Irish investment boom follows implementation of An Bord Snip Nua report recommendations

The Chairman of the Special Group on Public Service Numbers and Expenditure, Colm McCarthy, expressed astonishment, pleasant surprise and delight at the positive impact of the recommendations in his report, the synergies made possible by the recent reunification of Ireland, the relocation of the Oireachtas to Stormont and the nation’s readmission to the Commonwealth.

The island’s dormant development agencies are also to be revitalised, according to a joint announcement yesterday by An Taoiseach, Peter Robinson TD, An Tánaiste, Martin McGuinness MP, MLA and the Cathaoirleach of the Seanad, Sammy Wilson.

The existing multiplicity of economic development agencies are to be disbanded and a new centralised agency established. It will be known as the Royal Industrial Development Executive (RIDE) and is to be headquartered at Fr Seán Fortune House, Culaville, Co Armagh. RIDE will have overall responsibility for the island’s industrial development effort and prosperity.

Shannon Development, which has been unable to function effectively following the mothballing of Shannon Airport in the late 1990’s and the subsequent obsolescence of Morse Code, will now have special responsibility for industrial development in the Bogside and Waterside districts of Co. Londonderry. It is currently examining several technology transfer opportunities with clients in Zimbabwe, Pyongyang, Havana and Afghanistan.

The mandate of Údurás na Gaelteachta is to be extended to Baile Andersun, Ardoyne and other Gaelic-speaking areas of West Belfast. Mary-Lou McDonald is to become its chief executive. She will operate from its Clifden headquarters and is to be provided with a Harley Davidson motorcycle instead of a traditional Lada to save money.

The Government is anxious that RIDE will have a dynamic, visionary chief executive supported by a small, effective and relevant board of directors. In keeping with its new spirit of parity of esteem, the board will be selected by The Equality Authority and comprise two former terrorists (one from the former Republic of Ireland and one from what was formerly Northern Ireland), one evangelical clergyman, the son of a Roman Catholic bishop and two innocent victims of terrorism, one a Protestant and the other a Roman Catholic. Mr McGuinness emphasised that the new board must include among its members persons who have strong commercial and financial credentials, even if this expertise was gained in gun running, money laundering, tiger kidnapping, tax-evasion by bank directors’, concealing directors’ loans, racketeering, extortion and drug smuggling. “We must use all the talents available. There will be no glass ceilings or closed doors in Culaville. Parity of esteem must not be seen as mere tokenism”, he hissed as he waved a crutch in his right hand.

The new chief executive is likely to be a Muslim and the leading candidate has undertaken to host a special social function in Limerick and greet her staff personally each Christmas and at the conclusion of Ramadan, rather than through her male secretary’s e-mail, which had been the tradition in the former development agencies of Saorstát Éireann. The 1,100 staff of the new agency will consist of not less than 75 grades, all grades doing equivalent work but each enjoying unique working hours, holiday entitlements and expense account regimes. This will enable them rehearse frequently with their flute band – which is being established as a shared service that will play at both Protestant and Roman Catholic funerals. Staff will not have job titles, or a job definition. Annual merit awards will be determined at a top-secret séance conducted in a 4-berth caravan outside Drumcree parish church each November. Recipient of merit awards will be notified discreetly by MI5. White Toyota Hiace vans (well, a million knackers can’t be wrong!) and former troop personnel carriers will be used to ferry visiting businessmen around the country. Particular attention will be paid to staff communications. Recognising the critical importance of keeping staff totally ignorant of ongoing developments that concern them, the traditional purple shroud of secrecy will be maintained as will avoidance of all social eye-contact, personal rapport or rapprochement between servants and their masters. Emergency information maybe obtained from the top shelf of any Tesco store.

Gender balance in state agencies is no longer a priority due to the urgent need to repopulate the island following 40 years of sexual inertia. Promotional opportunities to more senior, self-esteem enhancing positions will be strictly determined through a process of gerrymandering to ensure parity of esteem. Successful applicants will be identified from the platform at the conclusion of the annual Bar Mitzvah ceremony in Edenderry after the traditional 12^th of July parade.

Yesterday, Mr Robinson thundered that “I utterly deplore the grossly inadequate efforts of the old free state nationalist parliament to tackle industrial development.” He particularly deplored their impotence following the 1993 Maastricht Treaty which caused every shred of market power to be sucked into the centre of Europe. The new Government, he stated, has a holistic approach to the urgent national job creation effort. Under this, RIDE will have a name that does not obscure its purpose. Robinson said that names like Forbairt and Forfás “were more evocative of a drug to cure bovine impotence or an epidural anaesthesia, rather than a modern, focused investment agency. The days of the public being taken for a ride on the jobs issue are over!”.

Robinson also stated that The Commonwealth Medal is to be awarded to citizens of outstanding merit. It will no longer be government practice to appoint well-meaning sycophants to the boards of state companies to either honour their eminence or acknowledge their bulging brown envelopes.

County enterprise boards, which between them had 504 directors and 34 employees are to be discontinued but the former director’s will form a National Commemoration Committee that will organise the annual pilgrimage to Bodenstown for Fianna Fáil, now largely a spent parliamentary force since its huge losses in the June general election and especially Peter Robinson winning a Dáil seat in North Kerry. The remainder will replace the members of the Army Number 1 band who were forced to retire due to deafness.

RIDE will have a completely invigorated approach to industrial development. Following a review of its corporate plan the document will be formally lodged in a vault in Milltown Cemetery to avoid the prying eyes of staff curious about its implementation.

New overseas offices will be opened in centres of ‘world-class’ technological excellence – including Tirana, Kabul, Gaza, Darfur and Harare. All existing US offices will be closed to reduce the organisation’s carbon footprint and because the recent bankruptcy of Aer Lingus has severed air links with that country. A white flag will be flown over the existing office in Tokyo and Shanghai to encourage trade enquiries. All other overseas offices will display a black flag to commemorate each investment project but an embossed refuse bin lid, bearing the RIDE logo, is to be displayed at the site of each new investment in Ireland, even in circumstances where the chief executive concerned is gay, or laid low by swine flu.

RIDE will come into operation at the end of August. The Archbishop of Armagh, His Eminence Cardinal Pat Buckley will travel to Armagh from his hideout in Cloyne to celebrate a special ecumenical service and the flower arrangements in Armagh Cathedral will be made by Twink and Dana, who will interrupt their holiday at the international break-dancing academy in Gweedore.

Risk of credit card default in Ireland intensifies

US consumers are bearing a personal debt burden in excess of €1,732 billion and the IMF estimates that over €240 billion of this will not be repaid.  The credit crisis there started with sub-prime mortgages then moved to mainstream mortgages, car loans and, most recently, to credit card debt.

There has been an increase in US credit card debt default as unemployment there rises to over 9%.  The incidence of credit card debt default in the States typically mirrored their unemployment level.  The personal debt default trend in Europe is also deteriorating but has not been as severe as in the US.

The ratio of consumer debt to income has been rising to about 140% in the US.  It hovered around the 90% mark in the last recession.

This begs the question – what is happening in Ireland?  Irish politicians usually attempt to put the best possible spin on a glaringly adverse trend, with remarks such as “the rate of deterioration has slowed”.  It is true that the level of personal credit card debt in Ireland has declined as consumer confidence has waned and retail sales levels have collapsed by over 20% in the case of the high street and by over 60% in the case of vehicles.  However, the number unemployed has risen dramatically and if defaults by Irish credit card users were to mirror the American experience, credit cards providers will be seeing a growth of over 100% in irrecoverable debts, as the following table illustrates:

End Feb	Personal credit card debt	Number unemployed	Unemployment Rate	Debt default risk
2009	€889.5M	222,800	10.2%	€88.95M
2008	€1,092.6M	109,400	4.9%	€53.53M
2007	€1,008.1M	98,100	4.5%	€45.36M
2006	€870.9M	88,200	4.4%	€38.31M

 

The Central Statistics Office reported on 25 June that employment in Ireland had fallen by 7.5% in 2009 to 1,965,000 persons.  Full-time employment dropped by 176,200 in the past year.  The decline in the Irish labour market is being attributed to a decline in participation by 46,000 persons.  There is also a demographic aspect.  The Irish  labour force has grown through net inward migration which reached a peak in early 2006 when the labour force growth was over 100,000 persons and 70,000 of this was accounted for by immigrants.  There is now a lower level of net inward migration.

Business Exposure to Indebted Consumers’

Businesses are being obliged to pay much greater attention to the risks associated with customers dependent on credit and how to manage exposure to this.   Three benchmarks to keep track of include the ratio of credit sales to cash sales, gross profit and operating income.  The objective is to moderate the consequences of any change to a customer’s credit position.  Studies have demonstrated that credit card sales are more volatile as a consequence of changes in credit limits; transactions fees that can rise as defaults rise and these are borne by traders.  If a credit card processor should go out of business the risk accruing to traders will increase.  If the proportion of credit card users who default that a particular business does business with becomes disproportionate the risk borne by the trader increases.

It would be clearly absurd to abandon credit card sales but it is important to consistently monitor associated risk and volatility.

Catholic religious congregations: – more displays of scurrilous, evasive behaviour

A consequence of the publication of The Ryan Report, (chaired by Mr Justice Sean Ryan, left) into child abuse by 18 religious congregations in Ireland was that the congregations would offer more money to compensate victims.  The Irish Government made a deal with congregations in 2002 that effectively capped their contribution as €100 million.  This was before the numbers that were abused over many decades had been ascertained. 

The report was scathing in its findings, but even the week prior to its publication, the Christian Brothers were denying culpability.  When they report was published the congregations stonewalled.

The congregations met the Taoiseach on 5 June after publication and the issue of victim compensation was tabled and they agreed to pay more money into a compensation trust.  It was agreed that the congregations would provide an independent statements, authenticated by their financial advisors, of their religious position by 24 June.  While some of the smaller congregations met this deadline many of the larger congregations have missed it – yet, another example of brazen, impudent instance of thumbing their noses at society.

The Government was to have appointed a 3-person panel to evaluate these statements but has failed to do so.

The cabinet has accepted all recommendations of The Ryan Report and is to hold a press conference on Jul 28 to set out what this will mean in practice.

Who pays income tax in Ireland?

A total of 2,261,236 individuals were liable for income tax in Ireland in 2006 – a time of full employment when the labour force had reached a record high. 41% of these people, 926,100  earned less than €20,000 and were liable for very little income tax.  214 individuals earned more than €500,000 and they paid over €34 million in income tax.  85 individuals earned over €1 million and 25 of these earned over €2 million in 2006.

Income tax accounted for 27% of the overall taxation revenue of the Irish Government in 2006.  Curiously, the projected yield from income tax this year, €12.47 billion, is slightly ahead of the 2006 return – despite there being 418,000 on the Live Register compared to 155,000 in 2006.

The total gross income (before adjustments and allowances) in 2006 of 2,261,136 earners was €81,517,980,000 (€81.5 billion) on which income tax of €11,976,340,000 was charged.  Allowances, deductions, reliefs and exemptions reduced the gross income figure to €76,494,900,000.  Tax credits amounted to €8,537,700,000.  The average tax wedge on gross income was 14.7% and on taxable income 15.7%.  Gross individual income represented 46% of Gross Domestic Product in 2006.

The ‘Schedule E’ - (PAYE component) of gross income was €66,956,400,000 and the public sector element of this in 2006 was €16.71 billion – 25% of the total salary and waged component.

The following table summarises the demographic profile of taxpayers

Category	Number of taxpayers	€ Gross Income	€ Tax
Single males	774,968	19,763,200,000	2,735,810,000
Single females	665,682	14,801,160,000	1,745,000,000
Married, both earning	391,212	29,174,110,000	4,860,930,000
Married, one earning	354,072	15,720,150,000	2,416,630,000
Widowers	19,101	669,420,000	94,240,000
Widows	56,101	€1,389,950,000	€123,740,000
TOTAL	2,261,136	81,517,990,000	11,976,350,000

904,944 taxpayers are exempted from income tax on grounds of low income or having sufficient credits, reliefs and allowances. 

957,233 taxpayers pay income tax at the 20% rate.  Their average income is €32,446 per annum and their tax wedge is 8.8%

The balance, 398,969 taxpayers, pay tax at the 42% rate and their average income in 2006 was €89,477 per annum.

The latter group represent middle-income earners and they suffer a a higher tax wedge – summarised for each category as follows:

 

Middle Income Earners

	Average Income	Tax Wedge
Single males	€66,379	25.6%
Single females	€58,979	24.2%
Married, both earning	€120,607	25.1%
Married, one earning	€111,208	27.3%
Widowers	€75,285	25.1%
Widows	€67,743	23.5%

Lower Income Earners

Some 41% of Irish taxpayers, 926,100 persons earned less than €20,000 in 2006 – most of which was not liable to any income tax.

Higher Income Earners

I classify 88,214 persons (less than 4% of all taxpayers) who earned €100,000, or more, in this category.  An elite cohort of 8,905 earned more than €275,000.  But some of these earned significantly more as the average earnings of this subset were €665,678.

Tax Restrictions on High Income Earners’

Regulations under the Finance Acts of 2006 and 2007 introduced, with effect from 1 January 2007, measures to limit the use of certain tax reliefs and exemptions by high-income earners.

This applies to incomes in excess of €500,000 per annum and they are required to pay an effective tax rate of approximately 20% on what is defined as a combination of adjusted income and ring-fenced income.

There were 214 Irish taxpayers with incomes in excess of €500,000 in 2007 and they paid an effective tax rate of 20.8% on this income.  The Revenue Commissioners collected €34.15 million as a consequence.

The type of reliefs that these individuals traditionally availed of include reliefs applying to artists and patent income.

The range of income and the number of taxpayers effected is as follows:

 

Adjusted Income €	Number of taxpayers
500,001 to 650,000	55
650,001 to 800,000	39
800,001 to 1,000,000	35
1,000,001 to 1,500,000	48
1,500,001 to 2,000,000	12
2,000,000+	25

Ireland’s Minimum Wage in the cross hairs!

Wage growth moderation from 1986 to 2001 was one of the legacies of Ireland’s social partnership model.  Social partnership agreements between the representatives of trade unions, employer representatives and other stakeholders produced a series of multi-year partnership agreements since 1987 that included a national approach to pay increases.  This facilitated a prolonged period of stable industrial relations and improved work practices.

However, the index of average hourly earnings rose from 139 in 2001 to 196 in 2009.  This compares to an average rise from 121 to 256 in the case of Ireland’s major trading partners.

However, a minimum wage is set under the terms of the National Minimum Wage Act of 2000 and this has been €8.30 per hour since 1 January 2007 and this applies to any employee who has an employment of any kind in any two years over the age of 18 years.

Brian Lenihan TD, the beleaguered Minister for Finance intimated last night at the MacGill Summer School in The Glenties, County Donegal that the minimum wage level “may need adjustment”

The minimum hourly wage in 2006 was €7.65, equivalent to €15,912 per annum.  This was a time of boundless optimism!  The cumulative value of residential mortgages, at €121.2 billion, had increased by 25% in a year, thanks to our harum-scarum banks.  The number unemployed was less than 100,000.  The number of persons on the Live Register was 155,389 - compared to the current number of 418,000.  We were yet to be burdened by the catastrophic consequences of those individuals and entities that are defined as being 'systemically important' - whose appetite for taxpayers cash is voracious and who have the capacity to panic the Government into acceding instantly to their demands.

The latest Statistical Report published by the Revenue Commissioners provides some interesting insights into the potential impact of any reduction.  Some 675,086 persons of the total of 2,261,138 persons paying income tax, earned less than €15,000 per annum in 2006.  They collectively earned €4.77 billion.  This would be equivalent to an average of €3.40 per hour, per person - although I presume that many may of them may not have been in full-time employment.  The gross income earned by all income tax payers in 2006 was €81.51 billion.  This means, that at the height of the economic boom, 30% of all individual paying income tax collectively earned less than 6% of the the gross income of all income tax payers.

Given the current diabolical state of the economy these insights clearly indicate that the degree of neediness in Ireland is probably far greater than generally realised.  A huge percentage of those not on welfare are existing on incomes at, or close, to a very basic level of subsistence and a reduction in minimum earnings will have very painful consequences for hundreds of thousands of people.  It will also aggravate the credit crisis as more individuals are not in a position to repay bank loans.  A decision to reduce the minimum wage could well be a case of the Government chasing its tail because unanticipated consequences may overwhelm anticipated benefits.

Wage trends in Ireland have moderated very significantly with onset of the economic crisis and the adverse impact that this is having on employment and investment levels.

Irish nightclub industry lobbies for longer drinking hours

An economic review of the Irish nightclub industry describes a sector comprising 330 businesses nationwide with revenues in 2008 of approximately €500 million, two-thirds of which is derived from alcohol.  The average nightclub outside Dublin operates 4 nights each week, while a typical nightclub in Dublin operates 5 nights per week.  This would mean that the typical nightclub takes in an average of €6,000 per night.  The Irish Nightclub Industry Association is the mouthpiece of the industry.

The economic review, prepared by the respected economist, Dr Constantin Gurdgiev for the Association advocates that regulations controlling the times when alcohol could be served should be extended to 2.30 AM outside Dublin and 4.00 AM in Dublin seven nights a week.  Alcohol is generally sold from 10.30 AM to 11.30 PM from Monday to Thursday; to 12.30 AM on Saturday and Sunday mornings and to 11.00 PM on Sunday night.  Special Exemption Orders (cost €410) are available and expire at 2.30 AM on each of the six weeknights and at 1.00 AM on Sundays.

The desired objective of such a development would be to increase the sectors annual turnover by €166 million, of which almost €122 million would be alcohol related.  The alleviation of regulations is intended to facilitate more than a 50% increase in alcohol volume sales in an economy that is rapidly contracting by 20% in certain instances.  The review opines that a desirable social objective of nightclubs is that provide entertainment in a controlled environment with lower alcohol consumption and consumption pace – but of course, this would not be the case were alcohol sales in nightclubs to increase four-fold.  This is in the context of traditional pubs ceasing to sell alcohol at 11.30 PM; late bars ceasing to sell alcohol at 2.30 AM while nightclubs would keep the party going until 4.00 AM with a 30 minute period to finish drinking. 

I don’t have a favourable impression of Ireland’s shoddy, primitive, overpriced and inelegant late entertainment nightspots.  My recurring experience of venues, such as Temple Bar in Dublin is of drunken young men and women wandering aimlessly in the vicinity of these so-called entertainment venues from as early as 7.00 PM, some of whom vomit and urinate indiscriminately in public.  Does Ireland therefore need to enhance and intensify this image of binge drinkers and loutish anti-social behaviour just to make nightclub operators even richer?

I don’t think that the accident and emergency staff in the country’s hospitals would welcome more excuses for appalling episodes of behaviour in the wee hours.

27% of the Irish are tending to drink more alcohol at home than had been the case.  Forty years ago there were about 6 wine outlets in Dublin.  Today there are 3,485 throughout the country.

The Health Services Executive published a report in April 2008 titled Alcohol Related Harm in Ireland.  This report describes heightened alcohol related street violence, homicide, domestic violence, alcohol induced road traffic injuries, harm to others, including children and adverse consequences in the workplace.  The evidence is overwhelming that there is no rational basis to increase the hours when alcohol can be sold.

I would therefore regard the adverse social consequences of stag and hen parties being able to spend an additional €2 million each week on alcohol presents an appalling vista that makes my skin crawl and my imagination wince!

Dick Ryan honoured by Japanese Ambassador

My former colleague and friend, Dick Ryan, was honoured by the Japanese Ambassador to Ireland, His Excellency Toshinao Urabe  this evening at the Embassy for his contribution as Chairman of the Ireland Japan Association.

Dick retired five years ago from a series of top-level roles in IDA Ireland. He, his wife, Helen and the family spent several most interesting years in Tokyo.  Dick speaks with great passion and enthusiasm about his time there.  He studied the Japanese language with gusto  and I have no doubt that he absorbed everything stimulating that Japan could offer!

The celebration was attended by the extended Ryan family and a great many friends and well wishers.

The Ireland Japan Association has operated since 1990 and has a far reaching range of interests including a business and social dimension.

Overseas travel to and from Ireland implodes

The trend in May 2009 of overseas travel into and out of Ireland has dropped by 18.4% in May reflecting weaknesses throughout the economy. Irish residents made 610,000 overseas trips in May – a drop of 10% in 12 months.

The following table summarise current trends:

 

(000)’s	Irish trips overseas	Trips to Ireland	from GB	from Europe	from North America	from other places
Jan-May 2008	3,045	2,951	1,547.6	959.6	335.6	109.9
Jan-May 2009	2,729.4	2,667.5	1,320.	927.3	325.3	94.7
Decline	-10.3%	-9.6%	-14.7%	-3.3%	-3.0%	-13%

 

Aer Lingus is suffering a severe downturn in its transatlantic passenger traffic with passenger numbers in the first 6 months of 2009 down by 14.2% from 613,000 last year to 526,000 this year.  This has translated into an even more severe impact on revenue passenger kilometres (RPK) which has dropped by 17.7% in the case of its long-haul business from 3,487,000,000 to 2,871,000,000.

The latest passenger traffic data from Ryanair relates to May 2009 – even though Ryanair promises to publish monthly passenger trafiic data within 5 working days of the end of each month.  Today is Wednesday, 15 July.  The May figures show passenger numbers increasing to an annualised 59,573,427 from 52,464,692 in May 2008.  Ryanair increased in load factor in May 2009 from 80% to 81%.  This compares to an overall load factor at Aer Lingus of 74% for the first six months of 2009, up 1.2% – attributable to its short-haul business.

Brüno: a big disappointment!

Every once in a while I have seen a film which make an especially powerful and enjoyable impact.  I recall years ago being in bad form and going to see the John Cleese film, A Fish Called Wanda .  I had no particular expectations of that film but it was so genuinely funny tat my stomach ached, I laughed so much. 

Similarly, I got a great kick out of watching Borat, the last Sacha Baron Cohen offering.  When I saw trailers of his latest film, Brüno I couldn’t wait to see it last night on its opening day.  But I’m afraid it is an overwhelming disappointment.

Brüno is a tall, lanky, gombeen Austrian gay man connected to the fashions industry who travels to Los Angeles in search of celebrity and fame by getting up to various outrageous stunts.  But unlike Borat there is no coherence to the story line, however fictional and absurd that might have been. The dialogue between Borat and gullible members of the public and various characters made Borat a thoroughly entertaining film. 

But the dialogue in Brüno was extremely weak and, at times, non-existent. During one scene Brüno was purporting to interview the former candidate for the US presidency, Ron Paul in a hotel suite.  A technical glitch caused the interview to be suspended.  Brüno and the interviewee moved to an adjacent bedroom while the SNAFU was being attended to.  He lights candles, drops his trousers and Mr Paul, not surprisingly walks out.  Several other set-pieces encounters in Israel and Lebanon were also very weak.

The film therefore depended far too much on crude, vulgar and tasteless behaviour that lacked any artistic merit and the shocked facial expression of onlookers to carry the gag.  But this simply did not work.  While the young audience last night laughed and giggled from time to time, it was not the laughter of an audience that was either impressed or wholly absorbed by the film.  My advice is to give it a miss.

Brüno was a really big disappointment and not a patch on Borat for entertainment value!  You would get a bigger laugh reading crude graffiti in a public toilet than from this movie!

Sweden’s response to a systemic banking crisis

Governments should avoid the onset of a systemic financial sector crisis in the first place but, of course, avoidance is never optional! It is merely an aspiration!

When a crisis does occur it is the unequivocal responsibility of government to maintain liquidity so as to avoid a credit crunch; to restore confidence when this has been undermined and to ensure that the capital base or capital reserves of the national banking system is adequate following a period of excess lending. These are the views of Bo Lungdren, currently Head of the Swedish National Debt Office and formerly Sweden’s Deputy Minister for Finance when the Swedish banking crisis unfolded in the early 1990’s. He spoke at a lunch meeting of the Institute of International and European Affairs in Dublin on Tuesday, July 7^th.

Lungdren succeeded Carl Bildt, the former Prime Minster of Sweden and current Foreign Minister, as Leader of the Moderate Party from 1999 to 2003. But when he was a member of the Swedish Government confronted with the banking crisis his party was one of four parties in a minority coalition government.

The Swedish crisis bears some resemblance to that currently occurring Ireland but the similarities. The Swedish financial system had been deregulated in 1985 and the inflationary period which ensured between 1985 and 1990 caused a property boom which evolved into a property bubble. Private sector credit in Sweden increased from 85% to 135% of GDP in the five years prior to the bubble bursting.

The crisis in Sweden was of a more moderate scale than that in Ireland. It cost €6.5 billion to repair the damage (4% of GDP), of which €2 billion was recouped within five years. Two of the seven mid-sized Swedish banks were nationalised (Nordenbankenn now known as Nordea and Gota Bank) and one of the seven did not participate in the government support programme. Ireland has already injected €11 billion (7% of Ireland’s GDP) in three banks – the recently nationalised Anglo Irish Bank, Bank of Ireland and AIB Bank.

The difference in scale is illustrated by the amount of credit outstanding at the time of crisis in both countries. Private sector credit in Ireland has increased from 136% to 216% of GDP in the five years (2003 to 2008) prior to the collapse of the banking system here. Household debt in Ireland, according to the most recent Quarterly Bulletin from the Central Bank of Ireland indicates that household debt outstanding in Ireland is €148 billion – a figure that is in excess of 80% of current GDP.

The Swedish crisis was regional in nature – impacting the financial systems of Norway and Finland to some extent. Its resolution was expedited by a currency devaluation. The complexity of the current crisis aggravated as it is by the asset securitisation phenomena has uncovered a scale of loss that had not been anticipated.

The Swedish approach was to guarantee the depositors and creditors of the financial system – but not the shareholders. The incidence of moral hazard was curtailed by exacting accountability among those who caused the crisis. directors, management and shareholders. The Swedish Government decided to what extent it would support banks’ in difficulty. They did not determine or directly influence this matter.

Lungdren was discreet enough not to offer public advice to the Irish Government although he did share his opinions with the Oireachtas Committee on Finance and the Public Service.

Sweden did not establish a bad bank, an equivalent to Ireland’s National Asset Management Agency and he cautioned against discounting the price of assets taken on by a bad bank on the grounds that the capital vacuum created had to be filled. Assets should be valued on the basis of ‘mark to market’ if a quick recovery of the financial system is to be achieved. He also emphasised the importance of transparency if the credibility and integrity of a rescue initiative is to be maintained. Stress tests are merely base-line scenarios and must be treated accordingly.

Swedish banks incurred losses of €25 billion during that crisis. Credit losses in Ireland have been estimated by the IMF to potentially be €35 billion and the Irish economy is about half the size of the Swedish economy.

Some Swedish banks are apparently experiencing fresh difficulties as a consequence of exposure to the economic crisis in Baltic countries, especially Latvia and Estonia.

United Nations ‘60 years of peacekeeping’

“The sacred mission of the United Nations is to save nations from the ravages of war”, according to Ban Ki-moon, Secretary-General of the United Nations. He visited Dublin on 7 July and spoke to an invited audience in St Patrick’s Hall, Dublin Castle about 60 Years of Peacekeeping.  His speech as personable, quoting the verse of  Nobel Laureates Yeats and Heaney, as well as greeting his audience in the Irish language.

Ireland joined the UN in 1955 and has participated in peace-keeping activities since 1958.  Ban Ki-moon complimented the Irish participation, while remembering the 90 soldiers who died in UN service and the nation’s role as ‘bridge-builder’.  He  acknowledged the UN Legal Counsel appointed in January 2007, Irish-born, Patricia O’Brien is the first female to hold this position.  He also mentioned his friendship with Bono.

The Secretary-General defined the sacred responsibility of the UN as ‘saving people from the ravages of war’, but that, in the words of Yeats - ‘peace comes dropping slowly’.  He mentioned difficulties with resources, citing a need for 18 helicopters in Darfur as as example.

The UN is currently involved with 16 major peacekeeping operations involving 78,000 military personnel, 11,000 police personnel and 23,000 civilians.  There are 193 sovereign members of the UN.  The organisation was set up on 24 September 1945 by the victorious Allies in World War II.  But the issues currently faced are increasingly complex and multidimensional.  The world economic crisis is curtailing activities as is a lack of political will, although the arrival of President Obama is changing attitudes in the US.  However, partnership with regional bodies such as the European Union and African Union is helping with respect to donor support, humanitarian relief and a capacity for rapid response.  Member solidarity has never been more important to the mission of the United Nations which is in the process of redefining itself in a quest for greater efficiency and purpose.

Mr Ban is the eighth Secretary-General of the world body.  He is a former Minister for Foreign Affairs of South Korea.

Irish agriculture – subsidy heaven!

Irish agriculture employed 101,500 persons at the end of March 2009 – just about 5% of the total Irish labour force.  There are 7,000 fewer farms in the country than five years ago.  There are currently 128,300 farms currently operating engage in the following specialties:

Speciality	% of total farms
Beef production	54
Dairy	15
Mixed grazing livestock	12
Specialist sheep	12
Specialist tillage	4
Mixed crops and livestock	2
Other	1

The following table gives an overview of the trend in output and public expenditure between 2004 and 2008:

€ million	2004	2005	2006	2007	2008
Gross value added at factor cost	3,876	4,272	3,958	3,985	3,951
PUBLIC EXPENDITURE
EU subsidies	1,465	1,904	1,479	1,438	1,438
Irish Government	1,259	1,355	1,437	1,666	2,104
TOTAL	2,724	3,259	2,916	3,105	3,543
Public expenditure % GVA	70%	76%	74%	78%	90%

This trend begs the question as to what proposals are likely to emerge to curtail subsidies in the context of prevailing economic trends.

The Irish pigmeat industry earned €360 million in exports last year.  The industry faced a shutdown last December for less than a week after dioxins were found in slaughtered pigs after the animals ate contaminated food.  While the risk was not considered to have been ‘significant’, the dioxin level in the effected animals was 200 times above the recognised safety level.  A Bunclody, County Wexford based animal feed plant, Millstream Recycling was believed to have been the source of the contaminated animal feed.  The Irish Government provided no less than €180 million for the destruction of up to 130,000 pigs, 7,000 cattle and 9,500 tonnes of pig meat.  The subsidies were restricted to Irish processors and the maximum amount  was equivalent to €54.77 per pig and €468.62 per head of cattle.  While the response to this issues was prompt and comprehensive one would wonder why a subsidy equivalent a half of a year’s export earnings was necessary to cope with a one-week closure of the industry – especially in the context of Government borrowing increasing at the rate of €60 million every day.

The annual expenditure estimate at the Department of Agriculture, Fisheries and Food for 2009 is €1.59 billion.  Spending by this Department for the first half of 2009, at just shy of €750 million is 37% ahead of what it was in the first half of 2008, according the the latest Exchequer Statement.

New Zealand, an island nation with a demographic profile not unlike Ireland has not provided farm subsidies since the early 1980’s when the Federated Farmers of New Zealand argued that controlling inflation rather than subsidising the consequences of inflation would be of greater benefit.  They considered that the provision of farm subsidies, which caused Government budget deficits, were the main cause of inflation.  More subsidies only aggravated the problem, as they saw it.

Agriculture reform was part of a wider economic agenda that included scaling back on import tariffs, the deregulation of utilities and public transport, the introduction of a sales tax and the floating of the New Zealand dollar.  There were about 80,000 farmers at the time and it is estimated that about 1% of them abandoned farming.  The removal of subsidies motivated farmers to become more efficient and to diversify. The agriculture sector there has grown faster and accounts for about 17% of GDP and employing 10% of New Zealand’s labour force.  It is the eighth largest world milk producer accounting for 2.2% of world production.

Perhaps the Irish Farmers Association will have to raise their horizons higher than lobbying the Minister for Defence to get the army to buy chickens raised in Ireland if they really want agriculture to have a prosperous and self-reliant future.

No evidence of any mid-year green shoots of recovery

Today is the first day of the second half of 2009 and the latest data to assess our economic wellbeing does not provide grounds for reassurance, optimism or encouragement.

Employment and Unemployment

One of the great consequences of our EU membership and the economic growth that it enabled was the expansion in employment numbers and in the population of the country. Approximately one million people had a job in Ireland around 1990, a period when all the economic indicators and the level of government debt and the interest liability on it was punitive. Our labour force in March of last year comprised 2.23 million persons. A year later, 1.965 million persons had a full or part-time job in Ireland, a fall of 7.5%. The number unemployed at the end of March was 222,800 - an unemployment rate of 10.2% that has subsequently exceeded 11%. The most worrying aspect is that the long-term unemployment rate has increased from 1.7% last October to 2.2% last March.

There were over 418,000 persons listed on the Live Register at the end of June, an increase of over 197,000 in twelve months. This number includes persons unemployed , part-timers and seasonal workers.

 

Gross Domestic Product

Personal consumer spending, in volume terms, was 9.1% lower in the first quarter of 2009. Capital investment declined by 34.1 per cent in the first quarter of 2009 compared to the first quarter of 2008. This has resulted in a record GDP contraction of 8.5% in Q1 2009.

Anglo Irish Bank

The first Interim Report, since nationalisation, for the 6-month period to 31 March 2009 indicated that the capital base of this wretched bank has been effectively wiped out. There was an instant demand for a €4 billion capital investment by the Government with the high probability that a further €7 billion will be necessary.  The Government parted with €3 billion this week and God alone knows what the owners of that money will ever obtain for it.

This Bank built its business almost exclusively on property development and speculation. The hypothesis upon which it functioned was predicated on its customers achieving a 30-60% cash return on the sites they developed. The ensuing burden eventually mortally crushed the financial spine of struggling house buyers and the taxpaying public are now expected to bridge the enormous and unascertainable gap.

But the taxpaying public have not been introduced to the interplanetary world of bling-incarnate and the faces and the circumstances behind these impaired loans.

The public have been told about a proposed business plan that is intended to:

• Rebuild trust and confidence in the Bank
• Maximise the recoverability of loans, and
• Reduce the cost base

Rebuilding trust and confidence

A fundamental component of trust and confidence is candour, honesty and openness. The conclusion of the protracted but ongoing investigation by the Garda Fraud Squad and the Office of the Director of Corporate Enforcement is an absolute prerequisite.  Bernie Madoff needs some shamrock-wearing, shillellagh-shaking companions from the universe of moral hazard!

Ireland’s contemporary introduction to the concept of ‘systemic importance’ was in 2007 when the palaver was put about which suggested that the massive high-density developments proposed for Ballsbridge, Dublin with projected construction costs north of €1 billion, would ‘have to win planning approval’ because the big property developers were ‘too big to fail’. No consideration was given to the economic sustainability of this development at a consumer level by Anglo and other finance providers. The developer who described economic commentators then as ‘laughing hyenas – harbingers’ of doom and gloom’ has proven to be myopic and certainly not infallible.

Anglo is now a State owned business with a single shareholder. It is no longer a business with 17,111 shareholders’ who owned 89.2% of the equity; - who were fed a bill of fare by your predecessor about “the excellent performance…of a relationship based business … grounded in the Group’s disciplined and focused business model … prudent risk appetite and very limited exposure to areas affected by the current credit market issues”.

 

Maximising the Recoverability of Loans

The most devastating information in the Interim Report is that Anglo Irish Bank, the State-owned bank lent €175 million to 10 directors and 2 managers and that €31 million of this is impaired, against corresponding deposits of only €20 million - €8 million less than a year earlier. This is not merely a debt but it is the stripping away of national self-respect. What other State system of corporate governance would tolerate incumbent directors of major public companies being a party to impaired directors’ loans raised in a bank of which they were directors and appointees to the Risk and Compliance Committee?

The impaired loans of directors and managers of Anglo align Ireland more closely with Harare than with London, Frankfurt, New York or Geneva. What is the difference between the Zimbabwean taxpayers’ picking up the tab for the extravagant shopping trips to Hong Kong and Paris by Mrs Robert Mugabe while their citizens die from cholera? The difference with Ireland is one of scale and disease type. Our liabilities are much greater and our people will die of cervical cancer rather than cholera because resources committed to Anglo are not available for cervical screening.

Secondly, will this incidence of directors’ loans impairment not set a very low ceiling on the prospects of debt recoverability, causing further exposure to moral hazard? Developers will be thrilled and their legal advocates will argue that their client’s obligations should not be dealt with differently, or more urgently, than those of the directors’ and mangers’ who recommended and approved their loans, possibly completed on-site reviews at least twice a year and stress tested the impact of potential adverse consequences.

Religious congregations on whose sites half-finished properties exist will wonder will they ever reap the agreed selling price that was to have been paid on project completion.

Reducing the cost base of the Bank

The bonus culture meant that average salaries at Anglo Irish Bank almost equate in extravagance to the salary and pension combination of politicians. The average salary reported in the Interim Report is equivalent to €96,976 for staff numbers reduced from 1,922 to 1,753. This is a reduction of the corresponding annual figure of over €137,000 in 2006 and 2007.

The average salary estimated to be paid in 2009 in the Department of Finance is €58,600. The average salary estimated to paid, in 2009, in the Office of the Director of Public Prosecutions, who will hopefully be directly involved with former executives of the Bank, is €68,635. The average at Bank of Ireland, a business like that of Anglo, with activities in Ireland, Britain and the US, is €74,426.

When this is considered in the context of there being no value added at the Bank since September beyond dealing with existing customers the overhead seems exorbitant.

Credit Crunch

It is not surprising that as personal consumption collapses through lack of confidence that that demand for credit is also lower. Outstanding private sector credit amounted to €389.6 billion at the end of May.  This declined by €981 million, €185 million of which is attributable to lower personal credit in May. But the overall amount outstanding is equivalent to over  twice the annual level of total personal consumption on goods and services – in other words, a lot of lolly.  That explosion of private sector credit mirrors what occurred in Iceland.

There were 2,203,000 credit cards in issue to individuals in Ireland at the end of May, a number broadly comparable to a year earlier. New monthly spending on these personal cards has moderated from over €1 billion in June 2008 to €801 million at the end of May. The growth in the level of indebtedness of them at the end of May has moderated to 0.1% compared to 4.4% last January and 19.6% in March 2007. Residential mortgages fell by over €100 million in April and by a further €18 million in May, a trend that is not surprising when the number of planning permission sought in Q1 2009 was 23.7% lower than a year earlier.