New law to give Central Bank more powers

The news said that the legislation to put in place a special resolution regime for banks and give the governor of the Central Bank the power to intervene in their affairs. In December 2010, the government promised to publish the law by the end of February and said it would broaden the available resolution tools with the aim of promoting financial stability and protecting depositors. The new law will be used to intervene in the affairs of distressed financial institutions and will replace the Credit Institutions Act.

The legislation was contained in the agreement between the government and the EU-IMF. The EU-IMF deal with the Government said legislation on improved procedures for early intervention in distressed banks and a special bank resolution regime (SRR) would be introduced. “The SRR should include a robust set of powers and tools to ensure the competent authorities can promptly and effectively resolve distressed banks, e.g. when they pose a risk to financial stability. The legislation will be consistent with the EU treaty rules and will be consistent with similar initiatives ongoing at EU level,” the agreement stated.

The UK have been introduced bank resolution legislation in February 2009, however, the absence of such legislation in most jurisdictions seemed it have widely hindered governments’ efforts to deal with distressed banks and the financial crisis.

The Credit Institutions Bill was published and enacted within a week in December. At that time, the minister for finance Brian Lenihan said that a key pillar of the EU-IMF agreement was comprehensive restructuring of the retail banking system. The law, he said, would allow him take actions needed to bring about a domestic retail banking system that is proportionate to and focused on the economy.

http://www.irishtimes.com/newspaper/finance/2011/0228/1224291007031.html

Some reflections of "China's Trade-off"

Razeen Sally, the author of of "China's Trade-off", he wrote some faults of Chinese government policies and interventions of Chinese market, highlight the extremely huge interventions comes from Chinese government in Chinese market even after China joined into WTO. The examples he used are the price control of Chinese food, energy, financial market and the tariff policy of tombarthite. These are all truth, the huge intervention actually exists in Chinese market, but these policies are not as harmful to China as he said, and in opposite, these policies have protected Chinese companies and its weakly market from developed countries' invade and occupy.

And here I just show some of my points about Chinese tariff policy. We have to admit that, more competition can make the companies have more innovation and competitiveness, and also filtrate the disqualification companies. But that is just a totally economic view about market competition, in the real world, more other factors makes governments can not do the theoretically best method to manage its local market. For example, USA's tariff was the the highest of the world in the 19th century, but the highest tariff didn't make USA's industries's decay, it makes the USA's industry got a perfect good environment to develop, and finally make USA became the most powerful country of the world. I'm not mean that high tariff is always good, the overflow of high tariff is really harmful, just like USA's trade war in 1930, the international trade got 70% recession in that time, and Germany's international trade got 76% recession, the industry production of main capitalism countries all got huge influences. Protection tariff policy can provide a good development environment to local companies at the beginning, and it is not suitable for a country which have a mature industry system. The reason why USA always want to make developing countries to execute low tariff policy is because USA has already have a mature industry system, and it want to use its highly developed industry power to destroy the weakly industry systems of developing countries, so that USA can control the industrial power of these countries which means these countries will not be threatening to its position. Chinese history in the 19th century and the beginning of 20th century has fully explained the danger of a country which do not have its own industry system.

And the censure of China's tariff policy is even absurdity. In 11 Sep 2010, Obama government decide to operate the special protectionist tariff for Chinese tire, and after that 24 other special protectionist tariff plans were in considering in USA's commerce department. These evidences show that USA wants to increase the pressure to China for the exchange rate issue and reduce its pressure which comes the huge USA's national debt comes hold by China. USA's actions make thousands of China's company become bankrupt, most of Chinese people want to start a trade war with USA to punish it, and some generals even suggest to sell out all of USA's national debt to give a lesson to USA commerce department. So the duties of China's actions are all belong to USA, the tombarthite tariff and some others are just to give a sign to USA and Japan, tell them don't start a trade war, that's not a good idea for them.

So I think the censure of China's tariff policy makes no sense, the only way is to make USA stop their injustice actions.

Mortgage arrears and repossession rise

Figures released by the Central Bank today shows a 6per cent rise in the number if people in arrears and an acceleration in repossessions. The figures highlight that there is 8.6 billion owed by account holders who are 90 days or more in arrears and 6.2 billion owed by account holders in arrears of 180 days or over. This worsening trend has lead to 106 homes being repossessed in the last quarter and making a new total of 422 homes being repossessed since July 2009.

Official mortgage data that was supplied by the main Irish Banks to the Central Bank has revealed that:

• 44,508 mortgages (5.7% of all mortgages) valued at a total of 8.6 billion euros were more than 90 days behind payment.
• The main banks have allowed 59,229 households to restructure their debt and 35,205 of these mortgages have been classified as performing

According to the Conor Pope this new data has shown the debt owed by private households has decreased by 1.7 billion since the forth in 2009. Although the number of arrears and repossessions have risen the figures released by the Central Bank also show that the main banks are willing to restructure and try to accommodate the payment of the mortgages. The Irish Bankers' Federation have said the rise in the number of arrears is due to current economic circumstances and have stated "while the vast majority of borrwes continue to meet theor mortgage repayments, it is important that those borrowers in or facing difficulties are assisted in every reasonable way possible."

The counter argument to burning the bondholders

The counter argument to senior debt restructuring (which I proposed in my last blog) is made in today's Irish Times by Donal O'Mahony, global strategist at Davy's. The key points of his argument are summarised as follows:

• That senior bondholders are not risk investors are rank alongside ordinary depositors.
• That senior debt provides financing for credit creation far beyond that of ordinary deposit maturities. I found this an interesting argument that I had never heard of, or thought of, before.
• That the risk capital in the banks have already taken a substantial hit: equity shares €55bn in the total Irish banking sector and subordinate bonds €10bn, from liquidity management exercises.
• That the €35bn into Angle and Nationwide are the only bank injections that will end up in black holes and that the money ploughed into the rest of the banks (BoI, AIB, EBS) are "financial transactions" (yes, you heard right, merely a transaction, nothing to worry about!) with "legitimate expectations of longer term return." (What would Keynes say to this?Maybe or grandkids can leave us a note on our gravesides informing us of our return in AIB?)
• That the cost benefit analysis of imposing the senior losses would be adverse, as burning the bond holders may cause contagion throughout Europe and adversely impact on our bank and sovereign funding.

It's an argument at least. But he lost me when he spoke of our returns in the other banks, speaking of their bail-outs as mere "transactions".

JPMorgan fund eyes 10% stake in Twitter

A JP Morgan fund is in talks to acquire a substantial stake in Twitter. Twitter is one of the world's fastest growing social networking sites. The JP Morgan fund asked for 10% of the online messaging service for $450 billion, this values Twitter at $4.5 billion. It is not yet clear if the fund will make a direct investment or buy out existing investors and shareholders.

JP Morgan's Digital Growth Fund was established this month to give rich clients exposure to fast growing private tech companies. This follows a similar effect by Goldman Sachs to invest in the ever popular Facebook.

The fund has raised $1.22 billion to date. but it plans to raise $1.3 billion in total and will have a maximum of 480 investors. JP Morgan expects to earn commission of at least $13 million from the fund.

JP Morgan also hopes to invest another 1/3 of the fund in one other private web company. Games maker Zyna or telephony provider Skype are two possibilties. The final 3rd of the fund will be allocated among 6 other companies.

Kleiner Perkins invested $200 million in Twitter in December at a $3.7 billion valuation. The JP Morgan valuation of $4.5 billion would mark a swift rise in value.

Facebook is now worth up to $70 billion on the secondary market, this is a price considered too rich for the fund.

Why Ireland Should Continue to Invest in Research and Development

During the Celtic Tiger Ireland increased greatly its expenditure on R&D. This was put into two areas; Biotechnology and Information and Communication Technology (ICT). Currently Ireland spends 1.6% of GDP on R&D. However this is below the EU average which is around 1.9%. However Ireland’s current financial crisis and commitment to reduce 15 billion in expenditure from the budget means this investment in R&D is under threat. This would be a huge mistake. Ireland needs only to look at the example of Finland when it needs to answer the question of R&D spending
An example for Ireland is Finland. Finland and Ireland are two countries with many similarities. Both are small, open economies on the periphery of Europe. The population in Ireland is just over four million to Finland's five. The financial crisis Ireland has experience is very similar to the financial crisis that happen in Finland during the 1990s. Over the years 1990-1993 GDP fell by 13% from peak to trough and unemployment climbed to nearly 18%.
Both countries experienced asset price bubbles, particularly in housing. Regulators failed to control the behaviour of the banks and fiscal policy was inappropriate. Yet Finland emerged from its economic depression to rapidly become one of the world’s most ICT-intensive economies with one of the highest growth rates among EU countries. From 1994 to 2000, GDP growth averaged 4.5% per annum.
When the Soviet Union collapse Finland lost a huge share of their export market. In order to compensate for this, Finland decided to cut expenditure in nearly every area except in R&D and education. This was a key decision which Finland is still seeing the benefits. After the crisis Finland emerged as one of the most world’s best ICT sectors. In Suonpera (2009) paper “Lessons for Ireland from the Finnish Crisis” said that by 2000, high tech goods accounted for 23% of the value of total goods exports, up from just 6% in 1991.
It is therefore critical Ireland invests in R&D. In these economic times there are no quick fixes. R&D research could be in crucial to Irelands economic development in moving the economy out of these desperate times

Dublin Chosen as European City of Science 2012

Dublin has won in its bid to be chosen as the European City of Science 2012. Ireland has been increasing its efforts to become an internationally recognised centre for science and research. This effort has been recognised an Ireland is now ranked in the top 20 for both the quantity and quality of research papers produced. As noted by Ahlstrom, Ireland is also ranked among the Top 10 producers of papers in other fields such as Immunology and Materials Science for example. Being chosen as the host city, it is hoped, will bring many benefits to Ireland and increase its reputation internationally. According to O’Carroll of The Irish Times, the event will attract approximately 5000 scientists, business leaders, policy makers, and international scientific media. The aim of the gathering, which is to take place from July 12^th to 15^th, is to discuss European science as well as to address global scientific issues such as energy policy for example.

It is hoped that this event will be highly beneficial to Ireland. But what benefits can this event bring that will outweigh the costs of hosting an event of this calibre? As Clark writes, hosting such events can bring more negative results than positive. It is extremely risky for the host country and holding such an event should be considered thoroughly. The benefits also take a much longer time to materialise than the costs. These events are expensive and unless they are well organised and managed benefits are unlikely to materialise afterwards. Whether or not hosting this event is a wise use of the country's resources is a matter of opinion.

The main benefit envisioned is an increase in Ireland's reputation as a core for scientific research and produce in Europe. Increasing Ireland reputation may attract outside investment and encourage science based multinationals to locate in Ireland over other countries. This is only one of the potential benefits. As Clark puts it in his OECD publication, when international events are hosted well, they become a catalyst for local development and global reach. It is how Ireland handles the organisation of this event that will decide its level of success.

Proposals to Improve Competitiveness

According to an article by Ann Cahill that appeared in the Irish Examiner on February 26th 2011, a list of proposals have been drawn up to improve the competitiveness of countries. Cahill writes that "Proposals that would see wage increases linked to productivity and to incomes of other trading partners are expected to land on the desks of the EU's 27 prime ministers over the weekend."

The proposals, which have been drawn up by Jose Manuel Barroso and Herman Von Rompuy in consultation with EU states includes issues such as a minimum rate for corporation tax, increasing retirement age as well as examining pensions. The reduction of interest rates for Ireland and Greece will also be discussed.

The proposals will be set as voluntary targets and it is up to individual countries wheter or not to accept these. According to the article "there will be no sanctions imposed on countries that do not meet the targets but the proposal will suggest that naming and shaming by their peers should be a sufficient incentive to improve performance." The proposals have been made following demands by Germany and France for EU countries to reduce debt and improve growth.

However, one has to wonder if these measures will improve growth in Ireland. During the Crltic Tiger Ireland experienced increased growth. Much of this growth was accredited to a low corporation tax. Any increase in the minimum rate of corporation tax will surely be a set-back for Ireland, as the 12.5% rate has traditionally been a factor which has helped to attract Foreign Direct Investment into the country.

The proposals will be discussed by eurozone leaders on March 11th and only time will tell if they will be accepted by Ireland and other EU countries.

http://www.irishexaminer.com/business/plan-to-link-wages-across-eu-states-146555.html

Environmental problems and Sustainable development

Since the industrial revolution, economic globalization has caused the earth ecosystem reach to the limits rapidly, and global trade liberalization has aggravated global ecological crisis. Sustainable development was born on “tying together concern for the carrying capacity of natural systems with the social challenges facing humanity”. "The idea of sustainable development grew from numerous environmental movements in earlier decades. Summits such as the Earth Summit in Rio, Brazil, 1992, were major international meetings to bring sustainable development to the mainstream".

Economic globalization improved global productivity and offered developing countries a rare chance to develop economy. Various states involved in the economic globalization system which is leaded by capitalism. The malign competition between countries and enterprises greatly destroyed global ecological, because under the pressure of competition, the limitation of natural resources and the value of natural ecosystems are ignored. Deforesting of big range to plant cash crop to increase export, give up the traditional farming method to make more efficiency, and building large transportation network to make agriculture products into market faster, such of these things created large cost for society and environment, as well as destroyed agricultural biodiversity and ecosystem. Lots of economists think that in developing countries there is a linkage between economic growth that caused by agricultural products trade expansion and environmental deterioration. Moreover, economic globalization strengthens economic correlation and interdependency between countries. A country’s environment pollution may be transboundary movement and harm global environment.

Rapid forest decrease, global warming and acid rain, such environmental problems are the result caused by human asked for natural incontinently. The natural resource exhaustion and energy crisis severely restricted economic development, and then negatively influence societal economic sustainable development.

“The goal of sustainable development is to enable all people throughout the world to satisfy their basic needs and enjoy a better quality of life without compromising the quality of life of future generations”. So development indicator is not only depending on GDP but also on society, economy, culture, and environment and so on. “Sustainable development is a pattern of resource use that aims to meet human needs while preserving the environment”.

Hard Times Come Again Once More

An article in today’s Wall Street Journal portrays a different side to the doom and gloom of government debt and political instability in Ireland. Don Duncan gives an inside scope on the families around Ireland and what they are experiencing in terms of the prospect of emigration.

Duncan examines how the cure for recessions has been emigration and how this is going to affect the general election in Ireland. He explains that thousands have joined in a new wave of emigration, this has been unrivaled in two decades with “65,300 leaving the country in 2010” (Kelly, A. IrishCentral.com). I think tragically, as if history is repeating itself, Ireland is in an economic collapse and is likely to sink even further during the rest of this decade “We just seem to be incapable of governing ourselves” resulting in a 62 year husband and wife (Lynch’s) bound for Australia. The article gives a concise account of the emigration flows of Ireland in the past three decades, however it is stated that this generation are the most educated resulting in brain drain.
It is the case that we the people of Ireland “symbolize Ireland's economic crisis than the re-emergence of large-scale emigration”. History shows that this happened after the famine as well as the1950’s and 1980’s, where in 1989 44,000 people left while currently the CSO predicts that 100,000 people will emigrate over the next two years, more than twice the number that left in 2009 and 2010. That comes to about 1,000 per week. Duncan later quotes John McHale (economist at NUI Galway) and the “fiscal feedback loop” and how tax hikes, cuts in education, health care as well as austerity measures and higher unemployment could increase the incentive to leave. McHale concludes that our skilled workforce and knowledge based economy provide our competitive advantage “If the most enterprising people leave, you undermine that advantage."
In all this talk about the economic welfare of the nation I feel this article show the massive effect emigration has on the mindset of a nation. Brothers, sisters, sons and daughters are leaving their homes. Houses have been left unoccupied after the property boom but now homes are vacant. The reflection of “the Irish countryside been littered with abandoned houses, and parishes struggled to muster full football teams” in the 1950’s, to the tearful reunions at Dublin Airport as smartly-dressed sons and daughters came back home for the Christmas holidays. "I remember thinking—I hope to God my kids don't end up leaving like that. A quarter century later, Mr. Lynch's children are doing just that. How as a nation can we restore confidence when the close Irish society is been torn apart by emigration. Why trust our system when “Our economic miracles are always of such short duration”. "We just can't seem to have a sustainable economy."

Oil Price Soar

As the future of Libya hangs in the balance, the faith of the countries oil fields is a major concern worldwide. Dictator Gadhafi may be ordering sabotage attacks on oil pipelines leading to the Mediterranean Sea. Libya is the latest nation to be rocked by protests by the ouster of Tunisia's president last month. Gadhafi's refusement in stepping down from his 41 year ruling has caused the recent up rise against him. Libya having the largest oil reserves in Africa, the ninth-largest producer among the OPEC members, pumping 1.6 million barrels a day of oil, is a huge cause for concern as it has resulted in a dramatic increase in crude oil prices.

Oil prices are now the highest in nearly 30 months, as the recent revolt in Libya has reduced supplies from Africa's third biggest producer. Brent crude oil prices has rose to an estimated $114 a barrel, and caused Libya to lose up to two-thirds of their oil output, as much as 1 million barrels of Libya's daily oil production. Goldman Sachs estimated disruptions at 500,000 barrels a day. Libya's high quality output of crude oil is being significantly impacted due to the exodus of personnel.

According to the Head of Asian commodities reseach, Soozhana Choi, "The events in Libya and North Africa have brought geopolitical risk back onto the radar,.., how much higher can prices go really depends on the spread of protests in the region.

Worrying is that rising oil prices have a tumbling affect on the the overall consumer price index (CPI) directly by raising its energy cost component. This includes the prices of energy-related items, such as household fuels, motor fuels, gas, and electricity. Among these, gasoline and fuel oil are directly derived from crude oil, so their prices follow oil prices very closely. An increase in the price of oil may also affect energy costs through the prices of other items that are close substitutes; for example, households and businesses may switch from oil-related energy items to natural gas, thus leading to an increase in its price. The extent to which rising oil prices translate into higher overall inflation through higher energy costs depends on their persistence. If they continue to rise, they may lead to sustained increases in the overall price level, that is, to an increase in the overall inflation rate.

To default or not to default? That is the question...

Pic: NiallOLoughlin.com


“Just because some people choose to buy fast cars doesn’t mean every single one of us is somehow culpable" argued Áine Hartigan at the annual Irish Times Debate last Friday evening. Hartigan was arguing in favour of Ireland defaulting on the IMF imposed sovereign debt. Those arguing in favour of defaulting on the debt have taken the line that it’s unfair to burden the youth now and of future generations with debt which has been accrued by many irresponsible and incompetent people whom have escaped scot free with their pensions intact.

On the other side of the coin there are those who feel we deserve what we are getting and need to knuckle down and deal with it. Speaking at the Irish Times debate, one debater arguing against defaulting said “we need to take the EU-IMF-shaped aspirin and grow up as a nation”. This is an argument which is difficult to support, as not defaulting may mean crippling the Irish economy for many years to come in order to continually service the mounting interest. Leader of Sein Fein Gerry Adams echoed this sentiment recently stating that “the ECB has a lot of money in Ireland, but that’s its problem,” he said. “We are far better dealing with this on our terms . . . acting in our common good rather than a crisis coming down the line which will just swamp everybody.”

Although not the most economically astute politician, Adams may well be right here, and if Ireland are looking for a precedent than we need look no further than Argentina. In the 1990’s the South American country suffered a major economic crisis which resulted in the country being plunged into recession at the start of the millennium. Argentina received major financial assistance similar to Ireland, from countries such as Spain, Italy and France. Eventually the Argentineans defaulted on the sovereign debt of almost $95 Billion. A number of difficult years followed with Argentina being shut out of financial markets, but now in 2010 the country is stable and has a renegotiated debt package which is easier to manage.

So should we take our medicine and honour our debt, or should we stick it to the IMF and refuse to suffer for the Euro’s stability? Ireland has to pay interest on the loans being negotiated at a rate which exceeds the rate at which the economy grows over the next few years. This will make the country’s situation worse, not better. We have no option but to default and/or leave the eurozone. In any case most of us will probably be on a beach in Oz so take it with a pinch of salt!!

http://www.irishtimes.com/newspaper/ireland/2011/0223/1224290628869.html
http://www.irishtimes.com/newspaper/ireland/2011/0221/1224290426814.html

Judgement

Kenny refuses to take part in TV3 debate chaired by Vincent Browne. MR Kenny said his decision was based on remarks made by Browne last year about suicide. TV3 said it was disappointed by Fine Gael's decision not to participate in a first general election debate dated on 8 February 2011, which have to go ahead without Mr Kenny.
A spokesman said Browne had made a full and immediate apology for his remarks about suicide, which the station believed has been accepted by Fine Gael at the time ( see The Irish Times dated on February 5,2011)
I think that the decision taken by Fine Gael Leader is not better for Irish people and Irish Voters. As Mr Kenny wish to be the next Taoisearch, Vincent Browne remarks should not be an argument to refuse to participate in first debate with other political party Leaders. The decision for Fine Gael Leader could be considered as self-interests not for interests for Irish people and Irish voters.
In time for general election campaigns, among of the job of Irish Journalists is to help Irish people to understand issues and, to show them a Leader who can give answers to their problems they live with. Vincent Browne is one of Irish Journalists experienced into Irish political issues. If Browne is a foreign journalist, it could be no wrong for Kenny to refuse to take part in debate chaired by Browne. However, since Browne is an Irish Journalist I think that the decision taken by Fine Gael Leader is wrong. As he wish to be the next Taoisearch, he will stand for all Irish people including Vincent Browne.
Stand for Country is to work for everyone without prejudice. That is interests for public. If one feel that is impossible, it is better to stand for his/her own self-interests where one can find self-choices.

Sovereign debt restructuring: an IMF persepctive

I wanted to quote a speech from the IMF's first deputy managing director Anne O Kreuger notably section V:

"Let me now conclude. Unsustainable debts have to be restructured, one way or the other. The only question is at what cost. Adam Smith wrote that "when it becomes necessary for a state to declare itself bankrupt ... a fair, open and avowed bankruptcy is always the measure which is both least dishonorable to the debtor, and least hurtful to the creditor."

A more orderly process will be to almost everyone's benefit. The fact is that both the debtor country and its creditors stand to gain from a restructuring of unsustainable debts before the country has exhausted its reserves and condemned itself to a deeper economic downturn than necessary. At present, the threat of a disorderly workout means that the value of creditor claims falls more sharply on the secondary market when a country gets into trouble than it would likely do in a more predictable environment. A framework that allows creditors to preserve better the value of their claims and debtors to minimize output losses during the restructuring period helps both creditors and debtors. I have no doubt that they will increasingly come around to that view."

It seems the ECB are on course to continue trying to protect their reputation by attempting to justify policies which are obviously failing. Further cuts may be sensible routes to lower debt to GDP ratios in an accounting sense but in an economic sense their knock on effects might lead to a worsening of the situation and no doubt there is no question of borrowing for a stimulus to help out grow our debts.

A Sovereign Debt Restructuring programme would no doubt come with serious pain for all involved but maybe it is time we (and the EU/ECB) changed tack and accepted we may not be able to pay off our debts in full. Mr's Kreuger's advice on "unsustainable debts" could be our only route in the not too distant future.