Monthly Archives: December 2012

Just how obsessed with property is Ireland? Some experimental proof

So, I ran an experiment yesterday, thanks for taking part.
I posted two blogposts. One was titled “are you looking forward to 2013”, the other “where is the Irish property market going in 2013”
Both were identical in every way apart from the title, being the usual expanded version of my Irish Examiner Saturday column. Both were published more or less simultaneously.

    By a margin of almost 5-1 the property titled post got more hits
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Where is the Irish Property market going in 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.

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.

What should we do with the Seanad?

So what to do with the Seanad? It now seems certain that there will be referendum on the (very complicated) proposal to reduce the parliament from two to one chambers.

Leaving aside the practicalities of same, and disregarding whether after what promises to be a bruising abortion battle in the first half of the year and the prospect of another stiff budget in late 2013 the coalition really wants to go to the mat on this issue, what are the options for the upper house?

First, there is a widespread view that the Seanad is at best dysfunctional and at worst irrelevant. The most recent poll suggested that by a fairly large majority the electorate would see it as the latter, with 55% suggesting it should go.

Second, the option being put to the people is likey to be a single issue : yes or no to have the seanad retained. But this I might suggest is to oversimplify the issue. From leaving things as they are to complete abolition there is a wide range of options. Reform, which cannot I think come from within the existing structures, should be attempted before abolition.

Lets recap: the seanad can only delay legislation on bills, it can initiate legislation, and it has a most curious makeup. Of the 60 members 6 are elected by the graduates of two of the universities, even though the provision exists to extend this franchise; 11 are direct appointments by the Taoiseach, and 43 are elected by panels. For more details on these see the Seanad website

This brings me to my reform proposals, drawn from nothing much more than 48 years living in the country and watching with amazement the antics of the elected members.

  1. Widen the electorate. At present the electorate to the Seanad is extremely limited and wildly unrepresentative. Recall that there are 43 members elected by “vocational panels” To most people this is of course both opaque and an affront, as these panels are political panels regardless of their presupposed idea to represent various vocations. The electorate of these panels consists of county councillors, dail and Seanad members. For all the gross unfairness of the two university graduate constituencies at least they represent tens of thousands of people – 15,000 voted in the University of Dublin election and 33,000 in the National University election. By comparison the electorate for the panels is about 1000. People who are county councilors and who are graduates from the two universities thus have 7 votes for the upper house. And politicians wonder why the ordinary public hold them in some certain contempt? Widen the electorate. Make it universal. Indeed make it open to all who hold Irish citizenship regardless of location.
  2. Make it work. Its hard to have confidence in a house designed to act as a watchdog and oversight on the lower house when it doesnt. Its hard to recall the last time a Seanad voted down a Dail proposal. So if it wont do that make it work some other way. Make all newly proposed secretaries general of government departments and all CEOs of companies either owned by or in which the state has more than 33% stake appear before the Seanad, to ask and be asked hard questions. Make their appointment contingent on a positive vote.
  3. Break the link with the Dail. At present there is a widespread belief that the Seanad is a place where old politicians go to vegetate, failed Dail candidates go to ruminate on a renewed Dail run next time round, or else where aspirant Dail members cut their political teeth. In the same way as we broke the link between membership of the oireachtas and of county councils, we can and should do so for the two houses of the oireachtas. Make it impossible for anyone who stands for election to one to stand for election to the other within a 5 year period. This would force politicians to choose
  4. Make it last. Part of the problem it seems to me is that the Seanad is tied to the electoral cycle. This provides its reputation as a soft landing for rejected Dail candidates, which I suggest could be broken. But lets go further and break the link more, with a standing electoral cycle for the Seanad as 4 years. This would , I suggest, free the Seanad to do what it is we want it to do.
  5. Keep it on its toes. One of the nice things about the US system is that it has frequent elections. This at least in principle allows a regular and real pulse to be taken of the nation. Lets import this and have the electorate judge the seanad and the government by extension, with 1/4 of the members up for election every year. And no, this needn’t be a massive undertaking, our way of electing is archaic at best…but thats another issue.
  6. Give it teeth. If we are to have a second, upper house, then it has to be able to do more than delay legislatin. Let it have power to throw out bills and to make serious amendments.
  7. Make it serious. Although in theory the cabinet can contain Senators it very very rarely does. If the Senate is serious make 1/3 of the members of the cabinet be required to be from same. This would of course be feasible only if we at the very minimum allowed universal sufferage.
  8. Make them ours. This ridiculous corporatisim, whereby members are , mar dhia, elected to represent the interests of vocations, might have made some sense in the 1930s. It makes zero sense now. Widen the constituencies when we widen the electorate. Lets have a national and a diaspora constituency, where we have (say) 45 members in the national and 15 in the diaspora. Above all abolish the ability of the government to stuff party placemen and the forgotten into the Seanad. For every decent independent Taoiseach nomination there are a dozen who would make caligulas horse seem like Gladstone.
  9. Make it a prize. If the upper chamber is to be anything it should be reflective and thoughtful Lets make any Irish citizen who achieves an externally validated major prize a member for a term. What prizes? Lets start with the Nobels and the Field Medal (the nobel of Math). Lets consider others, such as chess grandmasters, or Schock prizes in logic, or an Oscar…. Lets make the Seanad reflect both our desires and our achievements.

Im sure there are dozens of other good ideas floating about. One of them is not a blanket abolition.

Plus ca change…

The month of january is named so after Janus, the roman god, who looked both ways at once. In ireland we need a numan that refers to speaking both sides of ones mouth st once. This would be useful for comparing our main centre right parties. As the saying goes, plus ça change, plus c’est la même chose..
Earlier this week I posted that no, we actually did pay the wretched promissory notes on Anglo in 2012.
Since then there has been an interesting reaction from FG supporters mainly, via email tweetefier and on other social media, asserting that no, we didn’t. It’s blackwhite, the ability to swallow and respout any statement the party gives no matter how absurd.
This denial of a reality is scarily reminiscent of the denial of and reaction to those who suggested that, in 2009, Ireland was headed for the precipice.
This shows two things, first, political operatives, of all stripes, especially the grassroots, have an infinite capacity for self delusion and tribal loyalty. second, Orwell was right…

20121219-081147.jpg

Are ministers deceiving themselves or deceiving us on the Anglo Promissory Notes?

LThe idea of a meme is that its a concept, a psychological or cultural trait, that propagates  Like anything that propegates it can only do so if it is allowed to. Thus we have seen grow up the meme that Ireland did not pay the 3.1b which was due in March 2012 on the Anglo Irish Promissory Note. This is sown by ministers who either do know (so they are telling untruths) or should know (in which case they are not able to read government accounts and thus we might  question their fitness to be in high office).  It is however fertilized by the unquestioning swallowing of this by the media, print and broadcast, who again either dont know (why then are they questioning on issues wherein they are ignorant) or know but dont care to press (why then are they pretending to be impartial journalists?)

Here are some recent examples

  • Minister Pat RabbittWe didn’t pay the promissory note this year and as far as I’m concerned we’re not going to pay it next year. It’s as simple as that”
  • Minister for Finance Michael Noonan (this time speaking on the record in the Dail)  “did not pay it last year and I have signalled to the Europeans and nationally that I am not disposed to pay it this year”
  • Minister Leo Varadkar (points for accuracy, deducted for illogic) “The payment is due at the end of March and certainly in my view we didn’t pay it last year and issued a bond to avoid paying it.
  • Minister for Foreign Affairs Eamon GilmoreThe Government didn’t pay the promissory note last year

These statements are simply false (with the exception of Varadkar’s comment which seems to see issuance of a bond as being somehow not a payment….one wonders what the conversations round the cabinet table are like).  We paid. In full. This has been explained succinctly in a letter to the Irish Times and more fully  in a blogpost by Constantin Gurdgiev. It was explained quite fully back in April by Karl Whelan.

Here it is again :  NAMA (us) gave IBRC (us) the money which IBRC gave to the Central Bank (us).  Meanwhile, Bank of Ireland (35% of which is us) lent this money on a one year basis to IBRC which lent it to NAMA. In March 2013 not only do we need to pay the 3.1b to the Central Bank but Bank of Ireland need to either extend that loan or it needs to be repaid.

The Anglo note was repaid in 2012. To say otherwise is to deceive oneself or to try to deceive others. Ministers need to stop doing so and the media need to stop facilitating this delusion. Oh, and someone needs to ask Minister Noonan to correct his (no doubt inadvertent) misleading of the Dail.

 

Update

a) As Karl Whelan notes the key facts are : did IBRC get 3.1b? Was that used to extinguish ELA? Answer to both is yes. The mechanics of what arm of the state did what when is of technical interest only.

The Banking Union: what’s in it for Ireland?

This is an expanded version of an OpEd in the Irish Examiner published 15 December 2012

Group Chief Executive of the Bank Of Ireland, Boucher, reacts during an interview with Reuters at the company's head office in Dublin, IrelandThe new banking union proposals that are now emerging from the wreckage of the European economy are to be given a (very) cautious welcome. Without going the whole Naomi Klein “shock doctrine” route, its very clear that once again this is a win for (mainly german) banking interests. They for one have not wasted a good crisis, unlike our hapless crew of permanent and transitory governments. Banks have walked away scot free, in essence, from the calamitous decisions they have made. In Ireland, faced with a government as weak as water they essentially bluffed and buffaloed a hapless crew of inepts into socialising the losses. Anybody who think that senior bank management have learned their lesson of humility need only look at the truculent faces when the elected representatives dare question their remuneration.

1-leg-stool1A banking union required three essential elements: a common supervisor, a common system of deposit insurance or assurance, and a common method to resolve problems. What we have here is the first, and its as good a place to start as any. But without the others its a onelegged stool. The power in European banking has now shifted decisively to Frankfurt – already building an new towerblock (for a cost of over a billion euro…) the ECB will soon need more space. As presently proposed the effect of the new regulator will be to shift regulatory control of AIB, IBRC and BOI to Frankfurt. What exactly that will mean for the newly beefed up regulators office in Dame Street (the beefing up requiring that it move to the IBRC shell – very apt) is unclear. Will staff move to Frankfurt or more probably will it be a remote operation?

Two issues emergent from this require us here to think long and hard. These are the future funding of SMEs and the future of those vile promissory notes

On SME funding the Irish banks are in a bind. They need to continue to delever, and the only way to do that is to progressively increase the deposit base (costly) and/or reduce outstanding loans. In particular, reducing loans will be done while also shifting the balance of loans away from riskier towards less risky ventures. Lending to SME’s is inherently more risky than to more established sectors and ventures. The easiest venture at present is to obtain cheap money from the ECB and purchase Irish government bonds, a carry trade as it is known, reaping a handsome profit for the banks and incrementally driving up the price and down the yield on these bonds yielding a handsome political dividend for the government. Evidence from the ECB biannual survey on access to finance that along with Greece Irish SME’s are the most likely to be discouraged from applying for credit. Although only around 10%, this is unfortunate – discouraged borrowers may be borrowers that have excellent prospects but feel that there is no point seeking a loan. Since March 2010, when the data series begins, excluding property and financial services related lending, lending to the SME sector has fallen by 24%, while in the overall economy it has fallen by 22%. Within the SME sector lending to property and financial services related activity has risen by 30%. Its hard to see how this is justified given the job creation engine that the SME sector can be. As banks regulatory oversight moves more and more remote it is likely that the existing centralization of lending decisions at HQ will intensify. It is reasonable to assume that local managers of banks are more likely to be at least approachable by local SMEs seeking finance. If we wish to reduce discouragement in applicants we need to be very nimble in negotiating the parameters of this new regulatory regime. It’s a good job we have a history of nimble wily negotiators with the ECB….

discouragement

rejected

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
IOU_1The creation of the new regulatory framework was a quid pro quo for the establishement of the new ESM lending framework. This will lend to banks for new capital needs, finally breaking the linkage between the soverrign and the banking sector. However, this is of little use to Ireland. We have invested 24b in the pillar banks and 30b via the wretched promissory note in IBRC. The proposal on the table will not give us any relief on these. The government in march 2012 engaged in a complex shell game to avoid payment of the note but this was for a one year basis. Despite this can kicking they continue to claim that they have avoided repayment, which is simply untrue. Thus a solution to the deferred 3.1b and the regular 3.1b needs to be found before march. All indications are that this will involve a restructuring of the repayment schedule, to reduce the amount of money destroyed from 3.1b to perhaps 1b per annum. That anyone outside a lunatic asylum would consider it acceptable for a state so broke that it is cutting respite care to carers to destroy a billion euro shows how degraded our political debate has become. After Minister Rabbit stated that we would not pay in March I asked the Central Bank, the ECB and the government for a statement. Despite being the ultimate loser in any refusal to pay the Bank declined to comment. The ECB reiterated the statement by its president that it was Frankfurts way all the way, while the government press office reiterated that we hadn’t paid in 2012 and were seeking a deal. None of these give any hope that a meaningful reduction in the outstanding debt, as opposed to some restructuring of the payment schedule, is in the offing. That wont prevent the government from touting some form of interest reduction or extension of the repayment schedule as a triumph. But it should.