Ireland lifts eurozone debt crisis gloom Post author By Philip Lane Post date November 16, 2012 The FT provides an overview of the situation here. Categories In Uncategorized 65 Comments on Ireland lifts eurozone debt crisis gloom ← The Swords is mightier → Renewing the ELG 65 replies on “Ireland lifts eurozone debt crisis gloom” Thought it was April 1st there going by the headline, but then I realised there was no substantive news in the article. Ireland is a good news story but not for the reasons advanced in this article and the associated video. How could the role of US MNCs not even get a mention? Still! Better a good news story for the wrong reasons than none at all. Overview of the Big Picture here: well worth a read … 11/16/2012 Betting with Trillions Prison of Debt Paralyzes West By Cordt Schnibben Be it the United States or the European Union, most Western countries are so highly indebted today that the markets have a greater say in their policies than the people. Why are democratic countries so pathetic when it comes to managing their money sustainably? […] The attempt by countries to bolster the faltering financial system has in fact increased their dependency on the financial markets to such an extent that their policies are now shaped by two sovereigns: the people and creditors. Creditors and investors demand debt reduction and the prospect of growth, while the people, who want work and prosperity, are noticing that their politicians are now paying more attention to creditors. The power of the street is no match for the power of interest. As a result, the financial crisis has turned into a crisis of democracy, one that can become much more existential than any financial crisis. http://www.spiegel.de/international/business/playing-poker-with-trillions-a-prison-of-debt-on-both-sides-of-the-atlantic-a-867404.html @DOCM Have you ever agreed with anyone? Philip Lane, economics professor at Trinity College Dublin, warns: “Even if the budget deficit comes down, with such a high level of debt the economy will remain vulnerable in the longer term.” Quite! On the subject of dubious coverage from what the French delight in calling the “Anglo-Saxon press”. http://www.latribune.fr/actualites/economie/international/20121116trib000731512/la-polemique-the-economist-une-bombe-qui-eclate-en-retard.html The only thing that this tells me is that “group think” is not confined to Ireland and that Franklin Tempelton ought to sell while the going is good. The whole thing is carefully orchestrated hysteria. @Robert Brown Indeed. Only problem for Franklin is dumping 6 b worth. It might upset the story. Docm, Make sure you never agree with the doom porn group think in this room. Mickey has made an absolute killing by buying Irish sovereigns at distressed levels and he could reverse the trade at a handsome profit such is the weight of money on the bid. As a result he is paid millions and does not have to waste his time posting on here. @ Tull ‘Doom porn’ reminds me of ‘property porn’, ‘group think’? Reminds me of the Nyberg Report and ‘made an absolute killing’ ? Well, you are borrowing the language of the Celtic Tiger, soon you will be singing the praises of Donal O’Mahony as a global strategist par excellence. I’am sure Michael sleeps very well knowing that the Irish economy is in the capable hands of Enda Kenny, Michael Noonan and David Begg. Ireland has played it cards or more correctly given away its cards in a manner that has put the responsibility of paying back every red cent to bondholders. I’am sure Hasenstab can recognise a fools when he sees them. All this nonsense of Ireland being the best boy in the class and that Germany is going to make sure that Ireland is the austerity poster boy is the sort of wishful thinking that seems to pervade Irelands elite when it has a choice between facing reality and writing a financial fairy tale it choose the latter. I regard the army of economists and financial spin doctors and usefull academics, employed in this endeavour to be grossly underemployed, because if that is all they have to do I wonder could a lot of them be made redundant I mean genuinely redundant. This country is going nowhere only deeper and deeper into debt and will require a second bailout growth is not going to happen and if the noises being made about corporate America having to pay their fair share of taxes which was the agenda last week when Schauble and Osborne met it bodes ill for the corner stone of our economy which is cheap corporate tax and FDI. @ RB Agree with your last para. FYI, loss of the Irish tax competitiveness is a real serious threat (particularly to MNC employment in ireland). I admit that my view is that it is legit to corp tax compete………personal tax is a very different subject (awaiting MH’s post! I cannot agree though with his over riding view that Ireland is the ‘felon’ /perpetrator in the CT arena…..Ireland remains relatively small in that competitive arena e.g. Compared to NL or Lux for instance….). However, it is not a simple subject, in a global context. Ireland has a few established international advantages…tax is certainly one of them. I understand the abberrations e.g. Google, but most are not as ‘dramatic’ as that. However, past strategy in the tax /MNC arena is not a appropriate to today’s economic environment…..Ireland needs to adapt its competive reality in this area. Recent US, UK, German and French moves do not auger well for the longer term ‘same approach’. however, ‘Big Bang’, externally-imposed change would be disastrous for the country if the timing coincides with this recession /depression. Paradoxically, it is the latter which is preventing implosion in this area at present. Among many other things, the country needs to think about what the new CT world will look like on the other side of the current recession-debacle. Let’s not wait though. The ‘playing field’ globally is changing already .e.g. CFC and many rules in other tax areas are already changing in a negative area “I don’t know!” a bewildered punter in a pub might exclaim while scratching his head. Surreal it certainly is and as with the bubble, we see essentially the same pattern in place: a delusional official position; gullible international cheerleaders (some of them no doubt in secret not but method in their madness through the need to have a role model for the other euro basket cases); an Oireachtas largely devoid of members who can expose the vacuity at the heart of government and a small mainstream media that generally goes with the official flow and where a minister seldom if ever has to fear forensic interrogation based on an excellent command of the facts. Just wonder why this week, despite a decade of evidence, Minister Richard Bruton would brazenly endorse the looney tunes goal “in which Ireland in 2020 is the best country in the world for scientific research”? On Thursday, Bloomberg’s Dublin chief wrote: The bottom line: Ireland’s export revenue will rise to a record €183 billion this year, giving the country a boost in its effort to exit from its bailout program. This figure of €183bn is from the Irish Exporters’ Association [the base 2011 figures are wrong]. The Department of Finance is forecasting (this week) a 3% rise in exports in 2012 which would give a total of €169bn The Bloomberg article dovetails neatly with the official line with references to IBEC and the IEA (both dependent on the generosity of MNCs) and a quote from an employee of a stockbroker. On Wednesday it was reported by the CSO that September goods exports had plunged by 19%. Pharmaceutical patent expirations hit shipments. http://www.businessweek.com/articles/2012-11-15/irelands-exports-keep-the-economy-afloat More evidence of leprechauns and fairytales was in evidence in the Department of Finance’s ‘Mid-Term Fiscal Statement’ this week. Support for overall activity is coming from the exporting sectors, with services exports becoming an increasingly important engine of growth in recent quarters. This, in no small part, reflects the improvements in price and cost competitiveness that have been evident since the onset of the crisis…Of particular interest is the near double-digit growth in services exports recorded in this period.” To the armchair experts in Merrion Street: READ the testimony of a Google Europe executive to a House of Commons committee last Monday and come down from the clouds. @ Paul W The scale of tax evasion in several big market countries for US multinationals at a time of spending cutbacks with Amazon paying no tax in the UK by setting up in Luxembourg; Facebook declaring to the SEC that only two jurisdictions matter for tax: the US and Ireland; Google posting a loss in the UK, its biggest overseas market by routing revenues to Ireland; ditto in France, is going to trigger changes. An activist group in the UK is planning a day of protests against Starbucks next month. Apple is also under investigation there. Ireland gains little from the aggressive tax strategies while key economic indicators are hugely distorted. A close tag was missing in text above: More evidence of leprechauns and fairytales was in evidence in the Department of Finance’s ‘Mid-Term Fiscal Statement’ this week. Support for overall activity is coming from the exporting sectors, with services exports becoming an increasingly important engine of growth in recent quarters. This, in no small part, reflects the improvements in price and cost competitiveness that have been evident since the onset of the crisis…Of particular interest is the near double-digit growth in services exports recorded in this period.” To the armchair experts in Merrion Street: READ the testimony of a Google Europe executive to a House of Commons committee last Monday and come down from the clouds. @ Paul W The scale of tax evasion in several big market countries for US multinationals at a time of spending cutbacks with Amazon paying no tax in the UK by setting up in Luxembourg; Facebook declaring to the SEC that only two jurisdictions matter for tax: the US and Ireland; Google posting a loss in the UK, its biggest overseas market by routing revenues to Ireland; ditto in France, is going to trigger changes. An activist group in the UK is planning a day of protests against Starbucks next month. Apple is also under investigation there. Ireland gains little from the aggressive tax strategies while key economic indicators are hugely distorted. @ TMD If you read my post again, you will see that I did not make, nor did I agree with, any predictions, whether habitually doomladen or the opposite. The coverage remains a good news story. DOCM, I was compliemting you for ploughing your lonely furrow. I note that despite some SMALL emerging evidence of an improvement in lead indicators and some baby steps towards reform of the public administration in health, local govt it never takes long for the same bunch of posters to emerge from the undergrowth howling “we are all doomed ” usually associated with a plethora of conspiracy theories. They are usually follwoed by Dr MH who downloads the same piece of analysis all the time. In the meantime many of the insightful posters like BEB and Simpleton seem to have found something useful to do with their lives. The only reason for reading the blog now is to see what Profs Lane, McHale, McCarty and Coffey et all have posted. @ TMD Thanks for that. I think the blog is like any other and better than most. It has its ups and downs. It follows the topics which are of interest to me. Irrespective of the views expressed, it often also provides useful links which might otherwise be overlooked. There is one general moan with which I think all would agree and that is the addiction of Irish body politic in general to spin. Increasingly, this is proving to be counterproductive.. The next budget may finally cause the perpetrators to see the light and start them telling it as it is. I live in hope. Miriam Lord is doing her bit for the cause cf. http://www.irishtimes.com/newspaper/ireland/2012/1117/1224326704083.html @Tull re: Hasentrab. At the lowest point Irish bonds could have been haircut on day one by as much as 25% and still beat German bunds over a 5 year. Hasentrab merely kept his head on his shoulders, while the Irish (pension funds in particular) let the profit escape them. I’m sure he still keeps his head on his shoulders and his options open. But even Hasentrab must be getting mightily fed up with the European response to this crisis. Not to be churlish, the Irish ratings improvement is good news. Lets hope it does not lead to mood that encourages trough feeders of all kinds to continue to feast. Perhaps our bank ‘public interest’ directors will lead a crusade on self sacrifice on behalf of the nation! @DOCM There is one general moan with which I think all would agree and that is the addiction of Irish body politic in general to spin. The entire policy of the European Commission, the Merkelites and the ECB is spinning that their ideological imperatives and class interests are somehow supported by sound economic theory and not contradicted by the great mass of economic history and all the currently available economic data. This you well know, and tacitly support. fyi The Charming Hardliner Xi Jinping Assumes Reins of Restive China By Bernhard Zand in Beijing China’s once-a-decade transition of power is complete. The country’s new supreme body, the Politiburo Standing Committee, will now be led by Xi Jinping. The charming 59 year old almost seems like a Western politician, but he is firmly committed to preserving the core dogma of the Communist Party. http://www.spiegel.de/international/world/xi-jinping-takes-helm-as-president-of-china-after-party-congress-a-867421.html No apologies Mr/Ms Tull! Bitter truths that conflict with spin that has a receptive audience, invites at lot of negativity. It was common during the bubble. I experienced it. The DoF analysis referred to above was published on Thursday and is not only wrong, it is misleading and contrary to the public interest. How can credible jobs policies be developed if there isn’t an honest assessment of the challenges? In 2006 when the aspiration to be recognised as a ‘world class knowledge economy’ by 2013 was set, the 14-year experience of the indigenous high tech sector since the birth of IONA Technologies was ignored. Were you one of the folk who had believed that Bertie had invented the free lunch? Having had 34 years experience in manufacturing, trading businesses and my own company, in both Ireland and overseas, I understand the importance of optimism. I also understand how damaging delusion can be. MH, I would have thought it was obvious that I did not buy into the Bertie spin. I also no you can prove you did not buy into either. Nor were you one of those who were cheer leaders at the top & who are now shouting with indignation at the bottom. Some even post here still and earn big money from the exchequer. @Michael Hennigan In 2006 when the aspiration to be recognised as a ‘world class knowledge economy’ by 2013 was set, the 14-year experience of the indigenous high tech sector since the birth of IONA Technologies was ignored. I would be interested in knowing what you think the lesson of Iona Technologies was. @ Tull The sunday sport remains in print as does the sindo – fill your boots there with your prefered group happy think @ All On the subject of the utility of blogs, one of the most striking features of the debate in Ireland is the seeming inability to anticipate events. Blogs must surely have a role in correcting this. Minister Coveney makes an effort in the lively discussion on Countrywide this morning. http://www.rte.ie/radio1/podcast/podcast_countrywide.xml P.S. At least, this link is less off-topic than the discussion that has opened up above. Farming is one of the other good news stories and deserving of attention. The biggest argument against Global Bonds is the currency risk. Essentially, Hassenstab like Gross have decided that for the medium term returns are better returns outside the US with economies that have healthier balance sheets than the US but by doing so he is overlaying a larger element of risk on top of what should be the most stable of portfolios. Bonds are purchased to reduce volatility and preserve capital. Are investors getting that with Global Bonds? I very much doubt it and If the dollar strengthens 8% gains could be wiped out in an instant. “Drill baby drill”,is going to see America becoming self sufficient in energy and this is a game changer which will strenthen the heart beat of the American economy and strengthen its currency, as will America coming to grips with the corporate greed that has sought to avoid American taxation on world wide profits. Rich, With all due respect, you are typical of the peddlers of doom. Anybody who is sceptical about your “analysis” is out there. RB, Arguably, the biggest risk is not currency but duration. The might authorities are deteined to get growth going again. Even the Germans are in the process of capitulation as they don’t want to be blamed for destroying the continent again. Re heading on thread…it’s all a load of Verschlimmbesserung. http://www.irishtimes.com/newspaper/finance/2012/1114/1224326573792.html A good article by Simon Carswell. Worth reading…especially for optimists http://www.spiegel.de/international/business/playing-poker-with-trillions-a-prison-of-debt-on-both-sides-of-the-atlantic-a-867404.html @ FLJ This is a very unsettling article. Does it mean that Ireland is not a “special case”. Someone must inform the Taoiseach! Joking aside, it is a pretty impressive contribution but too tailored IMHO to the great German hang-ups; fear of debt and fear of inflation. @ All The head of the Bundesbank causes ever more mischief in Germany and further afield. http://www.focus.de/finanzen/news/staatsverschuldung/weidmann-faellt-merkel-in-den-ruecken-bundesbank-chef-zweiter-schuldenschnitt-fuer-athen-unvermeidbar_aid_862363.html The link gives a good description of how the Irish with salable skills function abroad. http://www.torontolife.com/daily/informer/from-print-edition-informer/2012/11/05/the-celtic-invasion/ @ Shay Begorrah I view IONA Technologies as a success in an industry where there is a 25% chance of a firm reaching its seventh birthday. In its first decade from 1991, it was profitable every year. In its sector, ‘middleware’ IT integration systems software, with the evolution of web services and common standards it became harder to compete with firms such as Microsoft and IBM. It made a loss in 2007 and was acquired by a US firm in 2008. Generally when an Irish tech firm is acquired by an overseas firm, it’s rare for the Irish firm to grow. Norkom, the anti-fraud software developer, the most recent Irish high hope was acquired by BAE Systems, the UK defence giant, in 2011. Nobody would begrudge Paul Kerley who had survived the dot-com bust to develop a successful business, cashing in his chips. The Irish market lacks depth and foreign VC investment (the majority of Israeli VC investment comes from overseas). The ultimate route is a trade sale to a foreign firm or rarely, an IPO. As foreign firms do not have significant research centres in Ireland, the potential for collaboration with universities and indigenous firms, is hyped up. Where is the evidence of significant success? Ireland needs to generate a lot more startups across the economy. State support should not be dependent on short-term export potential. It’s good to see a firm such as Butlers Chocolates, founded by Marion Butler on Dublin’s Lad Lane in 1932, in recent years producing products that can match Swiss and Belgian rivals. Keeping costs under control across the economy is an essential factor for success. Some of the high tech hopes and failures… Parthus: designer of chips for mobile phones and wireless apps; over 300 employed in 2000; merged with Ceva in 2002, a unit of US-Israeli group; promoted as ‘merger of equals’; Parthus name soon disappeared; now Ceva has global head count of 190. CBT Systems/SmartForce/Riverdeep/ThirdForce: PatMcDonagh, an enterprising primary school teacher, teamed up with Dermot Desmond, a then stockbroker, to found CBT in 1984 to sell computerised business training systems; big success and Nasdaq floatation in 1995. McDonagh launched Riverdeep to focus on e-learning systems for schools. CBT was renamed SmartForce and sold to SkillSoft in 2002; McDonagh founded Thirdforce which was acquired by SkillSoft in 2012. Riverdeep under CEO Barry O’Callaghan made a number of big value acquisitions of traditional publishers and the renamed Houghton Mifflin Harcourt (HMH) in 2011 filed for Chapter 11 bankruptcy as part of a deal with creditors to eliminate $3.1bn in debt. Enterprise Ireland agreed in 2008 to give HMH a State grant of €30m – – its biggest ever — to fund 450 jobs at an Irish ‘R&D’ centre over 5 years — I don’t know how many of these jobs were created or survive. HMH is still trading at a loss. Payment systems: Baltimore Technologies collapsed in the aftermath of the dot-com bust; a struggling Trintech was acquired by a US private equity group in 2011; Alphyra merged with UK firm Cashpoint to create Payzone in 2007 — it was followed by a big boardroom bust-up. Payzone employ about 120 people in Dublin. Fx system Briain Mac Caba, a former economist at the Confederation of Irish Industry, founded Cognotec in 1991 to develop Fx trading platforms. I met Mc Caba in 2006. The firm had about 140 of its 200 person payroll based in Dublin and had revenues of $28.1m in 2005 with a profit of $3.7m. Its market was the top 100 banks. Cognotec collapsed in early 2011. Xsil</B) the fastest growing Irish tech company of the decade according the 2006 ‘Deloitte Fast 50’ had transferred most of its operations to Asia by the spring of 2008. @ Mickeyhickey Thanks. Plus ca change. McCarthy on Sunday http://www.independent.ie/opinion/analysis/state-must-probe-why-banks-failed-3296752.html @all Murnaghan on Sky newz superb this morning … @Michael Hennigan Agree most don’t grow – a trade sale or buy out is the usual target – and it is a savage sector. That said, one must admire the effort especially of the indigenous software sector which remains dynamic and which now constitutes a pool of 12,000-15,000 genuinely high-skill workforce. Agri-food remains open to much more expansion – note Carbery’s recent 50 million deal with Brazil …. and the Kerry Group has led the way here. But industrial policy remains pie-in-the sky and official publications are simply too horrendous to read for anyone with any sense of reality … or any real understanding of product, service, or process innovation … … a peculiarly old-fashioned bank bust, based essentially on lending money to people unable to pay it back (C. McCarthy, 2012) Luv that plain spoken dublineze … @heterodox inclined … Sunday, November 18, 2012 Tell University of Western Sydney They are Dopes for Planning to Dump Steve Keen http://www.nakedcapitalism.com/2012/11/tell-university-of-western-sydney-they-are-dopes-for-planning-to-dump-steve-keen.html @ All FYI http://www.guardian.co.uk/politics/2012/nov/17/eu-referendum-poll With any luck, the coverage on the proposed budget cuts to expenditure on agriculture may actually cause what passes for a media and commentariat in Ireland to pay some attention to what is happening in a wider European context. On SBP, I see Wilbur Ross is proposing that the State gift BOI’s private shareholders €320 billion (85% of 400 million ELG) fee. I thought that he had got an excellent deal already when he bought his BOI shareholding. The Irish State took an 75% ‘haircut’ in its BOI ‘investment’, when it sold to Ross last year. Now the BOI shareholders want to be released form ELG!!. Maybe Mr Ross should look to reducing the pay and benefits of Richie Boucher and his executives in order to increase his returns. @ JR the ELG is a massive state guarantee for the richest ppl in the country and a contingent liability on the rest of us, why should we continue to have it? It also de facto causes increased standard variable mortgage rates and other costs on basic banking services. The sponder BOI are off the ELG the better. @ Robert Browne You do know they can hedge the currency risk, right? @Bond. Eoin Bond There are several reasons why we should continue to charge banks for the various guarantees provided. In relation to ELG “The Scheme, which was introduced in 2009, guarantees specific issuances of short- and long-term eligible bank liabilities, including on-demand and term deposits, senior unsecured certificates of deposit, senior unsecured commercial paper, senior unsecured bonds and notes and certain other senior unsecured debt whose maturity can range from overnight to five years.” When the ECB, publicly reverse it’s no haircut policy for all bondholders, then as a country we could consider whether ELG is required further. Until then we have a very contingent liability, as we know too well and as Spain now know full well. It is equally noteworthy that no bank pays for the DGS (deposits up to €100,000). Banks should pay for this, even if the full cost plus a margin is passed to depositors. I have no wish to break the banks, they are quite capable of doing that themselves but banks will have to start to relearn the fundamentals of their business. There are really only three fundamentals; 1. Make money on the interest margin. They are not doing this! That is their job. If this involves increasing loan rates and reducing deposit rates that is what you do. Tough. But that is where all businesses live or die, the product margin. This at present is their most serious failure. 2. Loan money to people who have a good chance of paying it back. The reality is that they were unable to make this assessment and failed spectacularly. Now, like a rabbit in the headlights, they don’t know what businesses to loan money to. So they loan very little or not at all. 3. Keep costs down. They clearly do not want to do this, and their reluctance comes right from the top. I also hold the view that the State should recoup the full cost of the bail out from the financial industry, even if this cost must of necessity be passed back the line to both depositors and borrowers. PS. The easiest way for BOI to end ELG etc, is to to tell the government that it will convert all State funding that it has received into a 10 year bond to buy pay it all back. After that agreement the bank should be released from ELG etc., notwithstanding the contingent liabilities above. To paraphrase Churchill’s comments on Italy post 1943, such a deal would allow everybody to say that ‘The bank would have paid its fare home’. @docm from your link, I think this comment is quite a good summary of the now common view: “I am not surprised by this. I’ve spent all my adult life being pro-European, I studied European integration at university. In the past I would mock the likes of UKIP, convinced that they were narrow-minded English nationalists. I convinced myself that to be pro-EU was to be a progressive, after all the EU supported greater employment rights and the cohesion funds supported the poorer EU states. The EU was a powerful agent for democracy and freedom throughout the world. It seemed obvious that the EU was a ‘good thing’. I’ve now come to the sad conclusion that the EU is none of these things. The elites in the EU want to create a country called Europe. They believe that these states where the people do not speak a common language, have no common culture and have massively divergent views on foreign policy, could in fact be one state. Complete nonsense. Everyone knows the arguments against the euro and there is near consensus in the UK that that is a disaster. But, to take the example of foreign policy, you only need to look at the Middle East to see the problems. A so-called country in which some governments are fanatically pro-Israel (Germany and France) and others want to recognise Palestine (Ireland, Spain, Portugal etc). If there was a referendum tomorrow on EU membership, I would vote to leave it without a moment’s hesitation. I have to admit that that nutter, Nigel Farage, was in fact right all along.” @DOCM “The prime minister’s problems deepened on Saturday when one of the ringleaders of a recent Commons rebellion on EU financing, the Eurosceptic MP Mark Reckless, predicted an even bigger revolt if Cameron returned from Brussels without having negotiated a real-terms cut in EU spending, or wielded a veto.”. Aptly named eurosceptics. Joking aside this is the interesting bit and I wonder why… Overall just 28% of likely voters think the EU is a “good thing” while 45% think it is a “bad thing”. The 18-34 age group is the only one in which there is a clear majority backing the EU, with 44% saying membership is good, against 25%. @JR “1. Make money on the interest margin. They are not doing this! That is their job. If this involves increasing loan rates and reducing deposit rates that is what you do. Tough. But that is where all businesses live or die, the product margin. This at present is their most serious failure.” They are doing this ..screwing both depositors and borrowers. What about the 28b 1% money that BOI have from the ECB. Handsome margin there whether they invest it in Bonds or lend it. They are now only paying 2% or less for large time deposits and nothing for large amounts of captive current account balances. Meanwhile they get about 15% interest on their credit card business. Something is wrong and it seems to start with the cost base…how much does the chief executive cost, salary, pension and perks? @ grumpy Farage would be right if the following were true. “They [the elites] believe that these states where the people do not speak a common language, have no common culture and have massively divergent views on foreign policy, could in fact be one state.” That is the direct opposite of what the ‘elites’ believe following the rejection of the Constitutional Treaty. Insofar as any general belief can be identified, it can be found in the Lisbon Treaty which went to great lengths to establish where the limits of integration lay. It will, however, be necessary to have a greater deal of economic and budgetary integration for a common currency to work. The UK is not involved. But this was not the point of my link. It was rather to illustrate the surreal apparent absence of any awareness, not to mind debate, about what is happening across the water and its implications for Ireland. By the way, the action of Miliband and the Labour Party with regard to the budget, if it is persisted with, will be seen as an act of monumental folly as it plays right into the hands of the destructive elements with regard to the EU which are far from being confined to the UK. @ grumpy Michael McDowell adverted to the “myopia” of the Irish media some weeks ago. http://www.independent.ie/opinion/analysis/michael-mcdowell-media-has-a-duty-to-keep-track-of-wider-euro-picture-3276627.html I would not agree with the other points he makes, notably in attributing any credibility whatsoever to the views of Cohn-Bendit and Verhofstadt. But, at the very least, there should be some discussion of the issues posed. (It might help the view that credit rating agencies take of how the country is coping). @Fiatluxjnr “They are doing this ..screwing both depositors and borrowers. What about the 28b 1% money that BOI have from the ECB.” I do appreciate that is does not sound nice to propose that banks increase their interest rate margin, but their is something not right at present with bank interest margins and it is not just the tracker mortgages. After all as you point out, they are in receipt of substantial amount of ECB money at 1%. Some funds are loaned out at 5%, 6%, or 7%. So why is the interest margin so low. My own strong suspicion is that it is not the tracker mortgages that are pulling the interest margin down. I suspect that a substantial amount of their pre-crash commercial and SME lending is tracker based. Of course the cost base is completely wrong. We all know this but the moral hazard of bailing out the banks, before insisting on their abject austerity, has proven to be hazardous for everybody else. Today’s SBP’s columnist Backroom, with echoes of the John Bruton speech, wants the ‘angry brigade’ to face up the fact that the country is broke. I would have though that the reason for the ‘angry brigade’ was that bankers, politicians etc continued to behave as if the country had never seen it so good. At least that is the basis on which these people continue to remunerate themselves. @docm It doesn’t matter what the elites actually think. What does matter is what the, now fairly decently educated, man in the street thinks the elites think. They seem to be fairly close to having made up their mind, too. @ grumpy We could debate this aspect indefinitely. The more limited point that I am making is, as I have said, related to the manner in which both the elites and the people in Ireland seem oblivious to the wider context. That is where the media and commentariat are failing. @ All It is going to be a busy week! http://www.ft.com/intl/cms/s/0/8852edf8-3138-11e2-bb5e-00144feabdc0.html#axzz2Cb9s0PVU http://blogs.r.ftdata.co.uk/brusselsblog/files/2012/11/Greece_MoU2.pdf At the time when ratification of Lisbon was pending there were people who did a line-by-line analysis of the differences between the Lisbon Treaty and the abandoned constitutional treaty. They claimed, based on the analysis, that the only meaningful differences between the two were the change in title and introduction, and that Lisbon was expressed as a bunch of amendments to existing treaties rather than a coherent stand-alone document. I can’t claim to have confirmed it myself, but I never saw this analysis denied in anything other than very general terms, so I assume it to be accurate. Given that, I find the implication that the Lisbon Treaty went to great lengths to establish where the limits of integration lay as a response to the rejection of the Constitutional Treaty rather peculiar. It would be more accurate to point to it as evidence that something much like the view grumpy quotes is correct. @ Fiat “screwing both depositors and borrowers” How the hell are depositors utterly getting screwed??? Risk free rates are in negative territory, ECB base rate is 0.75%, and the Irish govt can borrow 3mth money at 0.55%. Why should depositors get rates of 2-3% on government guaranteed products??? @ JR Very little, if any, SME lending is based on ECB tracker rates. Re Colm Mccarthy’s point about the smaller number of people in banks,regulation and administration really responsible for poor lending and the failure to control obvious excesses,it appears that not only have these people been protected but that a lot of them have secured payoffs and /or positions on the senior banking and administrative gravy train by moving from one part of the banking and administrative system to another? @Eoin “How the hell are depositors utterly getting screwed???” Fixed incomes… Annuities… Inflation… @Michael Hennigan I view IONA Technologies as a success in an industry where there is a 25% chance of a firm reaching its seventh birthday. I agree completely, and have had some first hand experience. Iona made one or two significant errors (and had a bad case of the “proliferating chiefs”) but even if they had not the years from 1998 to now have been ones of frantic change with even very large IT companies such as DEC and Sun Microsystems being acquired and dismantled to eliminate competition or acquire key technologies. Sadly much of Information Technology investment is highly speculative with the hope being that the founders will be bought out by a larger established company to rid themselves of an inconvenience. The flaws of modern capitalism writ large – duplication of effort, wasted investment, rapid obsolescence and far more money being spent to avoid competition than to engage in it. I think that Information Technology is still attractive for Ireland as the initial capital requirements can be quite modest and our geographical peripherality is less of an issue – until foreign sales people are required. @eoin You don’t happen to know whether there was any SME loan transmogrification towards tracker via swaps (per the UK banks selling swaps as part of loan agreements) do you? I haven’t heard anything. Regarding ; “the ELG is a massive state guarantee for the richest ppl in the country” I’m aware of some Irish wealth management returns to Irish banks of deposits and there are those that didn’t leave, but this is surely corporates, institutions etc too? @Bond Eoin Bond “. Why should depositors get rates of 2-3% on government guaranteed products???” Because they are lending to banks in a country where the debt/GDP ratio is approaching 120% and borrowing continues at the rate of 15 b pa to fund the deficit. I think it’s called RISK. Just reporting this… Fiatluxjnr Says: November 19th, 2012 at 1:24 am @Bond Eoin Bond “. Why should depositors get rates of 2-3% on government guaranteed products???” Because they are lending to banks in a country where the debt/GDP ratio is approaching 120% and borrowing continues at the rate of 15 b pa to fund the deficit. I think it’s called RISK. Wilbur wants his cake and….. @ Hogan well, i don’t know if that how i’d term “screwed”, and its certainly not the fault of any policy makers or bank management on this island. Low rates are the function of a weak economic outlook, so people with large amounts of cash are not what policy makers should be massively worried about (unless its about how to encourage them to spend it). Higher rates for depositors = higher rates for borrowers obviously. @ grumpy there’s more or less no available swap market in ECB base rate (there’s a limited, but expensive one) that i’m aware of, so i’d be surprised if there was much, if any, of that sort of transaction. It’s been more popular in the UK. @ Fiat “I think it’s called RISK” As explained above, the Irish state can borrow in the market for three months at 0.55%, ie a 35bps margin over euribor, or 65bps over German t-bills. Why should depositors, guaranteed by that same state, get an additional 150-200bps of credit margin. Guaranteed bank depo rates should be linked to where the govt can borrow. @BEB Jaysas BEB, finance 101 will tell you pretty quickly that if the deposit rates on offer in the region of 2% to 3% were not available in near junk rated banks then the cash would flow out the door to the HSBCs of the world in quick order. If you’re in the mode of trying to explain or rationalise this oddity then why not start with the logic in repaying virtually all bond and deposit investors their entire cash invested and risked in these insolvent banks back and handing the bill to the citizens. The losses incurred within the banks should have fallen on the banks promoters in the normal way i.e. equity holders, sub bonds, seniors and deposit holders. All other decisions made to avoid the natural course of events has to be viewed with one eye on that flawed policy move. @ YoB HSBC pay pretty close to zero. You think many people will be moving their deposits if depo rates were 100bps lower than current, but still 150bps higher than the “safe” alternative? I see no evidence that this would happen, the flight from ratings conscious depositors has already long since happened, most of the remaining depositors are captive, via apathy, for the most part and simply rate-seekers within the system but not externally. @ those discussing interest margins as BEB says very little SME lending is tracker. A big factor compressing interest margins for banks is the level of non performing loans. A sizable chunk of these must be in NAMA but I would estimate somewhere in the region of a third to a half of all corporate loans in Ireland are not earning any interest, excluding those already in NAMA. @Colm O’Leary “A big factor compressing interest margins for banks is the level of non performing loans. ” Interesting and possibly accurate. But if you are correct, how do banks record interest revenue due and interest revenue actually paid. If one does not record the interest due as revenue, with a ‘bad debt’ provision in the case of interest not paid, then one ends up in a situation whereby interest due is ‘lost’ as revenue but also the bad debts are under recorded by the amounts of interest not paid. It would be interest to see if there is a common methodology in dealing with this across banks. @Colm O’Leary Looking at AIB half year results, I believe you are correct. The net interest margin as reported seems not to be a ‘net interest’ margin but a mish-mash comprising of interest received from paying customers offset by interest payments. So where is the interest that should have been received but was not received recorded in the income statement? Why is this figure not reported? One must assume that it is a very important figure. Any external analysis of bank interest margin’s without knowing the amount of unpaid interest, netted off in the compilation of the ‘net interest margin’, is pretty meaningless. The bottom line is that nobody knows whether the bank is suffering from true interest margin pressure or from bad debt interest foregone on non performing loans. One presumes that the banks themselves and the CB/ Regulator know these figures!! The extract from AIB’s half year statement (June 2010) is produced below. “The underlying reduction in net interest income mainly reflected margin compression arising from higher funding costs through interest bearing customer accounts, which saw the average gross cost increase from 180bps to 271bps, notwithstanding appreciably lower wholesale market rates. The impact of higher non-performing loans was offset by increases in loan margins. These factors were partially offset by the impact of the recapitalisation during 2011 and lower wholesale funding costs in 2012. In the first half of 2011, wholesale funding costs were negatively impacted by costs related to Emergency Liquidity Assistance (“ELA”) and higher debt funding costs which preceded the Liability Management Exercise (“LME”) and recapitalisation in 2011.” @ Joseph Ryan Sorry, I forgot to check this thread again until now. In the bank I work for, if we suspect we won’t receive interest we take an expense to the P&L as ‘interest held short’. There is little point accruing interest on corporate loans that are not making repayments as there is very little prospect of ever getting that interest. The situation is a little different on retail mortgages – though it is debatable, it is currently expected that a portion of the interest will be recovered. So the net interest margin should reflect that some loans are not earning any interest. As far as I am aware net interest margin is usually calculated as (interest received on assets – interest paid on liabilities) divided by total assets. 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