Robert Peston on the Irish Economy

Peston reports on his interview with Brian Lenihan in this piece.

While it is an interesting piece, a regrettable feature of the article is that he cites the BIS aggregate number to capture the level of international bank exposure to Ireland without fully explaining the limited relevance of this number, in view of the high degree of ‘offshore banking’ that has nothing to do with the local economy.

13 thoughts on “Robert Peston on the Irish Economy”

  1. Philip
    While accepting that there is more than a slight enclave nature to many IFSC activities, its a bit of a stretch to say that it has nothing to do with the local economy. Its counted as part of certain national aggregates; it employs several thousand people who otherwise would be in London/NY/Lux and who pay tax and consume here; profits booked here are for the most part taxed here; and it underpins a good chunk of the highend office space.

  2. I think Philip’s point is something similar to this: that most of the larger IFSC firms (State Street, Fidelity, Depfa, etc) would laugh at or think quaint the idea of the Irish government being able to guarantee their liabilities. “The mess we’re in” is of a large scale… but not that large.

    (I had a mini row with Felix Salmon over the same point earlier in the year.)

  3. I agree Ronan…and I know what I think PL meant. But fact is that there is a major economic benefit from the IFSC. And a major reputational downside risk…

  4. “Ireland’s dependence on credit from abroad is so great that the economic consequences of that credit being withdrawn would be catastrophic.”

    Sounds like we might have a bit of a gun to our head then.

  5. As far as I’m concerned, senior bonds are a form of risk transfer. By in large they are risk remote.

    At this point Mr Lenihan is suggesting that there has always been an implicit guarantee of senior bonds. Kinda makes you wonder why the banks were willing to pay for the guarantee.

    I’m quite familiar with european securitisation. Here’s my problem. If I apply Mr Lenihan’s laws of capital markets, I can’t work out how securitisation of european bank assets ever existed. Why invest in AAA of abs if senior bank bonds are more attractive.

  6. @Joseph
    “Sounds like we might have a bit of a gun to our head then.”
    More Blazing Saddles!

    “Stop or the Patrick gets it!”

  7. ““Ireland’s dependence on credit from abroad is so great that the economic consequences of that credit being withdrawn would be catastrophic.”

    Sounds like we might have a bit of a gun to our head then.”

    true, but we ought to remember that an Irish default would affect others too. We also have a gun pointed at everybody else’s head.(or perhaps their knee cap)

  8. I take the point about the IFSC, but when a person is falling from the 20th floor does it matter that he’s still as fit and well passing the 5th floor as he was when passing the 12th?

  9. Ok Ireland has been dependent on foreign credit to a extreme degree – but the only thing that produces “growth” in a credit based monetory system is increased credit growth.
    When that dynamic stops or goes into reverse it does not matter if we can pretend to honour our debts creditably.

    The credit machine is not designed to operate in reverse – it will destroy all the nuts and bolts in the economy if it does.
    The only option for the plant manager is to shut off the power to the malfunctioning equipment by not paying these absurd debts and redirecting money creation to some sort of half creditable enterprise.

  10. The confusion about the BIS data has been going on for years.

    The CB should sort it out with the folks in Basel.

    The majority of new FDI jobs over teh past 5 years have been created by IFSC firms.

    The interest in Anglo and its bondholders appears disproportionate compared with the likely total deficit in the coming 3 years if growth will remain weak.

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