Year: 2012

Promissory note restructuring

This is breaking that Prof. Honohan will seek leave from the ECB to not repay part of the promissory note worth 3.1 billion due at the end of this month. This is good news in the short run (and something Karl, Brian and I spoke at length about recently at the Oireachtas)

From the piece:

The Minister for Finance Michael Noonan confirmed in the Dáil this evening that negotiations were taking place with the ECB about settling the promissory note by delivery of an Irish government bond.

The concession may facilitate a longer-term effort to cut the cost of Ireland’s banking rescue, which helped tip the nation into an international bailout in 2010.

The immediate questions are:

1. What interest rate(s) will be charged on this(these) bond(s) and at what maturity(ies)?

2. What will fund the asset side of the balance sheet of the IBRC?

3. It looks to me like the promissory notes are going to be funded by the EFSF, or some other funding structure, but specifically what funding structure at the EU level will the bond use?

Update: RTE’s David Murphy reported on Twitter that the government are proposing to pay off the note with a bond which matures in 2025. If ECB says yes, the government gets 13 year delay on the €3bn payment.

Update2: Karl has the text of Minister Noonan’s speech on his blog now.

Non-Financial Corporate Debt (updated)

The excess level of debt in Ireland gets a frequent airing.  Frequent reference is made to graphs like the following published by McKinsey.

Ireland has an excessive level of debt but it is the figures attributed to the financial and non-financial corporate sectors that push us into the stratosphere.

Outside of some coverage issues in relation to the general government debt, there is relatively broad agreement about the excessive debt levels in the household and government sectors.

On the issue of Non-Financial Corporate Debt there was a useful session of the Joint Oireachtas Committee on Finance on the 7th of March.  The committee heard from Michael Connolly from the CSO and Joe McNeill led a group from the Central Bank. 

The transcript of the debate is here, and the intended text of the opening presentations as well as the slides used by Joe McNeill are here.  Michael Connolly also used slides but I have not seen them.  I will add a link if someone has it.

The debate meanders at times and a couple of misperceptions are persisted with by some of the Members but there are many useful contributions from the witnesses.  A couple of quotes are provided  below the fold but there was much more discussed.

The conclusion is straightforward.  The non-financial corporate debt burden is not as large as dramatic graphs similar to that above like to indicate.

UPDATE: Michael Connolly has kindly provided the slides he submitted to the Committee.  Slides 7 to 13 are particularly relevant and are very useful contributions on this issue.

Continue reading “Non-Financial Corporate Debt (updated)”

Blanchard on Greece

Olivier Blanchard provides an assessment of the challenges facing Greece in this IMF blog post.

Paul Mooney on higher education

Paul Mooney has a long op-ed on higher education in today’s Irish Times.

Mooney taught at DCU and was president of NCI. That experience colours his assessment and recommendations. As I have argued time and again, some universities should focus on research and the academic side of education while other universities should focus on the more vocational end of third-level education. Mooney’s one-size-fits-all assessment and recommendations are more appropriate for the teaching end of higher education. Differentiation and specialization are a better way forward. Some Irish universities should lose the right to grant PhDs while other universities should minimize undergraduate numbers.

Mooney first discusses working hours. Teaching hours are a fraction of total working hours — a small fraction at the research end of the university spectrum and a larger fraction at the teaching end. That gradient can and should be made steeper: Many university lecturers are incapable of decent research while at the same time many good researchers are buried in teaching and administration.

Research is multifaceted. Some research is really applied, immediately leading to profits for companies and photo opportunities for politicians. Such research is best done in companies and consultancies. There is also blue skies research, curiosity driven stuff that is truly appreciated by only a handful of people and that perhaps one day might lead to something useful. Such research is best done in universities and national laboratories. Blue skies research does not benefit Ireland. It benefits humankind. It satisfies our thirst for knowledge. It feeds applied research. Blue skies research is a global public good. As one of the richest countries on the planet, Ireland has a duty to contribute.

Ireland can, of course, decide to free-ride and hope that other countries will provide the public good called fundamental research. But there are local spillovers too. The financial reward for top academics is small relative to their capacities and outside opportunities. A low teaching load (and hence a lot of time for research) is part of the reward for top academics. Top academics make top schools. Top schools attract top students. Top students join or form top companies, which prefer to be close to big pools of talent.

Like so many others, Mooney seems to think that technological progress is all about the natural sciences and product innovation. In fact, process innovation is at least as important. With a few exceptions, successful Irish companies are better at process innovation than at product innovation. RyanAir did not invent a new plane. Guinness and KerryGold convinced the world that their product is best (without changing the actual product). Ireland would make a bigger contribution to the global stock of knowledge if it would focus on what it is good at — and that is in the realm of ideas rather than things. The graduates of Ireland’s business and economics schools definitely command a higher wage than the graduates of its engineering and natural science schools.

Mooney also calls for (improved) measurement of performance. I could not agree more.

BlackRock and Banks

BlackRock Solutions provided the key granular analysis underlying the landmark 2011 PCAR study of the Irish banks;  the NYT reports on its role in the Greek banking sector here.