Economic Crisis Blogburst 4: The collision of dreams and reality

– Michael Hennigan of Finfacts explains just why the big boys are in old Dublin town today

– And, the word from the FT

Ireland’s basic problem is that it now has to choose between its own sovereign solvency and the solvency of its banks. Other European countries – in and out of the eurozone – may soon face the same choice. In such a world, keeping banks afloat with public capital risks sinking the sovereign – and with it, the whole banking system.

– The loss of economic sovereignty is a big theme in several of today’s leading articles (of which more later). Only the Independent takes a pragmatic stance:

Dwelling on how it has all come to this is a waste of time now. But dwelling any longer on taking the politically and economically tough decisions that have to be taken will be unforgivable. So let us have clear language and clear leadership on this. There is no time for anything else.

Certainly not semantics according to Sean Power, Fianna Fail Deputy for Kildare South…

– Gerard O’Neill thinks Simon Heffer has a point when he says Germany should pull back to a reformed DM

– Peadar Kirkby says that the crisis requires a revisiting of the failed processes that led to the current crisis:

…it is most important that we recognise the very familiar posture adopted by Irish policy makers and by the Irish state, since it highlights what will have to change if we are to have any hope of building a more sustainable and equitable future. Another way of putting this is to state that the largely economic and financial discourse that dominates debate needs to be balanced by a discourse that focuses on the administrative and the political features of the current crisis.

– Eurointelligence with a neat observation that Ireland is not first in the queue of pain:

The Irish finance minister said he welcomed the EU’s offer, but insisted that aid was not inevitable. (The Irish understand that they are in relatively good position, as Ireland is fully funded until the middle of next year, while Portugal needs to tap the markets early next year. The Irish crisis thus hurts Portugal more than Ireland).

– Izabella Kaminska reckons however that Ireland has gone one bluff too far… She also demonstrates a very Baker like command of the archives and traces the plot back to that over ambitious bank bail out… well worth reading the whole thing…

– The Charlemagne blog at the Economist traces the dilemma in roughly similar terms to those traced yesterday in the same Mr Baker’s blog here on Tuesday

– Der Speigel says Ireland should stop slagging off those who want to help them

– Brian Cowen wants to get away from word games, apparently… But Simon Nixon has him (and Paddy Power) down as a gambler who is playing a limited hand to the best of his ability…

– Iain Martin reckons the final corollary is likely to be tighter fiscal control from the EU centre bringing back into question the problem of fiscal sovereignty… Or as David Bowers put it six months ago (via P O’Neill):

The politicisation of the allocation of capital, and the re-regionalisation of the cost of capital, are themes that we are going to hear a lot more about – long after the Greek dust has settled.

– One of today’s mini big subjects will be the mortgage arrears problem. Karl Deeter tries to quantify it (warning: scary numbers)… And then comes up with a number of smart ideas to help spread the social and economic impact…

– And finally, Suzy has a YouTube of Dick Roche’s deft pitch for FF votes at the upcoming election, on BBC’s Newsnight…


  • John Ó Néill

    Despite the continued Comic Ali defence being adopted the government, Patrick Honohan (the Central Bank governor) has more or less confirmed what everyone else either knows or believes. The discussion largely revolves around whether 12.5% corporation tax and the Croke Park agreement survive.

  • alanmaskey

    PSF’s website is abarrel of laughs today. It has a video with the rt hon TD for Monaghan, O’Caolain, showing his economic illiteracy and contradicting himself in the same sentences Adams looks on and adds in his own worthless cliches. PSF clearly want an election for their own divisive, sectarian purposes.
    The onlookers include Jack Crowe, who got the boot last time round, arms importer Martin Ferris and a few other nonentities.
    The Disappearers will do nothing to ease the markets. Adams is so hungry for power he seems to forget he has seats to sit at Westminster and Stormont, not Leinster House. If he does win a seat in Louth, he will probably head off to the EU parliament or somewhere else, anywhere else exscept where he is supposed to be.

  • Itwas SammyMcNally whatdoneit

    You have to say, the cute hoors are playing it quite, well – cute – and if they get out of this with corpo tax rate intact Biffo will deserve a clap on the back.

    But the presense of the IMF/EU enforcers in town has an ominous feel about it and Ireland’s chances of keeping her economic knickers on and her economic virtue intact are probably less than those of the Rugby team who face the equally ominous All Blacks enforcers on Saturday afternoon at 5.30. Patrick Power puts that at 6/1. Time to get behind the sofa.

    Gwan Biffo, Gwan Drizza

  • Brian Walker

    Anatole Kaletsky writing behind the Times pay wall yesterday had the most optimistic take.

    Headline: “ Ireland will trump Germany in bailout bluff”

    Conclusion: “ Once it is understood that the EU cannot afford to let the Irish government default on its bank guarantees, a surprising conclusion follows. If the Irish play their cards right, the terms of their bailout will not be dictated by Germany, the Commission or the ECB, but by the Irish government itself . And remember, the Irish care damned good at cards.”

  • bigchiefally

    Given how well paid Irish State Workers still are I would have thought the Irish government would have been delighted to have an opportunity to rip up the Croke deal and bring their packages back to a sensible level. A bailout would pretty much allow them to do this and put the blame on someone else.

    A small increase in corporation tax would still leave Ireland with a vastly lower rate than the big Euro economies. Plus Ireland still has the advantage of being English speaking, a very well educated workforce and has excellent ties to the US and the UK that other low corp tax countries can’t match. I doubt a 3%, maybe even 5%, increase would cause an immediate flight of companies.

  • Itwas SammyMcNally whatdoneit

    Translated into common parlance – the cutehoors will out.

  • Brian Walker

    It’s worth laying out the latest news in full.- and asking-

    Honohan expects State to take large EU/IMF loan

    “The Government will battle to prevent any increase in the €6 billion adjustment proposed for the 2011 budget and the €15 billion target in the four-year plan as EU and International Monetary Fund (IMF) negotiators arrive in Dublin today to intensify talks on a rescue plan for Ireland.
    Speaking on the likelihood of Ireland receiving a multibillion euro loan from the IMF and the EU, Central Bank governor Patrick Honohan said: “It’s my expectation that that is what is definitely likely to happen. That’s why the large technical teams are sitting down discussing these matters.
    “I think this is the way forward. Market conditions have not allowed us to go ahead without seeking the support of our international collaborators,” he told RTÉ’s Morning Ireland.
    “I don’t see it as something that is really worrisome or should lead to a huge change of direction because as we know, the fiscal discussions about €6 billion cuts, all of that is part and parcel of what an IMF team would ask for, would suggest if they came in, in the absence of any such discussions.

    “I’m not saying they’ll rubberstamp, but I think that they will not find all that much to disagree with,” he told RTÉ radio this morning.Mr Honohan said he expected a loan of tens of billions of euro. This would not be a bailout, he said, as it would have to be paid back. He said the money would be used to show Ireland had “sufficient firepower to deal with any concerns of the markets”. He also understood the money would be borrowed at a rate in the region of 5 per cent.

    Also speaking this morning, Minister for Communications Eamon Ryan accepted Ireland may need help from o Europe. “I don’t have a problem with that, and I don’t have a problem recognising the scale of the problem . . . what we need to do is get the terms and conditions right.”
    Mr Ryan also said the Government would publish its four-year fiscal plan around the middle of next week and added that teams from the IMF, the ECB and the EU would see that the position of the Irish banks were strong. “Our banks are solid and I believe that that will be shown to be the case.”
    The Minister conceded it was a bad day for Ireland. “Without doubt, no one would want to be in this space, but we just have to work our way out of it,” he said on Morning Ireland .

    As pressure builds from Europe for an immediate application for external aid, Dublin is campaigning to minimise any funding it draws down in a bid to ensure the terms are not too onerous. Negotiators on the other side are keen to determine the exact scale of the funding requirement for the banks.

    Although the Government sought at first to draw a distinction between any emergency aid for the banks and for the State, there is a reluctant acceptance now that any funding for the banks will have to be drawn by the State. The Government will try to limit the size of the drawdown and the scale of outside involvement in wider economic management.

    French economy minister Christine Lagarde this morning said the euro zone was not at risk of breaking up in spite of jitters over the creditworthiness of its member Ireland. “No, there is no risk of [the EU] breaking up,” she said on France Inter radio.
    Ms Lagarde added Britain could participate in aid for Ireland despite not being a member of the euro zone, possibly in the form of a bilateral loan.

    British chancellor George Osborne yesterday declared his government’s readiness to assist in any rescue scheme for Ireland.

    In the Dáil yesterday, Taoiseach Brian Cowen said the Government will “seek to protect our essential national interests and to ensure that the outcome is such that the country’s sovereignty and sovereign debt is not unduly imposed upon with a burden it cannot bear”.

    Speaking at the Silicon Valley Comes to Ireland event in Dromoland Castle last night, Minister for Enterprise Batt O’Keeffe described the situation as being akin to a poker game.

    “We’ve got to play poker over the next couple of days to see what cards these people have to play, what exactly they have in mind. We would like to see the colour of their money,” Mr O’Keeffe said referring to any offers of financial assistance from the ECB or IMF.

    He also said the Government “almost had” European Commission approval for the outline of its four-year plan which would be finalised in the coming days.

    A senior source said the Government believes any agreement to accept aid at this point would weaken its hand as the precise terms of an aid plan are being hammered out in the coming days. A further priority is to preserve the 12.5 per cent corporate tax rate, which is a central element of the four-year plan.

    But pressure on that front is already emerging, even though Minister for Finance Brian Lenihan insists no change is in prospect. His Austrian counterpart Josef Proell said yesterday “there needs to be talks with the Government about this issue” whenever external aid takes effect.

  • John Ó Néill

    Its a hugely optimistic take but effectively the EU is acting as guarantor to debts ran up by the Irish banks (via the state guarantee) because the outstanding loans are to other financial entities in the EU who would lose out in a default. So, by doing so, they are pushing the debt officially onto the Republic of Ireland’s national debt to be re-paid by the taxpayer so none of the lenders take a hit for the risk (or for the flaws in their risk assessment when loaning out the money). How Cowen and Lenihan might sell anything as a win to the public is impossible to see (particularly since the current pretence that none of this is happening is scaring the wits out of people).

  • JaneJeffers

    “And remember, the Irish are damned good at cards.”

    Only the bluffing part.
    But when everyone knows you’re bluffing, bluffing does not work.

  • drumlins rock

    and by so doing delaying any possible recovery for another decade or so? So they might save the 12.5%, for now, and prop up a bloated public service sector, but will have ensured their new paymaster will make them pay for it many times over in coming years.

  • Itwas SammyMcNally whatdoneit

    The net result of this is that Ireland will get ‘cheap’ money to cover all or some of its debts – the transfer of debts from the banks to the state is already government policy and was porbalby insisted on by the EU some time back.

    The EU has already agreed to Ireland’s budget plans for 4 years and credit has to go cute-hoor_inc for how they have handled the last few weeks.

    Feckless Fail now also have the added political benefit, if they get out of this with the ‘cheap’ money, of locking the oppostion into what will in effect be an international agreement. This could be disastrous for Labour who will then have to sign up to austerity that the PDs in their heyday could own dream about.

    SF who have zero chance of government can happily sit on the sidelines and kick the green white and orange out of Feckless Fail for getting us into the mess and Feckless Gael and Labour for agreeing to the solution.

    We can look forward to Grizzly regulalry pontificating in the Dail on the merits of economic prudence and good housekeeping with the Plain People of Ireland nodding quitely in agreement as they resignedly swallow their dreadful economic medicine.

  • Mick Fealty

    DR, has a point below. KMPG has research that says low rate rate comes fourth behind flexible, educated and cheap labour as reasons for FDI companies coming to Ireland.

    That said, it must be having some significant effect otherwise the Germans wouldn’t be asking. Having already ramped back their own fiscal control to eye-watering levels, it’s a moot point as to whether such a move is just punishment for all that cheap money the German banks shelled out in Ireland’s property bubble.

  • Itwas SammyMcNally whatdoneit


    “comes fourth ”

    That does not mean it that it is not first for some and some particulalry important ones – also it is arguabe the other factors are available elsewhere – and that there is not a bit of public relations speak or being economical with the actualite about an arrangemnet which is after all a little controverial in their own countries.

  • The new food company Essenta Foods will pay 17% tax in Dublin instead of 27% in Leeds.

  • The Raven

    Getting down to the social impact of all that, I have a question that perhaps greater finanical minds than mine can answer.

    In terms of all the mortgage borrowing – at what point does it just become daft for lenders to re-possess huge stocks of housing? Basically, does there come a point where there are so many defaults on mortgages, that some sort of mass amnesty or freeze on repayments comes into play?

    Or could a lender just keep on re-possessing until there’s very little left to re-possess?

  • DC

    The Irish banks (like many others) hooked up to global credit via global money markets, the banks brought forward decades worth of credit by compressing and realising it between 01-08, creating debt – much of it toxic. Now the banks need bailed out again to cover those repayments of toxic debts, plus to recapitalise (again) banks’ balance sheets.

    It is toxic debt two fold, firstly that so much credit was released using global financial markets over 7 years that it is beyond the realms of financing sustainably inside Ireland’s national economy. So much credit/toxic debt was released that it was never sustainable because short term returns trumped any long term sustainability concerns. Ireland is suffering from a classic gotcha because it couldn’t handle destructive turbo capitalism, some might argue neither should it be forced to handle it because it’s a bollix.

    Secondly, it is toxic in that the financial instruments created and traded inside financial markets in a bid to free up such credit (through hedging and splicing up debt) were faulty and not designed properly and had deficiencies: ultimately the financial infrastrucrture wasn’t engineered properly.

    So there is the spectacle of property markets being pumped up into one big ridiculous bubble as a result of fictitious global credit – i.e. toxic debt.

    Now Ireland will have to use real economic wealth to cover the losses of fictitious credit which was nothing other than toxic debt, like paying for billions of euro notes only to see them vanishing and melt away before your very eyes – yet the bills keep coming in, again and again because the markets will not take the hit. The private investors will get out of the game – causing a liquidity crisis thus forcing the state to print and lend money.

    A complete disgrace.

    Such speculators should be arrested and put under house arrest ad infinitum.

  • DC

    *releasing it

  • Mack

    Google have two major European centres – one in low-tax Ireland, the other in low-tax Switzerland.

    I’m not sure Irish labour is cheap – at least not at the high end.

    Pushing up corporation tax would probably mean the other factors would have to compensate. I.e. we’d need to become more flexible, cheaper and educated.

  • alanmaskey

    Repossessions can happen and should continue. The riff raff, who bought second and third homes, need to be brought to account.
    There will always be buyers, perhaps at 20p in the pound, maybe less.
    This failure of the would be landlord class, who get little mention in all of this, will open the door for international financial institutions to step into the breach, buy them up and rent them back. The market will find its own level and a lot of Irish leeches will be in for big losses.
    Subsidies should be removed from social welfare rent to expedite this process. Green and blue tent cities could be set up in the Phoenix Park and Lambay Island to assuage consciences; hopegfully, hypothermia will ease social welfare payments.
    Turkey,Mexico and the USA have been down similar paths.
    In Detroit, you can get houses for $1 if you are crazy enough. Dublin wil lsoon get them too: no go areas, crack, smack and Sinn Fein.
    The answer to The Raven’s query is the market will adjust. Plenty more of ugly, uneducated unwanted unmarried Sinn Fein voting mothers and a dwindling middle class bailing them out.

    Oh! And if you like these people, billet them yourself.

  • Mack

    If they do force us to raise corporation tax we should make employers PRSI deductable against any additional corporation tax owed. That way companies could offset any increase by expanding their Irish workforces..

  • DC

    A critical mass of readjustments you might it call, thus ruining banks balance sheets anyway?

    Pig in a poke comes to pass regardless of the bailouts.

  • RT @guidofawkes: End of an Éire:

  • RepublicanStones

    RT @johannhari101

    Ireland is collapsing because it followed Cameron’s economic program to the letter, as I said in January:

  • Itwas SammyMcNally whatdoneit

    5% weyhey.

    Having seen off team EMU-IMF now for the All-Blacks.

  • John East Belfast

    Is PRSI not already a CT deductible in the ROI ?

  • Mack

    Don’t know. The corporation tax only applies to profits, so you’re certainly not paying tax on the revenues used to pay PRSI. I don’t know if PRSI payments can be used to offset the total corpo tax bill already or not.

    What I’m thinking –

    Company A

    Revenue €100
    PRSI payments €3
    Costs (including PRSI, salaries etc) €70
    Profit €30

    Corporation tax @ 12.5% = 3.75

    Corp tax @ 30%= 9

    less PRSI = 6

    less PRSI with staff moved to Ireland (constant costs) = 4

  • drumlins rock

    wolf, who will own the new company btw? are Carrols shares still held by the Ulster bank? will Dublin be just a front office for a UK owned and manged business? and will this be the start of a host of similar cross channel aquisitions/mergers?

  • drumlins rock

    Alan, will give you an 8 for this one 🙂

  • sammymehaffey

    Of course it is all the Brit’s (cameron) fault! Wise up.
    The only answer is to leave the Euro bring back the punt at a value of 50Euro cents and domestically produced food and products will be good value and people wont be on crazy wages and benefits.

  • joeCanuck

    The Irish banks, and others, lost the run of themselves and the government turned a blind eye or, worse, actively encouraged them. Time for the banks to be allowed to fail and for a change in government.

  • joeCanuck

    riff raff and ugly, uneducated unwanted unmarried Sinn Fein voting mothers

    I’m sure they love you too, Alan.

  • Greenflag

    Yes JC . It would be a comfort to know that at least some of our government leaders or Central Bank regulators or even Bank CEO’s had an iota of what was happening in the world economy particularly the ‘export’ of worthless paper from across the pond .

    Before the banks can be allowed to fail they have to be reduced to a size where any one failure will not bring the entire country to it’s knees . In the USA some 150 banks have failed this year to date but you don’t hear too much about it because the Feds move in quickly on a Friday night after the close of banking hours and by Monday morning the failed bank has been gobbled up under a new name and depositors don’t lose their monies . You also don’t hear that those banks who were once judged too big to fail are now back bigger than ever and all talk of them being cut down in size has disappeared from the menus of both the GOP and Democrats . In truth they (the political parties are scared ***tless of taking on the banks and particularly now .

    Canada came through with only collateral damage because it adhered to the the maxim of not allowing the banks to lose the run of themselves .

    The ECB does not have the same authority YET as the Federal Reserve which is why there is so much song and dance about this process.

    Anyway bail out or ‘contingency fund ‘ (sounds so fiscally responsible eh 😉 Portuguese are next in line and then Spain 🙁 and then the Panzers will be let loose 😉

  • alanmaskey

    The bond traders speak, saying more or less what I have said.
    Certainty is number one. A vote for Sinn Fein is a vote for uncertainty and therefore a vote against Ireland. If you vote Sinn Fein, you are a traitor to Ireland.
    We need hard budgets. Too much slack has been given to the work shy, the unmarried mothers and the other social welfare leeches.
    Ireland needs a hard lurch to the right, rationalisation of the banks (they would be easily sold off). Exports are up right now.
    But look at things like mobile phone ownership (120% saturation) and obesity, to say nothing of alcohol and illegal drugs.
    The poor should have only cheese for Christmas. As Margaret Thatcher famously quoted from Thessalonians: If any man doesn’t work, neither shall he eat.”

    Personally, I think cheese is too good for them but if they are unhappy, they can always beg outsode the Presidential Palace in the Pheonix Park. Nice deer there to be poached as wsell.

  • joeCanuck

    Why do you really hate those you think are below your exalted status.

  • alanmaskey

    Just watched the 6 pm BBC News, which was encouraging.

    1. Bail out on the way.
    2. Banks are in the cross hairs: Hopefully, at least one of the big two will be sold off.
    3. Her Majesty the Queen likely to visit in March so plenty of jobs for young Irish yobs. RIR. Irish Guards, parasa, take your choice.
    4. Funny some South Dublin shopkeeper flogging most likely non Irish jewelry blaming the government. Also Iish Times arts hack Fintan O’Toole giving his 2p worth. The Irish Times really stuffed up after the Press folded but hey..
    5. Brian Cowen was very good.

  • qwerty12345

    Finally it all becomes clear. Maskey is KEVIN BLOODY MYERS!

  • Ach mein Gott!! If the banks fail, the country fails. This is what is wrong with the Internet. The vulgarii get a say. Mama mia.
    Time to sing: Always Look on the Bright side of Life.
    ps: Null points for the coconut.
    pps: Penny for the Guy can now be replaced with Penny for the

  • DC

    then the Panzers will be let loose

    Be careful you’ll excite the loyalists up north.

  • Munsterview

    “……Finally it all becomes clear. Maskey is KEVIN BLOODY MYERS!……”

    Kevin Bloody Myers can write, use a spell checker and being obnoxious for the sake of just being obnoxious is not Myers modus operandi.

    Myers may be polemic but he is also politically and otherwise literate. If Maskey unmasked did not have google facilities and ‘pedia’ he would be stymied for comment.

    Remove his Anti-Republican stance and regular kick to the ‘orangies’ and what is left ?

    Goodness knows I am no particular friend of Myers, but I do know the man for quite a few years now, over half a lifetime in fact, and he do not deserve being associated, much less mistaken for Maskey unmasked.


    Brian Lenihan giving an excellent interview to an RTE heckler. Let’s hope RTE get the knife too. Removing the licence fee and letting RTE sink would be good start.

    Fianna Fail will probably lose the election but it is primarily with FF that the talent lies.

  • pippakin

    Ireland is going to take the loan. It may be that the rate is good but the loan is about more than just interest rate.

    I’m waiting now for the government to start selling the deal. The interest rate appears to be the start.

  • RepublicanStones

    I suggest you read the article again Sammy. And when you do please quote me the sentence where Hari claims Ireland’s situation is the fault of the Brits.

  • Munsterview

    alanmaskey (profile) 18 November 2010 at 11:42 am

    “……. Subsidies should be removed from social welfare rent to expedite this process. Green and blue tent cities could be set up in the Phoenix Park and Lambay Island to assuage consciences; hopegfully,(sic) hypothermia will ease social welfare payments……” Alan Maskey (unmasked) alanmaskey etc.

    This poster describes himself in his Alan Maskey profile as a ‘Connolly Socialist’ and a ‘Democrat’ . He also went to great pains some weeks back to inform us as to his attendance at Catholic Religious services.

    In as much as anything from this posting source can be taken seriously, he / she has in the above post negated every Socialist, Democratic and Christian norm that those who subscribe to these principles, would believe in and attempt to live their lives by.

    In the late sixties, early seventies I worked voluntary and part time with the Simon Community in both in a hostel and street support services such as soup runs at night. Even under then normal circumstances, without the current prevalence of drugs, I encountered so many decent men and women who following a series of mishaps, drink, mental illness, tragedies they could not cope with, sex abuse, spousal abuse etc., end up homeless and on the street.
    I can honestly say in those years I did not meet one person reduced to living on the street that deserved to be there.

    My personal clashes with Alan Maskey unmasked arising from his irrational obsessions are known to most readers and posters here, these can wait for another day !

    Rants such as Maskey is a price we must all pay for free speech on the internet. However Slugger is also a community and as a community even at the best of times this poster speaks for few or any other than his / her own contrarian self.

    In regard to this specific post and its contents, I am now respectfully requesting all Catholic, Protestant and Dissenters, Republican, Nationalist, Unionist and Loyalist alike, who find this specific post contents repugnant, whatever of the poster, to make their feelings known. I would also ask them in so doing to disassociate themselves from this gratuitously insulting and vindictive spleen against recession victims.

    Slugger as a community should have some regard for the norms of common decency and this post have clearly breached as many as this poster could accomplish.

    By law of averages some slugger readers and posters are unemployed, in morguage arrears and in other difficulties as victims of the recession through no fault of their own. They deserve our support and not the fistfull of salt Maskey gleefully seeks to apply to their open wounds !