Government has negotiated a terrible deal

In an initial response this evening to the details of the EU/IMF bailout, Sinn Féin President Gerry Adams said:

“The government has negotiated a terrible deal.

"The 5.8% interest rate is unaffordable. The decision to force the state to take €17.5 billion out of the Pensions Reserve Fund to pour into black hole that is our banking system is a disaster.

“Sinn Féin had proposed €7 billion be taken from the Pension Reserve Fund for a jobs stimulus programme. The Government refused to do this. But now they are prepared to rob the pension fund to give a digout to the bankers.

“The decision to protect bondholders is disgraceful.
“The banks are getting another €15 billion while simultaneously €15 billion is being taken out the economy- out of people’s pockets.
“The costs of this deal to ordinary people will be deep and will result in hugely damaging cuts to public services, social welfare and wages.”

Housing advice from developers and debt advice from debt holders

Over the last week the SF Oireachtas team put the focus right on the grossly negligent decision of the govt. to continue to take advice (and act in the interest of) property developers while at the same time relying on bond holders to give advice on dealing with the economy. The south of Ireland is now a profit center designed to maximise returns for a few business interests rather than a state seeking to guarantee the highest standard of well-being for its inhabitants.

Bond Holders:

The Sinn Féin Spokesperson on Workers Rights, Martin Ferris TD has claimed that the Government’s austerity programme is not only designed to pay for failed bondholders and speculators but is being advised by them. He referred to the fact that the Chairperson of Goldman Sachs Peter Sutherland whose Asset Management section holds Anglo Bonds has been advising the Government on the cuts.


Deputy Ferris said: “Apart from the economic and financial issues that we have discussed here for the past few days there is the whole moral and ethical aspect of the situation.

“All of the proposed misery is being planned to benefit failed speculators among whom are the Anglo bondholders. There are websites which have published the names of these companies and there are discussion groups on the internet about it. And yet no national newspaper here has regarded it as of sufficient importance.

“While most of the bondholders are European based there are Irish connections and no doubt some of our fine patriotic and charitable tax exiles have their noses in the trough.

“More importantly perhaps is the connection between all of this and the fact that representatives of these people are advising the Government on how best to make the rest of us pay for their mess.

“Take Peter Sutherland for example. He has held various high positions in this state and on behalf of this state abroad. His views are still given a lot of credence and he was recently widely quoted in claiming that this state had an obligation to protect the Anglo Irish bondholders.

“And of course he has been advising, in a totally disinterested way of course, the Government on how they should deal with the crisis. Among his proposals has been to sell state companies. And no doubt he probably knows chaps who might be interested in buying them at a fair price.

“How many of those who referred favourably to Sir Peter’s excellent advice also referred to his own possible self interest and the interest of his friends in all of this? He is, after all, Chairperson of Goldman Sachs whose Asset Management section is a key Anglo bondholder and which incidentally made profits of more than €13 billion last year.

“If our priority is to look after people like this, then the description given on one web site of Ireland as, ‘an international welfare state for super-rich bankers’ is all too accurate.”

DEVELOPERS:

Pearse Doherty shows that the only opposition, the only alternative voice in the Oireachtas, is Sinn Fein. Labour and Fine Gael think you can build a consensus with corrupted and bought out politicians.

Irish Workers more committed than ever.

Thats the finding of the latest ESRI report which states that " Our workers are more committed than ever; they are more willing to accept change and to take on more responsibility...". The broad study reviewed the Irish workplace in 2009 against that of "Celtic tiger" Ireland. Irish workers are stepping up to the plate  - taking on more responsibility for less pay.

Over half of the respondents to the survey, conducted between March and June 2009, noted that there had been workplace job losses in the preceding two years and workers were feeling more nervous and under pressure. One-third of employees said that their own job security had decreased compared to only 4 per cent in the previous 2003 survey.

In both the public and private sectors the impact of the recession, and the impact of the "manual devaluation", are evident. 21 per cent of employees reported a decline in hourly pay in the previous two years. Some 37 per cent of public sector workers reported a decline in pay, compared to only 16 per cent of those in the private sector. The burden of adjustment is being borne by ordinary folks who are losing job security and seeing reduced pay conditions.

Typically in all down-sizing organisations the work frequently remains but the no. of people to do it ends up falling. The result is increased burden on the remaining staff. 54 per cent of employees reported increased pressure compared to 34 per cent in 2003. 61 per cent reported an increase in responsibility. Yet the percentage of employees who would work harder to help the organisation to succeed increased from 81 per cent to 89 per cent.

There is a tendency among the more right wing commentariat, or the loony right which cheered on deregulation and excessive credit, to constantly ask for workers to give more, to do more and to accept less.

Lurking in the background to all that commentary was the idea that ordinary Irish people had fooled around and now the bill was due. We had lost the run of ourselves, wanted too much and lost competitiveness. The report has an answer to that hoary chestnut as well:

"This deterioration in competitiveness in recent years is primarily a result of the labour market pressures exerted by the growing bubble in the property market and the building sector of the economy. However, other inefficiencies, including a lack of competition in key areas of the economy, also contributed to the problem."

Consider that in NAMA tranches 1 and 2 that loans valued at €52 billion (pre-hair-cut) were given to 100 people and its clear how tight the inner circle was behind the boom. The self same boom which force the prices up. However as the boy from Pontchartrain says "We are where we are". I personally think it will be difficult to secure appropriate financial and legal redress against these people. It may be that we are forced to instead focus on how to create the anti-corruption framework, and appropriate regulatory controls to ensure that one interest group and one political party can never again co-operate for self profit while risking the future of the state they operate in.

The commentary in the press seems to have forgotten the role of the select, well connected, few. Instead looking at the easy option of blaming the feckless ordinary worker. Well as demonstrated in the ESRI report the ordinary Irish worker is anything but feckless and is more willing to work harder than ever.

It may be countered that well all well and good to blame the developers and Fianna Fail but we need solutions now not blame. And thats a perfectly valid comment because we do need solutions. People dont want finger pointing or retribution. First of all they want to be able to pay their bills like Seamus Sherlock or avoid emigration. But there does need to be a demonstration to the markets, the god like markets*, the interests of the Irish economy are not subservient to the interests of developers or other sectional interests.

As long as Fianna Fail are in power there is every chance that the foreign lenders will doubt the ability of that party to restructure the economy back onto a trajectory of growth and subsequently may question the long term ability of sth. Ireland to repay its debts.

Those commentators in awe of the market's wisdom should now start to focus on the fact that Fianna Fail itself, and its tendency towards sectional interest, may be a factor in why sovereign funds think we are likely to default (and consider that a few days ago the ECB wanted Ireland to activate the bail out fund to see how precariously close FF have now brought us - potentially days away from a default) .

Irish workers are clearly willing to put the head down. Its time that the Irish media took note and started to focus on two other possible reasons that Ireland's bond yields are going through the roof:

(1) Fianna Fail's slash and burn approach is ripping the heart out of the economy;

(2) Fianna Fail are so entrenched with sectional interests that the market must have doubts about whether their commitment to growing the economy is not at odds with their commitment to sectional interests which they have nursed for over a decade.

ESRI: http://www.esri.ie/UserFiles/publications/jacb201045/BKMNEXT168.pdf

* which same markets are new nailing us at near to 7% interest rates. Despite RTE's spin about last weeks debt sale as successful selling debt at over 6% is as successful as buying a litre of milk for a €10. There'll be somebody to sell it to you but you still get taken for a ride.

The costs of pensions and the problem with servants

"Pretty soon, we’ll be having serious, completely un-self-conscious discussions in major magazines about the servant problem.". So wrote Paul Krugman as he discussed an article which highlighted how the richest percentile in America are feeling hard done by even though they make twice what their counterparts in 1980 did.

Krugman believes that today the American super rich have become coarsened by their super wealth, have lost even the sense they should be embarassed by thinking life is hard on them and only move in circles  "where complaining that you only have 9 or 10 times median family income is considered totally acceptable"

A small bit like Peter Sutherland then I guess

Mr Sutherland claimed that our costs - in the main but not exclusively pay - were too high and need to go down.

'If we did so, it would be apparent that we are still way above average in many areas, particularly in the public sector and this says nothing about pension costs,' he said

Yes Peter. What about the pension costs?  You as former Attorney General were still receiving a state pension of €51,538 in 2008. You have a fortune of €128 million.

Clearly you are a man of rare talents. Your career is an amazing series of pinnacles and that is impressive (although BP, RBS and Goldman Sachs makes you wonder - they all hit nasty speedbumps ). But for all your talent and your preaching on costs and pensions you were still hitting up the state even with your huge fortune for a measly €51,538 a year.

Another freeloader. As far removed from reality as Krugman's top 1% in America.

For the love of god man give up your paltry, in comparison, state pension before having the gall to talk about the cost of pensions and Dublin's expenditure.

De-electrification - Seamus Sherlock takes a stand against ESB bureacracy.

Seamus Sherlock campaigns

against ESB

Sinn Féin TD Aengus Ó Snodaigh and other party activists today lend their support to Seamus Sherlock who is being threatened with disconnection by the ESB despite making efforts to pay outstanding debts. Seamas chained himself to the railings of ESB headquarters in Dublin. [Seamus Sherlock is now carrying his campaign to Facebook - so give him some support there. I am sure it will mean a lot to him]

Seamus is unemployed and has a family to support. The total bill outstanding was €€2,261. Seamus borrowed more than 1,100 euro from family and friends to pay off half the debt in a lump sum. He then offered to use 50 euro a week from his 196 euro social welfare to cover the rest of the bill.

Instead the ESB wanted €150 euro a week even though Seamus only receives €196 a week. Then they came out and warned him they would cut him off and added an extra €97 to his bill for the warning.

About 900 people a month are having their electricity cut off by ESB. Bord Gáis is disconnecting another 120 a month. Over a thousand people a month being cut off.

Its going to get worse the Public Service Obligation is going up by about 5%, even more for small businesses, shortly. Then in December will we see the squeeze from the other end - will the dole be cut, other living allowances reduced thereby reducing further the ability of people to pay. Tie in the likely sustained increase in food prices and its clear how serious the situation is going to be for households.

The ESB made half a billion in profits last year. Nobody is asking for free electricity. Whats needed is for the ESB to work with people to manage the repayment of debts rather than steamrolling over them in a bureaucratic way.

Fianna Fail and the Greens have failed to guarantee clean drinking water in Galway, adequate flood defences across the country, failed to provide salted roads in winter and now to top it off we have sections of communities being blacked out.

And somehow out of that mess they'd have you believe we can establish a cutting edge knowledge economy.

Check out the video on the at the new An Phoblacht YouTube channel

Ireland - From basket case to superstar and back again

Morgan Kelly has written a great piece on VoxEU.org very concisely covering the greed by a closed circle that abused the economy for self gain on a massive scale. At the core of his message the idea that those who gamed our economy for self-gain cannot be the ones we now turn to for help out of this mess as they now seek to protect that closed circle and jeopardize our future rather than decisively tackle the problems in our economy.

From Voxeu.org:

The Celtic Tiger faces severe challenges. This column argues that the Irish government’s commitment to absorb the losses of its banking system may well lead to a Greek-style debt ratio by 2012. It is a test-in-waiting for the EU, but one that could be solved by a debt for equity swap to cover the losses of Irish banks.

From basket case to superstar and back again – or almost. One has to wonder: How did all this happen? How did an economy where employment doubled and real GNP quadrupled during the “Celtic Tiger” era from 1990 to 2007, come to have GNP contract by 17% by late-2009 (with further falls forecast for 2010), the deepest and swiftest contraction suffered by a western economy since the Great Depression? The adjustments faced by the nation are monumental (see Cotter 2009 and Honohan and Lane 2009).

Two booms
The key to understanding what happened to Ireland is to realise that while GNP grew from 5% to 15% every year from 1991 to 2006, this Celtic Tiger growth stemmed from two very different booms. First, the 1990s saw rising employment associated with increased competitiveness and a quadrupling of real exports. As Ireland converged to average levels of western European income around 2000 it might have been expected that growth would fall to normal European levels. Instead growth continued at high rates until 2007 despite falling competitiveness, driven by a second boom in construction. I analyse this second boom, the Irish bubble, in a recent CEPR Discussion Paper (Kelly 2010).

Credit bubble
Ireland went from getting about 5% of its national income from house building in the 1990s – the usual level for a developed economy – to 15% at the peak of the boom in 2006–2007, with another 6% coming from other construction. In effect, the Irish decided that competitiveness no longer mattered, and that the road to riches lay in selling houses to each other.

However, driving the construction boom was another boom, in bank lending. As Figure 1 shows, back in 1997 when Ireland’s economy really was among the world’s best performing, Irish banks lent sparingly by international standards. Lending to the non-financial private sector was only 60% of GNP, compared with 80% in Britain and most Eurozone economies. The international credit boom saw these economies experience a rapid rise in bank lending, with loans increasing to 100% of GDP on average by 2008.

These rises were dwarfed, however, by Ireland, where bank lending grew to 200% of national income by 2008. Irish banks were lending 40% more in real terms to property developers alone in 2008 than they had been lending to everyone in Ireland in 2000, and 75% more to house buyers.

Figure 1. Bank lending to households and non-financial firms as a percentage of GDP (GNP for Ireland), 1997 and 2008.

This tripling of credit relative to GNP distorted the Irish economy profoundly. Its most visible impact was on house prices. In 1995 the average first-time buyer took out a mortgage equal to three years’ average industrial earnings, and the average house cost 4 years’ earnings. By the bubble peak in late 2006, the average first-time buyer mortgage had risen to 8 times average earnings, and the average new house now cost 10 times average earnings, with the average Dublin second-hand house costing 17 times average earnings (see Figures 2 and 3).

As the price of new houses rose faster than the cost of building them, investment in housing rose. By 2007, Ireland was building half as many houses as Britain, which has 14 times its population.

The flow of new mortgages peaked in the third quarter of 2006, and then fell rapidly. By the middle of 2007 the Irish construction industry was in clear trouble, with unsold units beginning to accumulate. More than one-sixth of housing units are now estimated to be vacant.

Figure 2. Irish house prices relative to average industrial earnings, 1980 – 2009

Figure 3. Irish new house prices and first time buyer mortgages relative to average industrial earnings, 1990 – 2009

Banking collapse
This property slowdown was bad news for an Irish banking system which had lent, usually without collateral, an amount equal to two-thirds of GNP to property developers to finance building projects and make speculative land purchases. Share prices of Irish banks fell steadily from March 2007, with the crisis coming to a head in late September 2008 with a run in wholesale markets on the joint-second largest Irish bank, Anglo Irish. After aggressive denials that the banking system faced any difficulties, the Irish government has been forced to improvise a series of increasingly desperate and expensive responses.

As well as guaranteeing the deposits and most bonds of Irish banks, the Irish government has currently spent, or committed itself to spend, around €40 billion on a National Asset Management Agency to buy non-performing development loans from banks, and to invest around €30 billion in Irish banks. Despite this large injection (equivalent to half of GNP), Irish banks remain moribund.

While the Irish government bailout deals with bank losses on loans to property developers, it does nothing about their two other problems: a heavy reliance on wholesale funding; and the prospect of further large losses on mortgages and business loans.

Half of Irish bank funding comes from international wholesale markets. Without continued government guarantees of their borrowing and, more problematically, continued access to ECB emergency funding, the operations of the Irish banks do not appear viable. Borrowing in bond markets at 6% to fund mortgages yielding 3% is not a sustainable activity, and Irish banks face no choice but to shrink their balance sheets. Should Irish bank lending return to normal international levels, our results indicate that property prices will return to an equilibrium two thirds below peak levels, with larger falls possible in the medium term as the flow of new lending is curtailed sharply.

The third problem facing Irish banks is their mortgages. With house prices down by around 40%, renewed emigration, and unemployment tripled to above 13%, Irish banks face substantial mortgage defaults. For comparison, in Florida and Arizona, whose investor fuelled housing bubbles closely resembled the Irish one, 25% of mortgages are non-performing.

On top of the continued disintegration of its banking system, Ireland faces two other problems: unemployment and government deficits. Private sector employment has fallen by 16%, while the number of males aged 20-24 in work has halved. The collapse in Irish competitiveness (wages have risen over 40% relative to its main trading partners since 2000) which cannot be solved by a devaluation, will frustrate efforts to reverse this decline.

Debt crisis
Fifteen fat years allowed the Irish government to cut income taxes, increase spending and still run a budget surplus. Between 2007 and 2009 however, tax revenue fell by 20%, while expenditure rose by 9%, moving the state from a balanced budget to a deficit of 12% of GDP. In contrast to its inept handling of the banking crisis, the Irish government has moved decisively to reduce expenditure and increase tax rates, and appears on target to reduce its deficit to 3% of GDP by 2012.

Ireland’s government debt is still moderate. At the end of 2009 gross debt was 65% of GDP and, after subtracting the state pension reserve and pre-funded borrowing, net debt was 40% of GDP. Assuming that deficit targets are not missed too badly, gross debt should still be under 85% of GDP by the end of 2012.

Conclusions
This debt would probably be manageable, had the Irish government not casually committed itself to absorb all the gambling losses of its banking system. If we assume – optimistically, I believe – that Irish banks eventually lose one third of what they lent to property developers, and one tenth of business loans and mortgages, the net cost to the Irish taxpayer will be nearly one third of GDP.

Adding these bank losses to its national debt will leave Ireland in 2012 with a debt-GDP ratio of 115%. But if we look at the ratio in terms of GNP, which gives a more realistic picture of the Ireland’s discretionary tax base, this is a debt-GNP ratio of 140% – above the ratio that is currently sinking Greece. Even if bank losses are only half as large as we expect, Ireland is still facing a debt-GNP ratio of 125%.

Ireland is like a patient bleeding from two gunshot wounds. The Irish government has moved quickly to stanch the smaller, fiscal hole, while insisting that the litres of blood pouring unchecked through the banking hole are “manageable”. Capital markets may not continue to agree for long, triggering a borrowing crisis which will start, most probably, with a run on Irish banks in inter-bank markets.

Ireland may therefore present an early test of the EU bailout fund. However, in contrast to Greece, Ireland’s woes stem almost entirely from its banking system, and could be swiftly and permanently cured by a resolution which shares the losses of Irish banks with the holders of their €115 billion of bonds through a partial debt for equity swap.

References
Cotter, John (2009), “Crises in the banking sector and attempts to refinance”, VoxEU.org, 19 May.
Honohan, Patrick and Philip Lane (2009), “Ireland in crisis”, VoxEU.org, 28 February.
Kelly, Morgan (2010), “Whatever Happened to Ireland?” CEPR Discussion Paper 7811.

Problem Solved?

The Govt. could be forgiven for thinking that things were starting to improve for them. The recent bounce in the opinion polls and a fairly deft treading on water over the last few months saw them apparently pull through a difficult period.

And although today they did have the embarassing situation of defending a perjurer they did seem to be stabilising a bit.

The reason for that stability I contend is their success in defining the debate on the economy so narrowly. Successful economic policy today is not defined by how many people are in employment, wealth creation etc. but by how much our borrowing requirement can be reduced. The only criteria for success is the often arbitrary opinion of the the sovereign debt market.

And how successful they were in defining that as the yard stick of success. The budget, the McCarthy report, savage and sectional in their targeting went through without any real opposition.

The issue of budget deficit was a substantive one and no party could shy away from it, certainly SF did not and sought to tackle the structural deficit in a non-deflationary way. Sustantive as it is its not the only issue to be handled.

When Brian Lenihan went on RTE yesterday to state that Ireland was out of danger and commented we had found our own solution to our problems he was to some extent stating the truth. Indeed we have managed to avoid the situation whereby we undergo soverign default. But at what cost to our medium term economic prospects and societal cohesion. And while no one is arguing against avoiding an unsustainable deficit many are arguing against the deflationary measures of the Govt, even from the pages of the Wall street journal. And what about Michael Casey the former chief economist with the Central Bank and currently board member of the International Monetary Fund who commented that:

Our Government and the EU Commission have sold out to the rating agencies, none of whom cares about unemployment or emigration.

For a govt. which has defined our economic problems as being under the control of foreign lenders and money markets this is a worrying shift back to real world concerns.
The govt. have skilfully turned fear of default into one of its success criteria and having avoided such a default and created the illusion of stability it has managed to stabilise its own position in the polls. However I suspect that rather than this marking a come back for the govt. they now face a new danger. The narrative of fear surrounding debt default is receding and the more Lenihan claims we are out of the woods the weaker it gets.
Its been a successful diversion but with nearly half a million unemployed its becoming less possible for the govt. to sideline the issue.
Ultimately the govt. will have to face the issue of job creation. And job creation will not be easily managed or manipulated in the media since the govt. record is extremely poor on this issue.
According to Forfas in the years 98 to 08 less than 4000 net new jobs were added by foreign and irish-owned firms in the international tradable goods and services sectors.

Yet in retail, constructions etc up to half a million jobs were created. Likewise
in 2006, 83,000 new jobs were added to the economy but yet direct job creation in the export sectors was less than 6,000.
Clearly the capacity of the Irish economy to create jobs on its own is tiny, or is it more that the capacity of the economy to create jobs has been simply ignored. Considering that in 2007 the Irish invested €13.9 billion in European property deals but the Irish-owned business sector got under €200 million in venture capital investment is it surprising.

The SME sector has been sorely neglected by the govt. over many years and these difficult times are showing how. The number of corporate insolvencies in Ireland has soared to 1,406 in 2009, according to InsovencyJournal.ie

The govt. would love people to think that with the cost of Irish debt stabilising that they have saved us.
Yet we now have an economy that has very little demand in it and very little investment (now at 1998 levels) - the 2 pillars that created most jobs in the tiger era. People are saving like crazy and shops and construction are flatlining. But at the same time the lack of vision of the govt. is now catching up with the neglected SME sector and jobs are being lost.
Brian Lenihan may be happy thinking that its problem solved. However there is only so much treading water this govt. can do and as the debate switches away from bond spreads to job creation and the need for real reform on the structural deficit then the govt. will be once more vulnerable on the economic front.

Cosy consensus in the south exposed once again by our Orange neighbours

Consensus is a word thats often associated with Holland. Apparently in that country everything is about consensus and having everyone agreeing before they act. Its somewhat ironic then that it falls once again to a Dutch company to expose and thwart the cosy consensus in the south.

The Fleming group is a Cork based construction and development interest that has debts of up to 1,000,000,000 euro, 260 million of which is owed to Anglo Irish bank and 21.5 million to ACC.

It turns out that the company's survival plan was universally acclaimed by all its creditors with the exception of the foreign company - ACC, who took this to the Supreme Court.

ACC had claimed there was no evidence Anglo Irish Bank, Bank of Scotland Ireland or Allied Irish Banks will provide the working capital required to save the group.

But defence is claiming that Anglo had taken a commercial decision to support the plan. As part of the scheme it has committed a total of €2m, €1.6m of which would go towards paying the group's unsecured creditors and for other fees it has incurred.

So Anglo, which is a state bank ie we own it, is going to pay out 2 million as part of the plan to save the Fleming group. Now that might be all well and good but so much trust has been eroded the mind tends toward suspicion instinctively.

ACC think the same believing that the rescue plan is a "personalised NAMA" where the banks would sell off the properties over a period of ten years. ACC believed that the plan went "beyond the margins of examinership" and should be rejected.

So maybe ACC is annoyed because they dont like doing business in tents on the basis of where you play golf or maybe they just think the plan sucks. Turns out ACC loaned a cool €22m to a Fleming group company for construction of the Sentinel building in Sandyford, Dublin which is currently "a shell" that ACC prices at about €500,000 to €1m. Bit of a write down that. No wonder ACC are peed off.

They are also peed of because they are not a NAMA company. They are unfortunately outside looking in. Alot like the rest of us then.

But should we listen to ACC or are they just begrudgers who would be feasting like the rest if they could. Well they probably would but ACC has already done some service to the southern state when it challenged the plan for Liam Carroll’s Zoe Group over debts of €136 million. Zoe owed owed €1.35 billion, including €1.27 billion to banks. Zoe wanted an examiner appoined and 100 days to sort its stuff out. This was supported by by AIB, Bank of Ireland and Bank of Scotland Ireland. Anglo Irish Bank & Ulster Bank lodged no objection. The only dissenters to this cosy consensus was ACC. Zoe group were found to have withheld evidence from the court and their application was booted out by a disgusted court which believed there was a deliberate attempt to disrupt the court process.

Talking about the case 'Justice Frank Clarke said the prospects for survival of the group after a two-year moratorium on interest rates expires in 2011 were “significantly improbable”, “at the further ends of optimism” and dependent on the “virtual impossibility” of a benign climate concerning interest rates, property values and letting capabilities.'

Yet despite the Zoe rescue plan being "flawed", "ïmprobable" and my favourite "at the further ends of optimism" it was accepted by all the Irish banks except the Dutch ACC who ensured it was booted out by a disgusted judge.

Is this Fleming case another example. Who knows but I am more likely to listen to ACC than the NAMA banks.

ACC used to be the Agricultural Credit Corporation before it was sold off by the state in 2002. It made a positive contribution to the southern economy while it was a state bank. Certainly more of a contribution than our current state bank - Anglo Irish. Calls for a state investment bank should be acted on. At least ACC is still making a positive contribution to the south even if is now foreign owned.

At least they, like the people of southern Ireland, are outside looking in.

Breaking news link

So the Budget is out.

Some points that struck me as a first impression was the number of things done for optics. Smoke and mirror policies. The most annoying being Cowens pay cut. How will he surive on over 200k. Tough times indeed.


Excise duty on alcohol reduced - 12 cent cut on beer and cider, 14 cent cut on a measure of spirits, 60 cent cut on a bottle of wine (no change in tobacco)

Will these cuts increase consumption and therefore revenue or is it just another distraction by feeding into the "we are competing with Newry and Bangalore" myth. I suspect the latter but hey who knows maybe this is not a pointless optic. 12 cents off that scrumpy jack might be enough to tempt people to ignore Mary Harney's advice to shop around for the best value. Maybe we can drink our way out of this. Who'll play their part this Christmas? That socialist rag the Sunday Business Post was wondering last year why the Govt. was failing to force retailers south of the border to reflect currency movements in their prices! As they note the south is indeed a more costly place to do business but could that account for differences of up to 50% in some items. Still a year later its apparently better to ignore that type of thing and instead of protecting southern consumers its apparently better to lobby and just mess around with cider prices rather than face up to Rip Off Ireland.

Scrappage scheme announced - VRT relief of up to €1,500 on a new low-emission car, for trade-ins at least 10 years old.

This falls under stimulus apparently. The SBPost were fairly enthused about this over the last few weeks. Apparently is a big boost. Maybe it is! Cheap drink and a new car to prosperity. Gas how shopping in Newry is anti-patriotic( as the economic isolationists argue) but encouraging the purchase of a luxury item produced off the island is not. Is there a better way to have money circulate in the economy for a few more times before it leaks out or is a new car the best way to go? Or is this car scrappage just a malarky to make it look like the govt is trying to kick start the economy and get some spending going. But will the lure of €1500 for your banger traded in for new cars under certain conditions be enough to tempt you to buy a car. As Brian Linehan said

"The scheme will have the environmental benefit of removing some older, potentially less safe and polluting vehicles from the road".

Potentially less safe? Thought the NCT had those things off the road.

But this is a govt. with a green streak in the middle. What input them? Well car wise continued incentives to switch to a hybrid car. I am really curious to see how this works out.

As Brian L said ...

To that end, the VRT exemption for electric vehicles and the VRT reliefs of up to €2,500 for plug-in hybrid electric vehicles are being extended by two years until 31 December 2012

. I would like to see the latest figures but back in 2007 friends of the irish environment said the scheme cost about 8 million for 9 months of the year 2007. But at the time a certian Ciaran Cuffe said:

The rebate was supposed to encourage sales of cars generating less emissions and pollutants than normal models such as the Toyota Prius and the Honda Civic hybrid," he said. "But now it's clearly subsidising sales of expensive, luxury cars that contain green technology, but don't apply it in the same way. No one driving a Lexus hybrid can argue they are helping to save the planet.

Maybe they got that problem solved and its now acceptable to the Greens or maybe the Greens accept anything and everything these days. Is this another gimmick. At 8 million roughly a year then yeah it probably is substanceless. Cuffe used think so anyhow.

Ombudsman to be appointed to review the cases of small businesses who are refused bank loans

If I was a small business man with 10 people struggling to keep afloat the opportunity of entering a bureaucratic paper run between the banks and an ombudsman would not fill me with confidence. Still when it goes belly up and the creditors are ripping apart your tiny business and people have lost their jobs you can keep busy tracking your new national bond.

There are many other items in the budget that are damaging and they will be well covered in the media and on the SF budget analysis site and other progressive media sources.

But these paltry baubles I listed above may end up being touted as the govts stimulus package. For me personally thats hard to credit and I see more an exercise in spin and managing the political narrative than actually contributing anything serious.

Peter & Paul - Till Debt do they part

The great Irish playwright George Bernard Shaw said "a government that robs Peter to pay Paul can always depend on the support of Paul". So how is Peter doing?

Well Peter who we might regard as the ordinary citizen presently getting knocked over because he wasn't smart enough to win money on the horses like Bertie (he was quare lucky that Bertie) is not doing so great.

In the southern state Peter is relying more and more on the state to make ends meet. The CSO's survey on Income and Living conditions 2008 revealed that social welfare and benefits accounted for more than 22% of household income

But for the 10% of households in the lowest income bracket these state payments accounted for 88% of the gross household income. Now every week for months this govt. has been jumping from one position to another when it comes to such payments. They have to be cut drastically or cut a small bit. Smash these dole bludgers or its just necessary cuts etc.

All they have succeeded in doing is terrifying ordinary people who rely on state transfers to make ends meet. Now scaring the bejaysus out of people is hardly doing anything to boost consumer confidence and today's Irish Times report, anecdotal though it be, is further evidence that this govt. is only ensuring economic activity weakens further and further. Japan, move over! south Ireland is thinking about joining you in a lost decade.

But besides the deflationary impact this will have there is a more immediate impact. As mentioned households rely on the govt. for 22% of household income. Add in the fact that southern Irish household debt as a percentage of disposable income increased from 48 per cent in 1995 to approximately 176 per cent in 2009 giving us the dubious honour of being fourth among developed countries in terms of debt ratio.

In other words we are over our heads in debt and the clowns at the top who have NAMA for their developer buddies think Peter our indebted citizen can go hang. Welfare is going to be reduced by god and if that tips him and thousands others over the edge into bankruptcy then its a price worth paying. Who cares that 20% of households were in arrears on payments such as bank accounts, mortgages, rent, credit cards and utility bills. Almost eight per cent of households had arrears of two or more types. Who cares? Well certainly not Fianna Fail.

So what happens when you go bankrupt in south Ireland. Well, as described in an excellent article in the Irish Times, you dont actually go bankrupt. You see when our flag went up over Dublin we didnt seem to ever get around to changing the Victorian mindset. In 2007 a grand total of 4 people went bankrupt in south Ireland. 4! Considering the collapse of the global finances in 2008 this rocketed to 8 in 2008. Doesn't sound right does it?

But remember I mentioned Victorian mindset. Well in the South you have the Dickensian outcome that you get 12 years to discharge your debt; as opposed to 12 months in Britain and 5 years in many other european countries. As the Times noted 12 years is longer than manslaughter. And now that we are speaking about Prison maybe we should think about a system that jailed 276 people in relation to the non-payment of civil debt last year. While the High Court abolished the imprisonment of debtors due to an inability to pay their debt earlier this year its still on the books. Still jailing someone at the cost of 2k a week must make sense on some level although not if they owe money on the level of Seanie Fitz.

And typical of south Ireland when the state fails the people must fend for themselves. The money and Advice budgeting services, a voluntary group, saw its number of clients jump from 14,551 in 2006 to 23,000 this year.

As our economic recovery document says:

There are currently 422,500 people on the live register. This number is growing and there is no government strategy to deal with it. The government claims that saving the banks will fix the economy. Proving them wrong will be cold comfort to the many people who have lost their jobs, who face this Christmas in debt, in poverty and with the prospect of the very small payments made to them by the state being cut.

We are facing into the worst financial crisis since the last one caused by Fianna Fail and we have to rely on a voluntary group to support ordinary people from the deprivations of a Victorian era bankruptcy model thats going to be pushed to the limit by the deflationary policies of a govt. thats intent on reducing the income of one of the most indebted people in the industrial world.

A Bankrupt state morally if not yet financially. I am no radical but the only thing that springs to mind in response to this situation is does anyone have a sledgehammer. This state needs to go.

Blowing the Budget

Eoin ó Broin writes every two weeks in an phoblacht so I'll post his articles here because I like them. If 44 want to stop me, well bring it on.

Blowing the Budget

I DON’T understand the proposed National Asset Management Agency. I have listened carefully to Finance Minister Brian Lenihan and his chief adviser, Peter Bacon. I have read all the news reports. I have gone online to read background information on the theory and practice of bad banks and toxic debts.

And still I just don’t get it.I understand that we have a problem with our economy. I understand that 100,000 small and medium-sized enterprises, employing 400,000 people, can’t get credit from our banks. I understand that the reason that they can’t get the credit is that our banks have huge liabilities (risky loans) on their books and international banks won’t lend Irish banks their money because of these liabilities. I understand that if our banks can’t lend to our small and medium-sized enterprises then some will go out of business, others will reduce output, and in both cases more jobs will be lost.

But I thought that the bank guarantee scheme agreed last October was going to provide the necessary support to our banks to enable them to borrow on the international financial markets.

I thought that the recapitalisation scheme announced in December would provide our banks with the necessary capital to lend to Irish business.

Yet, since the start of 2009, one thousand jobs have been lost every single day. Unemployment is now at 11 per cent and rising. That’s less people earning wages, less people spending money, less people paying taxes (PAYE and VAT) and more people claiming social welfare.

All of this means less money for the Government to spend on providing public services and growing the economy. This is why, in his Budget speech last week, Brian Lenihan announced €4.5 billion of spending cuts and tax hikes.

But then, after outlining who was to pay more tax and who was to get less benefits the minister announces a National Asset Management Agency.

Minister Lenihan said that the Government is going to set up a new bank (NAMA) and that, using taxpayers money, they will buy all of the risky loans from Irish banks. In turn, international banks will start lending to our banks again, who will start lending to small and medium-size businesses.

While he’s not completely sure, he estimates that there may be as much as €90 billion worth of these risky loans to be bought up. He tells us that NAMA will buy these loans at a discount and either attempt to make the loans good or sell them on to financial speculators at a further reduced rate.

And this is what I don’t understand. Encouraged by Fianna Fáil tax incentives, reckless developers borrow huge sums of money from reckless bankers. Their collective behaviour is one of the causes of our recession. Thousands of people lose their jobs. And the Government announces a scheme that lets the developers and the bankers off the hook while asking the taxpayer to foot the bill.

And the worst thing is that there is no guarantee that Minister Lenihan’s new plan will work. In fact, some economists think it may bankrupt the state. Can this government really get any worse?