Another group has taken the legal route to try to prevent a government decision to reduce expenditure, this time the Minister of Health’s decision to reduce payments to pharmacists for dispensing drugs to patients. Eilish O’Regan, the Irish Independent’s health correspondent, has two good articles outlining both the background to the dispute and giving some details on the money at stake to individual pharmacies in today’s issue of that paper.
The case (see Irish Times report here), which is being taken by the Haire group of pharmacies, claims that the cuts will push it into a loss-making situation meaning it cannot repay its bank loans and will thus become insolvent. The pharmacies want an injunction restraining the Minister applying the regulations. Among various claims, they allege failure to provide 30 days notice of the change in the payment regime was unlawful and breached their constitutional rights. The case is being prosecuted by Gerard Hogan, SC who is also representing the teachers taking a case against the government for closing their early retirement scheme. The application for the injunction will be heard on Monday next.
If the main argument made by the pharmacies is that the Minister did not give the required 30-day notice, this would appear to simply delay rather than prevent the implementation of the cuts, which seems a lot of money simply for a few months’ reprieve. If the Minister lost on that basis, I presume she would simply start the process again giving proper notice. One assumes that the pharmacies want to prevent the cuts indefinitely, but the basis for this argument is not clear from the reports.
Eurostat have released a document yesterday summarising youth unemployment rates for Europe.
Karl Whelan also delivered a paper to the McGill summer school. I am not going to try to summarise the paper given that the author regularly posts here but I want to open a couple of aspects to discussion and I acknowledge that this may be selectively focusing on issues from a more general paper that contains some very strong insights.
In particular, I think Karl’s talk leaves wide open the extent of the problems that are emerging from credit decisions made by households and their lenders in the context of a much more open credit market during the last ten years. There seems to be some evidence for Ireland, as Karl notes, that older homeowners did not cash in their housing windfall and this, ex post, is a very lucky thing for them. However, as Karl partly acknowledges, the data currently simply does not exist for us to know the extent to which people have overstretched themselves and the potential second-round consequences this will have if a sizeable group of indebted consumers begin to default as their incomes and job prospects decline. The point made in Karl’s paper about the extent to which asset values of households also improved thus mitigating their indebtedness must be seen now in the light of drastic reductions in the value of housing and arguably many other types of household assets.
Again Karl’s paper does talk about potential problems that might arise: “So, the composition of recent changes in assets and debts likely differed substantially across demographic groups and it is the younger cohorts that are most likely to be in trouble now.” But I think we need to put something much more substantive on this statement. This is not a criticism of the paper as the data doesn’t exist so we cannot have expected Karl to incorporate non-existing information into his paper. Perhaps we can tell the story of the causes of the current decline without this information. But I can’t see how we can even begin to talk about its consequences without knowing the extent to which people have become overextended and the likely behavioural and psychological consequences of this.
One of the key questions relating to how NAMA is going to operate is the price that will be paid for the assets it acquires. Last week’s Sunday Tribune reported that
The National Asset Management Agency (Nama) plans to impose discounts of between 25% and 33% on the most devalued loans contained among the €80bn of property assets to be transfered to the state-owned organisation.
The Tribune story speculated that discounts of this size would help NAMA to break even or perhaps make money over its ten-year life cycle. Of course, one of the problems that we have had when thinking about this issue is that these discussions are happening in the abstract without reference to detailed knowledge about specific loans.
For this reason, the ACC-triggered High Court examinership of Liam Carroll’s Zoe Group is very helpful in giving us a specific example to discuss. In Monday’s Irish Times, John McManus reported the following:
Applying for court protection Zoe said that if the group of six companies, which have total debts of €1.2 billion, was liquidated, they would have a deficit of €900 million. Based on this writedown value, properties on which it has borrowed €1.1 billion from eight banks would fetch €275 million if they went on sale this morning.
That means a 75 per cent writedown for the banks.
Ok then, let’s have a write-in competition. What do readers think is the correct price at which the Irish taxpayer should purchase these Liam Carroll property investments? The €275 million they are worth today, the €550 million they’d be worth if they doubled in price or the €737 million (one third discount relative to €1.1 billion) that the Tribune reckons would be the lowest possible price that NAMA would pay?
In interpreting the various answers put forward, it might be helpful to keep in mind that AIB has over €24 billion in pure development loans and has core equity capital of about €8 billion.