Gosh, isn’t that exciting!

In a recent post, we read that

With the Social Democrats (S&D) and the conservatives (EPP) neck-and-neck in ever more refined EU wide opinion pools, the lead up to the European elections has never been more exciting. It’s down to one seat whether the next Commission president is Social Democrat or Conservative.

I am sure that there are some in Brussels who think that giving voters an indirect say in who becomes Commission President is exactly what we need to boost interest in the forthcoming European elections, and give the European project some democratic legitimacy.

By the way, does anyone know what the EPP or Social Democratic position on the Eurozone crisis is? (I think I know what Marine Le Pen wants.)

I have another proposal to enhance the democratic legitimacy of the project: allow voters to fundamentally change the direction of policy, should they so choose. Reverse the “treaty-isation” of particular economic policies. Stop trying to make the commitment to austerity democracy-proof.

Any takers?

Caterpillar at the US Senate

The latest company to come under the spotlight of the US Senate Permanent Sub-Committee on Investigations is heavy-goods manufacturer, Caterpillar.  Here is the report prepared by the Sub-Committee staff in advance of today’s hearing.  There is also a statement from the Committee Chairman, Sen. Carl Levin (D).

The hearing will feature three panels of witnesses and will be streamed here.  The second panel comprises some representatives from Pricewaterhousecoopers.  The Sub-Committee obtained internal documents and communications between the PwC representatives which are referenced in the report.

The key feature of the US tax code that is in question is once again are the provisions that have eroded the effectiveness of the Subpart F anti-deferral regime introduced in the 1960s for passive income earned outside the US.  Under Subpart F this should trigger an immediate tax liability regardless of whether the profits are repatriated but there are a range of provisions that allow a deferral of the tax payment as is the general case with active income.  The scheme put in place by Caterpillar avails of both the manufacturing exemption and the export exemption in the US tax code.  Features such as “check-the box” and transfer-pricing rules also play a role.  Once again there is the accusation that a US company was able to negotiate a “special tax rate” in a low-tax country.

For those whose only interest is a Ctrl-F of the Senate report here is the sole mention of Ireland:

The decline in corporate tax revenues is due in part to more corporate income being reported abroad in low-tax jurisdictions. A number of studies show that U.S. multinational corporations are moving income out of or away from the United States into low or no tax jurisdictions, including tax havens such as Ireland, Bermuda, and the Cayman Islands.

Climate Change

The Intergovernmental Panel on Climate Change (IPCC)’s Fifth Assessment Report (AR5) is available here.
Richard Tol’s critique published in the Financial Times is available here.

Plan B

Cormac Lucey on how leaving the euro can save Ireland.

The chart accompanying the piece comes from page 51 of this 2013 Selected Issues Paper as part of the IMF Article IV Consultation with the Euro Area.

Yields on Irish government bonds

It is not the first time but the estimated 10-year yield on Irish government bonds has again fallen below 3 per cent.  Here is a snap-shot of the yield curve this morning from this site.

The reasons for these historically low rates can be bounced around but it would be more useful if we could actually take advantage of them.  Ireland has an enormous public debt but the structure of it is such that very little is close to maturing and in need of rolling over.  In the EZ17 Ireland has a very low refinancing need (Latvia is excluded).

 

At the end of December the blended interest rate on the €22.5 billion of IMF loans that Ireland has accessed was 4.16 per cent.  These loans have a weighted average life of 7.3 years.  The above table gives an indicative rate of under 2 per cent for Irish government debt of equivalent maturity.  Two per cent of €22.5 billion is €450 million.

Replacing the official IMF loans with private funding seems attractive but the IMF loans cannot be repaid early without also triggering early repayment clauses in the €45 billion of EFSM, EFSF and bilateral loans from EU countries.  The details of these clauses are in this PQ answer.

Compared to the IMF loans, the EU loans have lower interest rates and much longer maturities.  Repaying them early would not be prudent given the uncertainties and possible unknowns that remain.  However, raising money now for loans which begin amortising next year anyway would only raise the funding target of the NTMA to the average EU levels (in GDP terms) as shown in the chart.  On the other hand it is not clear what impact such an action would have on interest rates but a significant impact would seem unlikely.

There are reasons on several sides for keeping the IMF as part of the ongoing Troika supervision of Ireland but are there €450 million worth of them?