Friday, 30 October 2009

Families Robbed Of Homes...

Families set to be ‘robbed’ of their homes...

AN avalanche of repossessions "robbing" cash-strapped families of their homes will follow the creation of NAMA, opposition leaders have warned.

Fine Gael and Labour joined forces to plead with Finance Minister Brian Lenihan to launch a rescue lifeline package for people falling behind with mortgages as the controversial NAMA legislation was pushed through the Dáil.

Labour finance spokesperson Joan Burton predicted "reckless lenders" were only holding off on going after families in financial difficulties until they had secured the €54bn deal from the State to take toxic developer loans off their hands.

"Ordinary families will be leeched by the banks and building societies as soon as they get the NAMA money. They pushed money at people at the height of the boom and now will go after them to get it back."

Ms Burton said a 24-month moratorium should be extended to householders with problems who were trying to deal with their financial difficulties.

Fine Gael said 35,000 families would soon be in arrears and an "avalanche" of repossessions is imminent. Mr Lenihan strongly rejected the claim, stating there was no evidence for such a prediction, as he claimed the Government had already taken widespread action to protect homeowners in trouble.

Mr Lenihan said he planned amendments to the NAMA structure allowing him powers to issue guidelines to financial institutions on opening up credit to small firms.

The clashes came as NAMA was completing its committee stage through the Dáil with the opposition insisting the agency was being clouded in secrecy.

Fine Gael finance spokes-person Richard Bruton said he may move to break up the big banks covered by NAMA if the party gets into power. He also warned that a "gagging clause" is to be put on the chief executive and chairman of the agency.

They accused Mr Lenihan of trying to "muzzle" the yet-to-be-appointed heads of the agency from making critical comments.

Mr Lenihan denied censorship, saying there was "ample precedent" for the measures and denied they were being censored.

Fine Gael insisted a member of staff from the State financial watchdog, the Comptroller and Auditor General’s office, should be appointed to NAMA to act as a monitor.

Mr Lenihan refused the move saying it would conflict with the role of the Financial Regulator.

The minister also strongly rejected claims his comments about delays in passing the NAMA legislation had triggered a stock market dive on Wednesday.

He claimed too much had been read into his Dáil comments on delays in transferring major loans to NAMA by the end of the year and he still believed the original timetable could be met, if the Dáil did not drag out the legislation process.

Report By Shaun Connolly Political Correspondent - Irish Examiner.

Monday, 26 October 2009

Nama Rescue Plan For Elite...

Nama is rescue plan for the elite...

Do you remember back in school how the smart lads in the top class looked down their noses at the other lads in the streams below them? I have distinct memories of the fellas in the top stream at my school, many of whom went on to be doctors and lawyers - and who are now at the top of their professions, having a lofty view of their own abilities.

Why wouldn’t they? They were mainly decent enough fellas, and they were lucky because the entire Leaving Cert system was designed to bolster their egos, tell them how clever they were and usher them on a professional southside Dublin path to prosperity. They were very much the type of lads that the system was designed to foster and produce - the six straightA merchants.

After school, they flew through college and joined big accountancy or law firms, while the doctors went to the US to work like dogs, climbing up the greasy medical pole. They all sought the financial nirvana of a consultant’s position back home, knowing that it guaranteed a huge income and buckets of status in an increasingly status-obsessed society.

In the meantime, the lads in the streams below got on okay in the Leaving Cert, and many went into business, buying and selling, ducking and diving. As is the way of things in a big rugby-playing school, the two tribes - many of whom knew each other, but never really hung out together - would meet up at internationals and the like, swapping stories as their paths went on different tangents.

Over the years, many of the lads who were academically ‘average or below average’ moved into property and finance.

Some initially sold insurance or worked in the banks. Others might have moved into the building trade and graduated from site managers to having their own small companies.

By the 1990s, these lads, if they were still here, were starting to get a few breaks.

Others who had emigrated and got into business abroad thought about coming home to an Ireland that looked as if it was finally changing.

The top-stream boys carried on at the law firms, gaining status as they moved upward, becoming more and more respectable as they grew in seniority. In the big accountancy practices, they were being bumped up to partners and, although they worked outrageously long hours, the prize was in sight. The doctors, by their mid-30s,were on their way home with consultant positions up for grabs.

Most of them were also getting very rich.

The smart boys had joined companies which were benefiting enormously from the boom. The law firms, the consultancy outfits and the accountancy firms - not to mention the banks - were making a fortune, and they were all taking their cut. A small bit of a huge and growing pie becomes significant very easily.

The Dublin professional classes had become very wealthy in the boom. And the extraordinary thing about all this was that, in the main, they didn’t take any risks. They just worked hard, charged huge fees and, with both eyes firmly set on leafy suburbs, moved up the ladder. They had huge status and, in some cases, egos to match.

In the meantime, the lads who had done pass maths in the Leaving Cert were also on the make, but they were in business and property. They were making even more money than the straight-A boys. They were buying and selling, wheeling and dealing and, most of all, flipping.

They had seemed to be able to make money out of nothing, buying property and then selling the stuff on in a few months - making an enormous and seemingly effortless twist.The ‘stupid’ lads, at least in the eyes of the straight-A students, were achieving far above their abilities - and it all seemed so easy.

This is not what the system and the doting mothers had predicted. They, the professional class, should be on top - after all, hadn’t they done honours Latin, Irish, French and maths - not to mention the sciences - for the Leaving Cert? The ‘stupid’ lads just kept buying and selling, and now they had this new thing called leverage, which made the gains astronomical.

So, around 2005, just as the market was peaking, the smart lads decided to get into the game. They were invited by the ‘stupid’ lads they knew in school to get into what were termed ‘syndicates’. The less academic fellas were putting these things together all day, promising riches beyond their smart lads’ wives dreams. They all knew each other, after all, so everything would be grand.

Because the smart fellas had never taken a risk in their life, they had no idea how to access risk. They thought it was easy to become a Dermot Desmond.

They thought that the type of calculations someone like him was doing on a minute byminute basis couldn’t be that difficult, particularly as lads four streams below them in school could figure it out. And so, about four years ago, the complexion of the property market changed.

It became a free-for-all for the lads who’d done well in their Leaving Cert, but wouldn’t know how to ‘take their profits’ in a month of Sundays.

The people they used to look down on - the pass maths students - saw them coming and began to sell property syndicates to them, pretending that the clever lads were getting the deal of the decade.

So the professional classes, having been told from their childhood onwards that they were geniuses, were too arrogant and hubristic to know they were being had. After all, why would they not think they were smarter than the lads who had sold them the deals? They were smarter, and they had the UCD parchment on their mammies’ living-room wall to prove it.

But, in truth, the smart boys knew nothing about commerce, and had just bought a pig in a poke. Then the crash happened, and the chill could be felt in the equity partner offices of our top law and accountancy firms. These guys are now bankrupt, with enormous cash calls being made to finance the syndicates that are now under water. The top barristers and bankers were equally hammered, because they didn’t understand the rudiments of commerce. They thought it was easy. We are now left with the destruction of Dublin’s - and other cities’ - professional classes.

But the professional classes aren’t giving up that easily. They need to protect themselves, and what better way to do it than with Nama, a construction so devoid of commercial common sense - and so complex and legalistically elegant - that it could only have been constructed by a swot, a straight-A student whose mammy always thought commerce was vulgar and not for her boy.

Nama can be seen as a ‘class rescue scheme’ for Ireland’s professional elite. It has all the hallmarks of something that was constructed by the clever lads. The same ones who destroyed themselves and the property market at the end of the boom are now, via Nama, destroying the property market in the bust.

They didn’t understand commerce on the way up, which is why so many of them are bust; and they don’t understand the basics on the way down, which is why they have come up with Nama.

And who is going to gain from it? They are - because a floor has been put on their investment portfolios and, more to the point, they will make a fortune from the legal and accounting fees which will come with the bureaucracy of Nama.

The pass maths lads can see that the thing won’t work, which is why hardly any business people support it - but, then again, the sense of entitlement of the straight-A fellas is so strong that even a national catastrophe could not dent it.

Article by David McWilliams - Sunday Business Post.

Sunday, 25 October 2009

Property Past Sell Buy Date...

Is property past its sell-buy date?...

10 questions currently facing wary buyers and shell-shocked vendors...

Are the banks really granting mortgages? To whom, what percentage of the property price, and under what conditions?

Yes, technically. Loans of up to 92%, valued under €300,000, are being granted mainly to first-time buyers from Bank of Ireland, ICS and AIB. Other lenders are giving up to 80% of the purchase price (see graph). But the qualifying conditions are becoming more stringent, and if the bank doesn't really want to grant you a loan, they'll find a reason. Anecdotal evidence suggests that, after initial approval, stringent creditworthiness checks are carried out. For example, if a would-be borrower is behind with credit card payments, the loan will be turned down. Job security is a huge factor and everyone is under scrutiny now, says Peter Bastable of Simply Mortgages.

"Those occupations on the danger list are widening day by day. It's no longer just construction workers, lawyers and architects affected by the downturn in property. Ability to make repayments will also be affected if the budget takes more out of disposable income, and if interest rates rise."

One of the biggest changes in the mortgage market is the killing off of switching for better rates, he adds. "A lot of lenders don't want short-term debts to be transferred, while a lot of mortgage-holders are either in negative equity or at borderline level."

Will Nama improve borrowers' chances of securing a loan?

It's doubtful, says Karl Deeter of "Irrespective of Nama, you are not going to see a big uptake in property loans during a period of high unemployment. If you look at property crashes elsewhere, such as Finland during the 1990s, there is evidence of a suppression in demand for loans even after economic recovery. Also, we currently have the second-lowest interest rates in Europe, but those rates will inevitably rise. The majority of people are not cash buyers, and it has to be remembered that finance comes at a price."

Even with the Nama deal , the balance sheets of the banks are "perilously weak", says architect Emer O'Siochrú, who is also director of Smart Taxes. In assessing the current state of the housing market with regard to bank bailouts and Nama, she concludes that "The bankers are unprepared for the next great wave of personal debt that is swelling up and will hit them in 18-24 months time."

This indicates stringent conditions on lending for the foreseeable future, leaving Nama the big unknown.

Is anything selling at the moment?

There is a small amount of activity in Dublin among first-time buyers, but as one agent says, you couldn't exactly call it the proverbial green shoots. A price drop is the predominant factor in securing a sale. The biggest price cuts are in Dublin, where they've dropped an average of 35% since 2007 and this has resulted in more transactions than elsewhere, says Ronan Lyons, chief economist of

"The number of properties for sale in Dublin has fallen by over 12% in the past year. In Munster, where there have been fewer price drops, the number of properties for sale is rising."

So are prices likely to fall further?

It seems likely, says Dr David Duffy of the ESRI. "Given that the key drivers in the housing market are economic conditions and employment – and the forecast is for further deterioration – prices are likely to fall further."

In the most recent house price index, Niall O'Grady of Permanent TSB comments on the "dramatic" rate of decline in prices, adding "there is no confidence in any recovery this side of 2010.".

Under the Data Protection Act it's not possible to find out what property is selling for. So how can an owner evaluate their property to put it on the market?

The government has announced plans to ammend the act and allow publication of sales figures at a future date. According to selling agent Felicity Fox, people are very educated and much more realistic about property prices than they once were. And they are very quick to spot a bargain.

"We tell the clients honestly what we feel a given property is worth and what we feel should be a quoting price. Some clients take that advice on board; some are under huge pressure and would prefer to quote lower while others prefer to leave some room in the asking price to negotiate. They are also by no means shy when it comes to feedback, whether they feel it is well-priced or very expensive. We have had quite a few properties recently with several bidders actively chasing and that is a reflection of the price quoted. Some properties have actually gone over the asking price while others have sold well below by 10% to 20%.

Homeowner unable to sell are renting out their homes, and then renting elsewhere themselves until prices improve. Is this a realistic option?

For many, it's a case of having no other choice, says one agent, particularly where clients are in negative equity, have outgrown their existing property and simply can't afford to take the open market value. But it can be risky. Some homeowners did this at the start of the downturn – selling their homes, renting, and putting off buying again until prices dropped, but they made a huge loss, explains Simon Ensor, director of Sherry FitzGerald.

"A lot of people used the proceeds of their house sale to buy what they thought were very safe Irish bank shares, lost all of their money, and now can't buy back in to the market. "

How long is it taking to sell a house under current conditions?

"How long is a piece of string?" asks one of the country's most experienced agents pess­imistically. The market is so dead that the ESRI­/Perm­anent tsb no longer even surveys shifts in first-time buyer homes and three-bed semi-detached properties because the sectors are so inactive that samples have become meaningless. Properties coming fresh to the market sell quicker than those that have been lingering a year or more, says Simon Ensor.

"That's because new arrivals are priced real­istically, as opposed to those that came on at a higher price, are con­sistently drop­ping that price, and ba­sically trying to play catch up."

Urban and rural selling times differ considerably: one agent says it takes anything from three to six months to sell a house in a city or town, while rural homes can take a year or more. Price is the main factor. Buyers are quick to bid when they see value and are slow if they feel an asking price is too high, says Felicity Fox.

"It's often a case of 'will there be a price reduction?' The moral of the story: buyers should never be afraid of bidding as you never know what a seller might accept."

Is it now possible to bargain the price on a brand new home?

Yes. The transaction process has changed radically from the days when new home prices continually escalated. It's now very much in the buyers' favour.

"Generally, negotiation on price is commonplace now," says Ronan O'Driscoll, director of New Homes at Savills, "except where developers have reduced prices to absolute bare minimum and are at a 'take it or leave it' stage."

Are rent-to-buy schemes a way out for first-time buyers unable to raise a deposit?

Variations of this scheme have come on to the market since 2008 which involve developers offering new apartments or houses initially on a two- or three- year rental with an option to buy after or during that period at an agreed price and with the rent paid being treated as part-payment of the price at sale closure. Hooke & MacDonald, agents for several such schemes, says it has arranged 150 transactions in recent months in three such developments in Dublin. If prices drop from current levels, some schemes will give a 10% reduction on today's prices at the end of the three-year rental period.

At face value, it is a good deal for tenants, but not so good for developers who have no guarantee of a sale at the end of the tenancy period. Other considerations to bear in mind are whether the rent is market-priced or priced for the rent-to-buy contract. If you were to rent a similar property in the same area, would you get it for the same rent or less?

What should mortgage-holders do when they are unable to meet repayments?

The ESRI predicts that the number of households in negative equity could rise to 350,000 by the end of 2010. Of those, around 10% could default on their mortgage repayments, according to Dr David Duffy, who bases his finding on international patterns.

"For any mortgage-holder unable to make repayments, the obvious advice is to talk to their lender as soon as any problem arises. There are possible solutions where an agreement may be made to lower repayments, or allow the borrower to take a holiday from their mortgage while continuing to live in the property. There is no real benefit to banks in repossessing a property – they're not interested in becoming landlords."

There are other radical solutions that may have to be adopted as the situation deteriorates regarding mortgage default. Emer O'Siochrú says 'equity partnership', as proposed by the Urban Forum, is one mechanism that allows families in serious mortgage arrears to stay in their home while paying rent until they can regain ownership.

Report by Valerie Shanley Sunday Tribune.

Thursday, 22 October 2009

Property Price Drop Confusion...

Price drop? About 50% - and all agree...

PROPERTY prices to fall 45 per cent, one of this week’s headlines read; property prices have fallen 70 to 80 per cent, said another. And just last week, the ESRI/Permanent TSB reported that prices were down 24.4 per cent “from the peak in February 2007”.

Confused? Yes, especially if you didn’t take in that international ratings agency Fitch’s warnings of a 45 per cent drop in Irish property prices related to the fall from a peak, which it said was in December 2006. And exasperated, if like estate agent Ian Finnegan of Finnegan Menton, you’re well aware that prices have already fallen by as much as 50 per cent. Since when? “Mid-2006,” says Finnegan, which he identifies as the real peak.

Most in the industry agree with him: MyHome’s property consultant Paul Murgatroyd reckons prices have already fallen by an average of 40 per cent and have another 10 per cent or so more to fall before the market hits bottom – probably in the second half of 2010.

Indeed, so do economists. Professor John FitzGerald doesn’t dispute that the ESRI/Permanent TSB’s figures lag behind but points out that the ESRI’s quarterly economic commentary (out last week) predicts that the fall from a peak (in February 2007) to trough (sometime in 2010) may ultimately reach 50 per cent.

Economist (and Irish Times columnist) Pat McArdle says prices will eventually be “down by 45 per cent” by the time the market reaches bottom.

So there seems to be general agreement that Fitch was accurate, even conservative in predicting a peak-to-trough fall of 45 per cent in residential property prices. (The 80 per cent fall relates mainly to commercial prices).

But could price falls be worse than that, given all the hardship to come (rising unemployment, a swingeing budget, etc)?

Sherry FitzGerald economist Marian Finnegan – who reports a 44 per cent fall in Dublin prices to date, a 39 per cent fall countrywide – says values have “a little bit more to fall before stabilising in 2010”.

We asked doomsday – but so far accurate – UCD economist Morgan Kelly to tell us what he thought. But he wouldn’t say. “I don’t do soundbites,” he told us.

Report - Irish Times

Monday, 19 October 2009

Property Price To Fall More...

Property prices to fall 45% from 2006 peak...

Property prices in Ireland could fall as much as 45 per cent from levels seen in late 2006, as the economic downturn and increased costs of funding the banks weigh on the market.

According to Fitch Ratings, the average house is curently worth 7.5 times the average income, a ratio that is expected to fall to nearer 5.5 times the average individual income.

"Tax rises, high unemployment, wage deflation and property supply overhang continue to undermine the country's property market," says Alastair Bigley, Head of Irish RMBS at Fitch.

Property prices have fallen 24 per cent to date from a peak in December 2006, Fitch said.

"Despite almost three years of house price declines, prices have yet to reach a sustainable level of affordability," says Douglas Renwick, Associate Director in Fitch's Sovereigns team.

The difficult market will be further pressured by a rise in the cost of funding to financial institutions, driven by a higher than expected cost of the European Union's guarantee of banks' debt issuance compared to the current Irish state guarantee and a rise in inter bank lending rates.

Unemployment rates are also forecast to rise, reaching 12.5 per cent by the end of 2009, and 15 per cent in 2011.

"Fitch expects all lenders to increase their mortgage rates and it seems certain that mortgage affordability will suffer against a backdrop of a generally higher tax burden, increasing unemployment and negative to zero wage inflation," said Michael Greaney, associate director in Fitch's RMBS group. "Fitch therefore expects further house price declines and late stage mortgage arrears to rise."

Report by CIARA O'BRIEN - Irish Times

Sunday, 18 October 2009

Ireland's Choice...

Ireland’s choice: €4bn in cuts or IMF...

THE Government has raised the spectre of the International Monetary Fund (IMF) coming in to run the country if people don’t accept the savage €4 billion of cuts to be imposed in the December budget.

Taoiseach Brian Cowen and his Cabinet colleagues have launched a PR offensive to soften people up for the cutbacks, saying the black hole in the public finances was unsustainable.

Mr Cowen said everybody would have to make a contribution to help solve the crisis "according to their means".

Finance Minister Brian Lenihan said Ireland would face "ruin" if action wasn’t taken to get the national debt under control.

Green Party leader and Environment Minister John Gormley said there was no point misleading people about how difficult the budget would be.

And Health Minister Mary Harney warned that if the Government didn’t take the necessary tough decisions, the IMF would do so instead. "We’re currently spending €500m a week more than we’re raising. That’s not a sustainable situation," she said, referring to the need to get borrowing under control.

"If the Government hasn’t the capacity to do what’s needed, then others will come in, like the IMF, and overnight they will make decisions."

She warned the IMF’s solutions would be much more severe: "They will immediately start cutting expenditure by maybe 30% or 40% — that is a fact."

As part of the offensive, Mr Cowen echoed the comments of Mr Lenihan by saying the Cabinet would lead by example in taking further pay cuts.

"People can be assured that from myself down, there will be a good example given," Mr Cowen said.

The Taoiseach and his colleagues took a 10% pay cut in last October’s emergency budget.

But an analysis shows that they were cushioned against this cut by a series of massive pay increases over the preceding years.

The Taoiseach’s salary rose from €243,057 in July 2005 when Bertie Ahern was in power to €285,582 in September 2008, by which time Mr Cowen had succeeded him — an increase of €42,525.

The Tánaiste’s salary rose from €209,222 in 2005 to €245,324 in September 2008 — a rise of €36,102.

Ministers’ pay rose from €192,304 to €225,195 in the same period — an increase of €32,891.

Even after the 10% pay cut in the October Budget, the Taoiseach still earns €257,024, the Tánaiste €220,792 and ministers €202,676.

Fine Gael’s Leo Varadkar said further pay cuts of between 20% and 30% would be needed in the budget to bring ministerial pay in line with European norms.

But while he welcomed the Government’s intention to take cuts, he warned the coalition would have to be tough enough to continue the pay reductions "all the way down" the public service in order to bring state spending under control.

Report by Paul O’Brien, Political Correspondent - Irish Examiner

Friday, 16 October 2009

Negative Equity Soars...

Negative equity hits €43,000 as average debt soars to €130,000...

Report paints grim picture of economy...

THE collapse in the housing market has left the average household sitting on €43,000 of negative equity.

A borrowing frenzy during the boom means Irish households are now nursing debt levels which are the fifth highest in the developed world.

The average household owes €230,000 on its mortgage alone, excluding credit card, personal loans and other debts.

These figures have emerged from calculations based on a new report on the economy from Goodbody Stockbrokers.

Goodbody's Dermot O'Leary estimates that the bursting of the housing bubble has sent house prices down by 40pc from their peak in February 2007.

This means the average house in the State is now worth around €187,000.

There are 640,000 households with a mortgage, and the average household is sitting on negative equity estimated at €43,000, calculations based on the Goodbody report by the Irish Independent show.

The State's 1.5 million households are now struggling with an overall mortgage debt mountain that has climbed to €148bn, leaving mortgage holders hugely vulnerable to a rise in European mortgage interest rates.


Total residential mortgage debt is up from €99bn in 2005.

Mr O'Leary pointed out that the slashing of interest rates by the European Central Bank in the past year, from 4.25pc to a record low of 1pc, had saved mortgaged households a combined €3.1bn in interest payments alone.

The dive in interest rates means that a family with a €300,000 mortgage is paying around €500 less a month in mortgage repayments than this time last year.

"However, this reprieve will soon come to an end," he warned, stressing that there will be no further cut in rates, and instead interest costs will go up from 2011 on. "At this stage households will face increased pressure to meet their debt servicing obligations," the Goodbody commentary stated.

"The collapse in the housing market and the onset of the recession has meant Ireland has experienced a wealth destruction of vast proportions, one which is set to continue for some time," the economist said.

Households have piled up so much debt that they now owe an average of €112,000 on mortgages, credit cards, overdrafts and car loans.


But as only 640,000 Irish households have a mortgage, the mortgage debt alone amounts to €230,000 for these families.

The average Irish household owes €16,000 on unsecured debt, such as credit cards and bank loans, calculations by Mr O'Leary and the Irish Independent indicate.

Mr O'Leary said high private sector debt levels were of greater concern in the medium term for the Irish economy than public sector debt. "Given that Ireland is one of the most indebted economies in the developed world, we have benefited most from the collapse in interest rates," he said.

However, he thinks families will be able to absorb rising interest rates, because we have a younger population than other countries.

Goodbody predicts the economy will shrink by 1.1pc next year, but that it will grow by 2.4pc in 2011. Previously the brokers had forecast the economy would shrink by 3.7pc next year, and grow by only 1.2pc the following year.

Mr O'Leary said he is now more confident of a speedy recovery in economic growth.

Report by Charlie Weston Personal Finance Editor - Irish Independent

Tuesday, 13 October 2009

Nama Problems...

NAMA ‘won’t solve developer problems’...

THE property, development and construction sectors will not be served by a functioning bank post-NAMA, unless the proposed legislation is amended to provide access to sufficient working capital for new and viable projects, the Construction Industry Federation has said.

Following a meeting of the Construction Industry Federation (CIF) members yesterday director general Tom Parlon outlined serious reservations they have with the whole NAMA scheme.

"The entire NAMA project is predicated on the need to get liquidity flowing again to support the normal economic life of the country, protect jobs and give people a renewed sense of confidence in our collective futures.

"As more details emerge, however, there is a growing sense that NAMA could have the opposite effect by essentially freezing working capital for construction employers and adding to the sense of uncertainty and paralysis that has permeated all aspects of the economy since April’s announcement."

Mr Parlon specifically identified the decision toreduce NAMA’s working capital fund from €10bn to €5bn as a major obstacle to securing the future success of pipeline projects.

"The decision to reduce the figure appears to have been made without the benefit of any evidence whatsoever as to the anticipated working capital requirements of NAMA. In the first instance, working capital is vital in terms of NAMA’s ability to add value to loan portfolios in order to maximise the returns to the Exchequer. It is equally vital in terms of the level ofactivity and output in construction and for the nearly 200,000 employees in the industry."
Mr Parlon said there were risks for distortions in the market arising from NAMA’s monopoly position, and the likelihood for unintended adverse consequences for all property owners and the wider economy resulting from the introduction of an 80% capital gains tax rate in relation to land transactions.
Mr Parlon said the construction sector will be left without commercial banking support post-NAMA.

"The CIF is seriously concerned that NAMA will not act as a functioning bank, which will leave reputable, sound businesses without commercial banking support. The suggestion that the banks will fill this void is ill conceived. Banks will only participate in lending on the basis that they get adequate security/equity in a particular project.

"As NAMA will control all securities and equity, existing experienced borrowers will be excluded from trading in the property and development marketplace.

"This will restrict the market to capital funds and syndicates of non development/construction professionals, which from the construction industry’s perspective contributed in no small measure to the difficulties in which we now find ourselves," Mr Parlon argued.

The CIF boss said this represents a major threat to Ireland’s economic recovery prospects and future sustainable prosperity at a time when international best practice shows us that investment in construction offers the most immediate and effective way of tackling rising unemployment, and is vital in terms of growing the productive capacity of economies.

Reoport - Irish Examiner

Sunday, 11 October 2009


Brian, please find the nearest exit...

As Leinster House twitters about FF talks with the Greens, we've already hit rock-bottom...

WE DO not mean to be hurtful but even as they agonised, held hands, rubbed worry beads and emoted, the Green debate was utterly irrelevant to the realities we face.

You see, the truth of the matter is that the Republic is now in such 'a state of chassis' it almost does not matter who governs us.

Central bankers, economists from stockbroking houses and the political class may dodge and weave but the ongoing pantomime of politics as it is practised in Leinster House cannot hide one fundamental truth.

Ireland is at the edge of an economic ground zero-style scenario, Mr Cowen, and frankly, I do not know how you or, more importantly, the rest of us are going to get out of it.

Lest you be in any way unclear as to what we mean we'll simplify it for you.

The Exchequer is now as solvent as a Liam Carroll company whilst our citizens, thanks to your property driven boom, are the most indebted punters in the world.

The banks are as bankrupt as the punters whilst our civil service elite, who played such a critical role in bankrupting the State in their own interests, quite visibly care a great deal more about their own self-interest rather than the national interest.

Meanwhile, as distinct to having a position of national unity like that of 1987, the state of civil war between the private and the public sector is escalating to the point where we soon may have neither gardai in our streets or nurses in our hospitals.

Of course, these minor issues were rather sidelined by last week's convulsions over some halfwit country solicitor from Cahirciveen who has been caught with a snout dripping with goodies from the public trough.

Still even that particular Restoration comedy could not disguise the fact that we are in a pretty old pickle, Brian.

You haven't got enough revenue to pay the bills but every time you raise taxation the take collapses.

It's all getting terribly like that mammoth trapped in a tar pit which is doomed to sink slowly if it does nothing and to drown even more swiftly should it thrash about in some desperate, futile attempt at escape.

And now, astonishingly, in the midst of this, the political world spent the rest of the week waiting to see if a hundred madcap, anti-blood sports activists at the weird Green papal conclave would bring the Government, the Budget, Nama and the rest of the whole kit and caboodle down.

Sorry, Brian, but we simply can no longer afford to live in a state that even the famous Paddy bashers of Punch couldn't make up.

Of course, you will argue that if the Government falls, we will be in an even worse pickle. But the truth of the thing is that we're in such a mess right now it's actually hard to see how the collapse of Nama and an election slap bang in the middle of yet another 'most critical Budget ever' would make much of a qualitative difference.

Instead, truth to tell, no matter what happens with the Greens, we are swiftly reaching the point where, like Mr O'Donoghue, you simply have to go.

Just like banking, a school of politics which is without any sense of moral hazard is a recipe for bankruptcy and the time has come, Brian, for you guys to experience payback, punitive damages, reparations or whatever you want to call it.

Of course, you may be correct in saying it will do us no practical good but like a satirical pamphlet in some wretched fascist state, it would provide us with secret warmth and a small degree of self- respect for having at least overthrown those who have brought us to this point.

In truth, looking at you and your abject Cabinet last week, we began to suspect you secretly knew the noose was tightening.

Like little fish caught in a river, you still skitter and leap vainly for freedom but no matter how vibrantly you splash around, throwing accusations of political opportunism at the Opposition, the net of history is laid and now all that's left to do is lift it, scoop them out and leave the undulating forms to twitch on the bank.

Mind you, the current situation is a bit embarrassing for me, too, for I was once attracted to you, Brian.

In fairness, I was young and still a bit naive and, as you know, the affair was never consummated. But during the era of Bertie, you did sometimes appear to be an isolated, if self-styled, Republican in a culture of self-service rather than public service.

Of course, we can all make mistakes like taking politicians, judges and mandarins at the value they so loudly ascribe to themselves in public. Incredibly, however, and to my shame, I had had a second fling with Mr Cowen.

It was only a one-night stand, but whilst some were horrified by your "ring the f**kers, sort it out" reply to yet another quango-led debacle, we cheered: "That's the boy, Biffo. It's gone past time to put a bit of the stick into the game."

However, even as Mr Cowen basked in the dying embers of our regard, he was playing ducks and drakes over Rody Molloy.

Ironically in a very real way, Mr Cowen was not lying when he praised Mr Molloy for, by the standards of patriotism and public service as they are practised by this morally debased administration, he is a perfect icon.

Mr Cowen's political concubines still claim he is a terribly unlucky man. However, Ryan Tubridy killed that concept stone dead on the Late Late when he noted you were paid to have foresight. The problem with foresight, however, is that it's rather like Lee Trevino's "the harder I practice the luckier I get" response to the claim that he was a lucky golfer.

Sadly the evidence suggests that hard practice was not a feature of the Cowen era. Instead Mr Cowen appears to have been a far more enthusiastic practitioner of the public service ethos of nine-to-five and then off with the lads for a few beers or a spot of mutual adoration -- and we're being nice when it comes to that analogy.

Of course, when it comes to the spoilt, lazy poster boy for the worst generation of leaders since the elite who sold our independence in 1801, the love is now gone.

In your soft era, the loot was shared around to such an extent that we were the only country in Europe whose teachers thought holiday villas in Croatia were a human right.

However, the real beneficiaries were that school of social partners, mandarins and ministers who have never stood for anything outside of the protection of their interests.

Sadly you are now learning the hard way that, like all mercenaries, once the pay stops coming in, those who were hired to protect and serve the public have become the enemies of the people.

Still, even as we gape in astonishment at your feat in creating a state that not even FG or the IMF wants to govern, you might still be of some service. Seeing as you've prated about it for all of these years, it is now time for FF to engage in their own version of the Tallaght strategy, stand aside and allow a new Fine Gael Labour Green Rainbow to attempt to save us all.

Article by John Drennan - Sunday Independent

Saturday, 10 October 2009

Ghost Estates Haunting Ireland...

Danger lurks in the ghost estates haunting our towns and villages...

Mark Twain once famously said: "Buy land, they're not making it any more."

But the mantra in Ireland during the past 10 years could easily have been: "Buy land -- and build on every inch."

Across the country, rash zoning decisions in small towns and villages saw housing estates spring up.

Ballyforan in Co Roscommon is one village where sales of new homes have stalled, and prices have now been slashed in an attempt to lure buyers.

Built in what is essentially a one-street village, the Claremont development is now offering homes as part of the rent-to-buy scheme. Costing from €650 per month, it's the "easy way to owning your dream home" according to the blurb. Another, Pairc Caislean, has hoarding up around an empty site adjacent to some already completed houses.

In Roscommon, and other counties such as Cavan, Longford and Leitrim, tax incentives saw scores of developers building large estates in small towns so that eager buyers could take advantage of the Section 23 tax relief under the Rural Renewal Tax Incentives Scheme.

But unfortunately the scheme didn't work in the way it was planned and in many cases it simply created ghost estates in rural areas.

Back in 2003, estate agents in Roscommon warned that "demand is beginning to outstrip supply" but it is now clear there is massive oversupply in all of these counties.

Even houses built adjacent to towns were left struggling to find buyers as the downturn in the property market took hold.

Last month in Cavan, 35 houses in Ardkill Place, Ballinagh, went on sale for between €100,000 and €185,000. This was a drop of up to €150,000 on the original asking price, after the construction company that originally built the scheme went into receivership last year.

Even the cities aren't immune. Thousands of apartment blocks across Dublin lie unsold and empty and are likely to remain that way for some time.

Last month a vicious attack highlighted the dangers of living in estates that have few residents.

Asta Digimaite had to undergo emergency surgery after a man forced his way into her apartment in Prospect Hill, Finglas, and slashed off her two fingers.

She was unable to alert any residents and seek help because all the nearby apartments were empty. Nearby hotel staff called an ambulance.

In 2006, in one of the few such interventions by the Government, the then Minister for Environment Dick Roche stopped plans to rezone more than 1,000 acres of land in Co Laois for development in 29 villages which today still have the greenfield sites instead of empty housing estates.

Report by Edel Kennedy - Irish Independent

Friday, 9 October 2009

First Time Buyer Rules...

The 10 new rules for first-time buyers...

100 per cent mortgages are gone, so are long-term loans – and the easily-flipped starter home is a thing of the past...

WITH HOUSE prices down by as much as 50 per cent, property has never looked as affordable – or has it?

While prices may have plummeted, people’s incomes have also been slashed, due to a combination of higher taxes, pay cuts and the disappearance of discretionary income such as bonuses, while getting a mortgage has become more difficult as banks tighten up their lending practices.

Nevertheless, the collapse in prices means that first-time buyers are slowly coming back to the market. But what lessons should they have learnt from the crisis?


What’s a house or an apartment actually worth these days? In the absence of official sale price data and with estate agents prevented from publishing prices (house prices are covered by the Data Protection Act) it is difficult to find out what is is really happening in the market.

Househunters have to rely on anecdotal evidence to gauge where prices really are.

Asking prices have been dropping and properties that have lingered on the market for months, if not years, are now likely to be pitched anywhere between 30 and 60 per cent off their original prices.

Official figures such as those produced by Permanent TSB show that house prices have fallen back by about 24.4 per cent since the peak recorded in February 2007, but estate agents say that house prices are down by as much as 50 per cent from peak.

Don’t rely on an asking price. If you are genuinely interested in a property, try asking a rival agent for a verbal valuation. They may have sold a similar property and could guide you on price.


Banks are not the best arbiters of how much you can afford – you are – so do your homework before you go looking for a mortgage. First-off, you should model your income in various ways, such as what would happen if you lose your job, or you start a family and work part-time.

Generally, it is advised that you shouldn’t spend more than a third of your income servicing a mortgage.

You will then need to factor in other potential costs, such as home insurance, life assurance, and interest rate changes. Banks are obliged to stress test applicants’ ability to repay the loan at a minimum of ECB plus 2.75 per cent. It’s safe to work off an assumption that rates will go back up to about 4–5 per cent.


In the boom years, borrowers showed no loyalty, chopping and changing their bank accounts depending on who would lend the most. Now however, banks are looking more favourably on those who have long-term relationships with the institution. EBS for example, will advance 90 per cent of the purchase price to people who are trading up and are already customers of the building society, but will only advance 85 per cent to new trading up customers.


“Home purchases should involve an honest-to-God down payment of at least 10 per cent,” says investment guru Warren Buffet and who are we to argue with the self-made billionaire?

With 100 per cent mortgages a souvenir of the boom years, banks are now looking for lower loan-to-values (LTVs), whereby the proportion of the loan outstanding is considerably less than the value of the property, in order to safeguard against prices falling.

Most banks are now offering to lend “up to” 92 per cent, while many borrowers will be expected to have a 20 per cent deposit, particularly if they wish to buy an apartment.

And remember, while banks are more reluctant to lend to borrowers who want high LTVs, and will “cherry pick” customers to ensure that they only lend to the less risky, they are also offering the best rates to those with lower LTVs. For example, AIB has a variable rate of 2.25 per cent for those with LTVs of 50 per cent or less.


If you’re wondering why your bank still hasn’t got back to you regarding your loan application, it may be because it is closed for new business. Karl Deeter, operations manager with Irish Mortgage Brokers, advises that while some banks aren’t in the market, AIB, Bank of Ireland, EBS, ICS and Haven are all actively lending.

But their lending criteria have become much stricter. “The main focus from banks is on the security of your job, which has become more important than what level of payment you get,” he says, adding that underwriting has become “pretty forensic”, with banks even going so far as to look at the accounts of smaller employers.

“One absolutely universal aspect of the current market is that lenders are becoming more conservative,” with banks returning to a lending environment last seen in the 1980s/1990s.


The new conservatism means that banks are also looking for shorter terms, with few banks offering 40-year mortgages. While longer term loans mean lower monthly repayments, they do significantly increase the cost of a mortgage. For example, €300,000 borrowed at 3 per cent over 40 years will add €215,497.57 in interest to the value of your mortgage.

Moreover, borrowing money over such a long term also means that you build up equity very slowly, putting you more at risk of negative equity. But, if you don’t have sizeable savings, Deeter advises that you may be better off getting a mortgage over 35 years, rather than going for a shorter term.


The days of annual capital appreciation are behind us. Now it’s back to the old estate agent’s mantra of “location, location, location”.

Economist Paul Murgatroyd recommends that first-time buyers should look in more mature, suburban areas, rather than newer apartment developments further out, which could lose value even further. Property purchase is no longer a matter of getting your foot on the property ladder, he says. Rather, first-time buyers need to be sure that a property is one they will be happy living in medium term, or possibly long term. Keep in mind that you don’t have to move from that first home — and incur all of the transaction costs associated with selling and buying and moving again.


If you’re still nervous about the direction prices may take and would rather sit on the fence a while longer, renting is an attractive option.

As Ronan Lyons of points out, rents have fallen by about 25 per cent since the peak.

Rather than the old adage that renting is dead money, the drop in prices in today’s market means that it’s “not costing people a lot not to move”. Renting gives you the flexibility to take the plunge when it most suits you, and as Lyons adds, he “can’t see rents going up any time soon”.


With tracker mortgages no longer on offer, homebuyers are facing a tough time getting a good value product in the current market.

Variable rate mortgages, which can be increased at the whim of a bank, are on the rise, as cash-strapped banks look to cover costs. Already Permanent Tsb has pushed up its variable rate by 0.5 per cent, while the two larger domestic banks are likely to follow suit. As Deeter asserts, re-pricing on variable rates is almost an “absolute given”, because banks aren’t charging enough given the risks in the market.

The best alternative, says Deeter, is to go fixed, and he says there is still an opportunity to get a good deal. For example, Bank of Ireland is offering a one-year fixed rate for first-time buyers of 2.6 per cent, while it also has a five-year fixed rate at 3.5 per cent. But remember, fixed means fixed, and you will have to pay a breakage fee if you want to get out of the contract.


With houses taking on average six months to sell, according to’s latest housing survey for the third quarter of this year, you can take your time considering your options. If the property has been on the market for longer than this, Murgatroyd cautions that it may be because it is over-priced, so take this into consideration when making an offer.

While it now looks unlikely that a property tax will be introduced in the near future, you might also want to wait until the forthcoming Budget to see if further changes are made to the stamp duty regime.

Finally, it will also take longer to get loan approval. But be patient and it will happen.

Bank of Ireland, for example, says that it is approving 80 per cent of loan applications.

Report by FIONA REDDAN - Irish Times

Sunday, 4 October 2009

Irish Surrender With Yes To Lisbon...

The creation of a European superstate has moved a step closer, after the Irish people voted to accept the Lisbon Treaty, paving the way for a powerful new President of Europe...

Frightened for their jobs, no longer confident in their ability to govern themselves, the Irish finally surrender to Europe. But at least they were allowed a vote.

So, out of the smog of dishonesty that has long concealed it, we at last see the true shape of the thing that threatens us.

A great grey Tower of Babel reaches up into the sky over Europe, lopsided, full of cracks and likely to collapse in the fullness of time. But unlike the mythical original, it is complete – even though its builders neither understand nor particularly like each other.

The new European State finally exists and has given itself life – life of a rather Frankenstein sort, but life all the same.

It no longer needs to ask the permission of its member states to act. Ireland, for instance, will no longer be able even to hold a referendum on increased EU central powers. It has what is called a ‘legal personality’, so will not need to make future changes by treaty but by acting as the superstate it now is.

Increasingly, the provinces of Europe, which until today were countries, will need its permission to exist at all.

That passport you hold is ...European. You are a European citizen...Embassies abroad are European Embassies - as they already show by flying the EU’s meaningless and tasteless blue and yellow dishcloth.

Shouldn’t somebody have pointed out that in the recent history of the Continent, yellow stars call up only one dismal image, the mass murder of Europe’s Jews?

Anthony Blair, who wrecked his own political party and irreparably damaged Britain in the pursuit of global ideals, is considered a fit person to be the appointed President of this strange new superpower, precisely because he is unfit to lead his own country.

David Cameron claims that he is somehow able to exempt Britain from all these forces by holding a referendum on a treaty this country has already ratified.

But what will he do if we vote ‘No’? Does he think we are not subject to the forces that have compelled Ireland to hold the poll again?

Amid all the fuss about London’s grandiose new Supreme Court, nobody has seen fit to mention that Britain’s real Supreme Court, the European Court of Justice – now sits in Luxembourg.

For most of its members, accustomed to dictatorship, partition, subjugation, occupation, invasion and domination by bigger neighbours, this sort of thing will be familiar. In many ways it will be preferable.

In living memory, their frontier posts were demolished by sneering soldiers and their capitals forced to watch parades of other people’s tanks.

Now, the same frontier barriers are dismantled by unequal treaties, and their currencies replaced by the euro. Nobody dies, though much is lost.
For Britain, Europe’s oldest continuously independent sovereign state, it
is entirely different. It is the end of 1,000 years of history, as predicted by the Labour leader Hugh Gaitskell as long ago as 1962.

What about Ireland, which still lovingly and proudly preserves the bullet marks on Dublin buildings from the Easter Rising against British rule in 1916? How strange that the last gasp of national sovereignty should happen in this odd, quiet way on a wet and windy morning, here of all places.

With a national sigh of resignation, the Irish people have said not so much ‘Yes!’ as ‘Oh, very well then, if you absolutely insist’ to their absorption in the strangest empire the world has ever seen.

It is a realm without a throne, ruled by stifling regulation and dull secret committees rather than by a crowned despot. It is supposedly a club of happy equals but actually dominated by a single great power – Germany – whose importance nobody dares to mention, precisely because it is so important.

It is fitting, in a way, that it should be Ireland, which long defined itself as a nation of rebels against its mighty neighbour, that should have held out to the end.

This was never because Ireland’s current generation of leaders wanted
a fight. On the contrary, the Irish political class sprawls luxuriously on great cushions of Euro-money and have long enjoyed their status as the favoured pet of Brussels.

It is only because of the Republic’s cunningly drafted and thrillingly fair constitution that the people of Ireland have been allowed to vote on the matter at all.

And I think it true to say that the first vote, when they said ‘No’ 15 months ago, expressed the real opinion of the Irish people, who have never liked being pushed around by outsiders.

Remember that they did so in spite of the fact that the entire political establishment and the huge bulk of the Irish media were hot for a ‘Yes’ vote.

Rather enjoyably, but quite consistently, the anti-British militants of Sinn Fein were among the few organisations who argued for ‘No’.

After all, why go to such lengths to expel the British Crown, only to end up as a remote and bought-off province under the Crown of Charlemagne?

At least the British, for all their faults, were actually interested in Ireland, share a language and a culture and much of their history.

In the EU, Ireland – no longer a Tiger – takes its place alongside Slovenia and Lithuania as a quirky, minor possession on the damp and unvisited fringes of the Continent, with almost no voting power.

Shorn – as it is now – of its ability to get in the way, it may find that the flow of subsidies will become much thinner in years to come.

The ‘Yes’ campaign has been based, blatantly, on a call to cling to nurse, for fear of finding something even worse. And with reason. Ireland’s economic crisis is so bad that they envy Britain’s relatively solvent state.

Without EU help, they would be worse off than Iceland. And they know it.

Even with EU help, the public sector is unsustainable, overspending by £20billion a year, and the private sector shrivelling in the blast of bankruptcy and negative equity.

Last week, when Marks & Spencer advertised in Dublin for short-term Christmas staff, an enormous queue of respectable, well-dressed and quietly desperate people formed outside the hiring office.

Slogans such as ‘Vote Yes for jobs’, plastered all over the city, conceal
a deeper message that Ireland no longer believes two things.

One, it no longer believes that it can govern its own economy and take responsibility for ensuring its own people have jobs; and two, it no longer values its independence so highly that it is prepared to suffer for it – as it certainly was in the thin, cold pinched days of the Twenties and Thirties.

The ideal of a very Irish, very Catholic state, proudly separate and honestly poor, no longer appeals in the era of Sex And The City.

I suspect a lot of people share the view of Fionnuala Maher, who told the Irish Times that she remembered Ireland before it joined the EU in 1973. ‘It was a terrible place,’ she said. ‘If we don’t have Europe, we don’t have a bloody hope.’

For such people, the EU is completely identified with the personal liberation and individualism that in Britain is linked with the Sixties cultural revolution.

That may be a mistake. The ascent of the EU happened to coincide with several decades of unheard-of prosperity and growth. But the EU did not cause that prosperity, though it claims to have done so.

It was based on American Marshall Aid and helped along by American and British willingness to spend heavily on defending Europe against the USSR, while most of the EU nations kept their military budgets small.

The EU also cannot guarantee that Europe’s prosperity will go on forever. With so many member nations, many of them devastated by decades of Marxist misrule, its capacity to hand out subsidies is running out.

The credit crisis has not finished yet, Western Europe is fast running out of its own energy supplies and the shift of economic power to the Far East is speeding up, not stopping.

The European nations have not worked out how to deal with the enormous Muslim minorities which they have encouraged to settle on their territory and which increasingly demand the right to live according to their traditions.

Nor can they stop the slide of the manufacturing industry towards the regions where labour is cheapest.

Germany, still in a sort of post-traumatic shock over the cost of absorbing the Communist East, may not forever be willing to share a currency – and so a joint bank account – with the poorer and less well-run nations of the Eurozone.

The remnants of Yugoslavia are turning out to be much harder to absorb than anyone thought. Russia, sick of being pushed around, has made it aggressively clear that it wants no more Western interference along its borders, and will bite hard if crossed. Turkey, fobbed off for decades with promises of membership, may turn very nasty indeed if – as is likely – the pledge is broken.

The moment of political unity, schemed for since the Rome Treaty in 1957, comes just as all the old problems of the European Continent, economic, political, religious and social, begin to re-emerge in new and tricky shapes.

We in Britain, like Ireland, have constantly been warned that by staying out we would miss the European train – always depicted as a luxury express bound for a pleasant destination and more or less under our control.

Now, as the whistle blows, the doors are locked and the Eurotrain at last jolts out of the station, we look around us and see threadbare seats and through grimy windows glimpse an unfamiliar and unpleasant landscape, and when we ask where we are going, the crew tell us that from now on, that is their business, not ours.

Report by Peter Hitchens in Dublin - Mail Online.

Friday, 2 October 2009

Lost Celtic Tiger...

7 Reasons Why Ireland Will Be Left Behind...

IRELAND POST-RECESSION: As the first signs of economic recovery are seen in the US, Ireland faces a glut of problems that could see the country left behind while the rest of the developed world returns to fiscal prosperity.

LAST JUNE when Ben Bernanke thought he spied some green shoots of recovery in the US economy, another American economist, Nouriel Roubini, referred to them as yellow weeds, while Warren Buffet claimed not to have seen anything, even though he had just had cataracts removed from his eyes.

In recent weeks there is more reason for optimism in the US and most commentators would be of the view that the US economy may show some modest growth in 2010, though the unemployment rate might be slow to come down. Because America is a relatively closed economy the robust fiscal stimulus and quantitative easing were bound to pay dividends. American recessions usually don't last much longer than a year.

Some recovery in the same timeframe is probably also on the cards for the euro area.

So what does all this mean for Ireland?

If the world economy is beginning to grow again, it might be expected that Ireland, because of its openness, would benefit quickly through stronger exports, foreign direct investment, increased tourism and so forth. There are signs the pace of decline in Ireland is moderating but we still don't know when the floor will be reached or how long the economy will remain on the floor. There are reasons to believe recovery in Ireland will take longer than in other developed economies and they are listed below.

1 Lack of competitiveness

It is by no means certain we have restored competitiveness. Wages and other costs have been reduced in the recession, especially in the exposed sector, but this has also happened in other countries with which we trade. We may not have improved our competitiveness, relatively speaking, by very much, if at all. Maintaining our high minimum wage rate, while admirable in terms of equity, is not conducive to protecting market share. The lack of public-sector reform is also an adverse factor since it reduces overall productivity in the economy and adds to unit costs.

Because of a legacy of uncompetitiveness, the rising tide of international trade may not lift our boat until all the bilge water has been pumped out. Resumption of inward flows of foreign direct investment may also be delayed for much the same reason. In addition, US multinationals may be reluctant to go against Barack Obama's stated desire not to "ship American jobs overseas". At present, there are affiliates of almost all of the important high-tech US multinational companies established in Ireland. This could imply a sort of natural limit to further investment from the US.

We are powerless to influence the exchange rate at which we export and import. If the US dollar were to fall further in relation to the euro, we would suffer another loss of competitiveness. If China, for example, were to switch some of its savings from dollars to euros, this problem would be thrown into stark relief. Ireland should ask the IMF to revisit the 'substitution account', ie the creation of a new international currency in which countries like China could invest without causing exchange-rate volatility.

2 Dormant construction industry

It is certain one sector of the economy will not make any contribution to growth for some years to come. Because of years of overbuilding, the construction sector will remain dormant for a long time. This is particularly troubling because it is a labour-intensive part of the economy. It also has a high multiplier effect on other sectors.

3 Uncertainty about taxes

Nama and the process of fiscal adjustment have caused major uncertainties, especially in the minds of taxpayers. No one knows for sure how much additional taxes will be imposed as a result of bailing out the banks. The tax commission report also creates uncertainty.

Even though it appears as if the government may long-finger some of the tax proposals, the public don't know this for certain. In these circumstances it is likely people will save as much as they can now to cope with future tax liabilities. Although consumer spending may not fall a great deal further, it is not likely to recover any time soon.

The government is dealing with the various issues one by one and it does not see the interconnections, eg between Nama and consumer behaviour. This reflects the fact there is no overall economic plan. Another example is the effect of the property-tax proposal on Nama and indeed the entire budget. As long as the prospect of a property tax is hanging over people, the property market will remain moribund. It would be madness to trade-up in such a climate. Thus the recovery in property values needed to make Nama profitable and to safeguard taxpayers probably won't occur. This is another huge inconsistency that arises because there is no overall strategic plan.

4 Limited access to credit

Because of sluggish consumption and a moribund property market, business investment will be slow to recover. Nama will have the effect of providing liquidity to the banks but there is no guarantee that this will increase the flow of credit for business investment. Traditionally, Irish banks have not lent much for investment in plant and equipment and it is most unlikely that they will start now. Nor do they have much understanding of the investment needs of high-tech sectors of the economy.

To date the Irish banks have been investing their liquid surpluses in government paper. This is likely to continue. In other words they will get funds from the ECB (on foot of the Nama IOUs) and will invest them in Irish government bonds. This will of course help finance the government's fiscal deficit but it won't do much for the private productive sector.

In essence the ECB will be financing the government's fiscal deficit. This would be illegal under EU rules if it were done directly. But if the funds are provided first to the Irish banks who then pass them on to the government, that is not illegal. A cynic might well argue that this will make it easy for the government to avoid important decisions like public sector reform, pay cuts, and so on.

We can now, at last, understand the main reason why the government set its face against nationalising the banks. If they had done that the ECB funds could not end up in the government (NTMA) coffers. This is because the banks would be owned by the government and the ECB would not be permitted to lend to them. Nama, in other words, has all the hallmarks of a stroke. One wonders if the Greens are even aware of this.

But strokes do not help the economy. The entire exercise can be seen as a weird form of 'crowding out' - sidelining the private sector in favour of government. It is likely the private business sector will remain short of credit, especially for medium- to long-term investment which is so crucial for continuing development.

It is also likely that public investment in infrastructure will be cut. This kind of expenditure is easier to cut from a political point of view than social welfare spending or public servants' pay. But, unfortunately, it will reduce the productive capacity of the economy.

5 Unrest among the social partners

The destructive bickering of the social partners as they seek to impress their respective constituencies, is a complete turn-off to potential investors. The social partners spent the last 15 years dividing up the national cake among themselves, but did nothing to enlarge it. The big decisions about social welfare, public sector reform and additional taxation have still to be taken and no constructive proposals are coming from the social partners. Instead there are warning shots and threats of civil unrest similar to those which bedevilled the country in the 1980s.

6 Hoarding labour

Many companies are trying their best to avoid redundancies in the hope a recovery will begin sooner rather than later. But labour-hoarding cannot last indefinitely. The longer recovery is delayed, the greater the risk that many more workers will be let go.

7 Lack of confidence

The confidence built up in the Celtic Tiger period has now been lost and the polls show there is little confidence in government to lead the way out of recession. The 'fire in the belly' which is required to get business investment going again is not in evidence.

There are, of course, some positive factors such as the goal of becoming a smart economy, networking with the Irish diaspora and the developing stock of Irish entrepreneurs, especially in the field of technology. But these factors have a fairly long gestation period and, although they will benefit the economy in the long run, it is unlikely they will be significant in helping the economy recover over the next few years.

Report - Irish Times