Ireland: Tenth Review Under the Extended Arrangement

The new IMF country report is here.

50 replies on “Ireland: Tenth Review Under the Extended Arrangement”

As usual, fascinating. And the tone of the report is upbeat, though less so if readers dig deeper. The projections for next year foresees GDP growth rising sharply to 2.2% (p34) with gross fixed investment of 4%, and the public deficit falling to 7.5 % from 4.5%. Rather surprising, and all the more so given the absence of justification.
As the IMF notes in the report, “under the baseline macroeconomic framework, debt sustainability is expected to be maintained over the medium term, although subject to significant risks if growth does not strengthen or if further contingent liabilities materialize. Crucially, this relies on ongoing strong program implementation, along with European policymakers delivering on their commitments in order to reduce strains in countries facing stress and ensure financial stability of the euro area. As debt sustainability is not assured with a high probability, the program continues to be justified on the basis of systemic international spillover risks given euro area fragility”.
The IMF sees other risks too e.g. nonperforming loans. “At 24.8 % of total loans, nonperforming loans are a drain on market confidence, cash flows, and a source of operational costs that hinder capacity to lend. A lack of resolution progress also undermines the reliability of assessments of loan values use of models despite inadequate loan workout experience to underpin relevant parameters suggests a need to review provisioning (48.4 % of gross nonperforming loans at end 2012) and also the calculation of risk weighted assets… NAMA are still in the early stage of working out nonperforming loans so contingent liabilities remain a threat”.
Despite the projected strong pick-up in growth next year and in the following years, combined with a forecast of a much lower budget deficit, the IMF notes “Ireland‘s market financing needs are projected to increase to high levels by historical standards, at about €20-25bn by the end of the decade (about 10 % of 2020 GDP) … Moreover, as about one-third of the current stock of government bonds is held by the CBI and ECB, forthcoming issuance will significantly expand the free float of Irish government bonds”.
So it is interesting to see that the IMF notes, “Should the [Irish] authorities consider seeking an ESM precautionary facility, under ESM guidelines they would also be expected to seek support from the IMF”.

“So it is interesting to see that the IMF notes, “Should the [Irish] authorities consider seeking an ESM precautionary facility, under ESM guidelines they would also be expected to seek support from the IMF”.

In other words…a second bailout.

Blind Biddy is FUMING, FUMING she is, FUMING at the 10% cut to follow last year’s 5% cut and the previous year’s 10% CUT to resource teaching hours for the BLIND, DEAF and AUTISTIC CHILDREN of the nation ….

wonder what happed to those “savings” (sic) on the Promissory Notes? Musbe a fiction – a PR award winning fiction.

“Moreover, if discouraged
workers and involuntary part-time workers
were included, overall unemployment would
have remained above 24 percent”

Add to this the numbers forced to emigrate and it makes for scary reading!

To be more precise, the IMF sees a fiscal tightening of 2.4pp of GDP in 2014 and 1.6pp of GDP in 2015 (the changes in structural primary balance p 35). Now I appreciate the IMF’s usual depth of analysis a lot. But in this instance, I’d have expected acknowledgement of the striking pick-up in the text, and a justification. I’m left rather disappointed.

the IMF should be afraid very afraid if these bozos are making decisions like this.
you just could not simply make it up…..laughing here in NY-really like really AIB.
“As you will have seen from the AGM documentation, the Board has proposed a change in Auditor from KPMG to Deloitte, and this matter will be voted upon later in the meeting. ”

in other news regarding Deloitte…but congrats on the AIB gig…dont they have a NY office oh….
“In a startling case, Mr. Lawsky’s office fined Deloitte $10 million and barred the consulting giant from advising banks chartered in New York for a year. The financial services department said the penalties stemmed from Deloitte’s “misconduct, violations of law, and lack of autonomy”

i know i know different divisions and all that but optically looks just stupid,can you not ask the IMF to make these decisions….hopefully there is some retroactivity from the ESM,sooner the better.

cheat sheet/agreement-Deloitte statement linked above in crains piece-yes AIB and irish banks are ‘special cases’ indeed-apols a bit off topic.This is the ‘kicker’ in the deal… AIB still doing business in NY-they used have an office or two here…and yet some people wonder why some Europeans are a bit reluctant to take over Irish banks- pity arthur anderson was no longer available….
For fecks sake are there any savy bankers in ireland at all !
Oh well at least all this info was circulated and provided to shareholders prior to todays vote…right assume the minister was fully briefed and signed off!

“If Deloitte breaches this agreement, DFS may employ any and all remedies available to it, including but not limited to an order pursuant to New York Banking Law § 36.10 barring regulated financial institutions from sharing confidential supervisory information with Deloitte.”

@John Gallagher
AIB are going to make money next year….so they needed a new auditor!


State owned AIB said it expects to make a profit in 2014 for the first time since the bank was bailed out by tax payers at a cost of over €20bn.
The chairman of AIB said the bank aims to return to a profit this year, excluding losses on boom era loans, and to make an outright profit next year.

Chairman David Hodgkinson said AIB has had to implement ‘unpopular, difficult and challenging changes as a bank.’

He was speaking at the bank’s sparsely attended annual general meeting in Dublin. More than 99pc of the bank’s shares are held by the state leaving a tiny rump of private sector shareholders.

Over 80pc of home owners and 65pc of buy-to-let investors are up to date with their mortgages, he said.

The bank is meeting targets for lending to small business but demand for credit is subdued, he said.”

The new way of spinning …..look at it positively. Look only at performing loans.
35% non-performing BTL loans looks too negative.

I wonder did the chairman take account of the Bernake time bomb .

@Fiatluxjnr the PAC was bit upset that the audit historically was on a non tender basis,at least 2013 was but they picked these guys….Exhibit A.
the irish banks do seem a little shy about stress tests,perhaps Wolfgang Schaeuble knows more about Irish banks that the largest shareholder…profit,they are going to need additional capital….

@ john gallaher

Both the comments by Schaeuble and Dombret are qualified and to not amount to a blank no.

The Irish case would be helped if a collection of benighted parochial Irish politicians – some in the Irish government – would stop blathering about spending the supposed “savings” from the deal agreed on promissory notes i.e. the room for manoeuvre created by extending the payment arrangements.

It will take more than compliant auditors and near absent regulatory authorities to get Ireland out of its present predicament.

As stated the necessities are:

1) A robust economic recovery in the EZ and EU as a whole.

2) Stable or better North American economy.

3) Improved domestic demand. Dependent on 1 and

4) Improved profitability in Ireland’s Financial sector.
Dependent on 1, 2, and 3 above and 5 below..

5) As stated the ESM is well suited to tackling the
bank-sovereign loop.

6) The Irish taxpayers continue to do their duty before
god and man.

The first five are largely in the hands of foreigners with
number six being within our control or more accurately being within our control to choose an unpalatable option or an indigestible option.

Fate is unfolding as it must with the weak sovereign and its citizens being left with few choices all resulting in a prolongation of tough times. There was a time when we used sardonic wit to ease the pain, producing great writers like Joyce, Swift, Beckett, Behan and Wilde who was a bit on the lighter side but still perceptive. We are now moving out of orthodox economics into Malthusian territory.

hi DOCM,its like asking a very pretty girl out on a date thats out off your league…she has good manners..refuses to say no….but do you really think they want touch an Irish bank.Given the total lack of clarity on secured lending regarding BTL and PPR?
is the collateral good or dodgy…this case is getting closely watched over here.
“Mr Sutcliffe said: “If this Freeman case succeeds it will be extremely difficult for any of the loan management companies to prove that they have any locus standi when it comes to dealing with any of the debtors through the courts system.”

Oh the blather about spending is coming to a rather abrupt halt-checked the 10 year lately wow !
‘Ireland’s 10-year yields also moved higher, rising to more than 4 per cent from a low of 3.5 per cent last month.”

they could always write a groveling letter like the president of Cpyres did this week-hows that working out !

the perception is just wrong,Deloitte were all over every major paper/tv/media outlet this week in NY-i was looking for mid-year/second half AIB numbers when i came across the announcement-they tone deaf the board sack them.

@ Seafoid
Great link.

Some great pics on RtE today. Eamonn Gilmore so used to lying to his own people that he forgets not to do it in Europe.
And BTW we are in a bad situation

Ireland is an irrelevant sideshow. On D plus n after the German election the next German govt will be faced with an unpalatable choice between writing a large cheque to the periphery or an uncontrolled series of sovereign defaults with the attendant blame of destroying Europe again for the third time in a century. It is up to the Germans.

@ john gallaher

The Freemans case is based around the fact that BOSI appear to have breached the Central Bank Code of Practice on transfer of mortgages and asset securitisation. The code clearly states that the mortgage holder has to get permission from the borrower to sell their loan(s). “When seeking consent from either an existing or new borrower the lender must provide a statement containing sufficient information to allow the borrower to make an informed decision”.

If the Freemans win their case we are back into justice Elizabeth Dunne territory only by a factor x 10.

In essence, loan management companies will not have locus standi. The values of the loans are going to be worth a pittance as they will be unable to be securitized and sold on. MBS that have been purchased will be practically worthless.

@John Gallagher
Interesting link you posted to the Examiner article.
Question is though…does the code of practice have a strict legal basis in law.
It would seem odd if banks couldn’t sell securities at will. The threshold on judicial review is quite low, so leave been granted is only a tiny step..but it is very interesting and must send a shiver up the spines of various bankers.

Breaking news.
MoF got retrospective recaps on a case by case basis into some document today but he was a bit downbeat on news at nine. He says there is a long way to go. Could be good news.

That central bank code seems to have a get out clause…the last paragraph..

“a transfer within the same corporate group or a transfer arising from serious business difficulties, where the lender satisfies the Central Bank that, in the circumstances, the application of this code would not be appropriate and that the transfer is being effected on terms which are just and equitable and which a borrower would be reasonably entitled to

@ john gallaher

Thanks for the link, near the end it states;

This code of practice does not relate to:

(iv) a transfer within the same corporate group or a transfer arising from
serious business difficulties, where the lender satisfies the Central Bank
that, in the circumstances, the application of this code would not be
appropriate and that the transfer is being effected on terms which are just
and equitable and which a borrower would be reasonably entitled to

The Irish banks in serious business difficulties? Yes, I think they satisfy that criteria and they can be sure Honohan will be 100% on their side as per usual.

Will this be their get out of jail card?

As regards “terms which are just and equitable and which a borrower can reasonably expect? I think they no the routine by now, they expect to be screwed and hung out to dry.

Shatter is telling the IMF that he had no time to deal with the absorbent legal fees and the cosy cartels, because he has to ‘perfect’ the Insolvency Legislation. Hmm, you could not make this up.


‘There was a time when we used sardonic wit to ease the pain, producing great writers like Joyce, Swift, Beckett, Behan and Wilde who was a bit on the lighter side but still perceptive. We are now moving out of orthodox economics into Malthusian territory.’

Social evolution is complex. Our society is more inclusive and more democratic these days. Respect for the Gintry is thankfully less. The divide between educated citizens and those beyond the Pale is not so extreme as it was. Lots of people are in the middle ground, not so sure what their role is. We have, as the Americans say, a middle class.

I agree that these writers are an important resource. They helped us to recognise who we are and what we are, and in many cases they paid a price in their personal lives. Their comments on the Bubble would be worth bottling, if they were around today..

They say that you cannot inherit tradition, you have to work to acquire it. Pace some excellent individuals, we simply haven’t been doing the cultural work in recent years. We are still living off the contributions of the past, because that is what sells, and we can do a lot better.

The sardonic wit is alive and well in Ireland. It’s just not fashionable in elite circles. Too many sacred cows in the national meadow. Too many ‘tried and tested’ tourist attractions in the mausoleum. It’s a pity poor Dermot Morgan died so young, as he knew how to take the pi55 in the historic style.

@Robert Browne/Fiatluxjnr i may be able to find a link/copy of the decision,if it was US,simply enter into minimal info into Pacer-viola everything you need-trying at this site but its pointless,perhaps someone has a link to it over there ?

Bernanke sez QE3 will end next year. I wonder how strong the US economy really is. There is a great line from a song by the French singer JJ Goldman

“Une epaule solide et fragile a la fois “- A shoulder that is similtaneously solid and fragile

@ Ciaran O’Hagan

Nice to hear from you. I think we have established that Gavin Kostick, playwright and impressario, has the best forecasting record, and that spin (aka bias) is a fairly pervasive problem with official forecasts.

As a matter of curiosity, and totally off-thread (in the best traditions of, what odds are you offering on the survival of the euro these days ?


CoH is prolly waiting for some REAL austerity. Get the punters on a proper rack.

Re the Joris link above- he’s an anthropologist and he has a blog on banking at the Guardian site

‘It’s a proto-fascist ideology. Top bankers as predators and us as prey’

Insepararable from the neo Gatsby Zeitgeist as well BTW
It wouldn’t be so dangerous if they were competent or understood the system they operate in .

@ John Gallaher

There is no harm in asking for the dance; “Faint heart never won fair lady”.

The fate of Irish banks cannot, of course, be separated from that of the economy. However, as the MOF pointed out on the radio this morning, there will only be two only major banks (he even mentioned the word “monopoly”) and both are expected to be “profitable” next year. The wording on retroactivity undoubtedly benefited from the involvement of Spain. The minister also underlined that there might be other avenues open but it was useful to have the principle accepted “as a backstop”.

I was trying to figure why Noonan was so downbeat on his achievement last night but the explanation was simple…unanimity.
“Ireland has consistently argued that the state should be entitled to recoup some of the investment it put into AIB and Bank of Ireland, as the ESM option was not available to Ireland during its bail-out.
However, any agreement would require complete unanimity, and is at least a year away, as the ESM will not be operational until the EU banking resolution and recovery directive is agreed.”.. From IT report.

@ Flj

Everything in this context is subject to unanimity (or as close as makes no difference under the voting arrangements agreed for the ESM). Getting unanimous agreement to accept that the possibility of retroactivity is in itself a major achievement. It would probably not have been agreed IMHO were it not for the situation with regard to Spain.

Seems like the Greek government are about to lose one limb.
“An official from the party told Reuters:

A strong majority of the parliamentary group and the executive committee are backing [leader Fotis] Kouvelis’s propsal to withdraw minsters from the government.”

However, PASOK and ND still have a majority of three. A little unstable perhaps
But Samaras is apparently determined to plough on. I wonder what odds paddy power would give on the government lasting until year end?

Re Paul on “odds on the survival of the euro these days ?” Depends what kind of a euro you are talking about.
What has always been my answer .. it is an error to see euro exit in black and white terms as often portrayed, but there can be many ways to the exit, and many exits, many shades of grey.
For example
Scenario 1
If you talking along the lines of bets on the Intrade exchange, along the lines of “euro to be declared officially not the legal tender of a country” [by some very close date], well that kind of bet I am ready to make any day i.e. no way we’ll see an official declaration of exit. Even in countries that are not members of the euro, eg Montenegro, they are quite happy to adopt the euro, without some nearby large currency (like sterling) to hitch itself too.
Scenario 2
Well we’ve already seen it with ELA and capital controls. These are steps outside the euro.
Most people will see euro membership as just having euro coins in their pockets. However savers will be more conscious of how easily they can use their funds as tender in the rest of the euro area, as the Cyprus crisis illustrated. Cyprus was a foreseeable crisis, several years in the making, but brought to a head on purpose in March this year (it could have been dealt with much earlier or much later); it was made worse on the day by policy disagreements. The latter was hard to forecast, along with the ramifications.
For now, I don’t see any other such foreseeable crisis brewing. And hopefully enhanced burden sharing after the German elections – and maybe even a spurt in US growth – will help put off more Cypriot-style crises (or worse).

RE that Guardian bank bashing article, well written, but for me, only captures a bit of what is going on. More generally part of the job of a banking system is to facilitate the allocation of financial capital. Efficiency on this front is key to setting the conditions for economic prosperity. But the job is far from easy, with actions necessarily taken on the back of highly imperfect information and resources.
And not just in banking… in the public sector in some countries, I can see people (usually just one or a handful of overworked guys) take decisions with remarkably large potential costs or benefits (I was still surprised lately) … like large enough to sink or make a bank if they were working in a bank and were also marked to market. But they are not in a bank, not marked to market, and yet the decisions somehow need to be taken, by default or by choice. Just less controversial, as there are less personal consequences from making bad decisions, and often the losses or gains will be just in opportunity cost.
It is not obvious to me that disaggregating the decision on how to allocate financial capital into smaller units is beneficial per se. But there is a large academic literature to chew on if interested.

@DOCM its almost a footnote,tks for the link….exact wording is
“Potential retroactive application
“The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.”

now let me think again who is the largest shareholder and what are their views on this…split at best !

oh these comments too….
“Mr. Schäuble described the retroactivity decision as “a concession to our Irish friends.”
But it was evident that the German minister didn’t believe much money could be devoted to past recapitalizations, saying as he entered the meeting: “I don’t think we have much leeway to use direct bank recapitalization…retroactively.”

@ John Gallaher

It may prove to be a very small gift horse but why look it in the mouth at this stage?

My reading of the remarks by Schaeuble is that he was holding the door a little bit open for Ireland and almost completely shut for Spain et al.

1. Since Tull continues to bring the line of it would be the fault of Germany, if countries like Greece go bankrupt (3rd in a century),

I enjoyed reading the Borgia actor
to bring the same hilarious claim, in Sicily, the center of the Mafia. Very befitting.

And I imagined, how the Tuscan nobles ancestors of Lorenzo Bini Smaghi might have argued at the court of Borgia, that black is really white, and somehow the German peasants have to pay : – )

2. The analysis on economonitor is pretty clever, just that he forgets there were no Greek government layoffs, and that he conveniently forgets that the European support is strictly conditional on the full compliance of the Greek side, which is again not the case.

Ekatherimi shows already, that Eurogroup and
“The International Monetary Fund sees no financing problems with Greece as long as a review of its loan program is concluded by the end of July, IMF spokesman Gerry Rice said on Thursday. “
Putting the ball firmly where it belongs, at Greece only.
Just as so many try to forget that “whatever it takes” was accompanied by “within our mandate”,

And that OMT is strictly conditional on an ESM plan in place and that faithfully executed.

@ Mickey Hickey

The Greenhouse question is popping back to my mind.
Mickey made the arguments, that Ireland has fundamental problem with
a) not enough sunlight,
b) high energy import costs, and
c) poor soil

Triggered by looking into numbers of flood devastated greenhouses here, I wondered about the soil makeup. The greenhouse soils are made of sand, bog, and lime, all Ireland has plenty of.

A pretty useful link to a number of questions, also regarding transport cost and times, is
Ireland has about the same temperatures and sunshine hours as the Netherlands, and this is not that important anymore anyways, if Holland can compete with Spain and Florida in catering to the US market, Ireland has that option too.

Energy is sold in Europe at market prices, and when the Dutch negotiate with Canada over the supply of LNG, transport costs and times are clearly no issue.

@DOCM-dont get me wrong it would be welcomed,but i hope its not the only game in town,is their a back up plan ?
Must be difficult to recruit what with that horrendous low cap on salaries and beni’s,short term owners frantically seeking any exit door…clinging to the slightest suggestion,mere hint of a way out !
The political/social/election implications are complex in owning this bank,for example BofI is planning on charging interest on the parked portion of split mortgages,is AIB ?
Does the govt have the cojones to start foreclosing with all that historic irish BS that it evokes, histrionics and hysterical irrational commentary-peasants starving by the roadside-yawn.
In my opinion and guessing here, a number of media commentators are in negative equity,owners of BTL-just waiting to put the boot into any govt owned bank that pursues deadbeat BTL owners…oh the tears the tears in Montrose.

@ john gallaher

I agree entirely on the BTL issue. The cast of characters involved in this area is the same from one end of the island to the other, including especially those, from what I have been hearing, with properties ostensibly bought – on the back of tax concessionary loans – as BTL but being let back to their business owners. Indeed, I suggested to Gavin Kostick many moons ago that if he wanted a cast for the definite drama on the death of the Celtic Tiger, he could find it in any town in Ireland. But there are few takers for this suggestion, it being too close to home and too topical.

However, everything is relative. Viewed from where Schaeuble is standing, the Irish government is sticking to its last, the most recent example being the near agreement on a further, and hopefully final, cut in public sector salaries (apart from with the teachers charged with the education of our children at second level!). There must be some expectation that it will come to grips with the BTL lobby. After all, the latter can hardly argue that they are being thrown out of the family home.

By the way, any suggestion that the USA can give lessons in business ethics will not be taken seriously.

The Nederlands is largely an alluvial plain blessed with fertile soil which is replenished yearly much like the Nile Delta. In real terms this means they spend hundreds of Euros less per hectare on fertilizer (Potash, Phosphate, Nitrogen) than Pomeranian or Irish horticulturists. Ireland has high rainfall which puts them at a disadvantage with Pomeranians in that the fertilizer washes out of the soil. Dutch horticulturists have access to cheap domestic gas. There may be an European wide gas market there are also protected domestic pockets.

Shortly after German reunification a Dutch acquaintance of mine sold a Euro 4 million operation and bought land in East Germany to start up a similar operation. After four years he came to the realisation that he could not make it a profitable operation. As he explained it to me the bureaucracy was stifling and the availability and cost of competent labour was a serious problem. Anyhow he sold out and moved to Vancouver Island, British Columbia where he makes a good living.I got the blow by blow account from his German wife.

As for making soil I had no opportunity to misspend my youth since a lot of after school time was spent drawing seashore (beach) and sand dune sand to amend soil that was too rich in organic matter. Sand is not just sand there is grain size and mineral content to be taken into account.

Horticulture is a complex business which is unforgiving of competitive disadvantages. What appears similar to the lay man makes a mountain of difference even within small areas. There is little slack that can be profitably exploited, if there was the Dutch would be out of business.


we are talking 2 different things, or more.

What I am talking about is an all year continious greenhouse operation, and for that the soil is “artificial”, and flooding certainly not a feature, but a catastrophe, always and everywhere.

What you seem to talk about is some old fashioned one harvest per year agriculture. And even for that flooding is not acceptable and not happening.
If you still stick with that opinion, I would like you to provide some kind of link/evidence of what you have in mind.

Beyond that, this standard grain farming on a large scale is now a profitable business on the large farms in eastern Germany, we are even a net exporter.

Industrial scale glasshouse continuous production operations are usually hydroponic using no soil. they are well suited to cucumbers, lettuce, small tomatoes. Fast growth is the key to success. One of the larger operations for cucumbers was built in Newfoundland and after a few years died of a fungus infection. To compete with established operations the size required would need a population of 20 million or so and the risk presented by existing producers undercutting prices to put you out of business cannot be under estimated.

The successful model is now developing in Mexico to serve the US-Canada market. A combination of plastic tunnels, glasshouses and irrigated open fields. Their prices are competitive year round. Two big advantages are cost of fuel and cheap skilled labour. The biggest advantage with the big retail chains is that they can sign contracts for year round weekly delivery of good quality produce.

It is highly unlikely that conditions in Ireland would allow such enterprises to operate profitably. Back to local markets competing in season with the Dutch.

I was struck by how the system in East Germany has changed very little. The collective farms are now privately owned but the scale is still of USSR proportions. The movie Tin Drum (Die Blechtrommel) by Gunther Grass has an opening scene of a child hiding under a woman’s skirt in a potato field which I equate with Pomerania as I would The Gleaners with France.

As for flooding, the best agricultural land is on river banks where floods replenish the soil. Flood control upstream creates worse flooding downstream this is a problem that crosses borders and requires cooperation between neighbouring countries.

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