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Updated: 53 min 45 sec ago

Who is fudging? (Answer: not the EU.)

9 December 2017 - 10:24am

There has been a lot of talk since yesterday’s deal pointing out that there has been a certain amount of fudging going on. But there is fudge and fudge, and it’s helpful to be clear about what’s being fudged and by whom.

Article 49 states:

The United Kingdom remains committed to protecting North-South cooperation and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s objective is to achieve these objectives through the overall EU-UK relationship. Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and Customs Union which, now or in the future, support North-South cooperation, the all-island economy, and the protection of the 1998 Agreement.

These are commitments made by the UK to the EU and there is very little fudge here. The UK is committing as a backstop solution to the full alignment needed to “support North-South cooperation, the all-island economy, and the protection of the 1998 Agreement” in the context of an over-arching commitment to avoid a hard border. Avoiding a hard border requires full alignment for all traded goods. North-South cooperation involves the famous 142 areas of North-South cooperation we have been hearing about, and brings services like health into the mix. The all-island economy is even broader. And the Good Friday Agreement brings things like human rights into the mix.

Article 50 states that:

In the absence of agreed solutions, as set out in the previous paragraph , the United Kingdom will ensure that no new regulatory barriers develop between Northern Ireland and the rest of the United Kingdom, unless, consistent with the 1998 Agreement, the Northern Ireland Executive and Assembly agree that distinct arrangements are appropriate for Northern Ireland. In all circumstances, the United Kingdom will continue to ensure the same unfettered access for Northern Ireland’s businesses to the whole of the United Kingdom internal market.

Notice anything? These are not commitments made by the EU. These are, once again, commitments made by the UK, in this instance to the DUP.

Articles 49+50 appear to be a bit of a fudge, although the fudge can be undone by the entire UK maintaining full alignment with the EU. But let’s be clear: this is the UK fudging, not the EU, and the UK needs to fudge at this stage because of the internal contradictions of its own position. But the EU will naturally take the view that the UK must meet its commitments made to the EU in Article 49. There is no fudge here: the EU has sought and obtained an impressive series of concessions from the UK, and the UK will be held to its word.

How Her Majesty’s Government simultaneously manages to meet its Article 49 obligations to the EU, and its Article 50 obligations to the DUP, is is up to it, but this is hardly a primary concern of the EU. If the UK wants to leave the EU in a civilised and amical manner, and strike a trade deal with the EU in the future, it will have to uphold the very clear commitments it has made to the EU. How the British deal with British fudge is a matter for them.

Honest thoughts on educational inequality in Ireland

7 December 2017 - 10:40am

In discussing the sources of variation in academic achievement across students, there is a yawning chasm between the contemporary research literature (particularly in the emerging field of geno-economics) and the mainstream media. The mainstream media sticks religiously to the traditional blank slate theory, claiming that variation in student achievement is caused entirely by differing home and school environments. Tuesday’s Education Supplement of the Irish Times is a classic example. The main headline of the supplement is “Privately-educated elite have greater access to education” and the first paragraph reads as follows:

“Young people from disadvantaged backgrounds are denied the same opportunities as their wealthier peers, while parents with money can afford a better education for their children despite Ireland’s so-called free education system, an analysis of the 2017 Irish Times feeder school list shows.”

The article repeatedly relies on the assumption that children of wealthier parents in Ireland perform better in school for only one reason, their parents purchase better educational outcomes through fee-paying schools, tutors, and grind courses. The current scientific literature has an entirely different flavour. A recent paper by Plomin, et al., entitled “The high heritability of educational achievement reflects many genetically influenced traits, not just intelligence,” is typical. Synopsizing their findings, they state:

“Differences among children in educational achievement are highly heritable from the early school years until the end of compulsory education at age 16, when UK students are assessed nationwide with standard achievement tests [General Certificate of Secondary Education (GCSE)]. Genetic research has shown that intelligence makes a major contribution to the heritability of educational achievement. However, we
show that other broad domains of behavior such as personality and psychopathology also account for genetic influence on GCSE scores beyond that predicted by intelligence. Together with intelligence, these domains account for 75% of the heritability of GCSE scores. These results underline the importance of genetics in educational achievement and its correlates.”

To be fair to the Irish Times, an inside piece by Brian Mooney in the Supplement brings a gentle hint of realism into the blank-slate-inspired tirade of the Supplement’s lead article. Mooney hints that there might possibly be other factors explaining why households with two graduate parents grab the university places rightfully going to other households.

“For schools where both parents of many students were graduates, and where they have been supported throughout their education, getting a college place is no great reflection on the success of their school. Alternatively, we are keenly aware that for schools in disadvantaged communities, securing third-level progression for even a small proportion of students is a reflection of highly motivated teachers, and is a fantastic achievement.”

Brian Mooney does not state it explicitly, but scientists have shown definitively that the most powerful “support” that two-graduate-parent households gift to their children is their two tightly packed strands of DNA, which split and recombine, creating a new human infant in the most complex and beautiful physical process in the known universe. This new human infant is not a blank slate; he/she inherits a block-random collection of genomic traits from the maternal and paternal genomes. That genetic process, not fee-paying schools or tutor expenses, is the main source of inequality in educational outcomes in Ireland.

Research on the ongoing resolution of the mortgage arrears crisis

6 December 2017 - 11:15pm

A research technical paper with two associated Economic Letters were released today addressing the topic of mortgage arrears, modification, repayment, borrower engagement and loan vulnerability to future payment increases.

Research Technical Paper

EL on modification

EL on borrower engagement

 

More on the Article 50 process

6 December 2017 - 10:10am

Kevin’s article in the Irish Times is excellent. In the post below I make some of the same points and some others.

The farce on Monday highlighted Theresa May’s political weakness. It has also, yet again, revealed that many of the Brexiteers (and also many commentators) simply do not understand what is going on.

Various UK commentators and politicians have called on the EU to compromise. For example the BBC reported that “David Davis has said the EU must be willing to give ground too if further progress in Brexit talks is to be made.” This seems to stem from a belief that the so called phase 1 ‘negotiations’ are conducted in the usual way of political negotiations, where each side gives in a little, and in the end some clever form of words is found whereby each side can claim they got their way. This is simply not the case here.

The Article 50 process is about establishing what the UK is going to do regarding their financial liabilities, citizens rights (here the UK will also want to establish what the EU intends to do), whether a hard border on the island of Ireland will be necessitated by the future actions of the UK and whether the Good Friday Agreement, an internationally binding agreement can be maintained.

It is important to remember that it is the UK that wants to deviate from the status quo, so it is up to the UK to spell out in detail what it wants to change. The EU will determine if this is satisfactory for them to move to phase 2 where the future relationship between the UK and the EU will be negotiated.

Determining whether the UK proposals on these Article 50 issues are satisfactory is a technical matter not a political one. Either regulations in the UK (or Northern Ireland) will differ or they won’t, either the UK will end up agreeing to tariffs with third countries that deviate from those in the Customs Union or they don’t. If the UK wants to move in a direction where an open border would undermine the integrity of the EU Single Market and Customs Union, then border controls will be necessary.

Whatever is agreed will need to stand up to legal challenge, e.g. when the first lorry load of chlorinated chicken or beef that entered the UK at lower tariffs than are due in the EU, rolls across the border – so some clever form of words won’t do. There can be no compromise or a la carte approach here.

What can be offered to ease some of the unfounded DUP fears, are assurances regarding the status of Northern Ireland as a part of the UK (unless of course, as is provided for in the Good Friday Agreement, a majority decide to change that).

The plea for some give from the EU side reveals another misconception among Brexiteers and that is that the UK is an equal partner in this. Instead it is by a long way the junior partner in the process.

The latest World Bank World Development Indicators shows that the UK is the 6th largest economy in the world. It slipped a place, at least in part due to Brexit, making France the 5th largest economy, but importantly the EU excluding the UK is almost six times larger than the UK in economic terms. The potential losses of a failure to agree a trade deal are also considerably more significant for the UK than the EU – over four and a half times those suffered by the EU (based on Lawless and Morgenroth, 2016, I also have estimates that put this seven times). Of course Ireland is something of an outlier but even here the impact on total trade is less than half that potentially suffered by the UK.

This coupled with the fact that the EU is the UKs largest trading partner, means that walking away from the process is a strategy that would maximise the self-harm to the UK economy, as this would mean that the UK will not get a trade deal with the EU. Of course a trade deal with the EU would be the quickest one to put in place and of course it would also cover the largest share of UK trade so it is also the most important one.

Is the UK edging towards deciding it wants a UK-EU customs union & single market?

6 December 2017 - 8:05am

I have a piece in the Irish Times this morning, available here.

Brexit and the Irish border

1 December 2017 - 7:39pm

As we get closer to the important EU Council meeting the amount of coverage on Brexit has increased significantly. Of course more noise does not necessarily equate to more content – there is a lot of uninformed opinion around.

There are some fundamental issues that need to be understood.

While we are talking about the border between Ireland and Northern Ireland, we are also talking about a future external border of the EU. That means the issue of the Irish border is very important to the EU and our EU partners and all have the same objectives – to avoid a hard border. Thus, the negative commentary directed at Ireland by Brexiteers and the Brexiteer press, apart from being mostly factually wrong, is badly misdirected.

Of course the impact of a hard border would be felt more by Ireland than in any other Member State (you can find analysis on this here), but the nature of the border is a crucial determinant of the integrity of EU Customs Union and Single Market, and is thus of crucial importance to the EU. This latter point appears not be understood by everyone. To illustrate the significance of the EU external border, and the Irish border will be that post Brexit, it is useful to consider an example:

The UK wants to sign trade deals with other countries, which presumably will give other countries access to the UK market on different terms than are available in the EU. This is why the UK wants to leave the Customs Union. If the UK allows beef from a third country into the UK at a lower tariff than the EU would charge and/or subject to less regulation than applies in the EU (as part of a trade deal), then this beef could enter the EU if there is no hard border. Of course with lower tariffs in the UK than in the EU exporters would move their product through the UK (Northern Ireland) into the EU.

This would mean that the UK would effectively determine EU external trade policy. The EU will not allow such a situation to arise – and neither should Ireland as such a situation is likely to have significant negative impact on Irish businesses and consumers (remember the regulations are there to protect consumers).

This means that the apparent offer by the UK, that there will be no regulatory divergence at least for Northern Ireland, will not avoid the need for a hard border as the issue of different tariffs is not covered by that offer. A hard border will only be avoided if the UK, or at least Northern Ireland, stay in the Customs Union and there is no regulatory divergence – there is no way around this! An offer to avoid regulatory divergence is not enough to move to the next phase of the negotiations.

Even a special status for Northern Ireland, where the border runs through the Irish Sea and where UK authorities ensure that third country products do not end up in the EU market, is problematic as it would be difficult for the EU to enforce the proper policing of that border, given that it is located outside the EU in a sovereign country.

Another important point relates to opinions about the use of existing or yet to be invented technological solution to police the border. A lot of the legitimate routine trade is already processed electronically, and could easily continue to be processed that way. But that does not remove the need to check that what is being transported is what had been declared, and more importantly border checkpoints are there to stop illegal activity. It is hardly credible that criminals are going to be declaring their trade via an online system!? Importantly, once the UK is outside the Customs Union illegal activity will not only encompass the usual things like drug smuggling but will also encompass shipments where the tariffs and duties due in the EU have not been paid or where the goods do not meet EU regulatory requirements. In the event that the UK is outside the Customs Union (tariffs) and Single Market (regulations), Ireland is obliged to police this border adequately, which means physical checks.

This brings me to my next point. It would be very easy for the UK to guarantee that it will not introduce physical border checks, but given the arguments I put forward above, what the UK would needs to guarantee is that the EU will not need to put in physical border check in response to changes introduced by the UK in the wake of Brexit, namely deviations from regulations, tariffs and tariff-quotas.

Finally, there is talk about some form of words being found that would allow negotiations to progress to the next phase. Again given the facts, what is needed are very concrete undertakings that would be legally binding and would avoid the need for a hard border i.e. that the UK will not leave the Customs Union and there will be no regulatory divergence. Without such undertakings the negations should not proceed to phase two. Importantly, this is the point where Ireland holds all the cards, and it would be great mistake to settle for anything less than such an undertaking.

Financial vulnerability of Irish Small and Medium Enterprises, 2013-2017

30 November 2017 - 1:00pm

New research from John McQuinn and me at the Central Bank shows that Irish firms have become significantly more financially resilient in recent years, as measured by the Debt to Turnover ratio. This reduction in financial vulnerability appears to be consistent across many firm types, regions and sectors.

More details here.