Saturday 18 November 2017

Colm McCarthy

Taoiseach Leo Varadkar. Photo: Collins

Leo should demand an apology from Europe 

Ireland's return to levels of economic activity not seen since the credit bubble began to burst 10 years ago is not the only "lost decade" that deserves notice this summer. A decade has also been lost in reforming Europe's dysfunctional common currency regime and the same air of premature celebration is taking hold. Just as there is no guarantee of plain sailing for the Irish economy, critical weaknesses in the common currency design remain unaddressed.

Issues: Taoiseach Leo Varadkar outlines Ireland’s key concerns over Britain’s Brexit plans during his speech at Queen’s University in Belfast. Picture: Liam McBurney/PA Wire

Border issue means that customs union must stay 

Leo Varadkar's speech at Queen's University last Friday reflected (politely) his judgment that the British political leadership has wasted 14 months since the referendum in dodging the key challenges in implementing Brexit. The continuing retreat from reality saw foreign secretary Boris Johnson in New Zealand last week and the trade secretary Liam Fox in Argentina, exploring post-Brexit trade deals (aboard, metaphorically, the good ship Global Britain) to replace what will inevitably be lost in Europe.

Risky: British Prime Minister Theresa May responds to questions after she announced in the House of Commons last Wednesday that she has triggered Article 50, firing the starting gun on a two-year countdown to the UK leaving the EU. She seems prepared to risk no deal being arranged before Britain walks away Photo: PA Wire

Colm McCarthy: Ireland could be biggest Brexit loser after the UK 

Theresa May's resignation letter to Donald Tusk last Wednesday and his response on behalf of the European Council last Friday made explicit and prominent reference to exclusively Irish concerns in the upcoming Brexit negotiations, as did Guy Verhofstadt, who will represent the European Parliament when it comes to approval of the deal. Michel Barnier, the European Commission's chief negotiator, is on the record to the same effect. That all negotiating parties, British and European, have endorsed the principal concerns of the Irish Government, and in similar language, is a...

Bus Eireann is no longer a key provider and most travellers have other transport options. Photo: Damien Eagers

Bus row offers a chance to tackle transport realities 

While the suspension of strike notice at Bus Eireann and the resumption of talks between unions and management may result in some form of interim settlement, the underlying problems at the company, and more broadly in the CIE bus and rail business, are not being addressed. Demand for intercity public transport is in decline and the costs of meeting this demand through the CIE model are excessive. The minister has wisely kept away from the talks, keeping the taxpayers' chequebook out of danger for now. But the taxpayer remains on the hook for a system of public transport...

Irish ways: Dublin Port and Ringsend, where the proposed film studios would be built

State's cinema trip should be censored 

There is quite a spat under way about the possible location in Dublin's docklands of a new film studio, promoted by a former chairman of the Film Board and a group of film industry operators. They have their eye on some State-owned land, possibly land belonging to Dublin Port or alternatively part of the storied Irish Glass Bottle site which ended up in Nama. The chief executive of Dublin Port has accused the promoters of a 'land grab' no less, while they claim to be offering jobs, economic growth and all things good and wholesome.

Gamble: Boris Johnson, one of the Brexiteers hoping for a clean exit from the EU. Photo: Reuters

Let's end wishful thinking and look at the hard facts 

The UK Government is likely to trigger Article 50 of the Lisbon Treaty sooner than had been expected, in the first months of 2017, according to last Thursday's remarks from Foreign Secretary Boris Johnson. EU Council President Donald Tusk indicated last week that this was also Theresa May's timetable, only to be corrected by the UK prime minister. The Three Brexiteers in the UK Cabinet (Johnson, Liam Fox and David Davis) have been jointly charged with executing Brexit. While the division of responsibilities is unclear, all three appear to contemplate not just an accelerated...

Michael Noonan described the Commision's decision as 'bizarre' Photo: Tom Burke

US Treasury is owed the tax that Apple has avoided 

In 1935 Albert Einstein and two co-authors published an article in an academic journal called the Physical Review about the problem of quantum superposition, the idea that a subatomic particle exists in a combination of several alternative states. The act of observation affects the particle making it select just one of these states. The Austrian physicist Erwin Schrodinger concocted a thought experiment to illustrate the point. A cat is enclosed in a lead box with a device which might or might not have released a fatal dose. When the box is opened, the cat will prove to be either...

Money, money, money: Protesters in Milan demonstrate against what they called a 'bankers' government' in Milan in 2011. The Italian banking system is still in crisis today Photo: REUTERS/Stringer

Risk of new banking crisis as 'kick and hope' strategy runs out of road 

The acute phase of the eurozone sovereign debt crisis in 2012 was triggered in Italy, not in Greece or one of the other small peripheral economies. The European Central Bank eventually took action - an Italian collapse would have threatened the survival of the common currency - and crisis was deferred. But the eurozone banking system has not been fixed, and the extend-and-pretend tactic is facing another challenge. UK Prime Minister David Cameron's referendum gamble has not merely come unstuck, it has gone wrong at the wrong time.

DISSENT: Civil servants protesting against the pension levy in 2009 after the economy crashed. Photo: Damien Eagers

Ireland's two-tier pension system goes with a two-tier health service 

Ireland has long had a two-tier pension system to go with the two-tier health service. Some groups of employees are covered by decent occupational pension arrangements but many are not. Those who work in favoured sectors of the economy are fortunate, notably permanent employees in banks and in the public service, but there are very wide variations and many workers in the broader economy have little or no entitlement to income from an occupational scheme.

Trouble ahead: US presidential candidate Hillary Clinton speaking in Washington last week Photo: Getty Images

Ireland Inc may be a big loser in race for the White House 

Ten long weeks of government formation have produced an enormous list of concessions on public spending. The Independent deputies must feel they have been negotiating with the Make-a-Wish Foundation. A rough costing (remarkably there is none in the documents that have been released) puts the bill at €3bn in annual cost and leaves the State's finances ever more exposed to whatever problems are coming down the track. The problems in Europe, including the risk of Brexit and the continuing travails of the common currency, are not the only ones. The biggest threat to long-...

Visible minority: Anti-water charges protestors may be visible on the streets but most people have paid their bills, as those who live in rural areas have been doing for years Photo: Sunpix

Irish Water should have been set up decades ago 

The water issue is not the key challenge facing politicians. The infant recovery is fragile and the next government will need to focus quickly on more urgent domestic and external threats. Irish business is losing its competitive edge again, according to last week's report from the National Competitiveness Council. Public service trade unions are gearing up for another pay round, beyond the deal agreed at Haddington Road, which was supposed to run to 2018.

DUBLIN’S FINANCIAL CENTRE: Even if things go well in Ireland, there is no guarantee that the next year or two will not see a re-run of the 2012 sovereign debt crisis. Photo: Shahid A Khan

In 'fiscal space' no one can hear you scream 

The early days of the election campaign have been dominated by controversy about something called 'fiscal space' which must have had voters scratching their heads. What is this apparently precious commodity, and how large is Ireland's newly-discovered endowment? The phrase is borrowed from the vocabulary of debt sustainability analysis and rarely escapes the statistical appendices of IMF reports. It is a little unfair to inflict this unfamiliar piece of jargon on a blameless electorate.

HOPEFUL: Enda Kenny’s government can’t predict performance. Photo: Gareth Chaney Collins

The sums will only work if our luck holds 

When the economy entered recession in the final quarter of 2007, the budget was in surplus: indeed a surplus had been recorded for nine of the preceding ten years. Public debt was just 25pc of GDP, amongst the healthiest figures of any developed country. But the international downturn, accentuated by the domestic banking bust, was so severe that large tax increases and spending cuts ensued and a pro-cyclical adjustment, deepening the downturn, had to be pursued until 2014 when the austerity phase could finally be relaxed.

Michael Noonan

Let the good times roll . . . but be aware they won't be here forever 

The stream of good economic news in Ireland shows no signs of letting up. The budget deficit for 2015 will come in under target, due mainly to healthy growth in tax revenues, while unemployment continues to fall. But the external developments which have fuelled the turnaround are not guaranteed to last. When things improve so quickly it is foolish to extrapolate: the good times could roll a little longer but they will not roll forever.

Worries: Central Bank Governor Patrick Honohan

Crash didn't have to be quite so bad - now they tell us 

Bank crashes large enough to inflict substantial damage on taxpayers require failures at three levels. The boards and managements of banks need to incur large losses on dud loans. The regulators and supervisors need to miss what is going on, and to neglect timely remedial action. Finally, the Government needs to socialise a large portion of the losses, imposing them on taxpayers. That third failure, particularly the very broad state guarantee of bank liabilities, has dominated blame allocation in Ireland, but there is less information in the public domain on failures elsewhere.

‘Reliance on the tender mercies of the ECB should have taught us that when small member countries get into trouble, they can expect no favours'

Government borrows can of petrol to throw on an economy on fire 

'When you come to a fork in the road, take it' was the advice of the New York Yankees baseball legend Yogi Berra, who passed away three weeks ago. The Taoiseach used the 'fork in the road' metaphor to characterise the Government's Budget strategy in his Dail address on Wednesday, shortly after Fiscal Council chairman Prof John McHale had made it plain that the fork chosen was the wrong one. The Budget was needlessly expansionary for the second year in a row and the Government is trying to spend its way out of a boom.

The latest figures from the Central Bank

No need to grease economic wheels when we're already going full tilt 

Tuesday's budget will see roughly €1.5 billion distributed between tax reductions and spending increases. All of this money is being borrowed: the economic recovery has improved the public finances but the budget remains in deficit. Had the government opted to make no changes for 2016 the deficit would have continued its decline and might have been close to zero next year. The attainment of a zero deficit and an end to the accumulation of debt is being deferred.

CAPITAL SPENDING: Minister for Transport Paschal Donohoe at the launch of the Road Safety week, has indicated his support for the €2.4bn Metro project but there’s no sign of any funding coming down the line

A case of tunnel vision for Metro North's rail plan 

During the bubble, State expenditure rose dramatically, and under virtually all headings. A major beneficiary was the State capital programme, and it became a major casualty when government revenue collapsed in 2008. This is a familiar pattern. When the public finances last got into trouble in the late 1980s, the correction saw a much bigger cut in capital than in current spending and public investment has again been cut severely this time round.

Ajai Chopra, former deputy director of the IMF leaving the banking inquiry

Who is going to hold the ECB accountable for this mess? 

Ireland's two-year bank guarantee introduced at the end of September 2008 was meant to cost nothing at all. The banks were solvent, people were assured. They were just temporarily short of liquidity due to some incomprehensible snafu at banks in New York. This was not credible at the time and was not widely believed. Every single domestic bank duly went down in one of the biggest bank busts ever recorded anywhere. Through 2009 and into 2010, the Government scrambled to keep the system functioning, principally through injecting vast quantities of taxpayer's cash. Meanwhile,...

Tanaiste Joan Burton and Environment Minister Alan Kelly: Ms Burton has defended state ‘investment’ in the free travel scheme

Let's call it as it is - expenditure is not the same thing as investment 

The public finance figures announced last Wednesday show, on the face of it, an improving picture. Tax revenues are ahead of expectations, government spending is apparently contained and the budget deficit is below the target. But the persistence of any deficit at all, after seven years of fiscal correction, means that government debt continues to rise. Any country with debt over 100pc of GDP and lacking a national currency is vulnerable should there be another leg to the international financial turmoil. Small indebted countries in the eurozone will, on past experience, be the first...

'There seems to be no willingness to credit the improvement in the economy to the government parties'

Don't expect any thanks from the voters, Enda 

This morning's Sunday Independent poll asked a number of interesting questions about the public's personal experience of economic recovery and expectations for the year ahead, as well as preferences for tax cuts, should there be any in October's Budget. The context is important. The Irish economy has been through the sharpest contraction since World War II; the quickest rise in unemployment it has ever gone through; a monster banking bust, amongst the largest ever endured anywhere; and the indignity of the country forced into a financial rescue from official lenders for...

POWERFUL LOBBY: Pensioners came out in force to protest outside the Dail when Budget cuts were proposed in 2013. Photo: Colin Keegan

Pensions not an ageing crisis, but a policy crisis 

Ensuring adequate income for people in retirement has become a major policy challenge for European governments. At the heart of this pensions crisis is the viability of the defined benefit model of pension provision. Under this model the retiree is promised a pre-set level of pension benefit, regardless of the performance of the scheme's invested assets or indeed of whether the scheme has any assets at all. Some guarantor (the government or a business firm) promises to meet payments to pensioners well into the future. But some of the guarantors, including governments which...

FLAWS: Greek Prime Minister Alexis Tsipras is congratulated by lawmakers after a voting session at the parliament in Athens, Greece, yesterday. The Greek parliament voted overwhelmingly in favour of authorising the left-wing government of Tsipras to negotiate with international creditors on the basis of a reform programme unveiled last week. Photo: Christian Hartmann

A wearisome fudge that can only spawn further fudges 

The emerging 'deal' for Greece, the alternative to the country's exit from Europe's ill-advised common currency, is shaping up to be another essay in extend-and-pretend. The last six months have been wasted by the new Greek government and the creditors - on making a bad situation worse in Greece - without any promise of a sustainable economic recovery. The closure of the banks and the consequent suspension of both internal and external payments in a sinking economy was a quite extraordinary failure of common sense.

GREECE IN CRISIS: People wait outside a closed branch of the National Bank in Athens, Greece yesterday. The bank did not open at 10:30am as usual but remained closed while dozens of people lined outside to withdraw cash. Photo:Yannis Behrakis

A Grexit would be disastrous and could signal disintegration of euro 

Whatever the outcome of the weekend crisis meetings on Greece it has been another dreadful week for the European Union. Greece could fall out of the common currency even before the referendum planned for next Sunday and financial markets are set for a turbulent opening tomorrow. Seven years into the crisis this kind of thing simply should not be happening. There must be senior politicians in France and Germany, the principal architects of the common currency, beginning to wonder if the game is worth the candle.

FUELLING THE DEBATE: Taoiseach Enda Kenny last Sunday announced the building of a new biomass power station in Killala, Co Mayo, with Gerald C Crotty, Chairman of Mayo Renewable Power, the promoters of the project

Enda's new power plant is set to generate lots of cash - for investors 

The Government last week appointed a new advisory council on climate change to be chaired by economist John FitzGerald. There were immediate queries from Opposition TDs about the independence of the new body. Happily, the Government has furnished Professor FitzGerald and his colleagues with an early opportunity to dispel any doubts on this score. Last Monday, the Taoiseach announced a new electricity-generating station for Killala, Co Mayo, trumpeted as a contribution to the attainment of lower carbon emissions. The new station, to be fuelled with imported wood,...

MORTGAGES: The Central Bank has prepared a valuable report on the complex issues involved in relation to the mortgage interest rate question

Unprofitable trackers hide full extent of bank losses 

It remains to be seen what will be the outcome of Friday's news, from the Government, that holders of variable-rate mortgages will see reductions in their monthly repayments. The Central Bank has prepared a valuable report on the complex issues involved, which was released to coincide with the Government's declaration of victory. This is a wearingly familiar pattern: the report on which any kind of coherent public debate might be based is withheld, apparently to suit the Government's convenience.

EXIT STRATEGY: If David Cameron’s Conservative Party win the British election, there is likely to be a referendum in the UK on whether they should remain in the European Union

If Britain quits the EU, should we be next? 

the decision to abolish the Irish currency and join the eurozone in 1999 was a break with the precedent regarding Ireland's membership in the EU itself. Ireland applied to join the EU's forerunner, the Common Market, in the 1960s only when Britain applied; withdrew that application when British membership was vetoed by the French and eventually joined, alongside Britain, in 1973. But Ireland chose to join the euro even though the British decided to stay outside and retain sterling. There are few commentators in Britain today who regret their decision and plenty in Ireland who regret ours.

Promises: Taoiseach Enda Kenny and Finance Minister Michael Noonan, along with Tainaiste Joan Burton, have all been hinting at budget giveaways. Photo: Damien Eagers

All is fine. No need for a giveaway Budget... 

Imagine you are the finance minister of a heavily indebted country emerging from a deep recession, during which the state lost the ability to borrow and had to rely on official lenders, including the IMF. You have a legacy of high debt and high unemployment, and the budget is still in deficit. But things are looking up. The economy is expanding again and is predicted to grow in future years. Unemployment is falling. Inflation is roughly zero. What would be the most prudent budgetary strategy to adopt?

Game theory: The new Greek finance minister Yanis Varoufakis

As it stands, Greece can not continue in Eurozone 

The latest instalment of the Greek drama has provided a fresh opportunity to watch the Eurozone's renowned crisis-management machine swing into action. Leaks, counter-leaks, threats to the banks, accusations of bad faith, grandstanding to domestic audiences, and late-Friday gatherings of tired officials and politicians in Brussels - it brings you back to the great days of the Cypriot crisis, the Spanish crisis, the Italian crisis, the second Greek crisis, the Portuguese crisis, the Irish crisis, and the connoisseurs' favourite, the first Greek crisis.