Are you looking forward to 2013?

This is an extended and linked version of a column published in the Irish Examiner on 29 December 2012

holdthelineSo what will the new year bring on the economic front? 2012 can be summarized as having been a holding operation – on the domestic front the government held the line at the budget, losing some along the way but pushing forward in a fairly technocratic manner with a lot of legislative initiatives. True, most of these relate to the financial calamity and were insisted on by the troika but Enda has shown his true abilities as a chairman, able to inch forward with minimal fuss. Internationally the palpable change in attitude of the ECB on its role, if not its ultimate responsibility, has marked the tenure of Draghi. No longer semi passive it is now semi active, and willing to intervene to take the worst heat out of the bond yields. In the USA Obama held his line and his job as the republicans continued to implode and explode at once, spinning into ever more radical sects of economic eschatology, while in Europe the same rhetoric held. Greece sank deeper into social and economic collapse, Italy and Spain rumbled on, and Frau Dr Merkel held her Nein Nein Nein views on , well, anything that might cost German taxpayers a pfenning, trusting in some swabian micawber manner no doubt that somehow this time is different and while swallowing austerity the euro area will continue to purchase german exports. Germany is not immune from the euro area economic woes and indeed they are already preparing for same. It will be interesting to see how the swabian housewife economics plays when germany itself is undergoing austerity. Debt is evil you know and evil must be purged….At home the wretched farce that is Anglo shuffles along, staffed by people on gargantuan salaries who seem to be beyond the control and perhaps interest of the government, and the “begotiations” on the restructuring of the odious debt of Anglo glaciates.

So what will 2013 bring? It is probable that things will continue as they have done so, with a slow grinding deterioration on several levels. The beatings will indeed continue.

First, there seems no prospect whatsoever that Europe (read, Germany) will come to its senses on the required changes to the European experiment to allow the foundations to be laid for a true union. We all know what these are -a banking union, a transfer union and a political union – and have seen the enormous difficulty that the nascent banking union has encountered in getting even onto the taxiway never mind take off. Eurozone growth for 2013 onward is forecast to be negligible, with muted inflation and rising unemployment. The ECB willingness to intervene in the secondary bond markets acts to keep a lid on bond yields, but this is the equivalent of aspirin. It acts to keep the temperature (bond yields) low but does little to solve the underlying problem (too much debt). Expect to hear a lot more about Article 123 in 2013 – this is the article of the Treaty on the Functioning of the Union which prohibits what is known as monetary financing ,the underwriting of government deficits by central banks. Someone will have to pay for the writing down of excessive government debts and the logical (if legally problematic) candidate is the ECB. Absent that we will see more and more greek style social collapses as the costs are passed onto the taxpayer and inevitably hit the poorest hardest.

Domestically and related, the government are facing into a brutal 6 months. Not content with having to manage Europe, including a crack at framing a budget in the face of growing eurohysteria from the UKIP hagridden Cameron, they will find that all the political oxygen is absorbed in a conflagration around abortion. Meanwhile the aftershocks of the “seismic” deal agreed in June, on bank debt, dwindle into background noise, and for Labour these become the first tremors of political oblivion, with the IMF, damned commies that they are, now revealing itself as being demonstrably more concerned about the poor than they are. All indications are that we are being prepped for a deal on the wretched anglo Promissory notes that will be minimal. In order of impact we can reduce the interest rate (pointless as this cycles back to the state anyhow), increase the repayment time or reduce the amount of these that are to be repaid. The latest statement from Kenny suggests a focus on the first two. Expect a deal that is touted as a solution but which merely kicks this can along the road for longer, and while welcome it is not a solution to a debt which is in every sense odious. Meanwhile the domestic economy will shuffle along with unemployment remaining stubbornly high and the prospect of a further brutal budget in 2013.

car-mired-in-mudFinally, the housing market will remain mired. Although selected areas will show some growth, houses and decent apartments in established urban areas for the most part, there is a combination of overhangs that will mute any prospects for rises. First, the transparency given by the property price register empowers bidders to bid low. Knowing that there are downward pressures, why bid more than the last relevant price? Second, the property tax and uncertainty around same acts to reduce slightly the prices. Third, the likely wave of repossessions, mainly of buy to lets but increasingly of family homes will result in increased flows of distressed property. Finally, the reduced incomes of potential purchasers combined with a moribund banking system will make mortgage finance less accessible. All of these together will result in the housing market sinking towards its post bubble low in 2013.

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