What the bankers knew on the night of the guarantee

By Stephen Kinsella

April 19th, 2014

Readers will definitely be interested in this piece by Tom Lyons on what the Ireland’s top bankers (and Indecon’s Alan Gray) knew, chiefly about the state of Anglo Irish Bank, in the run up to the crisis. There is at least one record of the events of the night as set down by Dermot Gleeson.

The (reported) state of knowledge is pretty much the same:

  • No one knew how deeply damaged Anglo’s balance sheets were, or could be;
  • Much of the focus was on restoring confidence in the system, with everyone talking in terms of liquidity rather than solvency issues, and in terms of preventing a run on the banks.
Despite this invaluable reporting by Tom Lyons one wonders why it took 2029 days to put these accounts into the public sphere. Brian Cowen was right when he argued in his GeorgeTown speech (.pdf) that “if we are to learn from the crisis it is necessary to understand why many of the actions taken seemed sensible at the time”.
Cowen goes on to write:

We had to deal with this crisis in real time. Our view at the time was that we would get one shot at calming the markets.

Tom Lyons’ piece seems to back up this account.

This piece by the FT’s Vincent Boland, featuring TCD’s Constantin Gurdgiev, The Irish Examiner’s Mick Clifford, and (ahem) myself has more reaction to the fallout from the Anglotrial.

Ending the Sean FitzPatrick Myth

By Gregory Connor

April 17th, 2014

16th April 2014: Sean FitzPatrick has been found not guilty of all charges relating to the Maple 10 transaction. First the judge (for some of the charges) and then the jury (for the remaining charges) examined the evidence carefully, and declared him not guilty. The Maple 10 scheme was truly outrageous, but there is no reason to second-guess the verdicts as given.

From a broader perspective, these not-guilty verdicts might encourage a deeper understanding and better public response to the Irish credit bubble and financial collapse. It is a myth that Sean FitzPatrick caused the Irish financial collapse. Sean FitzPatrick was a major character in the Irish credit bubble, but not a fundamental cause. The collapse is better explained by the extremely “light-touch” financial regulatory system which was deliberately chosen by the democratically elected government of the Irish state, and to a lesser degree by the deeply-flawed Euro currency system chosen by member states. Over the short term, the Irish public benefitted handsomely from both the flawed Euro currency system and the very flawed light-touch Irish financial regulatory system. The Irish electorate was keenly enthusiastic for both.

The Maple Ten scheme was an outrageous transaction whose sole purpose was to unwind another outrageous transaction – the accumulation of a disguised 29% ownership of Anglo Irish Bank by Sean Quinn using contracts for difference (CFD). CFD’s are only legal in some countries, are a naturally toxic trading vehicle, and evade corporate governance rules by disguising true share ownership. Ireland during the boom was a world leader in the use of CFD’s, and Sean Quinn’s disguised 29% ownership position using CFD’s was particularly outrageous.  The Irish financial regulator was simultaneously monitoring (or not monitoring) two very large and very dubious financial transactions in a relatively tiny domestic financial system. To lose track of one large, dubious financial scandal may be regarded as a misfortune, to lose track of two looks like carelessness.

During the bubble period macro-prudential risk regulation by the Irish Central Bank was also (with hindsight) very poor.

The fundamental causes of the Irish financial collapse were two flawed systems – a flawed Euro monetary system and a very flawed Irish financial regulatory system. Both of these systems were built up in broad view and with enthusiastic public support.

- - -  - -  - - - -  - - - - - - - - -

See Corbet and Twomey for a technical treatment and empirical study of CFDs, with a focus on Irish CFDs.

Draft National Risk Assessment

By Philip Lane

April 16th, 2014


Comments welcome until 30th June to nra at taoiseach.gov.ie

Martin Wolf review of Piketty

By Philip Lane

April 16th, 2014


Survey on Income and Living Conditions

By Seamus Coffey

April 16th, 2014

The results from the 2012 wave of the EU-SILC have been published by the CSO.

There had been some difficulties with the statistics estimated from the survey in previous years which may account for the lag in getting the 2012 data published.  The data was collected between January 2012 and January 2013.

The main results are summarised in this table.

Of the reported 2012 changes in the poverty and income inequality measures, only the change in the deprivation rate is reported as being statistically significant.

The average weekly net equivalised disposable income for the bottom decile was €118.55 in 2012.  Income decile data was not provided in the 2011 release and the 2010 figures were withdrawn.  In the 2009 release, the average weekly equivalised net disposable income for the bottom decile was €160.05.

Comparable figures for the top decile are €1,041.71 in 2009 and €958.44 in 2012.  It should be noted that possible differences in the composition of the deciles between years make such changes difficult to fully interpret.  The income shares by decile are provided in this table.

The first table here shows that average equivalised disposable income for the population fell by 10.5 per cent between 2009 (€23,326) and 2012 (€20,856).  The second table shows that the share going to the bottom decile fell by 16.7 per cent between the same years (from 3.6 per cent in 2009 to 3.0 per cent in 2012). 

There is more detail in the full publication.  The Department of Social Protection have issued this press release.

Assorted Eurozone links

By Kevin O’Rourke

April 16th, 2014

Richard Curran and Fintan O’Toole on the implications for Ireland of Greece’s recent bond auction, here and here.

Ashoka Mody on Europe’s deepening muddle, here.

CESifo Forum: Articles on Ireland

By Philip Lane

April 15th, 2014

The new issue of CESifo Forum has several short articles on Ireland by myself, Patrick Honohan, John Fitzgerald, Stephen Kinsella and Aidan Regan - it is here.

Stability Programme Update

By Seamus Coffey

April 15th, 2014

A DoF presentation with some of the key forecasts in the SPU is available here. There is also a press release.

The full text is here.

Government Finance Statistics

By Seamus Coffey

April 14th, 2014

The CSO have published the end-2013 update of these series:

There isn’t much to surprise in the figures.  Gross debt at the end of 2013 was €203 billion (124 per cent of GDP).  Once offsetting assets of €42 billion in the same categories are accounted for net debt was €161 billion.  The assets were:

  • Cash: €23.8 billion
  • Bonds: €10.8 billion
  • Loans: €7.1 billion

Other assets not used in the net debt calculation are include shares and other equity of €29.8 billion and other financial assets (mainly accounts receivable) of €9.2 billion.

The market value of Ireland’s €203 billion of nominal debt instruments was €219 billion at the end of the year.  The estimated pension liabilities of the government are put at €98 billion, while contingent liabilities are “just” €73 billion.

The 2013 general government deficit is provisionally estimated to have been €11.8 billion (7.2 per cent of GDP) from €13.4 billion in 2012.

The ‘operating balance’ of the government sector went from a deficit of €12.5 billion in 2012 to one of €11.8 billion in 2013, an improvement of just €0.7 billion.  The improvement in the overall deficit was greater because of changes in the capital budget.

Gross fixed capital formation was further reduced from €3.1 billion in 2012 to €2.7 billion in 2013.  With consumption of fixed capital at €2.3 billion the increase in the public capital stock was just €0.4 billion.  The main change in the capital account was a €0.7 billion gain in the ‘net acquisition of unproduced assets’ which likely relates to things such as mobile phone and lottery licenses.

Revenue from taxes and social contributions rose from €49.1 billion to €51.6 billion, while investment income was up around €0.5 billion to €2.7 billion. Much of these increases were offset by an increase in interest expenditure of €1.5 billion to €7.4 billion.  Social transfers paid decreased from €29.0 billion to €28.6 billion, of which €24.0 billion were in cash.

Who Holds Irish Government Bonds?

By Philip Lane

April 11th, 2014

New Central Bank dataset here.

George Osborne: What the Economic Pessimists Are Missing

By Philip Lane

April 11th, 2014

WSJ op-ed here.

Franklin Templeton and Ukraine

By Philip Lane

April 10th, 2014

The FT covers its large bond position in Ukraine here.

IMF 2014 Spring Meetings

By Philip Lane

April 9th, 2014

The three major reports have tons of interesting material

Philippe Legrain on the so-called “banking union”

By Kevin O’Rourke

April 9th, 2014

Calling something a banking union does not make it so; Philippe Legrain joins the ranks of people like Colm McCarthy and Wolfgang Münchau pointing out that this is an emperor without clothes.

Doublespeak of the day

By Kevin O’Rourke

April 9th, 2014

According to the Irish Independent, Minister Noonan was worrying in public last night about the shortage of family homes in the Dublin area. But he also apparently said:

“We need to get property prices up another bit.”

To which the only possible response is: “why”?

If you are stuck in a malfunctioning currency union and can’t devalue, then don’t you want to get all costs down as much as possible, especially if they are going to feed into wage demands? Why interfere with the market in this particular case?

Irish Economic Association Annual Conference Programme

By Stephen Kinsella

April 8th, 2014

This year’s IEA will take place on May 8th and 9th in the CastleTroy Park Hotel, Limerick. The ESR Lecture will be given by Prof. Rachel Griffith, while Prof. Jordi Gali will give the Edgeworth Lecture. The conference is full of strong papers from a diverse set of scholars.

The full programme is here.

Registration for the conference is through the exordo site. Early registration costs 95 euros and includes dinner on the 8th. There is a much lower price for student delegates at 25 euros.

Bookings for accommodation should be made directly through the CastleTroy Park Hotel, quoting “IEA2014″ for a discounted room price.

I’m looking forward to seeing you there in a few weeks.

Corporation Tax: Effective Tax Rates

By Seamus Coffey

April 8th, 2014

The table below has eight different answers that are used to address the question of the effective rate of corporate income tax in Ireland.  Some of the details behind each approach are in this DoF Technical Paper (done jointly with Kate Levey) with #3 and #5 judged best for gauging the effective tax rate on the aggregate total of corporate profits in Ireland.


But, of course, the choice is yours.

On a related matter the Tax Strategy Group papers for Budget 2014 were released last week including one, albeit somewhat redacted, on Corporation Tax Policy.

Macro to Micro - A New Era in Financial Statistics

By Philip Lane

April 6th, 2014

Central Bank conference details here.

White paper on universal health insurance

By Liam Delaney

April 6th, 2014

I am a few days late on this but the government White paper on Universal Health Insurance is an important document and worth a thread here. The Irish Times have a summary here.


Some links that might be helpful

The White Paper itself:

Newspaper articles:

Here is a basic article from the Irish Times giving the details of the white paper:

Column by Muiris Houston arguing that it will never be implemented:

Piece by Billy Kelleher on the cost of universal health insurance:

Irish Independent article on opposition to the proposal:

Paul Cullen in the Irish Times: Dutch health insurance costing 23.5% of income

Universal Healthcare: Trick or Treat? (www.irishhealth.com) by Catherine Wilkinson and Declan Brennan:

Article from http://www.thejournal.ie where GPs argue that they were not adequately consulted:

Fianna Fáil opposition:

Article from http://www.thejournal.ie on opposition from health workers:

Journal articles:

Briggs, A. (2013). How changes to Irish healthcare financing are affecting universal health coverage. Health Policy, Volume 113, Issue 1 , Pages 45-49.

McKee et al (2013). Universal Health Coverage: A Quest for All Countries But under Threat in Some.Value in Health (Elsevier Science). Supplement, Vol. 16 Issue s1, pS39-S45.


Latest Central Bank Quarterly Bulletin

By Stephen Kinsella

April 4th, 2014

The Irish Central Bank is forecasting strong growth in Ireland of about 2% in GDP in the latest quarterly bulletin (.pdf). Pages 20 and 21 should interest readers of this blog. Thomas Conefrey and Suzanne Linehan dig into the employment growth numbers in a useful box-out. As usual the report is a chart fest, which is great for the wonky folk who frequent this site, but this one caught my eye. In the figure below you’re looking at household debt relative to disposable income, but also relative to total assets in the household sector.

What is remarkable is the scale of the problem relative to other developed countries. Irish debt to disposable income is about 196%, UK debt to disposable income is about 140%, US is about 120%. Here’s a really useful paper (.pdf) by Clare Lebartz looking at the distribution of household debt by income distribution which goes into the mechanics of this buildup a bit more.

The other sharp change is the brown line, driven by an increase in household assets mainly.

Domestic demand, credit flows, and employment

By Stephen Kinsella

April 3rd, 2014

In a speech largely saying nothing, Mario Draghi today described how domestic demand, and absence of reforms are risks to growth. Reforms, of course, could mean anything at all, and they are the Eurocrat catch-all for ‘we don’t know’, but domestic demand is something we can measure, and it’s something the ESRI have worked a lot on recently (.pdf). Your average undergraduate knows about the relationship between employment and domestic demand, and should also be aware that credit conditions matter for the growth of the real economy.

If we look at the Irish economy, in levels indexed to Q1, 2007, the chart below shows total domestic demand and employment on the left hand axis, which I start at 60 to pull out the difference between them a bit, and, measured on the right hand axis, the bar chart shows the flow of credit advanced when you exclude financial intermediation and property.

On the last reading domestic demand is about 21% down from Q1, 2007, while employment is about 15% down from the peak in early 2008. The annual change in the employment series from Q42012 to Q42013 is about 3%, while the annual change in demand is almost 0%.

Credit advanced meanwhile is, unsurprisingly, negative, relative to Q1 2007, from Q3 2010 onwards.

Economist vacancy at TILDA

By Philip Lane

April 3rd, 2014

Details here.

Spring 2014 Issue of ESR

By Philip Lane

April 1st, 2014

Vol 45, No 1, Spring (2014): with Policy Papers from ‘Future Directions of the Irish Economy’ Conference, 10 January 2014

Table of Contents


The Influence of Family Structure on Child Outcomes: Evidence for Ireland PDF
Carmel Hannan, Brendan Halpin 1-24
Socio-economic Inequalities in Child Health in Ireland PDF
Anne Nolan, Richard Layte 25-64
Minority Status, Social Welfare Status and their Association with Child Participation in Sporting, Cultural and Community Activities PDF
Bryan Coughlan, Edel Doherty, Ciaran O’Neill, Brian E. McGuire 65-85

Policy Section Articles

Ireland’s Medium-Term Growth Prospects: a Phoenix Rising? PDF
Nicholas Crafts 87-112
Ireland’s Banking System – Looking Forward PDF
Thorsten Beck 113-134
Ireland’s Fiscal Framework: Options for the Future PDF
George Kopits 135-158

Rebranding Trinity College Dublin

By Kevin O’Rourke

April 1st, 2014

April the first seems like as good a day as any to open a thread on the recent TCD rebranding initiative, which according to Brian Lucey cost the cash-strapped university around €100,000. A few questions arise:

Has it occurred to TCD that it actually has a very strong brand (how I hate that word), and that this may in fact be the reason that it does reasonably well in reputation-based surveys?

Isn’t the new shield just a little bit chintzy, and was the old one not much nicer?

If they are going to make a big deal about the book in the new crest not necessarily being the Bible of the old one, is there not a problem with the name of the College itself (my kids pointed that one out before collapsing in a fit of giggles)?

Isn’t the whole idea of “rebranding” a university just a little bit second division, and does this exercise not risk damaging the reputation of the institution?

Is there any chance that having spent €100,000 on the exercise, the promised staff consultations will be any more than a box-ticking exercise?

Gosh, isn’t that exciting!

By Kevin O’Rourke

April 1st, 2014

In a recent post, we read that

With the Social Democrats (S&D) and the conservatives (EPP) neck-and-neck in ever more refined EU wide opinion pools, the lead up to the European elections has never been more exciting. It’s down to one seat whether the next Commission president is Social Democrat or Conservative.

I am sure that there are some in Brussels who think that giving voters an indirect say in who becomes Commission President is exactly what we need to boost interest in the forthcoming European elections, and give the European project some democratic legitimacy.

By the way, does anyone know what the EPP or Social Democratic position on the Eurozone crisis is? (I think I know what Marine Le Pen wants.)

I have another proposal to enhance the democratic legitimacy of the project: allow voters to fundamentally change the direction of policy, should they so choose. Reverse the “treaty-isation” of particular economic policies. Stop trying to make the commitment to austerity democracy-proof.

Any takers?

Caterpillar at the US Senate

By Seamus Coffey

March 31st, 2014

The latest company to come under the spotlight of the US Senate Permanent Sub-Committee on Investigations is heavy-goods manufacturer, Caterpillar.  Here is the report prepared by the Sub-Committee staff in advance of today’s hearing.  There is also a statement from the Committee Chairman, Sen. Carl Levin (D).

The hearing will feature three panels of witnesses and will be streamed here.  The second panel comprises some representatives from Pricewaterhousecoopers.  The Sub-Committee obtained internal documents and communications between the PwC representatives which are referenced in the report.

The key feature of the US tax code that is in question is once again are the provisions that have eroded the effectiveness of the Subpart F anti-deferral regime introduced in the 1960s for passive income earned outside the US.  Under Subpart F this should trigger an immediate tax liability regardless of whether the profits are repatriated but there are a range of provisions that allow a deferral of the tax payment as is the general case with active income.  The scheme put in place by Caterpillar avails of both the manufacturing exemption and the export exemption in the US tax code.  Features such as “check-the box” and transfer-pricing rules also play a role.  Once again there is the accusation that a US company was able to negotiate a “special tax rate” in a low-tax country.

For those whose only interest is a Ctrl-F of the Senate report here is the sole mention of Ireland:

The decline in corporate tax revenues is due in part to more corporate income being reported abroad in low-tax jurisdictions. A number of studies show that U.S. multinational corporations are moving income out of or away from the United States into low or no tax jurisdictions, including tax havens such as Ireland, Bermuda, and the Cayman Islands.

Climate Change

By Brendan Walsh

March 31st, 2014

The Intergovernmental Panel on Climate Change (IPCC)’s Fifth Assessment Report (AR5) is available here.
Richard Tol’s critique published in the Financial Times is available here.

Plan B

By Seamus Coffey

March 31st, 2014

Cormac Lucey on how leaving the euro can save Ireland.

The chart accompanying the piece comes from page 51 of this 2013 Selected Issues Paper as part of the IMF Article IV Consultation with the Euro Area.

Yields on Irish government bonds

By Seamus Coffey

March 28th, 2014

It is not the first time but the estimated 10-year yield on Irish government bonds has again fallen below 3 per cent.  Here is a snap-shot of the yield curve this morning from this site.

The reasons for these historically low rates can be bounced around but it would be more useful if we could actually take advantage of them.  Ireland has an enormous public debt but the structure of it is such that very little is close to maturing and in need of rolling over.  In the EZ17 Ireland has a very low refinancing need (Latvia is excluded).


At the end of December the blended interest rate on the €22.5 billion of IMF loans that Ireland has accessed was 4.16 per cent.  These loans have a weighted average life of 7.3 years.  The above table gives an indicative rate of under 2 per cent for Irish government debt of equivalent maturity.  Two per cent of €22.5 billion is €450 million.

Replacing the official IMF loans with private funding seems attractive but the IMF loans cannot be repaid early without also triggering early repayment clauses in the €45 billion of EFSM, EFSF and bilateral loans from EU countries.  The details of these clauses are in this PQ answer.

Compared to the IMF loans, the EU loans have lower interest rates and much longer maturities.  Repaying them early would not be prudent given the uncertainties and possible unknowns that remain.  However, raising money now for loans which begin amortising next year anyway would only raise the funding target of the NTMA to the average EU levels (in GDP terms) as shown in the chart.  On the other hand it is not clear what impact such an action would have on interest rates but a significant impact would seem unlikely.

There are reasons on several sides for keeping the IMF as part of the ongoing Troika supervision of Ireland but are there €450 million worth of them?

Q4 2013 International Investment Position and External Debt

By Seamus Coffey

March 27th, 2014

The CSO have published the Q4 2013 update of the IIP data.

These are important data but, as with many macro aggregates on the Irish economy, establishing meaningful trends can be difficult.  In the data the totals look enormous but the IFSC sector has foreign assets of €2,390 billion and foreign liabilities of €2,394 billion for a net external liability of just €4 billion.  It is possible to generate some ridiculously large external debt figures for Ireland by including the liabilities of the IFSC but they are wholly matched by foreign assets.

The net international investment position of the non-IFSC sector improved significantly in the final quarter of 2013, moving from –€172 billion to –€150 billion.  This measure troughed in Q4 2011 at -€196 billion.  The bulk of the –€150 billion arises from the –€116 billion net IIP of the government sector.

The net IIP of the non-IFSC sector began to improve in 2012 though obviously the position of the government sector continued to deteriorate.  However, this  was more than offset by the improvement in the net IIP of the Central Bank which fell from –€101 billion at the end of 2011 to –€37 billion now (these are the liabilities to the ESCB including TARGET2 balances).  Most of this improvement occurred in 2012.

In the most recent quarter there was a €6 billion improvement in the net IIP of the non-financial corporate sector, from –€87 billion to –€81 billion.  However, on this the release notes the following:

With the relocation of a number of group headquarters to Ireland, foreign assets of Non-Financial Companies increased by €47.5bn and foreign liabilities increased by €41.4bn resulting in a decrease of €6.1bn in the net liability to €81.2bn

Thus, all of the quarterly improvement for the sector (and half of the total quarterly improvement for the non-IFSC sector) is as a result of company re-domiciling.  To the extent that these companies have retained earnings on their balance sheets this is also likely to have impacted GNP figures for the same quarter.

Ireland’s Gross External Debt was largely unchanged at €1,604 billion, with 70 per cent of this arising from the foreign debt-instrument liabilities of the IFSC sector.  The Net External Debt after subtracting foreign assets in debt instruments was –€696 billion (i.e. an asset position). 

Removing the impact of the IFSC, the Net External Debt of the non-IFSC sector at the end of 2013 was a liability position of €92 billion.  This was €146 billion at the end of 2012 and €182 billion at the end of 2011.  Again, the improvement in 2012 was due to improvements in the Central Bank position but this did not continue into 2013.  The 2013 improvement in Net External Debt can mainly be attributed a jump in debt instrument assets under the heading “debt liabilities to affiliated enterprises”. These debt instrument assets show an increase of €30 billion over the year, all of which happened in Q4.  Again this can be attributed to the re-domiciling of firms.

As a result of the impact of the IFSC sector looking at the overall totals for Ireland is largely meaningless.  There has been some improvement in the stripped-out results for the non-IFSC sector but, recently at least, much of that can be attributed to boardroom decisions.