That 26% growth rate: two weeks on

The recent publication by the CSO of the 2015 National Income and Expenditure Accounts generated a lot of reaction.  There is no doubt that a 26.3 per cent real GDP growth is bizarre but it was not farcical, false or based on fairy tales.

Many commentators went out of their way to highlight that the figures did not characterise what was happening “on the ground” in the Irish economy.  But this seems like a bit of a strawman.  Instead of being told what the figures were we were been scolded over what they weren’t.  No one said the economy was growing at 26 per cent.  Arguments against using GDP in an Irish context have made for the past quarter of a century.  Even as recently as March, when the first growth estimates for 2015 were provided, there were plenty of people who pointed that the underlying growth rate of the economy was probably around half of the 7.8 per cent growth rate in real GDP shown at that time.

But a 26.3 per cent real GDP growth rate is very very unusual.  And one that deserves understanding rather than dismissal.  However, the discussion of the figures has generated more heat than light.  At the briefing it seems three items were identified as having oversized effects on the national accounts’ aggregates. These were:

  • aircraft leasing
  • inversions and corporate restructurings, and
  • asset transfers to Ireland

It would be really helpful if the CSO provided a recorded webcast of these briefings so we could know what was actually said.  Anyway most of the subsequent focus was drawn to the first two but it seems likely, to me at any rate, these were provided as items which could impact the national accounts rather than specific factors which explain the 2015 growth surge.

The aircraft leasing example was particularly ubiquitous but an examination of the figures shows that investment in aircraft actually fell in 2015 (see Other Transport Equipment in Annex 4A here).  There were some early references to a 70 per cent rise in aircraft investment but this may have been due to a miscommunication somewhere including this note.  And even if aircraft investment did jump the GDP effect would be minimal as the positive investment effect would be offset from the negative balance of trade effect of having to import the aircraft.

The GDP impact of leasing the aircraft can be seen from the Balance of Payments and the inflow of operational leasing revenues.  These rose from €9.4 billion in 2014 to €11.8 billion in 2015.  Now, usually a €2.5 billion rise in any flow would be significant but in the context of a €60 billion plus rise in GDP it is not a central part of the story. Indeed, one eminent economist was issued with a note by the CSO indicating as such.

The effect of inversions also got a good airing but there are also a number of problems with this.  For a start there simply wasn’t enough of them in 2015 which saw the Allergan-Actavis and Medtronic-Covidien deals completed.  The balance sheets and profits involved in these were simply not large enough to explain the surge in GDP.  And it must be remembered that a corporate headquarters is not the only basis for determining where a company’s assets and output are assessed.  If a pharmaceutical company has a manufacturing plant in New Jersey, the plant forms part of the US capital stock and the value added the plant produces contributes to US GDP. If the company redomiciles to Ireland the location of the plant is unchanged.  A company’s assets do not get added to a country’s capital stock just because it redomiciles there.  The company may choose to move some assets along with the headquarters (such as intellectual property) but that is a change in addition to the actual inversion itself and may have tax implications in the originating country.  And in each case one of the companies is already “Irish” so the net effect on the capital stock may be relatively small.

If inversions were a significant factor in 2015 then we would expect to see an increase in the inflow of direct investment income.  The profit from the manufacturing plant in New Jersey would be a factor inflow to the company HQ in Ireland and would form part of Ireland’s GNP (unless paid out as an actual dividend in the same period).  In fact, the inflow of direct investment income fell in 2015 to €15.8 billion from €19.9 billion in 2014.  There is no doubt that a large part of this accrues to foreign-owned redomiciled PLCs (and the fall in 2015 could be the result of some companies generating losses) but there is little evidence that inversions alone caused the surge in GDP.

So that leaves us with the transfer of assets to Ireland and there seems little doubt that this is where all the action happened and is likely related to other forms of corporate restructuring and relocations.  Here is probably the best snapshot of it from the data published to date and is taken from the International Investment Position data published the same day as the NIE.

Net-External-Debt-by-Sector.png

Usually when an incongruous chart like this is returned the cause would be a coding error or a data entry problem but neither seems to be the culprit in this instance.  Net external debt is the balance between gross external debt and external assets in debt instruments.  For our purposes here there is only one line that interests us: direct investment debt.

From the middle of 2013 the net external debt associated with direct investment became more negative (external debt assets exceeding external debt instruments).  This is likely related to inversions and redomicilced PLCs. But there is no doubting the most significant change which was the once-off level shift in the net external debt associated with direct investment of about almost €300 billion in Q1 2015.  Here are the components of the net position shown for direct investment in the first chart.

External Debt and Debt Assets of FDIThe level shift in external debt in Q1 2015 is readily seen.  So what has happened?

It seems some MNCs have transferred huge amounts of assets to Ireland and achieved this by having the entities holding the assets become Irish resident.   The stepped nature of the change suggests that the number of companies involved is small (unless there were reasons for several companies to act simultaneously).

If the assets were purchased they would show up in investment. In a short note on the revision Eurostat state that the GDP surge in 2015 “was primarily due to the relocation to Ireland of a limited number of big economic operators.”  Anyone know what the technical definition of an economic operator is?

Anyway these economic operators have brought a huge amount of assets to Ireland with them. These assets have been added to Ireland’s capital stock and the newly-resident companies owe liabilities to other entities within the MNC structure for the benefit of having these assets.

We can safely deduce that these are intangible assets.  We might usually expect the impact of increased intangible assets to show up in royalty flows either through increased inbound royalty payments if others wish to use the IP or reduced outbound royalty payments if the IP is already being used in Ireland. Neither of these happened, in fact outbound royalty payments increased by around €20 billion in 2015.

What has happened is that these intangible assets have been used for contract manufacturing where the owner of the intangible asset contracts with an external party in another country to manufacture some product based on using that intellectual property.  The manufacturer is paid a fee for undertaking the production but the profit arising from the difference between the costs of production and sales revenue accrues to the owner of the IP, who has now become Irish resident.  Because of rules on ownership in ESA2010 the exports and imports associated with the product are counted as Irish with the country of the external manufacturer showing an inbound service fee for undertaking the production.  Even if not included in Irish trade data (and also our industrial production) the GDP effect of a different statistical approach may not be that significant as the added value would still be counted here under the heading of goods for processing, merchanting, outsourcing or factoryless goods producers.

The current rules mean that it is in the Irish “industry” sector that the impact is seen.  Gross value added in the Irish industry sector more than doubled in 2015.  Nominal GVA for Industry went from €41 billion in 2014 to €92 billion in 2015.  There is your surge in GDP.  Most of the production took place somewhere else but the IP behind the production is now located here.  And this is a level-shift in GDP not a once-off jump that will quickly be reversed.

Why are companies doing this?  There were some references to the ending of the “double irish” but this does not seem plausible for a number of reasons not least that the provision was grandfathered until 2020.  An alternative explanation is that it related to changes in the international tax environment brought about by the OECD’s BEPS project such as country-by-country reporting or that the companies are looking to avoid bad PR down the line.  This is not to discount past strategies used by these companies utilising, for example, Irish-registered non-resident companies which may have aided in the decision to transfer the assets to Ireland and, of course, moving companies out of no-tax jurisdictions is probably relatively straightforward.

Making a few heroic assumptions this contract manufacturing is likely an activity that the companies have undertaken for a while but with the intangible assets held in no-tax jurisdiction.  Country-by-country reporting would require the companies to report the destination of the profits to the tax authorities in the country where the manufacturing facilities are located.  And alarm bells may sound if the tax authorities see the profits accumulating in no-tax jurisdictions (even if ultimately a 35 per cent share is due to Uncle Sam).  So the companies have moved the assets to Ireland and report that the profits are subject to our Corporation Tax.  All just supposition of course but the €2.3 billion rise in Corporation Tax was real. Now if we could only figure out what the real growth rate of the Irish economy is it would be win/win. But the benefits of the MNC sector in Ireland outweigh the costs of some distorted national accounts figures and some cheap disparaging remarks by many many multiples.

Comments

comments

37 thoughts on “That 26% growth rate: two weeks on”

  1. “If the assets were purchased they would show up in investment”

    Doesn’t it also count in imports, so that the net effect in GDP is zero?

  2. But the benefits of the MNC sector in Ireland outweigh the costs of some distorted national accounts figures and some cheap disparaging remarks by many many multiples.

    I don’t know who are the targets of the “cheap disparaging remarks” comment but whether it’s leftist TDs, other academics or whoever, it should be possible to acknowledge the benefits of MNCs while also referring to some negatives.

    It should be possible to use Apple technology as I do and still point to the smoke and mirrors that produces a 1.9% ex-US tax rate on the profits from 61% of global sales revenues in 2012 and 6% on profits from 65% of global sales in 2015 — OK taxes could be eventually paid or most likely not. It may depend on the reaction to the increase in populism on the right and left in the US.

    It should also be possible to acknowledge that linkages between the FDI exporting sector with the indigenous sector have not been sufficient to create a vibrant international home sector 60 years after the first export tax incentives were introduced. The number of Irish exporters is very low.

    Some dissent is inevitably misinformed but most of it on the property bubble was correct — “talking down the economy” was the typical reaction from the once seers — and wonder when the establishment decided that tax inversions were not officially welcome?

    Foreign media outlets and committees of the US Senate and House of Commons triggered the momentum for international tax reform while the Irish establishment was in denial and local dissenters were ignored.

    Two months following a comment by President Obama about Ireland’s facilitating tax inversion companies, lawyers from US corporate law firm Cadwalader, Wickersham & Taft, met Kenny and Noonan in Dublin in mid-2014.

    Cadwalader said in a press statement:

    Beyond reputational risk, senior officials note that a continuing trend of inversion transactions may place Ireland in an untenable fiscal situation: the gain in tax revenues from redomiciled corporations is more than offset by the concomitant inflation of Ireland’s nominal Gross National Product, the basis for the calculation of the member states’ contributions to the EU budget. The resounding concern is that Ireland bears the brunt of the reputational and economic impact of inversions but reaps little of the job creation, substantive investment, economic growth or other tangible benefits typically afforded by traditional foreign direct investment.

    In March 2014 in a speech titled ‘Irish Exceptionalism in the World Economy,’ Prof Patrick Honohan, then Central Bank governor, said:

    One hoped-for element of the policy of encouraging foreign-owned firms is the inward transfer of technology and business know-how including to locally controlled firms. As the decades passed, this transfer does seem to have happened to an increasing extent. But the reliance on foreign-owned firms has lasted a long time. Irish-owned companies have grown and prospered over the past half-century, and the most pessimistic of prognostications have not materialised. Nevertheless, this systemic dependence on foreign capital and know-how has skewed Irish development. In the interests of robust diversification, most Irish economists observers would hope for a greater convergence towards normality in this aspect of Irish economic development, with a stronger emergence of innovative Irish companies alongside those steered from abroad.

    One side-effect of the heavy reliance on multinational corporations for driving employment and productivity growth has resulted from the fact that these companies generally bring most of their financing with them, thereby reducing the pressure on the local financial intermediaries and markets to innovate in the direction of designing and appraising financing packages for modern industry. While this did not discourage Irish banks from expansion, it likely contributed to their slide into a monoculture of property lending.

    https://www.centralbank.ie/press-area/speeches/Pages/AddressbyGovernorPatrickHonohanat.aspx

    The Irish authorities are generally passive in response to MNC tax strategies and also accommodating to demands. At least the policy makers should be aware of the implications of the big restructuring moves for future local and international tax policy.

  3. Does Cantillon not identify what is the nub of the matter?

    https://www.irishtimes.com/business/economy/cantillon-gdp-growth-over-26-central-bank-didn-t-see-that-coming-1.2736422

    JK Galbraith’s famous quip (“The only function of economic forecasting is to make astrology look respectable.”) could equally well have been mentioned.

    The logical conclusion to be drawn by the newly established expert group, even before it meets, is ineluctable i.e. statistical measures other than GDP will have to be brought into play to get a better grip on what is happening, especially revenue buoyancy, or the possible lack of it. Adherence to what are in any case the dubious technical provisions that flow from the Stability and Growth Pact need not be a hindrance as long as the country gets its financial house in order. It should be capable of doing so under its own steam i.e. by setting expenditure ceilings as required by the rules but leaving a wide safety margin below those ceilings given the forecasting uncertainties. And, of course, sticking to them.

    http://www.fiscalcouncil.ie/wp-content/uploads/2012/01/FAR_Draft_08.06.16_Website_Final.pdf#page=68

    The bifurcated finance department that we have at present will also have to escape from its 19th century time warp, notably by developing a structured classification of government accounts that will stick from one period of government to another.

  4. On the aircraft leasing issue it is my understanding that the aircraft imports captured in the merchandise import figures and classed as investment are planes that have been added to the Irish Aircraft Register, as defined below

    ‘An aircraft may be registered in the State subject to the condition that it be managed and operated from a place within the State and based therein or that it be managed and operated by an air transport undertaking holding an Air Operator Certificate issued by the Authority’

    So if an ‘Irish’ leasing company buys and sells aircraft abroad it will impact Irish exports and imports as measured in the national accounts, but not impact domestic investment in aircraft.

    From a forecasting perspective the issue with the GDP data largely centres on exports; Merchandise exports last year were €196bn according to the national accounts, as against €112bn from the monthly trade data. No one has any idea what that ‘residual’ figure will be, let alone services, which of course are not published monthly. Contrast that with the UK GDP data; the quarterly figure is composed of monthly data on industrial production, services output and construction. Not all are available on a timely basis but it does make it a lot easier to estimate quarterly GDP.

  5. The central driver of the exceptional GDP figures was the dramatic increase in the capital stock. Your analysis makes a convincing case that, of the factors cited, contract manufacturing seems to be the only one that could explain such a large increase in the capital stock. The redomiciling of a corporation to Ireland does not result in the transfer of the capital stock to Ireland. However the combination of redomiciled plcs and contract manufacturing could be very significant. 2015 saw a dramatic increase in both GDP and GNP. A huge rise in contract manufacturing could explain the increase in the capital stock and GDP. However if this was done by multinationals whose headquarters were elsewhere, the profits would be deducted as factor outflows and the GNP (and GNI) numbers would be unaffected. Since GNP also increased dramatically this implies that some of the companies in question were headquartered in Ireland, presumably as redomiciled multinationals. The Central Bank report refers to ‘export figures which have been boosted by contract manufacturing abroad on behalf of multinational firms, including recently redomiciled firms located here.’

    Another distinctive feature of the 2015 figures is the rise in deprecation. Given the increase in the capital stock, one would expect an increase in the provision for depreciation. However the increase in deprecation was disproportionate. While the capital stock increased by around 40 per cent, deprecation doubled. It is not obvious why this occurred. The result of the jump in depreciation is that net national income (after deduction of depreciation) increased by what could be considered a ‘normal’ amount (as noted in your first posting). If deprecation had increased at a rate proportionate to the capital stock, the net national income figures would also have been affected.

  6. The CSO reports today that the Chemical and Pharmaceutical sectors recorded the biggest percentage increase in NSV (net sales value) in Ireland between the years 2013 – 2015. The Chemical sector experienced 51.8% growth while the Pharmaceutical sector had 46.9% growth.

    The value of Food products manufactured in the same time period rose 8.2%.

    Despite the jump in output, jobs in Chemicals and related products has remained about 50,000 in the past decade.

    Overseas contract manufacturing has become the equivalent of the Double Irish tax dodge for the goods sector. Foreign mfg booked in Ireland as exports was at 74% of the total value of real exports.

    The real goods trade surplus (exports at €112bn and imports at €70bn) was €42bn.

    In addition, the trade surplus on contract manufacturing: amounted to €68bn.

    Pfizer is owned by a Dutch partnership but Irish data is not separated.

    It is possible fro example that some of Pfizer’s European plants were transferred as assets to their Irish accounts in 2015.

    The CSO gets copies of such accounts.

    1. One could argue that the entire discussion is disjointed. As I pointed out on the thread to which you have linked “Ireland is an aircraft carrier for enormous – relative to the overall size of the economy – volumes of mainly US corporate investment and this is reflected in the seemingly very odd figures that the conscientious staff of both the CSO and Eurostat produce.”

      If the situation is anything, it is a tragicomedy rather than a farce in the sense that the refusal to face up to this reality leads to this completely skewed debate. This is all the more remarkable when one considers the way the bureaucracy is actually organised i.e. the distinction drawn between FDI and indigenous production, the IDA for one, Enterprise Ireland for the other.

      They are two separate topics for discussion, two discussions unfortunately prevented, it would seem, by the fact that the situation is not normal in international terms and the standards for statistical reporting are not tailored to take account of it and actually blur the distinction between the two.

      The focus of the debate should be IMHO in how to make the best of this situation. I have made some suggestions above.

    2. John Fitzgerald on the general topic.

      http://www.irishtimes.com/business/economy/extra-tax-paid-to-eu-must-not-obscure-2bn-corporation-bonanza-1.2737572

      The idea of running a government surplus in 1917 seems unlikely to gain acceptance; unless the Irish political class and electorate have gone through some unexpected process of enlightenment. Maintaining a large safety margin below the expenditure benchmark and the expenditure ceilings that flow from it might gain some traction.

      Jospeh Stiglitz on the other topic.

      http://www.irishtimes.com/business/economy/joseph-stiglitz-attacks-apple-s-irish-tax-regime-1.2738862

      The headline is misleading. It should refer to the US tax regime.

  7. Useful.

    Be lovely to know how those corporates ‘value’ billions of these newly resident ‘intangible assets’ … which are then doled out again on contract.

  8. The Irish model is crap. All the action is in a small sliver of Multinational FDI and Corporate tax dodging. The local economy is unable to develop anything coherent and SMEs are patronised. Education throws out reams of accountants. When neoliberalism finally expires there won’t be much left to show for it.

    1. @ seafóid

      Prof John Kay, the FT columnist, wrote in 2013 about MNCs presenting accounts that are “essentially false” to the UK authorities while “there is one law for the little guy and another for the big battalions”:

      In the main, however, tax authorities have preferred to cut deals with big corporations rather than pursue costly legal action. They will not do the same for you and me. It makes no sense for a small company to pay an accountant to do anything but calculate the amount of tax that is properly due, or to incur legal fees resisting a challenge. The unacceptable outcome is an entirely correct perception that there is one law for the little guy and another for the big battalions. The potential effect of that perception on tax compliance is one that it is well worth spending millions of pounds to avoid.

      A serious reform agenda would involve a principled reappraisal of the basis for taxing corporations both nationally and globally, and a strategy for effective enforcement of existing rules. Such a strategy would make clear that executives of companies which present accounts to tax authorities that are essentially false, and the accountants who support them, will in future run serious risks. The door they hear closing behind them might be the door of a prison cell rather than the door of 10 Downing Street.

      What we see in the Anglo verdict today is punishment for evidence of false accounting in what’s called dressing up Anglo’s year end accounts.

      However, a blind eye is turned to MNC accounts filed under Irish company law with multi-billion euro or dollar charges from letter box or shell companies that cannot or would not be verified by the Revenue.

      Almost 8 years waiting for a verdict is a sentence in itself.

      Back to John Kay’s point, even the case of the Irish government to the European Commission that there were no “special” (how many have to avail of something to make it not special) tax deals agreed with Apple, is a sham as preliminary evidence from the EC shows otherwise.

      http://www.irishtimes.com/business/financial-services/anglo-verdict-prosecution-wanted-green-jersey-agenda-removed-1.2678502

    2. From Raglan Road to Nevada: The Apple Schroddinger App.

      Yves Smith vs Joe Stiglitz

      Stiglitz Calls Apple’s Profit Reporting in Ireland ‘a Fraud’ Bloomberg (Dan K). Economists should never do tax. Repeats the bogus idea that companies like Apple that use Irish or other “offshore” entities to lower their taxes are keeping money out of the US. The tax treatment has nada to do with the economics. In the case of Apple, the Irish entity has accounts with American TBTF banks and the money is managed out of Nevada as an internal hedge fund. See here for the gory details (and this is simplified from Sheppard’s version for tax professionals in Tax Notes). So Stiglitz is legitimating their propaganda when he repeats the “cash overseas” meme. [Y. Smith NakedCapitalism.com]

      http://www.bloomberg.com/news/articles/2016-07-28/stiglitz-calls-apple-s-profit-reporting-in-ireland-a-fraud

  9. @ Seamus Coffey

    “Why are companies doing this? There were some references to the ending of the “double irish” but this does not seem plausible for a number of reasons not least that the provision was grandfathered until 2020.”

    If companies have decided that it is no longer legit to Domicile themselves for tax purposes “no where” and if instead have re-domiciled to Ireland now, despite the grandfathering rules not being imposed till 2020 couldn’t that explain a lot of what has happened? Wouldnt it also explain why it was a surprise to the CSO and Revenue.

  10. Off Topic, but I thought it would be important for the Blog to cover; IMF’s damning verdict of self….

    http://www.telegraph.co.uk/business/2016/07/28/imf-admits-disastrous-love-affair-with-euro-apologises-for-the-i/

    http://www.ieo-imf.org/ieo/pages/CompletedEvaluation267.aspx

    Switch Greece for Ireland:

    The injustice is that the cost of the bailouts was switched to ordinary Greek citizens – the least able to support the burden – and it was never acknowledged that the true motive of EU-IMF Troika policy was to protect monetary union. Indeed, the Greeks were repeatedly blamed for failures that stemmed from the policy itself. This unfairness – the root of so much bitterness in Greece – is finally recognised in the report.

    “If preventing international contagion was an essential concern, the cost of its prevention should have been borne – at least in part – by the international community as the prime beneficiary,” it said.

  11. A quick comment on our comments policy. I’ve deleted a number of comments in this thread containing inappropriate language, and emailed the authors as to same.

    The comments policy applies across all posts and details are here: http://www.irisheconomy.ie/index.php/about/

    In general there are very few issues these days because our commenters are respectful interlocuters and it’s my intention to keep it that way. As it says at the top of the box every time you post, think seminar, not food fight.

    1. Do most people conceal their identities at the seminars you attend? The penalties people apparently perceive they will attract for speaking openly in public forums must be very high in Ireland – and widely applied. I’m pretty sure that encouraging people to reveal their identities would curtail the use of “inappropriate language”. For example, in a comment thread it should be possible to maintain an ongoing equality between the number of comments from those who reveal their identity and the number of comments from those who hide behind psuedonyms. So if the number of comments from the (mostly) twits who hide behind psuedonyms was going to exceed the number of comments from those who reveal their identities the comments of the former would be held in a queue until the numbers were equalised.

      1. That is something I’m thinking about. The ‘anonymous comment limit’ applies on crooked timber and it is a fine blog. The issue is time. It already takes a fair bit of time going through comments.

        1. HI Stephen Thanks for the work you do on the blog.

          As trolling is becoming a huge issue in general on social media isn’t the most obvious answer to insist on people using their real names. I know some people have reasons but I think very few if any are good enough. If people have something important to say they should be willing to put their name to it. Its actually unfair to people who have the guts to use their real names if anon’s can then contradict what they say.

        2. There used to be a system on the blog where Philip had newly registered contributors’ comments held in a queue until a moderator had approved them. The rest went straight onto the comments but could always be deleted later if thought inappropriate.

          It is onerous to read and pre-approve all the comments before they appear, and even during the years when comments were not pre-moderated, the vast majority were reasonable, even when the topics were highly contentious because of the backdrop of the bailout.There were a small number of unpleasant exchanges involving a very small minority. If the blog were to become more popular, the determination to approve every comment will require much effort from the moderators.

          Instead of the old system of having ‘new’ commenters being specifically pre-moderated, have you considered just focusing moderation time on both ‘new’ and ‘known to be occasionally problematic’ contributors? I imagine that in looking at the comments to approve them for publication, there are names or pseudonyms whose comments hardly need looking at because they are always reasonable, and there are others that often cause an active decision to be made about whether to approve or not.

          You must by now have a workable idea which are which, why not use that knowledge to reduce the effort required by mods.

          1. There are – almost certainly – wordpress plugins that allow comments to go immediately online only from someone signed in with an openId or a google account or something similar…and which allow IDs to be blocked or added to moderation if they make obnoxious comments.

            Having to moderate each comment one-by-one is more than anyone could reasonably expect.

            I’ll have a look later in the day, see if I can find something potentially suitable. no guarantees.

            H

  12. Also of interest in the context of this thread is the Commission’s decision or, rather, its failure to take one, in relation to imposing fines on Spain and Portugal for their failure to comply with the SGP.

    http://europa.eu/rapid/press-release_IP-16-2625_en.htm

    The list (small) of countries still subject to an excessive deficit procedure is worth noting.

    IFAC’s 2016 assessment of Ireland’s compliance with the fiscal rules is a mine of useful information (link repeated for ease of reference).

    http://www.fiscalcouncil.ie/wp-content/uploads/2012/01/FAR_Draft_08.06.16_Website_Final.pdf#page=68

    The period leading to the finalisation – and, one hopes, adoption – of the next Irish budget is likely to prove a seminal one, whether positive or negative remains to be seen.

    The IMF also weighs in!

    http://www.imf.org/external/country/IRL/index.htm

    The fact that the organisation made zero changes, as far as I am aware, in terms of forbearance with regard to loans extended to Ireland (or, Greece, for that matter) may be easily overlooked. A fact not unrelated to the approach of its principal shareholder to international financial matters generally.

      1. Do you have the details on this? My impression was that the IMF loans were paid back early because they were too expensive.

        http://www.independent.ie/business/irish/imf-charges-twice-as-much-as-europe-for-irish-bailout-30448386.html

        The concession, if there was one, was by the other countries that granted loans in not insisting that they be paid back at the same time as they were legally entitled to do.

        For me, the internal examination of conscience by the IMF, with associated publication of documents, is getting a bit tiresome. The narrative as the IMF as good guy and the EU as bad guy simply does not stack up; for any of the bailout countries.

  13. JTO is urgently required to talk to the EBA

    http://www.ft.com/cms/s/0/1f833416-55c6-11e6-befd-2fc0c26b3c60.html

    “Ireland’s AIB had the second biggest fall in its fully loaded CET1 ratio, losing 880 basis points to leave it at just 4.31 per cent. That makes the Irish government’s hopes of reprivatising the bank over the coming years more distant because the headline figure is likely to spook investors, even though it penalises the banks under some rules that will not come into effect until 2022.”

    The essence of dramatic tragedy is not unhappiness. It resides in the solemnity of the remorseless working of things.

    1. On this occasion, I think the Irish banks have been shafted. They may have written back reserves too quickly, but it beggars believe to argue, as per the EBA result, that they are in worse shape than other major EU banks. This applies particularly to AIB.
      I posted this in the Ir Times this morning.
      _______________________________________________________________
      Both AIB and BOI should, rightly, be feeling very aggrieved this morning.
      How both banks that are far better capitalised right now, with real capital, than many European banks can, in an “adverse” scenario suddenly slip way behind other major European banks, is at best a real conundrum.
      Perhaps ‘stress’ is much more stressful in Ireland as distinct from ‘stress’ in France or ‘stress’ in Germany. Or perhaps it is because major European banks are so good at writing the rules, that they can ensure the outcome is less stressful.
      For instance, the denominator in the ‘CET1’ stress test equation is called Risk Weighted Assets (RWA) which is not real assets, but a makey-uppey number that is a fraction of total assets. The lower the RWA fraction the higher the ultimate CET1 ratio. Major EU banks have managed to get RWA down to 25% of total assets, giving an enhanced boost to their stress ratios. AIB and BOI have RWA, the denominator in the CET1 equation, at almost twice that of some EU banks, meaning they have to have twice as much capital to have the same CET1 ratio.
      Perhaps they bank in a different language in Europe, and that is why the RWA % is so much lower.
      And even after all that, EU banks that at present have barely 4% of real capital, manage to do better than AIB or BOI who have much better real capital ratios.
      [AIB’s capital ration is 12.7%, Deutsche Bank capital ration is 3.7%: Both based on published balance sheets at June 30th 2016]
      And now we hear that these same capital-starved EU banks, in a newly stressed scenario, manage to sprint out past much better, albeit very painfully, capitalised Irish banks.
      Give me a break!
      Perhaps we should invite the EBA to Dublin from it current London base. We badly need to learn a few new tricks and dodges, as the one trick pony of corporate tax dodging has been ridden to near death.

    1. OPEN the blog! Freedom isn’t just another word ….

      We have lost the ability for commenters to engage with each other in real time ….. i.e. a live blog.

      Schroddinger is popular these days – the blog’s cat is more dead than alive …

      The only Red Card I endorse is for those who ‘out’ anonymous commenters. I fully understand why ‘some’ may wish to remain anonymous …. spinners, on the other hand, are clearly identifiable after a while … and ‘gurriers’ are citizens and entitled to be gurriers …

      https://medium.com/message/everything-is-broken-81e5f33a24e1#.1scwyuw6i

      p.s. does PL still own the blog? Who is responsible for it now ….?

      Go OPEN or die … or worse … become a nice respectable conservative load of ideological waffle … and there is more than enough of that around!

  14. Perhaps the finest analysis I have seen yet on the specific drivers of the numbers. Thank you

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