More Greeks and Marbles

Posted on July 22, 2011 by James

Just some very quick thoughts on matters European. Firstly the news from the summit yesterday is good, the interest rate cut is undoubtedly welcome and the longer repayment period will make cash flow and annual budgeting easier in the meantime.

It does mean we are paying back more interest in the longer term but again I think that’s a price worth paying for more day to day flexibility. Also with presumed inflation the capital amount to be repaid should be less in real terms by redemption date.

Really the Greek difficulty was Ireland’s opportunity. Ireland, along with Portugal and possibly Spain, got lucky in terms of the wider European events conspiring to mean an overall solution had to be brokered. In the early days the thinking from Europe seemed to have been to “make an example” out of Ireland however as the solution was rolled out across further countries and as the Euro was coming under increased pressure, eventually something had to give. It seems Greece itself will be permitted a degree of default but that it will be strictly ring-fenced to that jurisdiction. Not convinced this will work, neither is Shane Ross.

A good break for Ireland though. Of course the interest rate cut only applies to one element of the bailout, the EFSF proportion, for all their malignment, the IMF rate was always more hospitable (c. 3%) and then there is EU / ECB funding, the latter through the backdoor into the Irish banks (which is partly what forced the bailout to be formalised in the first place) and other arrangements. I understand the bilateral agreements with UK and other countries (Sweden?) have yet to be drawn down, so the rate on those may not have been finalised yet. So the interest rate cut is only one part of a much wider pie, including many lenders and many different rates, but still a welcome development all the same. Not a panacea but sure we’ll take a Parthenon while it’s going spare.

Caveat Emptor – let the guarantor beware

Posted on June 28, 2011 by James

Contracts to pay for the debt of another are where a creditor loans money to a principal debtor and another party, a secondary debtor, undertakes to be responsible for the repayment. The Statute of Frauds Act 1695 defines which contracts must be committed to writing and which can be enforced on solely oral evidence. In this case a verbal indemnity can be enforced on own merits but a guarantee must be committed to writing. There are many who may wish the government guarantee given on the night of September 2008 was given only in verbal form.

My last post was about Brian Lenihan and the tragic echo of unfulfilled promise ala Camelot / Kennedy. The loss manifests in what might have been earlier as much as what might have been later in the sense that his time at the wheel came when the ship was already headed for the rocks.

His period at the helm of Ireland’s finances was possibly the most turbulent any Minister has had to face since independence and must have been especially so for a new Minister only in his brief a matter of weeks when the crisis hit. One cannot help but wonder what might have been had Bertie got over his own issues and recognised talent earlier, and had Brian’s undoubted ability at the cabinet table in the preceding years.

Unfortunately the period will be remembered probably for a series of fairly cataclysmic events running roughly from the guarantee up to the week the IMF landed and including the austerity budgets in between. The full story of those weeks, months, years has yet to be written and it may be many moons before we find out what really went on behind the scenes through that time, if ever. Yet some revelations have emerged into public discourse already such as in Brian’s own BBC interview and in Morgan Kelly’s recent Irish Times piece. I was surprised having coffee with some colleagues recently that these more recent revelations did not seem to have pervaded public consciousness to the extent that I might have expected.

The basic facts are clear. A guarantee was extended in 2009 to cover banking debt, this increased the national debt, along with rapid deterioration in the public finances this created twin pillars of economic and banking crises which proved insoluble in national isolation. Enter the IMF to replace the bond markets along with a programme of austerity agreed in conjunction with the EU and we are where we are.

That much, I believe is understood and uncontested. What is less clear is how, who, why the various events unfolded as they did.

The crisis in the public finances I believe could have been corrected by the austerity budgets. That particular cycle had happened before and may happen again. It was the banking crisis that really did the damage. The banking guarantee appears in hindsight to have been a mistake, yet who is to say what would have happened in the alternative, whether the banking system and perhaps the entire economy collapsed literally overnight? Could a single bank (Anglo) been allowed go to the wall, as effectively happened with Lehman brothers in the states previously. It is intuitively attractive to suggest that it could, yet it seems the prevailing argument against was really one of Euro Zone stability, rather or at least more so, than any vested local interest. Brian Lenihan in an interview for FrontLine in the early days of the crisis repeatedly stressed that no European bank had failed in the post war ear and it wouldn’t start here now. It is possible there was an element of pride in this, that Ireland would not be the one to let the side down. It is also possible and quite probable that the EU were strong arming the position and no bank would be allowed to fail without a flood of punitive consequences for the errant nation. It is also the case that despite the scornful commentary since, the weight of economic opinion at the time was divided on the issue with later critics such as McWilliams at the time calling for such a solution. In fact on the night the guarantee was voted through the Dáil, it was supported by all parties, except Labour who alone opposed. In fact, while it seems ironic now, I remember a Fine Gael friend saying to to me at the time “Labour will pay for this” (for opposing the guarauntee) . And yet one can’t help feel Labour opposed merely because they could as they grand standed on so many other issues in opposition. And of course FG swept home to a huge election victory despite having supported it.

I will return to this subject again in later posts..

How not to run a government

Posted on April 7, 2011 by James

I haven’t written here for a while and in the main I’ve just been too busy. I’ve exams coming up, I am in class most nights and I am busy in work as well. Yesterday was a typical enough day when I was on the 7.30 (train) up to Dublin in the AM and didn’t get back to base again until the 21.10 home. Busy but happy. Am greatly enjoying the study of the law, though it’s a slog and it’s been busy in work at the same time, I much prefer to be kept busy. I doubt I’d be doing this course if I’d been elected to the council, I would have been throwing my energies into the local arena, but as I’ve said before there’s only so much an unelected activist can do without a platform or a seat at the table. I plan to run again but the extra education and life experience will stand me in good stead either way, if I do later become a public representative a legal background will never be any harm.

On more general matters I’ve been watching events unfold on the national and European scene. Interesting if worrying that Portugal has now succumbed to an IMF bailout also. One has to wonder if parliament had held their nerve and passed their austerity budget would it have come to this. They chose to bring the house down and take their chances and will probably end up with similar if not harsher measures now anyway. Perhaps the politicians there thought if they could be seen to go down fighting they could escape an electoral bloodbath. They may just be punished now for shirking responsibility, I doubt they will escape political repercussion whatever happens.

It’s tempting to point to this and a follow-on predicted EU/IMF bailout for Spain and say Ireland wasn’t so bad, sure it’s happening across the EU. And that would be partly true. But just like the Portuguese, that doesn’t absolve the government here. Obviously the bank guarantee and other decisions will prove to have been critical along the way (although we still don’t know what the alternative would have been, even more so since the stark refusal of EU to sanction any kind of default within the community – including letting any bank fail – but I simply don’t know all the answers here, don’t think anyone does). But all that aside, what did for Fianna Fáil in the end was the attitude. Not the attitude of Fianna Fáil members up and down the country and I’ve spoken on that theme before, but I mean Fianna Fáil in government and the Ministers etc. It is simply unbelievable that in the middle of all this they saw (or at least appeared to see) nothing wrong with running for the hills with their satchels loaded. They may well have worked hard through their careers, and of course there were legal entitlements, but these were not normal times. There are senses of perspective sometimes needed and many let their party (and country) down badly. The perception projected out of government buildings right up to the end was one of business as usual with very little sense of adaptation or even awareness of a crisis. I am sure it was a hellish place to be towards the end, a bit of the Berlin bunker or Saigon rooftop about it, but it didn’t have to be that way. The Irish people are forgiving, they are understanding and with a bit of honest leadership and a real willingness to engage and a courage to lead it could have been Fianna Fáil’s finest hour. Brian Lenihan did manage to muster some of that spirit for a while but even he lost it at the end when it all just became too much talk. There are lessons to be learned from history as always. I think “Tell it straight, talk the talk but most of all walk the walk” about sums it up.

Clarification sought on Minister’s remarks

Posted on January 14, 2010 by James

Last week I spoke of the RTÉ enquiry which led to much acrimony within the Waterways estate at the Minister’s comments which contradicted the technical evidence previously presented. The ful episode can be seen here: http://www.rte.ie/player/#v=1063707

Similar claims had also been made in local media at the outset, example here:
02 December 2009 Leinster Leader – http://www.leinsterleader.ie/news/Counting-the-cost-of-the.5876640.jp

Thankfully the local debate has moved on in light of technical investigation and informed commentary from residents and engineers, however the prime time remarks represented a setback.

I spoke to Deputy Michael Fitzpatrick about this after the program and he raised the issue in the Oireachtas this week as follows:

Deputy Michael Fitzpatrick: I shall be brief. I shall mention one or two matters in relation to the flooding and move on to more recent events. There was not that much flooding in Kildare, but nonetheless it was very severe. Some of this was caused by the Liffey, as I mentioned earlier, and the way in which it is managed. We need to examine carefully how the Liffey is managed, because while it is flooding in Clane, it then starts to move down to the Strawberry Beds in Dublin, so there is a whole ripple effect.

Perhaps I can ask Mr. Dowling about the Waterways in Sallins. It was flooded very badly, mainly because of blocked drains and outlets. It would not have been flooded at all if proper maintenance had been done before the event. In a recent television comment, the Minister made reference to the Waterways and said the name indicated the development had been built on a flood plain. I have known this area for many years and it was not built on a flood plain, but rather on what was formerly a pitch and putt course, in a strategic location close to the railway station. It got its name from the Grand Canal which runs through the village and the promotional literature when the development was being sold highlighted the canal as a very special amenity, which it is. Comments such as that are very severe on the people now living in those houses, if they want to sell a house in the Waterways since the Minister has indicated it was built on a flood plain. The position needs to be clarified in the public arena about this particular estate. I appeal to the officials and indeed, the Minister, to clearly state that this enormous estate which contains all the infrastructure needed for a proper development, is not built on a flood plain.

Deputy Michael Fitzpatrick: I have one more question for Mr. Dowling, whose answer he may communicate to the committee later. I made a comment earlier about waterways in Sallins. A statement was made by the Minister on television which has the potential to devalue properties in the area substantially and many people are under stress due to this. Most of them are in negative equity at the moment and if his comments stood up, it would be serious for them.

Chairman: I will assist the Deputy. He has raised the matter and the committee will write to the Minister in this regard. We will try to obtain a transcript of the Minister’s comments. I saw the broadcast myself and I remember a certain phrase he used about the name of the estate, but I did not think of the consequences for the estate. We will obtain a transcript and ask the Minister to clarify his comments. We will write to the Minister rather than ask Mr. Dowling.

The full transcript can be seen here.