Loans to Irish residents outstanding (Sept 2011) 253bn
National debt (sept 2011) 163bn
Total 420bn in debt nationally.
1.8 million workers.
Therefore, the average Irish worker is supporting debts of 233,000 Euros. Around a quarter of a million euros each.
Bummer
Showing posts with label Irish recession. Show all posts
Showing posts with label Irish recession. Show all posts
Thursday, November 24, 2011
Sean Quinn -from hero to zero
Sean Quinn is rapidly consuming his stock of goodwill in this country. Yes, he may have kept his business interests near to home, but all this carry on with IBRC is unacceptable: claiming to have only €12K in the bank; filing for bankruptcy in the North; transferring assets out of his name. Who does he think he is? I've come to the conclusion that for all the plaudits he has won over the years -he's only a bum behind it all. Another of those puffed up assholes that seem to rule the roost everywhere in this country.
Wednesday, November 23, 2011
Letter to Ajai Chopra
Dear Mr. Chopra,
I am writing to you about the Irish Government's intention to present a draft programme of asset disposals to the IMF, the ECB and the European Commission. Specifically, I am writing to you about the regulatory steps required for the sale of the ESB (the publicly owned electricity provider).
At present, the electricity grid in Ireland belongs to the ESB, however its operation is contracted to another publicly owned company -Eirgrid.
The Government's intention is to sell a stake in the ESB without first seperating the grid from it. I believe this is a serious mistake for 2 reasons: it will undermine the good governance of an already competitive electricity market; and it will undermine any chance of the State receiving fair value for the asset.
The arguments for decoupling grids from electricity providers are well rehearsed across many jurisdictions and I will not go into them needlessly here. Sufficeth to say, it gives the largest player in the market power over their competitors.
However, in Ireland's case, selling a bundled asset could be uniquely harmful, as the right to operate the grid is not vested with the same company that owns it. Therefore, I believe by selling a stake in the ESB, we are expecting investors to pay full price for their share in the grid, without allowing them the chance to operate it (as Eirgrid has the mandate to operate it). Clearly this is pie-in-the-sky, as no investor will want to pay full value for an asset they will not be allowed to operate. We are dooming the Irish State to accept a vlaue below the true value of the asset if we sell the grid in this manner.
If the sale of the grid is indeed crucial, then I suggest ownership of it be transferred to Eirgrid and a stake in this company be sold as well. At least in this way, a sensible, attractive package can be presented to potential investors and they will be buying both the asset and the right to operate it. This seems to be the only way to safeguard the value of the asset in any sale.
Finally, I want to bring your attention to some surprising correspondence I have had from some politicians in Ireland in regard to this matter. After writing to many politicians to alert them to what I believe is a dramatic mistake that will undermine the functioning of the electricity market in this country, one responded to me to say that the objective of selling the ESB bundled with the grid is specifically to create a dysfunctional system. I will not name him, but he explained that by leaving the grid bundled, this will make it impracticable for future governments to sell the remainder of the ESB and will instead create a regulatory incentive to renationalise the asset. He expressed satisfaction that this approach would achieve our programme targets, but encourage a policy reversal at a future time.
Personally, I have no distinct preference for public or private ownership, but it seems clear to me that if we are to part-privatise the ESB we should make an honest attempt to create a functioning post-privatisation electricity market. Instead, it seems the intention is to sabotage the privatisation process to bind the hands of future governments -for crude ideological reasons. Instead of being the transformational event envisaged under the programme, the intention is to technically comply, but in a manner that ensures a reversal at a later date.
I urge you to examine this proposal extremely carefully when it is presented to you. I recommend you seek the seperation of the Grid from the ESB, to either remain in State ownership, or else to be transferred to Eirgrid and that company be part-privatised also. The current proposal is ham-fisted, seemingly intentionally.
I am writing to you about the Irish Government's intention to present a draft programme of asset disposals to the IMF, the ECB and the European Commission. Specifically, I am writing to you about the regulatory steps required for the sale of the ESB (the publicly owned electricity provider).
At present, the electricity grid in Ireland belongs to the ESB, however its operation is contracted to another publicly owned company -Eirgrid.
The Government's intention is to sell a stake in the ESB without first seperating the grid from it. I believe this is a serious mistake for 2 reasons: it will undermine the good governance of an already competitive electricity market; and it will undermine any chance of the State receiving fair value for the asset.
The arguments for decoupling grids from electricity providers are well rehearsed across many jurisdictions and I will not go into them needlessly here. Sufficeth to say, it gives the largest player in the market power over their competitors.
However, in Ireland's case, selling a bundled asset could be uniquely harmful, as the right to operate the grid is not vested with the same company that owns it. Therefore, I believe by selling a stake in the ESB, we are expecting investors to pay full price for their share in the grid, without allowing them the chance to operate it (as Eirgrid has the mandate to operate it). Clearly this is pie-in-the-sky, as no investor will want to pay full value for an asset they will not be allowed to operate. We are dooming the Irish State to accept a vlaue below the true value of the asset if we sell the grid in this manner.
If the sale of the grid is indeed crucial, then I suggest ownership of it be transferred to Eirgrid and a stake in this company be sold as well. At least in this way, a sensible, attractive package can be presented to potential investors and they will be buying both the asset and the right to operate it. This seems to be the only way to safeguard the value of the asset in any sale.
Finally, I want to bring your attention to some surprising correspondence I have had from some politicians in Ireland in regard to this matter. After writing to many politicians to alert them to what I believe is a dramatic mistake that will undermine the functioning of the electricity market in this country, one responded to me to say that the objective of selling the ESB bundled with the grid is specifically to create a dysfunctional system. I will not name him, but he explained that by leaving the grid bundled, this will make it impracticable for future governments to sell the remainder of the ESB and will instead create a regulatory incentive to renationalise the asset. He expressed satisfaction that this approach would achieve our programme targets, but encourage a policy reversal at a future time.
Personally, I have no distinct preference for public or private ownership, but it seems clear to me that if we are to part-privatise the ESB we should make an honest attempt to create a functioning post-privatisation electricity market. Instead, it seems the intention is to sabotage the privatisation process to bind the hands of future governments -for crude ideological reasons. Instead of being the transformational event envisaged under the programme, the intention is to technically comply, but in a manner that ensures a reversal at a later date.
I urge you to examine this proposal extremely carefully when it is presented to you. I recommend you seek the seperation of the Grid from the ESB, to either remain in State ownership, or else to be transferred to Eirgrid and that company be part-privatised also. The current proposal is ham-fisted, seemingly intentionally.
Friday, August 12, 2011
Final Fantasy
As bad as our self-imposed national economic disaster has been, nevertheless Ireland deserves credit for having acted. The sheer size of our banking losses meant that Ireland has been unable to hide from the truth that is still only emerging across the rest of the OECD countries -that cheap borrowing and living on credit will not be an option for many years to come.
Ireland and the Baltic countries are virtually alone in having made serious fiscal and household adjustments in recent years. Portugal and Britain have also started on this road but have yet to deliver significant results. However, the other developed countries, notably the United States, Japan and much of continental Europe seem to still be in denial about the paradigm shift that has occurred. While the PIIGS have been in the headlines, in reality lenders will soon be casting a sceptical eye on all State borrowings and from now on, balanced budgets and declining debt profiles will have to be the order of the day -like it or not.
The truth is that all countries need to move quickly to a fiscally secure footing, and only those with the most extreme situations (such as Greece) can receive help in achieving this.
Far from requiring a European response, this crisis requires much more widespread austerity -which falls mainly in the domain of domestic, even houshold policy. All of our European policy interventions to date have been aimed at staving off these uncomfortable but inevitable national tasks. The very stability of the Euro has been called into doubt over the manouevring of leaders to delay austerity. Nonetheless we will eventually have to face up to our deficits and the control over the process we still retain could evaporate at any moment. The crisis calls for much more concerted actions by all States to correct their budgets for next year. That is the fundamental truth of the sovereign part of this crisis, all the complexity that has been heaped on top of that is simply detail.
In these circumstances, a "double-dip" recession seems inevitable (despite what Mr Buffett says). We have been living beyond our means and no wizardry will substitute for what must come next -working harder for less.
Ireland and the Baltic countries are virtually alone in having made serious fiscal and household adjustments in recent years. Portugal and Britain have also started on this road but have yet to deliver significant results. However, the other developed countries, notably the United States, Japan and much of continental Europe seem to still be in denial about the paradigm shift that has occurred. While the PIIGS have been in the headlines, in reality lenders will soon be casting a sceptical eye on all State borrowings and from now on, balanced budgets and declining debt profiles will have to be the order of the day -like it or not.
The truth is that all countries need to move quickly to a fiscally secure footing, and only those with the most extreme situations (such as Greece) can receive help in achieving this.
Far from requiring a European response, this crisis requires much more widespread austerity -which falls mainly in the domain of domestic, even houshold policy. All of our European policy interventions to date have been aimed at staving off these uncomfortable but inevitable national tasks. The very stability of the Euro has been called into doubt over the manouevring of leaders to delay austerity. Nonetheless we will eventually have to face up to our deficits and the control over the process we still retain could evaporate at any moment. The crisis calls for much more concerted actions by all States to correct their budgets for next year. That is the fundamental truth of the sovereign part of this crisis, all the complexity that has been heaped on top of that is simply detail.
In these circumstances, a "double-dip" recession seems inevitable (despite what Mr Buffett says). We have been living beyond our means and no wizardry will substitute for what must come next -working harder for less.
Monday, July 25, 2011
A tax on advertising
I believe that we should levy a small tax on high-value advertising.
Advertising is unpopular and is generally regarded as a blight on our lives. Though low-end advertising like classifieds and small notices serve an important economic purpose; most high-end advertising serves no useful purpose. It exists to artificially inflate the price of and demand for products by exaggerating their intrinsic worth. This artificial inflation of demand does increase economic indicators, but does not actually improve economic wellbeing -indeed, it harms the economy by encouraging citizens to misallocate their own resources.
Apart from its economic impacts, there is also much work linking advertising and anti-social problems. Advertising has been linked with eating disorders, materialism, burglaries, feelings of inadequacy, depression etc.
Therefore, apart from raising (much-needed) revenue, there are sound economic reasons and indeed possible social benefits from reducing the pervasiveness of advertising. Therefore I would like to see such a tax levied.
It could be argued that advertising pays for much of our media. Nevertheless, at this time, when the VAT on newspapers and magazines has been reduced as part of the Governments jobs initiative, it seems like a perfect time to introduce such a measure. By introducing a levy on advertising as the VAT on newsprint is reduced, we will effectively be reorienting the income structure of news outlets, increasing the income derived from customers and reducing the income they derive from advertisers. In this way, news outlets might (a bit of a stretch) be inclined to print more quality material and eschew hollow articles about consumerist lifestyles and unnecessary products.
Advertising is unpopular and is generally regarded as a blight on our lives. Though low-end advertising like classifieds and small notices serve an important economic purpose; most high-end advertising serves no useful purpose. It exists to artificially inflate the price of and demand for products by exaggerating their intrinsic worth. This artificial inflation of demand does increase economic indicators, but does not actually improve economic wellbeing -indeed, it harms the economy by encouraging citizens to misallocate their own resources.
Apart from its economic impacts, there is also much work linking advertising and anti-social problems. Advertising has been linked with eating disorders, materialism, burglaries, feelings of inadequacy, depression etc.
Therefore, apart from raising (much-needed) revenue, there are sound economic reasons and indeed possible social benefits from reducing the pervasiveness of advertising. Therefore I would like to see such a tax levied.
It could be argued that advertising pays for much of our media. Nevertheless, at this time, when the VAT on newspapers and magazines has been reduced as part of the Governments jobs initiative, it seems like a perfect time to introduce such a measure. By introducing a levy on advertising as the VAT on newsprint is reduced, we will effectively be reorienting the income structure of news outlets, increasing the income derived from customers and reducing the income they derive from advertisers. In this way, news outlets might (a bit of a stretch) be inclined to print more quality material and eschew hollow articles about consumerist lifestyles and unnecessary products.
Monday, July 4, 2011
Household V. Business debts -policy implications
http://www.centralbank.ie/polstats/stats/cmab/documents/ie_table_a.6_loans_to_irish_residents_-_outstanding_amounts_(incl._securitised_loans).xls
In a sea of confusing data, a significant trend is going largely unreported. With our national fixation on the appalling accumulation of public debt, we are largely ignoring the even greater reductions in private debt held by Irish individuals.
In the last 12 months, over 50bn euros of private debt has been repaid by irish individuals (18% of total private indebtedness). This reduction in debt is even larger than the accumulation of debt by the State and shows that Ireland is indeed mending its position -albeit slowly and with immense pain. This builds on reductions in previous years so that our levels of private indebtedness have fallen from 348bn in 2008 to 255bn today -almost a third of all private debts have been repaid or settled in the last 3 years.
There is hope then that pretty soon, private individuals will have run down their debts and may begin to divert their income from debt repayment to investment, consumption or saving -any of which will be beneficial to our economy and/or banks. If 50bn euros a year is being found for debt reduction, then once our debts fall to a lower level we can expect this flow of money to be diverted back to the real economy, providing a welcome lift to our slumped economy.
However, the picture is not as simple as all that. Within the figures for debt reduction, it is clear that it is businesses and not households that are repaying all this debt. Despite bleating from the faux-tycoons that seem to have taken over all media in the last few years, it is clear that Irish businesses are not just profitable, but are highly profitable and increasingly debt free.
Household indebtedness: Peak 178bn Today 165bn (7% reduction)
Business indebtedness (excl. banks): Peak 170bn Today 90bn (47% reduction)
It is clear from these figures that although private debt reduction continues to happen at an astonishing rate, household indebtedness has hardly fallen at all through the years of recession, and has actually grown as a proportion of income. Given this stubbornly high level of household debt, all talk of a consumer recovery next year (for instance by cutting VAT to high-end goods) is misplaced. Our recovery simply cannot come from a return to the shops as advocated by Michael Noonan -and even if it could, it is foolish of him to encourage highly indebted households to spend more.
Based on these trends, it seems likely that the recovery will happen in business, primarily business that does not depend for its livelihood on selling to Irish households (especially exports). As they run down their debts, businesspeople will increasingly look for alternative uses for their income, whether investing in new fixed assets, expanding their businesses, taking on new staff or saving their cash in financial products. All of these outcomes would be good for the economy in the long run, but in the short run we desperately need to encourage business to hire and save -alleviating our unemployment and banking crises respectively.
Unfortunately, my hunch is that such efforts will fail and business will instead concentrate on upgrading assets and expanding markets. Though this is good, and will stand to us in future, it is not our immediate requirement. This "jobless recovery" seems inevitable based on these figures and the general business outlook and means that we are now facing a situation where business is likely to boom in the near future while households face years of austerity and unemployment.
Which brings me to an unpalatable problem, the inequitable burden of taxation on households by comparison with the low rate of Corporation Tax payable by business has always had its detractors, however now it seems that we are facing a bleak period of rising inequality where a debt-free, lightly-taxed and highly profitable business sector will be coexisting with households plagued by indebtedness, public service reductions, and a likely increasing tax burden.
The obvious solution (unfortunately no Irish politician can even mention this without inviting scorn) is to increase business taxes and use the funds to alleviate the positions of households to allow for a more balanced recovery where households would be given space to reduce their debts to the same extent as business. Given the depth of our problems it is vital that all sections of society bear a share of the necessary burden of adjustment. While we can be relieved that businesses have found the cashflow to reduce their debts, we should be extremely alarmed that in spite of years of austerity, Irish households have not found the surplus funds to reduce their indebted positions. Their should be red warning lights flashing all over policy circles to sound the alarm that despite a consumption slump, households' position has hardly improved at all. We urgently need to rebalance the burden of adjustment (particularly that of taxation) so that our blessedly vigorous businesses start to contribute to our recovery in line with the contributions already made by households.
However, in Ireland, we have developed an unhealthily debate-free credo of low Corporation Taxation. Even though it is now clearly in our economic interest to raise Corporation tax, to promote balanced growth, this topic is off-limits and instead the Government has just delivered a tax cut to restaurants and newspapers in some sort of bizare plan to create employment.
We are rapidly reaching a point where Corporation Tax must be increased or inequality will spire alarmingly. We need to treat this tax rate as it is -a simple revenue raising measure with economic import- instead of the Holy Cow we have allowed it to become.
The situation has not been helped by the invasion (for invasion it is) of a new proto-business commentariat, feeding an industry of armchair tycoons and self-congratulatory professionals. Business and enterprise are now viewed not as mere economic activities, but increasingly also as moral virtues and ends in their own right. While I find this new romantic vision of the world of business (espoused by a host of glitterati who could not possibly be more remote from real business -including comedians, politicians, academics, chiefs of Semi-State bodies etc.) to be somewhat less harmful than other crude ideological prisms which we have popularised over the years to explain a frustratingly complex world, it would nonetheless be extremely harmful if we allowed it to get in the way of the necessary decisions regarding our economic recovery. We cannot allow the burden of adjustment to fall exclusively on households, which clearly are unable to improve their desperate positions despite greatly reduced consumption patterns. High levels of debt interest repayment, increased household taxes and service cuts are obviously depriving them of the ability to run down their debts -all the while as business escapes such measures and is increasingly debt-free. That is a recipe for eventual disaster as household debt is every bit as unsustainable as business debt was at the outset of the crisis.
We need to bypass this body of mindless ideology that has taken over the debate about business taxes and form policies with recovery -not the Sindo- in mind. We cannot allow ourselves fall hostage to blowhards who evaluate problems based on ideology rather than substance. Noone can be spared, not even the well connected and (depending on your views) not even the virtuous.
In a sea of confusing data, a significant trend is going largely unreported. With our national fixation on the appalling accumulation of public debt, we are largely ignoring the even greater reductions in private debt held by Irish individuals.
In the last 12 months, over 50bn euros of private debt has been repaid by irish individuals (18% of total private indebtedness). This reduction in debt is even larger than the accumulation of debt by the State and shows that Ireland is indeed mending its position -albeit slowly and with immense pain. This builds on reductions in previous years so that our levels of private indebtedness have fallen from 348bn in 2008 to 255bn today -almost a third of all private debts have been repaid or settled in the last 3 years.
There is hope then that pretty soon, private individuals will have run down their debts and may begin to divert their income from debt repayment to investment, consumption or saving -any of which will be beneficial to our economy and/or banks. If 50bn euros a year is being found for debt reduction, then once our debts fall to a lower level we can expect this flow of money to be diverted back to the real economy, providing a welcome lift to our slumped economy.
However, the picture is not as simple as all that. Within the figures for debt reduction, it is clear that it is businesses and not households that are repaying all this debt. Despite bleating from the faux-tycoons that seem to have taken over all media in the last few years, it is clear that Irish businesses are not just profitable, but are highly profitable and increasingly debt free.
Household indebtedness: Peak 178bn Today 165bn (7% reduction)
Business indebtedness (excl. banks): Peak 170bn Today 90bn (47% reduction)
It is clear from these figures that although private debt reduction continues to happen at an astonishing rate, household indebtedness has hardly fallen at all through the years of recession, and has actually grown as a proportion of income. Given this stubbornly high level of household debt, all talk of a consumer recovery next year (for instance by cutting VAT to high-end goods) is misplaced. Our recovery simply cannot come from a return to the shops as advocated by Michael Noonan -and even if it could, it is foolish of him to encourage highly indebted households to spend more.
Based on these trends, it seems likely that the recovery will happen in business, primarily business that does not depend for its livelihood on selling to Irish households (especially exports). As they run down their debts, businesspeople will increasingly look for alternative uses for their income, whether investing in new fixed assets, expanding their businesses, taking on new staff or saving their cash in financial products. All of these outcomes would be good for the economy in the long run, but in the short run we desperately need to encourage business to hire and save -alleviating our unemployment and banking crises respectively.
Unfortunately, my hunch is that such efforts will fail and business will instead concentrate on upgrading assets and expanding markets. Though this is good, and will stand to us in future, it is not our immediate requirement. This "jobless recovery" seems inevitable based on these figures and the general business outlook and means that we are now facing a situation where business is likely to boom in the near future while households face years of austerity and unemployment.
Which brings me to an unpalatable problem, the inequitable burden of taxation on households by comparison with the low rate of Corporation Tax payable by business has always had its detractors, however now it seems that we are facing a bleak period of rising inequality where a debt-free, lightly-taxed and highly profitable business sector will be coexisting with households plagued by indebtedness, public service reductions, and a likely increasing tax burden.
The obvious solution (unfortunately no Irish politician can even mention this without inviting scorn) is to increase business taxes and use the funds to alleviate the positions of households to allow for a more balanced recovery where households would be given space to reduce their debts to the same extent as business. Given the depth of our problems it is vital that all sections of society bear a share of the necessary burden of adjustment. While we can be relieved that businesses have found the cashflow to reduce their debts, we should be extremely alarmed that in spite of years of austerity, Irish households have not found the surplus funds to reduce their indebted positions. Their should be red warning lights flashing all over policy circles to sound the alarm that despite a consumption slump, households' position has hardly improved at all. We urgently need to rebalance the burden of adjustment (particularly that of taxation) so that our blessedly vigorous businesses start to contribute to our recovery in line with the contributions already made by households.
However, in Ireland, we have developed an unhealthily debate-free credo of low Corporation Taxation. Even though it is now clearly in our economic interest to raise Corporation tax, to promote balanced growth, this topic is off-limits and instead the Government has just delivered a tax cut to restaurants and newspapers in some sort of bizare plan to create employment.
We are rapidly reaching a point where Corporation Tax must be increased or inequality will spire alarmingly. We need to treat this tax rate as it is -a simple revenue raising measure with economic import- instead of the Holy Cow we have allowed it to become.
The situation has not been helped by the invasion (for invasion it is) of a new proto-business commentariat, feeding an industry of armchair tycoons and self-congratulatory professionals. Business and enterprise are now viewed not as mere economic activities, but increasingly also as moral virtues and ends in their own right. While I find this new romantic vision of the world of business (espoused by a host of glitterati who could not possibly be more remote from real business -including comedians, politicians, academics, chiefs of Semi-State bodies etc.) to be somewhat less harmful than other crude ideological prisms which we have popularised over the years to explain a frustratingly complex world, it would nonetheless be extremely harmful if we allowed it to get in the way of the necessary decisions regarding our economic recovery. We cannot allow the burden of adjustment to fall exclusively on households, which clearly are unable to improve their desperate positions despite greatly reduced consumption patterns. High levels of debt interest repayment, increased household taxes and service cuts are obviously depriving them of the ability to run down their debts -all the while as business escapes such measures and is increasingly debt-free. That is a recipe for eventual disaster as household debt is every bit as unsustainable as business debt was at the outset of the crisis.
We need to bypass this body of mindless ideology that has taken over the debate about business taxes and form policies with recovery -not the Sindo- in mind. We cannot allow ourselves fall hostage to blowhards who evaluate problems based on ideology rather than substance. Noone can be spared, not even the well connected and (depending on your views) not even the virtuous.
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