Irish Government Reaps Reward for Exiting the EU/IMF/ECB ‘Bailout’

Calling it a bailout was never a good idea as it was anything but a bailout.

Loans to Ireland

The loans provided by the European Union, European Central Bank and the International Monetary Fund to the Irish Government had two main purposes: to keep the Euro currency alive and to allow Ireland to repay French and German banks and bond-holders who were owed billions by the bankrupt Irish banks. The fact that the Irish Government needed the cash to meet the wage-bill of the ridiculous numbers of public and civil servants employed by this tiny country was very much incidental. The EU/EBC/IMF had their own agenda.

But now they are gone.

Ireland has again taken control of raising its own finances and regained its ‘economic sovereignty’ amid much fanfare and self-congratulation. Ratings Agency Moody’s has added to the positive tone in Ireland by upgrading Irish 10-year debt bonds to ‘investment grade’ and as a result the cost of borrowing by the Irish Government has dropped dramatically from over 12% at the depth of the financial crisis to a much healthier 3.3% today. By comparison the US and UK borrow at about 2.8% while Germany borrows at 1.65%, Portugal at 5% and Greece at 8.5%.

Should the Irish economy recover and unemployment fall then this will be seen as a very significant turning point in recent Irish history. Fine Gael will claim the credit for steering the country through its darkest ever economic moments having implemented the Fianna Fail plan for recovery that they inherited, despite lambasting that same plan in the run up to the last General Election.

With the economy pointed in the right direction Fine Gael will expect to be rewarded by the Irish people with a second term in office. Despite being not quite half way through its five year term with the next General Election not due until 2016, the analysts in Fine Gael will surely be eyeing up the very best moment to ‘go to the people’, likely next year in 2015.

Of course a year is an eternity in politics and it is not out of the question that a fickle Irish electorate could yet punish Fine Gael for its failures, perceived or otherwise. Lack of political reform, controversial social policies and the never-ending implementation of the economics of austerity may yet come back to haunt the party.

For the time being Fine Gael are enjoying their time in office with the latest numbers from the opinion polls supporting their optimism:

Fine Gael: 30%
Fianna Fail: 26%
Sinn Fein: 16%
Labour: 12%
Others/Independents: 16%

This survey suggests a return by vast groups of voters to the more mainstream political parties and away from independents and fringe groups. Even the Labour Party managed to increase its support although it is still in a very poor position. Looking at the numbers above, surely a grand coalition of Fine Gael and Fianna Fail is only a matter of time?

by Michael Green
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Funeral Directors Aim Daggers At Irish Minister

The recent decision by the Irish Government to scrap the ‘Bereavement Grant’ has less than impressed those involved in the Funeral business in Ireland.

Funeral Expenses Grant abolished in Ireland

The 850 Euro grant was previously paid to families of the recently deceased to assist with funeral expenses. In an attempt to deflect from criticism of the grant’s abolition Ruairi Quinn, the Irish Education Minister, suggested that there is ‘insufficient competition’ in the funeral business in Ireland. Clearly he thinks that the cost of funerals is being inflated by the bereavement grant and thus has no problem disposing of it.

It is estimated that the cost of a Funeral in Ireland is about 5000 euro (just under 7000 US$). Welfare Minister Joan Burton pointed out that there is still a generous allowance in the event of the pensioner’s death:

“If one partner of a pensioner couple dies, their spouse continues to get the social welfare payment of the deceased spouse for six months. That is worth roughly 1,200 to 1,400 Euro.”

Apart from the Bereavement Grant the Telephone Allowance for Pensioners has also been scrapped while Welfare for those aged under 26 years has been reduced. The Fine Gael and Labour Party Government made much of the fact that they have not increased the rates of taxation in their most recent annual budgets. Nevertheless their tenure in office has seen a whole host of new ‘stealth’ taxes introduced in tandem with some pretty savage cuts to services.

These latest cutbacks are just one of a number of measures in the recent annual Budgets that have attempted to roll back some of the largesse offered to Irish citizens during the Celtic Tiger years.

Times are very different now.

With the country effectively bankrupt the last five years has seen some very severe so-called ‘austerity’ measures implemented by successive Irish Governments. It would be expected then that a people who enjoy their reputation as being ‘The Fighting Irish’ would hit back and hard.

Not so.

Opposition from the Irish population has been relatively minimal. No Greek or French style riots. No imprisoning of Bankers and Government officials as happened in Iceland. The Irish have taken the economic downturn pretty much in their stride.

Or Emigrated.

by Michael Green
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Dublin Property Market Increase Sparks Fear Of A New Bubble

The Irish people do not need any reminding of the devastating effect that a property bubble can have. Back in 2008 when the property market in Ireland imploded the Irish banks had to go cap-in-hand to the Government for support. ‘Back us or the ATMs will stop working’ was the blunt message offered to the Irish politicians of the time. They duly obliged by underwriting the deposits held by the banks, preventing any mass withdrawal of funds by the public and financial institutions.

Irish Property market has stabilized after massive crash

The problem with the bank guarantee was that, while it kept the ATMs operating it also underwrote the funds held by the massive institutional investors, including those in France and Germany. When the banks were eventually nationalized the bonds held by the European investors became payable by the Irish State. ‘Burn the Bondholders’ was one of the famous slogans used in the run up to the 2011 election. To date there has been little or no evidence of that happening with the EU/IMF/ECB troika protecting their own interests while drip-feeding enough finance into the Irish economy to keep the lights on.

The situation has stabilized since then but at some cost. Unemployment remains stubbornly above 14%. Job opportunities are limited with massive emigration the escape valve. Taxation has been greatly increased to the point where even those most enthusiastic in engaging austerity are suggesting that a financial stimulus and not more taxation is now what is required.

Against this backdrop the Irish property market has suffered one of the greatest collapses in modern history. Only Dubai has suffered a bigger recent loss as the value of houses and apartments plummeted by anywhere between 40% and 60% depending on the report that is cited. Banks of course, are now much more stringent in their lending policies, anxious to avoid the mistakes of the past. But it may be a case of ‘a short memory’ for some people.

It has long been suspected that the value of houses in Dublin has dropped too much, with no such reservations about the price falls in rural locations. Tiny little towns with half-built housing estates and a dwindling population are a recipe for further house price falls. But in Dublin there are enclaves and districts that have seen pretty hefty gains. A recent Myhome.ie report indicates that prices for property in the capital city are 26% above the national average price of 191,000 Euro (US$258,000).

Unfinished housing estate blight the Irish landscape

The same report indicates that nationally house prices fell by 7.8% over the last year, which is a lot better than the 14.3% recorded the previous year. But Dublin prices have soared by 10.6% over the last year according to the Central Statistics Office (CSO), the price increase fuelled mainly by a lack of housing stock.

Could it be that massive house and apartment building will again get under way in the city? This seems fanciful at the moment but there Are signs of new construction work being undertaken in Dublin. With the population of Ireland expected to grow by at least 10% over the next 15 years it is estimated that 20,000 new housing units are needed annually to keep pace with the demand. During the boom years upwards of 40,000 housing units were being constructed. This year the likely total will be about 6000.

Until the supply of houses increase in Dublin city it seems likely that prices will continue to rise. But any sudden shift in sentiment or a dramatic increase in supply (such a as a major spate of bank repossessions and then fire-sales) could yet see a repeat of the recent pain for Dublin house-owners.

A short memory indeed.

Calls For End To Austerity As Ireland Plunges Back Into Recession

Those commentators who have been critical of the overuse of austerity policies in Ireland are claiming that Ireland’s plunge back into recession is proof of their views.

A 'People Before Profit' March Protesting Irish Government Policies

Since 2008 the Irish economy has been battered by international forces beyond its control in addition to massive self-inflicted damage caused by a property market bubble and the near collapse of the Irish banking system.

The effects were far-reaching. Unemployment stands at 13.7%, public services have been slashed, bitter wrangling continues between the Government and its own employees in the Civil and Public services. Emigration has soared to Famine-era levels while those left behind have been burdened with extra taxes and levels of debt that will take decades to pay off.

Ireland re-entered recession in the final quarter of last year and with ‘negative growth’ prevailing it seems that the austerity and tax increases have dampened any possibility of a domestic recovery. The Property Tax did not help either. Demanded as a condition of loans granted to Ireland by the EU/IMF/ECB the Property Tax was almost gleefully imposed by the Fine Gael Government who clearly see it as an easy way to bring in finance. Political cover was provided by the European ‘troika’ who could be blamed for demanding its imposition – ‘it wasn’t us – its them!’ Job done.

Chart showing the financial effect on Ireland of the economic crash

The uncertainty caused by the Property Tax, the fear of its impact and the never-ending burden of yet more taxation certainly played a huge part in dragging the country down again.

Ireland is also more exposed to events outside its borders than most other countries. As an island nation the most basic raw materials must be imported, raising costs. Exports to Britain, Europe and beyond have to be expensively transported, raising costs. Any change in the value of the Sterling and US Dollar currencies can lay waste to the best laid of export plans in the space of a few hours, again raising costs.

Even bad weather can effect the Irish economy, especially domestic spending, further depressing a beaten-down population who retreat to their ‘mortgaged to the hilt’ apartments in semi-derelict half-built housing estates to ponder the future – ‘I wonder if Australia is still looking for electricians?’.

Maybe this is the bottom of the trough?

Domestic spending looks to be improving now that the Property Tax shock is pretty much out of the way. Anecdotal evidence of a recovery in both the construction market and the property market have been borne out by recent numbers. Major road projects are being undertaken for the first time since the economic crash in 2008, a sure sign that things are about to improve. The South County Dublin section of the Dublin property market has actually seen a 12% increase in prices in the first 6 months of 2013 according to Irish property website Daft.ie, with an overall rise of 5.3% in Dublin prices over the last year.

Hot stuff. And even the weather has improved!

So despite the economic woes there does appear to be grounds for optimism. This is year five of the greatest economic crash in the history of the country. Being well positioned to catch a ride on the global economic upturn that will inevitably come must surely be the current Government’s major priority, as well as its best bet for being re-elected.

by Michael Green
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Ireland Criticized by US Senator

The Irish tax system is under the microscope after US Senator Carl Levin called the country a ‘tax haven’ and this despite the fact that the US government does not officially class Ireland as one.

The Senator is clearly unhappy with the fact that Apple Inc, the computer technology company, is reported to only pay as little as 2% tax on its profits by registering its business in Ireland. By doing this the profits can be funnelled through Ireland and then on to an actual tax haven country, thus avoiding a big tax bill in the US.

It is clearly not unreasonable for the US Senate to be unhappy with this situation. Huge companies such as Google and Apple have for many years now avoided paying large amounts of tax in their homeland by the use of these schemes.

The Irish government are furious and have repeatedly denied that any special deal was provided for Apple. The standard rate of corporation tax in Ireland remains at 12.5%. Most of the foreign multinational companies based in Ireland are American and employ about 150,000 people in the country. The IDA (Industrial Development Authority) of Ireland intends to write to Senator Levin about his comments.

Barry O’Leary of the IDA:
Irish officials will definitely be clarifying and making sure he (Senator Levin) is up-to-date on exactly what happens in Ireland ……the description he used (tax haven), I dont think anybody else would.

His annoyance with the US Senator was echoed by Government Minister Pat Rabbitte:
If there were monies channelled through Ireland (by US multi-nationals) then that is a function of what is allowed by the American tax system.

It has been suggested that the US authorities could easily close off this tax arrangement by changing their own tax law. Putting the ball back in the US Senator’s court is unlikely to reduce the pressure that the Irish Government is under and not just from the US. Fellow EU countries, especially France and Germany, are also unhappy with Ireland’s 12.5% tax rate for corporations and have mad several attempts over the last few years to have the rate upped.

Rip-Off-Ireland Shedding Its Expensive Image

The perception that Ireland had become a very expensive country – a rip-off Republic – emerged during the Celtic Tiger boom era of the 1990s and early part of the current century.


Photo From Free Public Domain Photographs

With near full employment (only 4% unemployment at the height of the prosperity – now unemployment is over 14%), staff could afford to pick and choose their jobs, pushing up prices, offering poor value, inflating business costs.

How things have changed. With the Tiger slain the economic crisis that nearly sank the country in 2008 and 2009 has seen earnings plummet, taxes spiral upwards while employment opportunities have disappeared. The result for the Tourist Sector of the Irish Economy has been predictable. Widescale closures of Hotels and Golf Courses throughout the country while the devastating reduction in the standard of living for employees has meant that jobs have become cherished, meaning better customer service and value.

A 2009 Bord Failte survey of visitors to Ireland revealed that as many as 41% of Tourists felt that holidaying in Ireland was too expensive. The most recent survey has seen this figure plummet to 17%.

So what is happening?

Well the first thing that can be said is that with the devastation in the Hotel sector those who remain standing are having to offer ever more enticing deals and room rates to their visitors. Where this has resulted in more people through the Hotel lobby the staff in the hotels are now required to offer better service, and cheaper too.

An increase in advertising by the Irish Tourist agencies with promotions such as ‘The Gathering’ have also helped to drive more visitors into Ireland, whose Dollars and Pounds are going further, a lot further than before. The Currency Exchange rate with the US Dollar has helped too. The Greenback has recovered from the 1.60 ceiling it nearly shattered last year to the 1.30 level it occupies today. It is clearly more affordable and a better overall experience to visit Ireland during its financial humbling.

Visitors from America seem to agree. The Bord Failte survey cited over 50% of visitors from the US as indicating that their visit ‘exceeded their expectations’.

Nothing like a bit of austerity to focus the minds of business owners and staff alike!

by Michael Green
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Lose Your Cable TV If You Want a Mortgage Write-Down

The issue of mortgage write-downs or ‘debt forgiveness’ has been a very thorny one in Ireland ever since the Irish banks effectively collapsed and were taken into state ownership. Thousands of home-owners lost their jobs at about the same time as the value of their property plunged. They found themselves in negative equity, preventing them from selling their now-devalued property and trapping them in apartment blocks and rural housing estates in a vicious circle that is hard to escape.

The realization that a certain level of mortgage write-downs would have to be granted was greeted with a mixture of despair by those who actually managed somehow to pay their mortgage and with an opportunistic ‘nod and a wink’ by those who are trying to ‘game the system’. There is anecdotal evidence that a certain number of home-owners are deliberately not paying their mortgage in anticipation of a deal being struck in the future. This is preventing write-downs being offered to the most deserving of cases, stalling the property market, trapping people in homes they cannot afford.

It is estimated that as many as 100,000 Irish mortgages are now in arrears of at least three months. It is inevitable that deals will have to be done with some if not many of these cases. The banks are unsurprisingly being very cagey. Where home-owners in arrears present themselves to the bank they are being offered longer terms, mortgage holidays, interest-only payments, split mortgages, etc., in an effort to give them some breathing space. For some, even these measures will not be enough.

The new Personal Insolvency Service has laid out a number of concessions that they expect from those desperate for a deal including:

* getting rid of a second car and even trading down to a lesser model of car
* an end to taking foreign holidays
* removal of certain Cable TV services including sports and movies packages
* removal of children from private schools
* ending of private health insurance
* any other obvious ‘unnecessary’ expense

The Personal Insolvency Service is part of the Government’s overhaul of the outdated bankruptcy laws in Ireland. Irish banks are expected to use the new rules and restrictions laid out by the Service in dealing with people seeking mortgage write-downs.

It is likely that these new measures may be tested in the Courts. The spectre of desperate families choosing between private education for their children and private health insurance over keeping their family in their home is likely to be loom large in the national consciousness and soon.

It is a battle that will likely get ever more bitter as the stark reality of a bank-imposed ‘austerity lifestyle’ hits home.

by Michael Green
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Blow to Economy as Tourists from Britain Desert Ireland

The number of visitors from Britain has fallen by as many as a Million visits since 2007 when 3.7 Million trips from Britain to Ireland were recorded.

Six short years ago Ireland was a very different place. The ‘Celtic Tiger’ still stalked the land although his days were numbered. A property market collapse and financial ruin were just around the corner. Britain suffered its own recession too but was spared the carnage caused by the banks that Ireland suffered. Against this backdrop it is perhaps no surprise that visitors from our closest neighbour have decided to opt for sunnier climes.

The Irish Hotels Federation (IHF) are doing everything they can to reverse the trend but are not helped by the high costs they face in running their businesses. Commercial Rates are effectively an extra big tax on their income. Many Hotels are also suffering negative equity in respect of the development of their Hotel property after the market collapsed in 2008. Consequently Hotel rates in 2012 were at their highest level since 2008 according to a Hotels.com survey.

Killarney at 101 euro per night was listed as the most expensive destination for Hotel rooms where the country averaged 90 euro per night. Irish Hoteliers are not at all happy with the survey though, claiming that the cost of rooms has been greatly reduced in recent years despite persistently high costs and that Ireland compares favourably to most other popular European destinations.

Tourism is vitally important to the Irish economy accounting for 5.3 Billion Euro in revenue and employing 11% of the entire workforce of the country.

by Michael Green
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Government ‘Divide & Conqueror’ Strategy to Test the Resolve of Public Sector Unions

A successor to the ‘Croke Park Agreement’ has been finalized that will see cuts of 1 Billion Euro from the Government pay bill. The deal includes pay cuts for all staff, and up to 10% for top-earners, additional hours of work at no extra pay, and reductions in allowances and premium payments.

As many as nine Unions have already indicated that they will not support the new deal and are recommending that their membership reject it. The consequences of being outside of the new arrangements are likely to make for a very difficult situation for the Unions. It is very likely that the Government will unilaterally reduce the pay of those staff who do sign up to the deal, a step that will almost certainly cause strikes.

The Government seems to be playing hardball this time around. The new proposals actually provide for some compensation to public servants in two years time in certain situations, but only to those Unions that sign up to the deal. Those staff who opt out will not receive the agreed compensation. Divide and conqueror seems to be the tactic.

Similarly the deal provides for zero compulsory redundancies for those Unions that sign up – a huge concession given the current unemployment rate of over 14%. Those left outside the umbrella of the agreement however will have no such comfort and may see compulsory redundancies implemented, on top of compulsory pay cuts.

The divisions in the Unions are becoming apparent. The huge Impact Union that represents over 63,000 public servants has recommended that the deal be accepted. The Irish Nurses and Midwives Organisation however is to recommend rejection of the deal to its 40,000 members. Similarly Teachers Unions have rejected the deal. Already a group representing Gardai, Nurses, Paramedics and Fire-Fighters, some 70,00 public servants, has been formed to co-ordinate its opposition to the deal.

The problem with the deal from a Union perspective is that it requires every public servant to take a pay cut. While this may seem reasonable in the case of a person earning over 65,000 euro per year it is a lot harder on lower paid civil and public servants, nurses and front-line staff, many of whom earn less than 30,000 euro annually.

Taoiseach Enda Kenny is determined that the cuts to pay and conditions have to me made:

“Implementing these savings by agreement with public service staff would be another big step on the road to economic recovery, and would send out a signal to the world that the Irish people are determined to fix our economic problems and restore the country to prosperity and full employment.”

It is ‘Game On’ with division, public protest and strikes inevitable.

by Michael Green
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Debt Deal for Ireland: A Step in the Right Direction?

The Irish debt deal did not reduce the amount owed by the country. Ireland still owes in the region of 125BN Euro – a staggering figure that will take decades to pay off. The new debt deal merely allows part of the debt to be paid off over a longer term.

This is not necessarily a bad thing if you are able to ignore the immorality of it. By pushing the debt repayments down the road to the year 2053 the current Government has essentially lumbered today’s toddlers with the task of paying their parents debts. On the other hand, the breathing space that will be created by not having to pay as much as 2BN Euro annually over the next 10 years has given the current generation the opportunity to create jobs and growth to repair the damage sooner.

Under the deal the Central Bank of Ireland swapped high-yielding ‘Promissory Notes’ for longer-term Government Bonds. The original deal was to cost over 3BN Euro annually for the next 10 years. The new deal sees a reduction in the interest rate from 8% to 3% and stretches the loan out to 40 years. This reduces the borrowing requirement of the Government in the short term which it is hoped will free up funds for job creation.

The response in Ireland to the news of the deal has been broadly welcoming although those opposed to the whole concept of the Government bailing out the banks to begin with used the opportunity to demand that a write-down of Irish banking debt be sought immediately.

The Fine Gael and Labour Party coalition Government made the point that the European Central Bank has never agreed to debt write-down before so it would have been pointless to even negotiate on that basis. The more militant of those opposing the Government want to see an immediate default on the debt to force the issue with the ECB, EU and IMF.

This may yet happen.

The level of debt being carried by Irish citizens and small businesses is reaching catastrophic proportions. Although the economy of the country has stabilised it is still quite dreadful. Unemployment in Ireland is stuck at over 14%, Irish emigration is at pre-Famine levels and job creation is barely perceptible. The gamble by Fine Gael that they can soldier on in the hope that the economy recovers may backfire under an avalanche of personal debt and mortgage defaults. In such a scenario a massive default on the loans granted to us by our European ‘partners’ will become a question of ‘when’ and ‘how much’ rather than ‘if’.

Against this backdrop the much vaunted ‘Promissory Note’ deal may become just another footnote in this bizarre period of Irish history.

by Michael Green
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