read my article in The Guardian

I was interviewed on BBC World’s World News Today on 1 December 2010 about whether the EU’s border policy is working, whether Europe really can control its borders, and whether there might be a better approach to immigration instead.

Pat Kenny interviewed me on RTE1′s The Frontline on 29 December 2010 about the EU/IMF “bailout” and Ireland’s banking and debt crisis.

Part 1

Part 2

Part 3

I was interviewed on the BBC World Service’s Business Daily programme about Ireland, the euro and Europe’s banking and sovereign debt crisis. You can listen to the interview here.

In The Times‘ Christmas review of books about money, Oliver Kamm writes:

The Times recommends Aftershock: “The crash of 2007-09 did not turn into a reprise of the 1930s mainly because policymakers had learnt from the mistakes of that era. They rescued the banks, slashed interest rates, and injected money into the economy to support demand. Philippe Legrain, in Aftershock: Reshaping the World Economy After the Crisis (Little, Brown, £12.99), lucidly discusses the policies that have (so far) prevented disaster and the route back to prosperity. Legrain knows his subject and is a commendably clear exponent of economic concepts. He argues, in my view incontrovertibly, that openness to trade and immigration has big welfare benefits.

Thank you.

I was interviewed on BBC World News on 25 November 2010 by George Alagiah about the euro-zone crisis and whether Portugal and Spain might be affected next.

I was interviewed by Peter Allen on 5 Live Drive on 23 November, following the government’s announcement of the details of its cap on highly skilled foreign workers.

The recording isn’t great and I sound a bit breathless because I was on my mobile phone at the airport, rushing to catch a plane.

Listen to it here

The UK government yesterday announced much tighter restrictions on people from outside the EU who want to come here to work or study.

At at time when the government is relying on the private sector to drive the recovery as the public sector is cut back, and when the education sector is a particularly important export earner, the government is shooting itself in the foot.

Despite all the talk about Britain being “open for business”, it will become a more closed economy and society.

The new measures also betray a nasty double standard.

David Cameron spent a gap year working for Jardine’s in Hong Kong.

Nick Clegg worked as a ski instructor in Austria (before that country joined the EU in 1995).

Jeremy Hunt spent 2 years in Japan teaching English and learning Japanese.

I doubt someone from outside the EU could now do the equivalent in the UK.

In effect, what ministers are saying is that it’s fine for Brits to spend a year abroad working or studying, but outrageous if foreigners want do the same in the UK.

That’s shameful and wrong.

“Los casi 100.000 millones que se piden a la eurozona no son una ayuda, sino un préstamo que habrá que devolver con altos tipos de interés. La factura sale a unos 23.000 euros por irlandés: los ciudadanos tendrán que pagar mucho dinero para salvar a sus bancos y por la pésima gestión del Gobierno”, advirtió a este diario Philippe Legrain.

Read the full article here

Quoted again in El País: Philippe Legrain alerta de que Irlanda “no puede (y no debería) pagar la factura de sus bancos”. “De lo contrario, hay un claro riesgo de crisis social (por los recortes y por el hecho de que muchas hipotecas superan ya el valor de los pisos) y de crisis política, por el pésimo manejo de la crisis, con el Gobierno a los pies de la banca”.

Read the full article here

This is a slightly longer version of an article that appeared in the FT.

Euro-phobes can scarcely contain their joy at the Irish crisis – proof positive, in their eyes, of the folly of the single currency. But while the euro-zone certainly needs reform, the notion that the euro is to blame for Ireland’s travails is simplistic.

Even many of the euro’s supporters now regret that in the boom years the single currency permitted huge capital flows from Germany and other surplus countries to Spain, Portugal, Greece, Ireland and other deficit countries. These imbalances, conventional wisdom has it, are unhealthy – and the EU is drafting new rules to limit them.

Yet enabling capital to flow from one member country to another without exchange-rate risk is a key advantage of the euro. If only this were possible globally, emerging economies would not feel compelled to accumulate huge reserves to protect themselves against crises – instead of being net lenders to rich countries, these fast-growing economies could be net recipients of investment funds. When integrated financial markets work well, they offer investors higher returns, businesses cheaper finance and a better allocation of capital all around.

The problem is not that savings flowed from Germany to Ireland and other economies on Europe’s periphery. It’s that they mostly funded property bubbles rather than productive investment. The blame for that lies with herd-like investors, flawed banks and foolish governments, not the euro. After all, America, Britain, Iceland and other non-euro countries all had huge property bubbles too.

Granted, joining the euro involved slashing interest rates in Ireland – and cheap borrowing helped fuel the property bubble. But at a macro level, the Irish government could have tightened fiscal policy – in effect, run large budget surpluses – to dampen the boom. At a micro level, it could have limited banks’ reckless property lending – through higher and counter-cyclical capital requirements, for instance – rather than encouraging it with tax breaks.

Ireland’s property bubble was particularly big. The value of all the houses in the country quadrupled in the ten years to June 2006 and construction swelled to an eighth of the economy. The price of a typical Dublin house shot up more than fivefold – and has since nearly halved. Such a property crash is inevitably painful. But it need not have led to a sovereign debt crisis. Ireland’s public debt was only 25% of GDP on the eve of the crisis, the lowest in the euro-zone.

The government’s fatal mistake was stepping in to guarantee not just all the depositors of Irish banks but also all their bondholders. Now the bust banks’ huge losses are dragging down the Irish state with them. Had Britain’s recession worsened, the UK government might have ended up in a similar situation.

Only cheap finance from the European Central Bank has kept those bust banks on life support, until now. Outside the euro, Ireland would doubtless have suffered Iceland’s fate: its currency would have crashed and its central bank would have run short of foreign funds to keep its banks afloat. Far from precipitating the crisis, the euro has given Ireland vital breathing space. More’s the pity that the government has failed to make good use of it.

It’s true that, outside the euro, Ireland would doubtless now enjoy a weaker currency. That could boost exports and hence growth. But in very small open economies, devaluations tend to feed through rapidly into inflation, so the competitive boost might not have been that great. In any case, Ireland has already slashed wages and prices to restore competitiveness – in effect, an internal devaluation. And if it wished to cut unit labour costs further, it could reduce its high payroll taxes and replace the revenues with higher VAT or a tax on land values.

Leaving the euro and reintroducing the punt is certainly not a solution, since Ireland would be incapable of repaying its euro-denominated debts in devalued punts. Nor, on its own, is an EU or IMF “bailout” – in fact, a loan at punitively high interest rates. That would merely postpone what is now a  solvency crisis.

Irish taxpayers should not be bled dry to pay off investors – among them, European banks and American hedge funds – who took a punt on lending to Irish banks. Those creditors should take a haircut (or lose their shirts).The way forward is a debt restructuring – a polite word for an orderly default – with the EU and/or IMF providing a bridging loan until Ireland has eliminated its budget deficit. Ironically, it is Germany’s proposal that bondholders should take a haircut in future that has brought matters to a head. It’s such a good idea that it should be implemented now.

I spent a fantastic weekend in Kilkenny, at Kilkenomics, Ireland’s first economics (and comedy) festival. Despite (and because of) the crisis, it was a sell-out. Congrats to Richard Cook and David McWilliams for putting on a superb event, hopefully the first of many.

The Irish government now appears to be in talks with the EU about a possible bailout, but politicians don’t want to lose face by accepting help.

Despite the huge housing bubble and now bust, it needn’t have come to this, as I explain in Aftershock: Reshaping the World Economy After the Crisis.

The Irish government had very small debts going in to the crisis.

Its crucial mistake was guaranteeing the creditors of its bust banks.

Now it’s bust too.

An EU/IMF bailout without restructuring the banks’/government debt is not the solution.

Irish taxpayers would be bled dry to pay off investors who took a punt on lending to Irish banks.

Those creditors should take a haircut (or lose their shirts).

The way forward is debt restructuring/default, with either the EU/IMF providing a bridging loan until Ireland has eliminated its budget deficit.

The US and others seem to believe that China’s currency is the biggest obstacle to the global recovery.

That is highly debatable, as I argued on VoxEU.

In any case, the Chinese renminbi is up 3.1% against the dollar over the past 12 months.

And since inflation is 4.4% in China and only 1.1% in the US, in real terms it is up 6.4%.

Would a faster appreciation really do more good than harm?

Economies cannot adjust painlessly overnight.