Monday, 30 May 2011

New Bailout Panic...

Scramble to stem panic after new bailout gaffe...

Alarm after Varadkar claims State will need further loans.

THE Government last night scrambled to allay fears that a second bailout is on the cards, following damaging comments by a cabinet minister.

Transport Minister Leo Varadkar sparked alarm and confusion when he said the Government may need to get new loans from the European Union and IMF next year.

Ahead of an anticipated backlash from investors this morning, Finance Minister Michael Noonan's officials insisted the Coalition's firm plan was still to return to borrowing on the bond markets in 2012.

The Department of Finance stressed there was no change in the Government's plans, as Mr Varadkar's comments were reported around the world.

Mr Varadkar was also left backpedalling after he was reported as saying: "I think it's very unlikely we'll be able to go back (to borrowing on the bond markets) next year. I think it might take a bit longer... 2013 might be possible but who knows?

"It would mean a second programme (of loans from the EU/IMF). Either an extension of the existing programme or a second programme. I think that would generally be most people's view."

Another bailout would involve even deeper spending cuts and more increases in taxation -- leading to further contraction in the economy. That would mean hopes of a return to growth and possible erosion of the unemployment queues would be dashed.

However, Mr Varadkar will not be reprimanded, senior government sources stressed, despite breaking ranks on the sensitive economic issue.

Other ministers have previously said the country's debts will be unsustainable unless the interest rate charged by the EU is reduced. But no minister has gone so far in saying it is "very unlikely" that the country will be unable to resume borrowing next year.

Ironically, most independent economists agree with Mr Varadkar's comments, with many predicting that Ireland is unlikely to resume borrowing until 2014.

That would force the Government to borrow from the EU's permanent rescue fund, which will come into operation in 2013.

But his comments immediately caused a problem for the Government, implying that there was a view within Government that a second bailout would be needed.

The remarks were later picked up by international news organisations and are likely to alarm some investors when markets open this morning.

But a Department of Finance spokesman insisted last night: "The policy is to return to the bond markets next year."

The spokesman added that the situation would have to be reviewed closer to the time, and advice sought from the National Treasury Management Agency.

Last night Mr Varadkar attempted to play down the significance of his comments.

"My quote was in response to a hypothetical scenario," he told the Irish Independent. "I am basing my spending plans, prudently I believe, on the more pessimistic scenario.


"Nobody really knows and there are no crystal balls."

A government spokesman also attempted to reduce the impact of his remarks, which were made during a recent briefing about transport issues, describing the comments as a "hypothetical answer to a hypothetical question".

Mr Varadkar's suggestion that Ireland will fail to meet its targets comes as investors are already panicking about the possibility that Greece will default this summer because its government is not committed to its targets.

As the euro crisis deepens, the Government has so far been very careful to dismiss any suggestions that Ireland is in further difficulties.

Mr Kenny last week categorically ruled out seeking more time or trying to get a write-off of part of the debt.

"We will repay our loans. We will not restructure our debt. We're not looking for any further time, we are going to meet this challenge," he said.

Report by Thomas Molloy - Irish Independent

Sunday, 29 May 2011

Repossessions To Surge...

Repossessions to surge as mortgage crisis deepens...

25,000 families now more than a year behind on their repayments.

MORE than 25,000 families in Ireland are in turmoil this weekend, living with the terror of being more than a year behind on their mortgages and past the point where they can ever hope to pay back the money they owe.

The shocking finding follows an analysis of figures compiled by the Central Bank of Ireland and released without fanfare during the high profile visit of Queen Elizabeth and on the day that former Taoiseach Dr Garret FitzGerald died.

The figures show that more than 35,000 people are now over six months in arrears on mortgages worth more than €7bn.

But leading mortgage expert Ciaran Phelan of the Irish Brokers' Association has analysed the figures and says the situation is even worse than that portrayed by the regulatory authority.

He says even a "back-of-the-envelope" assessment of the latest statistics indicates that 25,000 of those families in long-term arrears must now be between 12 and 24 months behind on their mortgages.

"Unfortunately, that is the point of no return and way beyond the scope of the current forbearance measures," he says.

While repossessions in Ireland are rare, the official statistics show that more than 600 residential properties have been repossessed since the downturn began -- 49 homes in the first three months of this year alone.

Lawyers acting for troubled mortgage holders who face losing their homes have mounted a fresh legal challenge to repossessions.

They are questioning a section of legislation upon which financial institutions rely when they apply to the courts for repossession orders.

The relevant section was repealed in 2009 but lenders are still using it to apply to the courts for orders to repossess family homes.

The legal advocacy group New Beginning is questioning the legality of house repossessions that are enforced on the back of a law that is no longer on the statute books.

The group of volunteer lawyers acts for families in repossession cases.

David Hall, its spokesman, said the alleged anomaly was a "significant legal issue" that could have implications for repossession orders granted since then.

"This issue has come to light through the volunteer lawyers who undertake this work for clients on behalf of New Beginning," he said.

"A significant number of repossession cases have been adjourned at the request of the lenders in recent weeks. I believe this is directly related to the lack of clarity that now exists over this issue."

The matter has been raised in the High Court with Ms Justice Elizabeth Dunne. She is due to give a decision on June 22.

Meanwhile, Trevor Grant, managing director of Select Finance Group, one of the largest mortgage intermediary services providers, said thousands of householders were now coming under unbearable pressure.

"The mental stress experienced by those homeowners who are currently in arrears and those only a few pay cheques away from it is enormous and the implications and repercussions for their family life are horrendous," he said.

Mr Grant said that the number of homeowners currently in arrears was highly disconcerting.

"This is particularly so in light of the fact that a number of these homeowners are currently on relatively low interest rates, which are only set to rise, or interest-only repayment structures which will have to expire," Mr Grant said

He also pointed out that the Central Bank figures appeared to relate only to those in arrears of 90 days or more and therefore did not include those in arrears of one or two months.

"It is unclear whether they include those customers who are technically in arrears but are adhering to a revised and reduced repayment schedule.

"Nor do the figures include customers with investment property or holiday-home mortgages. The arrears problem is much greater than these already distressing figures illustrate," he warned.

The Central Bank figures suggest that a tsunami of home repossessions is building up across the country.

Mr Phelan said the numbers revealed a significant rise of 55 per cent in the level of long-term arrears in the last nine months.

"The figures would appear to indicate that once families enter the 'long-term arrears club', there is little chance of solving the issue using forbearance alone.

"The lack of any meaningful political intervention to date and a general tendency for consumers to service non-mortgage debt are exacerbating the problem," he said.

"Those unfortunate to be in this group will typically be 12-18 months behind in their mortgages and have to be suffering from huge stress -- regardless of the temporary forbearance being offered by the banks."

Mr Phelan said that while there is a slowdown in the number of new people falling into arrears for the first time, the problem of long-term arrears is accelerating -- ballooning by a record 4,000 in the last quarter.

"There is clearly a solid group of 25,000-plus individuals who haven't been able to meet their mortgage payments for 12 months or more and are therefore largely outside the protection of various consumer codes," he said.

Mr Phelan argued that the figures showed that some form of debt restructuring or debt forgiveness was now inevitable because of the sheer numbers involved.

"Assuming that the banks will ultimately choose to enforce the mortgage contract at some stage, the Government will need to co-ordinate a debt solution, unless the State has 25,000 social homes lying empty somewhere.

"Whether the solution is called 'debt forgiveness' or 'debt restructure', it will ultimately happen as the vast majority of these people will never be able to repay these mortgages," he concluded.

The Director of Consumer Protection, Bernard Sheridan, has urged people struggling with mortgage repayments or who are at risk of falling into difficulty to contact their lender as early as possible, so they can benefit from the protection offered by the Central Bank's revised Code of Conduct on Mortgage arrears.

In all there are 782,429 private residential mortgage accounts held in Ireland, with a value of €116bn. Of these, 49,609 accounts or 6.3 per cent are more than 90 days in arrears. Perhaps the most telling figure is that 62,936 residential mortgage accounts have been restructured.

Report by JEROME REILLY and MAEVE SHEEHAN - SundayIndependent

Thursday, 26 May 2011

Ireland's Biggest Property Auction...

Distressed property auction by Savills...

AROUND 100 distressed investment properties, mainly in the greater Dublin area, are to be auctioned on a single day in September. The move by Savills Ireland to kick-start both the residential and commercial investment markets is expected to generate sales of over €20 million.

Ronan O’Driscoll, of Savills Ireland, said most buyers at the September 29th auction were likely to be cash-rich investors happy to put their money into property now that values had fallen sharply.

In the past, investors banked on capital appreciation but it was now all about rental return and in many cases buyers could expect yields of 9 to 10 per cent compared to 3.5 per cent on bank deposits.

The announcement that Savills will be staging Ireland’s “biggest ever property auction” comes after last month’s successful auction of distressed properties in Dublin by British auctioneer Allsops and its Irish affiliate Space. They sold 80 of the 81 lots in a packed Shelbourne Hotel where turnover hit €15 million. They will hold another auction on July 7th.

Senior executives from Savills are in touch with banks, receivers and others who need to sell properties because of a loan default, over-investment or because of an unmanageable repayment schedule following the ending of interest-only payments.

Early indications are that about 80 per cent of the properties going to auction will be residential, including many city centre apartments; some with tenants. One-beds are expected to sell from €100,000 while two-beds are likely to cost €140,000 upwards. Some are also expected to appeal to first-time buyers who have managed to raise mortgages. There will also be three and four-bedroom semi-Ds that will appeal to investors and families. Investors will also have the option of buying mainly small retail buildings, industrial units and office suites.

O’Driscoll said that after a two-year standoff in auctions there was pent-up demand for well located residential and commercial properties. Ronan O’Hara of Savills, who is to handle some of the auctions with colleague Pat O’Hagan, said: “Once the reserves are were set relatively low these auctions help to set a price floor which will be noted by the market.”

Report by JACK FAGAN - Irish Times

Sunday, 22 May 2011

Nama Plan Doomed...

Nama's equity plan 'is doomed by ECB rates'...

Hobbs rubbishes scheme to protect homeowners, insisting any progress would be wiped out by a few interest hikes.

A proposal by Nama to protect homebuyers from negative equity has been dismissed as an attempt to "manipulate property prices" and will not work in the face of rising interest rates imposed by the ECB, leading economic adviser Eddie Hobbs says.

"They're trying to put a floor on the market. You would have to say that it's a positive attempt, but the history of economics is littered with various attempts to manipulate property prices. If interest rates rise, it doesn't matter what kind of floor you try to put on the market, because you'll be overwhelmed by it.

"I'm in Germany at the moment and the place is absolutely hopping. The German economy is booming and inflation is rising in Europe. The Central Bank in Frankfurt is going to raise interest rates to protect the German economy, so that is the problem that needs to be addressed," Mr Hobbs told the Sunday Independent.

Asked what he thinks should be done to make Nama's negative-equity proposal work, he added: "Nama needs to talk to the Government, to talk to the ECB and to talk to the Irish banks and get together to offer 20- and 30-year fixed rates, not just for people coming into the market right now, but people who are already in the market. If you go to somebody who is in negative equity and offer them a 20- or 30-year fixed rate, that's going to provide the floor for property prices, because it's about affordability now. It's not about price anymore."

A spokesman for Nama, meanwhile, defended the agency's proposal, which is currently under discussion with the Bank of Ireland and the AIB.

"Nama is open to different suggestions and is exploring a number of options. The agency will also consider other proposals from the banks or other interested parties and is keen not to be 'prescriptive' on this issue," the spokesman said.

Asked for comment on Eddie Hobbs' view that the 20 per cent negative equity protection currently being mooted by Nama would be quickly wiped out by a succession of ECB interest rate hikes, the spokesman insisted the agency was not trying to put a floor on property prices.

"The market will set the price, not the developer or the seller. The value of a property is what people are prepared to pay," he said.

And while Nama's chief executive Brendan McDonagh and its chairman Frank Daly intimated last Thursday that their discussions on negative equity protection with the AIB and Bank of Ireland had progressed to the point where the innovative scheme could be in place by this autumn, other sources close to the discussions have told this newspaper that the banks were at best "lukewarm" on the proposals.

"They're not as enthusiastic as you might think. There is a nervousness there; and it would appear at this point that they are looking for Nama to take on more of the risk," one informed source said.

Chief executive of the Irish Brokers' Association Ciaran Phelan was more receptive to Nama's proposal, describing it as "a logical and welcome idea". "If enough people take up the offer and re-engage with the property market, then the risk of further price erosion will be significantly diminished," Mr Phelan said.

The Department of Finance, for its part, refused to give any indication as to whether Finance Minister Michael Noonan would give his endorsement to the negative equity protection scheme, saying simply: "Nama is carrying out its functions in line with its establishing legislation. The minister met with Nama recently to set out his policies and objectives."

Report by RONALD QUINLAN - Sunday Independent

Friday, 20 May 2011

Many Irish Homeowners In Arrears...

Number of homeowners in arrears soars to 50,000...

THE number of homeowners in arrears on their mortgages has jumped by 5,100 to almost 50,000 in the first three months of the year.

The arrears figure represents 6.3pc of the 782,429 residential mortgage accounts, according to the Central Bank.

Meanwhile, another 36,600 homeowners, who are not in arrears, have made arrangements with their lender to reduce their repayments.

This means that a total of 86,211 homeowners -- 11pc of all mortgage-holders -- were struggling to meet their repayments in March, the Central Bank said.

While the trend is worrying, eight out of every nine mortgage holders are still meeting their original repayment commitments.

Frank Conway of personal finance website MoneyCoach added that although the growth in the arrears was unfortunate, there was no rapid deterioration in the rise in rate of arrears.

"These latest statistics largely include the effects of the introduction of the universal social charge in January, as well as the various rate increase announcement by a number of lenders on their standard variable rate customers during the first quarter."

Figures released yesterday by Irish Nationwide showed that more than one in five, of its residential mortgage holders are now in arrears.

This was attributed to the burden of personal debt, higher taxes, rising food and energy prices and increased interest rates.

Across all lenders, 63,000 people have gone to the lender and had their mortgages restructured, but more than 26,000 of these are still in arrears.

Around 25,000 of these mortgage holders were now at least a year behind on their payments, Ciaran Phelan of the Irish Brokers Association calculated.


"There is clearly a solid group of 25,000-plus individuals who haven't been able to meet their mortgage payment for 12 months or more and are therefore are largely outside the protection of various consumer codes," he said.

He added that the Government will need to co-ordinate a debt solution for these people, unless it has 25,000 social homes lying empty.

"Whether the solution is called debt forgiveness or debt restructure, it will ultimately have to happen, as the vast majority of these people will never be able to repay these mortgages."

Analysts calculated that the average owed by those who are a year or more behind on their payments was €21,500.

The figures also show that 140 homes were repossessed in the first three months of the year, up from the 106 repossessions that took place in the final quarter of 2010.

During the first three months of the year 231 court proceedings were conclude. Courts granted repossession orders in 136 cases, while in 111 cases the courts made orders to enforce the security on the mortgage.

Report by Charlie Weston and Laura Noonan - Irish Independent

Monday, 16 May 2011

Strange Times In Ireland...

Barack Obama and the Queen to visit Ireland during its time of despair...

The financial rescue package for Ireland has been a national shame – so why are there no barricades on the streets of Dublin?

Strange times in Ireland; a British queen and an American president staging back-to-back visits this week and next. But what is everybody talking about? It's the economy, stupid.

Yes, the economy is really the only topic on the front pages, on the TV, on the lips of the subdued window-shoppers up and down Dublin's Grafton Street in turbulent May sunshine and showers.

The Queen, who is said to love facts and figures, may or may not learn on her visit that Ireland has 14% unemployment, that its economy will grow by only 0.6% this year, that house prices have fallen 12% this year and 40% since the 2007 peak, with the decline accelerating. She may or may not discover that Ireland has suffered the biggest decline in educational standards of any developed nation in the last decade or that it has the highest-paid civil servants in Europe.

Ireland's rollercoaster ride from brash Celtic tiger prosperity to bankruptcy has created an officer class of economic commentators whose status is akin to that of celebrity chefs. Unlike Jamie, Gordon and Heston, however, their recipes can be hard to swallow, induce nausea and create bitter arguments over the ingredients. Chief of this tribe is Morgan Kelly, an academic who specialises in the impact of the plague on 14th-century Europe and was virtually a lone voice in identifying Ireland's property bubble in the last decade. He has just delivered a devastating summary of Ireland's future.

"With the Irish government on track to owe a quarter of a trillion euros by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable," he wrote in the Irish Times. "By the time the dust settles, Ireland's last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed. Ireland is facing economic ruin." He bewailed Ireland's "credit-fuelled Ponzi scheme" economy of the last decade and accused fellow economist Patrick Honohan, the central bank governor, of committing "the costliest mistake ever made by an Irish person". This was his "miscalculation" of the losses of six privately owned Irish banks, which led to the "suicidal" policy of taxpayers repaying the banks' €100bn-plus debts.

Kelly's recipe for recovery is to walk away from the European Union-International Monetary Fund bailout and for the government to bring its budget into balance immediately, necessitating a 30% cut in government spending.

Strong medicine, home truths and compelling argument written with passion and anger but most of the leading economists surveyed by the Irish Times broadly agreed with his arguments.

The debate rages on. You wouldn't think that an historic milestone in Anglo-Irish relations was about to be reached, with the first state visit of a British monarch to Ireland since its independence. Eoghan Harris, a former senator in the Irish parliament and one of Ireland's leading opinion formers, says the arrival of the Queen, followed by that of Barack Obama, will provide some "distraction from the misery", but not enough.

"The country is so preoccupied with the financial crisis. I don't know anyone who isn't suffering," he said. "There's no passion about the Queen's visit, but there's a benign affability. She is regarded like an eccentric aunt who should have called in a long time ago but didn't because of a family row, the origins of which have been long forgotten. There'll be a bit more passion about Obama, but not much. There'd be more interest in Angela Merkel arriving with a bailout."

Writer Colm Tóibín is preoccupied with his new play when we meet in a cafe near his Georgian townhouse. The award-winning novelist may not live in an ivory tower, but there is a sense of detachment from his country's troubles. Perhaps that's just his professional, coolly appraising eye. Maybe a feeling, too, that he has earned his success honestly.

Apart from the house in central Dublin, – an object of almost pornographic desire in the boom years – there is a holiday home down the coast and a place in Spain. He recalls that when he bought the townhouse he was initially refused a mortgage by the staid Bank of Ireland – one of the now infamous zombie banks dragging the country over the precipice – because they were afraid he might develop writer's block. Six years later when he bought his holiday retreat, "I had no problem at all getting the money – there had been a change in attitude. There are people responsible for that change of attitude. They are sitting in the European Central Bank and they should be fired."

Tóibín is a writer, not an economist, but his decision to blame others for Ireland's ills is common. Blaming the people who lent you the money rather than yourself for taking the money, even though you knew you probably couldn't afford to, is a popular refuge. "It's an old peasant thing," Tóibín winks. "You fool the bank manager to get the money to buy a holiday home. Here or in Bulgaria. And 'Maybe I'll not use it that much but I will own it for ever', that's why buying shares was never as popular as property. That idea arose in a society that never had much before. There's something slightly Russian about it. If you have a country that is so incredibly poor, what are you going to do with money? So you do have an element of shame about what's happened; this country is not as developed in its bourgeois habits as some of its European neighbours are."

Equally, the character of Ireland has stalled any violent reaction to the meltdown. It would be hard to imagine the French, for example, meekly accepting terms dictated by foreigners to pay off massive bank debts. Yet Ireland's protests so far amount to little more than a pensioner throwing an egg during a bank's shareholder meeting. "Nobody wants to get involved in a conflict with the guards [police], the country's too small," says Tóibín. "The guard would be somebody's brother-in-law. They are not armed and there's a very close relationship to them. It's the same with the banks. My relationship with my bank is very warm. I know them at my bank, I like them. Those things are very intimate here. Someone asks in James Joyce's Ulysses, 'What's a nation?' And the answer comes back, 'A nation's the same people in the same place.' There's very much a sense of that. So because the country's so small you have to be careful who you throw a stone at."

On a recent book-reading tour of Germany Tóibín couldn't resist asking people what they thought of Ireland's predicament. "They would say, 'We are not going to pay for your party.' That was the phrase they used, over and over again," he laughs. "They think Ireland is innocent and fun and we are always drinking. The thought of bailing out feckless Catholic countries is too much for them."

If Ireland is serious about making amends, Stephen Donnelly gives a glimpse of the future. He is one of 19 independent TDs – members of the Dáil – elected in February's general election. That is the same number of seats now held by Fianna Fáil, the party that has been in charge for most of this young country's history.

"I don't know why there isn't more anger about what's happened and what's going on, but this is what I've done: I've come here to fight it," says Donnelly, who quit his job as a management consultant for politics. It is a measure of the political upheaval that a 36-year-old with no party machine behind him won a Dáil seat.

"It boils down to this: for every euro being spent on job creation, €250 is going to failed investors in banks registered in Ireland. I would challenge anyone to call that fair," he adds. "I had just had enough. My country was being flushed down the toilet by incompetent leadership. And it's going to get worse."

He accuses European leaders of bullying Ireland down a path "which is disastrously, morally and politically wrong" and condemning taxpayers to carry the burden of a "total systemic failure". He wants the new coalition government to toughen up, to recognise it has a strong bargaining position and to negotiate a new deal. He thrusts a copy of the memorandum of understanding that forms part of the bailout plan into my hands. It spells out in painstaking detail the steps the Irish government must follow if it is to receive "quarterly disbursement of financial assistance from the European Financial Stabilisation Mechanism".

The memorandum was presented on the same day Donnelly and fellow TDs were celebrating mass at the gravesides of the leaders of the 1916 Easter Rising, who were executed by the British. "Imagine in one day going from their graves to having to read that," says Donnelly. "Can you imagine the reaction in your country if Cameron had signed that? If the French were told to pay €80,000 per household of private sector, mainly foreign, losses, wouldn't they burn down the Champs Elysées?"

For his part, Tóibín thinks that all economists are mad. But he can agree with Philip Lane, professor of international macroeconomics at Trinity College Dublin. The two certainly share an explanation of the public mood, this sense of confusion and despair that is not being converted into street protests. According to Lane, shame is at the root of the Irish reaction. "There was sufficiently wide participation in the property market for there to be a collective shame for what went on," he said. "A hangover follows a big party." Hungover people do not go out and riot.

Report by David Sharrock - The Observer

Sunday, 15 May 2011

EU Profits From Ireland's Crisis...

EU loan is no bailout, it's financial bullying.

Should we be taking our case on the EC's extortionate profit margin to the Court of Justice...

SOME members of the European Council are exploiting our crisis in order to profit at our expense. If the interest rates on the EU loans are not reduced, the Irish public will suffer unnecessarily while our European partners profit from these loans.

Last January, the European Financial Stabilisation Mechanism charged Ireland an interest rate of 5.51 per cent for money that it borrowed at 2.59 per cent. A month later, the European Financial Stabilisation Fund charged Ireland an interest rate of 5.9 per cent for money that it borrowed at 2.89 per cent. On this basis, the EFSF earns a profit margin of 3.01 per cent and the EFSM earns a profit margin of 2.93 per cent.

These margins are draconian. The majority of the interest that Ireland pays is not used to pay for the EU's borrowing costs. It is excessive profit for the countries that are lending us money. For every €1m that Ireland pays in interest costs, Ireland must pay another €1.08m so that our EU partners make a profit. This, clearly, is not a bailout. It is exploiting our vulnerability. It is financial bullying.

The IMF is dreaded because of its reputation of treating countries harshly. Nevertheless, the IMF is charging Ireland an interest rate of 4.34 per cent. This rate is far lower than that being charged by our European partners.

The IMF loans are partially in euro, sterling, dollars and yen. The cost of hedging against exchange rate risks has brought the effective interest rate up to 5.2 per cent but there are no such costs associated with loans from the EU as all loans are in euro.

Therefore, the interest rate on the loans from the EU should be compared with the 4.34 per cent rate being charged by the IMF.

By contrast, it is plain to see that the interest rates being charged on loans from the European Union are unjust and unfair. They will add unnecessary hardship onto the Irish people in order to enrich our partners in Europe.

When the loans are fully drawn down, the profit margin charged to Ireland will be €1.3bn per annum.

Put another way, in addition to paying for the EU's borrowing costs, Ireland will be paying a further €1.3bn of pure profit to our partners in Europe.

Let's translate the misery that this €1.3bn bill will inflict on the Irish people. Ireland's austerity measures have been the most severe in any advanced economy during a recession in the past 30 years. Tax increases and social welfare cuts have squeezing families' incomes to the point where a third of the population now has a disposable income of less than €70 a month.

An annual transfer of €1.3bn from Irish taxpayers to European governments is a huge additional burden for a country already stretch on the rack.

€1.3 billion equates to:

- Three times the €420m raised by the changes to the Universal Social Charge introduced in December's Budget.

- A third higher than the €1bn saved by reducing public sector wages in Budget 2010.

- Three times the €370m reduction in child benefit in Budget 2010 and Budget 2011.

- One and a half times the €822mn reduction in social welfare payments in Budget 2010 and Budget 2011.

- Almost the €1.4bin saved from the introduction of the public sector pension levy.

€1.3bn is in excess of one per cent of Ireland's national income.

To put this into scale, it would be the equivalent of charging Germany a profit margin of €26bn per annum and the equivalent of charging France a profit margin of €21bn per annum.

The European Financial Stabilisation Mechanism was established under Article 122 of the Lisbon Treaty. This allows the European Council to grant financial assistance to member-states in difficulty "in a spirit of solidarity". Charging such an extortionate profit margin on top of the interest rate is stretching this principle to breaking point.

There is no solidarity in charging Ireland over €2m for every €1m it costs Europe to borrow money.

There is no solidarity in insisting on earning a profit of €1.3bn annually from Ireland after we have been hit with the greatest financial crisis in Europe's history.

There is no solidarity in forcing Ireland to raise taxes, slash wages and cut social welfare in order to pay billions of euro in profit to the rest of Europe.

There is no solidarity in profiteering from Ireland's misfortune and hardship.

Should we be asking the Attorney General on the legal status of this issue? Is the European Council in breach of the Lisbon Treaty? If so, then the next logical step would be to present our case to the European Court of Justice.

Article by Peter Mathews (Fine Gael TD) - Sunday Independent

Saturday, 14 May 2011

House Prices Will Keep Falling...

Market hasn't hit bottom despite 40pc drop in four years, say economists...

HOUSE prices are likely to continue to fall for another two years, analysts predicted yesterday.

It came as a new, official index of residential property prices from the Central Statistics Office showed a 12pc fall in the past year.

It also found that the pace of decrease has picked up in the past two months

Prices are down 40pc from their peak level in 2007.

Dublin has suffered much higher losses in value, with the crash cutting prices almost in half. In the rest of the country they are down by a third.

The fall of 47pc in the capital contrasts with a plunge of 35pc elsewhere. Sharp drops in prices were recorded in February and March. The fall of 1.7pc in each month was the highest since July 2009.

However, these decreases mainly reflect sales agreed last November when the €85bn IMF/EU bailout was agreed.

The fact that the country was being bailed out meant that the only property transactions being completed at that time were distressed sales, analysts said.

The CSO index shows that in the year to March, house prices fell by 12pc countrywide.

This compared with an annual rate of decline of 11pc in February and a fall of 15pc recorded in the 12 months to March 2010.

In Dublin, residential property prices fell by 1.8pc in March, and were 13pc lower than this time last year.

Apartment prices have collapsed by half since the peak in early 2007, Economists warned that prices could continue to fall for another two years.

A lack of bank lending and high unemployment meant it could be two years before there is a pick-up, Bloxham Stockbrokers economist Alan McQuaid said. He predicted falls of another 8pc this year.

Economist Dermot O'Leary, of Goodbody Stockbrokers, said prices could plunge by up to 20pc outside Dublin. He said the price correction was almost complete in the capital.

Overall prices were likely to fall by between 55pc and 60pc before the market stabilised.

Mr O'Leary estimated that there were between 100,000 and 140,000 vacant homes .

The CSO defended its index, standing by its decision to only look at percentage declines, and not euro values.

It said actual euro prices were too unreliable.

The new monthly index has been criticised as it only covers prices for houses on which mortgages have been issued. Cash sales, which could account for up to four out of 10 sales, are excluded.

Yesterday, Permanent TSB and the Economic and Social Research Institute said they would no longer issue an index now that the CSO one is being published.

Report by Charlie Weston - Irish Independent

Thursday, 12 May 2011

Ruins Of Celtic Tiger Frenzy...

Apartments built on banks of famed river lie in ruin...

AN apartment block built on the banks of a famed river at the height of the Celtic Tiger frenzy, has fallen into a state of dangerous neglect.

Locals in the village of Ballisodare, Co Sligo, are demanding action to make safe the derelict building that stands in the heart of the village.

They say it's a tragic relic of the building boom and is a haunt for late night drinking and anti-social behaviour.

The Mill Apartments, a colossal 74-unit complex on the site of an old mill, was developed by Michael Fitzgerald Construction Ltd, at an estimated cost of €12m and promoted as "a property that simply has it all".

Close-by is the location on the banks of the Owenmore River where poet WB Yeats is widely believed to have penned 'The Sally Gardens'.

When the state-of-the-art apartments first came on the market in 2006, two-bedroom units were selling from €320,000.

But before most were even occupied, tenants and would-be purchasers were informed there was a "problem with the building" that had to be addressed.

Since then the building has lain idle and has fallen into a state of disrepair.

When first completed, the apartments boasted ash- veneered doors, granite kitchen worktops, first-class tiling and intercom systems.

Each apartment was fitted for broadband and state-of-the-art entertainment systems.

Today, windows are smashed and glass is strewn throughout. Partition walls are kicked in, doors have been removed from their hinges and fitted kitchens and bathrooms are stripped.

Concerned local residents fear an accident in the unsecured building, which is used for late night drink and drug parties.

The local Ballisodare Community Council has made contact with the developer, the county council and the gardai in a bid to tackle the problem.

Attempts by the Irish Independent to contact the developers of the property yesterday were unsuccessful.

Report by Anita Guidera - Irish Independent

Property Auction '80's Prices...

Distressed property auction promises to offload €20m in stock at '80s prices...

ANOTHER distressed property sale will take place next month with almost €20m worth of housing stock on offer.

The sale -- to be held in Cork on June 24 -- features houses from across Munster, some at discounts of up to 60pc, and is expected to emulate the success of the first distressed property disposal in Dublin.

Organising auctioneer Noel Forde said the sale represents a "once in a lifetime chance" to obtain properties at 1980s prices.

The auction follows the success of a discounted prop-erty sale in Dublin last month which saw deals worth €14.8m struck in just six hours.

Mr Forde, of GMAC Properties in Castletownbere in west Cork, said he expects similar levels of interest.

"There is money out there and people are simply waiting for the right time to buy and the right property to invest in," he said.

"There was nothing moving in the property market for us and we were tired of sitting in our office waiting for something to happen. We saw what happened at the Dublin auction and decided to go for something similar here in Munster," he said.

Properties going under the hammer include three-bed holiday homes in west Clare on offer for €80,000 compared to their €200,000 asking price in 2006/2007.

Report by Ralph Riegel - Irish Independent

Wednesday, 11 May 2011

Full Employment To Bust...

Full employment to bust in four years...

IT took just four years for the country to go from full employment to a situation where one-in-seven people is out of work.

As recently as 2007 unemployment stood at just 4.6pc -- less than one in 20 of the workforce. That has trebled to 14.6pc today.

It may come as a shock to Celtic Tiger cubs, but you only have to go back to 1994 to find a similar proportion of people out of work.

Back then, the unemployment rate had been bobbing around 14pc for over a decade -- down only slightly from its peak of 17pc in the mid-1980s.

The difference between then and now is that a staggering 440,000 people are signing on for the dole today. Even at its worst in 1993 there were fewer than 300,000 people on the Live Register.

Then came the boom and for over a decade Ireland became a Mecca for jobseekers, both international workers and its own returning emigrants who pushed the workforce to a once unthinkable 2.1 million people.

Dole queues fell to around 150,000 during the first half of the noughties -- just one-third of today's figures -- and most of the people signing on were simply between jobs.

But it's not just the length of the dole queues that makes today's unemployment crisis so profound, it's the financial burden so many are carrying.


Increased expectations, high living costs and huge personal debt mean those on the dole today are far more likely to be crippled by mortgages and loan repayments.

The numbers signing on would also be even higher except that many women -- and an ever increasing number of men -- find themselves cut off from social welfare payments because their spouse is working, even if their lives and mortgages were built around the assumption that they would continue to earn two incomes.

The figures have been flat-lining at their current crisis level for seven months now and the Irish National Organisation of the Unemployed (INOU) foresees a bleak future.

In the 1990s, the state was a major source of new employment, but now it is actually shedding jobs, INOU spokesperson Brid O'Brien pointed out. And there is absolutely no chance of a construction boom.

Over half of those out of work are long-term unemployed.

Report by Aideen Sheehan - Irish Independent

Tuesday, 10 May 2011

In Dublin's Fair City...

Drugs, drink and the stench of urine are alive, alive oh...

Queen Elizabeth and Barack Obama are on their way to Dublin, but we won't be be in a hurry to show them sections of the city centre where drug dealers, drunks and beggars rule the roost...

It is a gloriously sunny May morning in Dublin and there's considerable drama happening outside Ireland's national theatre, The Abbey. A crowd of vagrants -- their faces ravaged by years of drug addiction -- roar obscenities at each other. They seem to be arguing over the final dregs of cider in a large plastic bottle. One of them -- a woman who looks like she's in her 40s but is probably much younger -- swings a punch at an especially emaciated man and keels over in the effort.

The commotion lasts for five minutes until they split into two groups -- the smaller bunch making their way unsteadily towards Eden Quay, the other along Marlborough Street in a northbound direction. They leave behind a trail of litter -- including the empty cider bottle.

The Abbey Street Luas stop is less than 100 metres away from the National Theatre -- and roughly the same distance again from O'Connell Street, the home of Clery's famous department store, the Spire and the Gresham Hotel.

Among the waiting crowd of shoppers and tourists is another group of drug addicts. They are hustled around the ticket machines, loudly demanding change from nervous customers.

As the tram arrives, an addict steps absent-mindedly in front of it and the driver is forced to slam on the brakes and blare the horn. That seems to be the cue for his companions to join him on the track, blocking the progress of the Luas.

What is perhaps surprising, as the tourist season kicks off and on the eve of VIP visits by Queen Elizabeth and US President Barack Obama, is how commonplace scenes like this have become on Dublin's streets.

Ireland needs the tourist euro like never before. Last year was a disaster for visitor numbers with figures showing a 15pc drop in Irish trips by overseas visitors from the previous year to 5.6 million people, and Dublin took a major hit; it lost 500,000 visitors compared to 2009.

Yet, for shoppers, workers, business owners and tourists, large swathes of Dublin city centre have become areas to be hurried through -- while side-stepping drug dealers, drug users, drunks, beggars and feral children.

Apart from a few well-heeled thoroughfares, many people, locals and visitors alike, say they feel deeply uncomfortable with what they see. They feel unsafe. They feel threatened.

Daylight or night time, it makes little difference; many of the city's streets are shabby and menacing.

Just listen to Pat Liddy, a respected Dublin historian who conducts walking tours of the city: ""There are sections of it east of O'Connell Street that are virtually no-go and even around the so-called affluent Grafton Street, there are problems. The lane-ways off it are the pits. It's all very dispiriting for a proud Dub like me."

In London and New York, huge steps have been taken to clean up tourist areas such as Leicester Square and Times Square, with intensive policing and anti-dereliction schemes. Critics say Dublin now needs the same fresh ideas to arrest its dramatic slide.

Perhaps the most startling observation comes from Ciara Sugrue of Dublin Tourism, who, in a blunt admission, said of the city: "Anti-social behaviour rules the roost."

Angry that their funding from Fáilte Ireland is minuscule compared to the rest of the country, Dublin Tourism says a run-down capital is having a hugely detrimental impact on our potential.

Sugrue points out that Dublin was the sixth most popular European capital in 2007 but the city has now slipped out of the top 10 to 11th.

Senior gardaí admit there are problems, but they insist the force is making progress.

Yet the evidence is hard to ignore. The owner of one tourism business said some of his visitors have vowed never to return to Dublin.

"They're shocked by the poverty, the on-street drinking, the urination, the petty thefts," said Cathal O'Connell of Paddy Wagon, which caters for backpackers.

The city's increasingly ugly face can be seen at first hand in a long walk around the city centre -- north and south of the river -- a litany of nastiness in broad daylight.

In just a few daylight hours last week, I witnessed what many people in the city see every day: a drug deal in a laneway off Eden Quay, as two young men exchanged a tiny plastic bag and money.

Nearby a man lay prostrate on the pretty boardwalk near the Ha'penny Bridge. Under the blooming hanging baskets, he lay prone with blood and vomit soaking his tattered T-shirt.

Near Mulligan's famous pub on Poolbeg Street -- a must for any visitor -- a man dropped his trousers in broad daylight and urinated, his waste streaking the pavement just metres away from disgusted female passers-by.

Minutes later, near Mabbot Lane, teenage girls from an English lacrosse team stood transfixed as a drug-addled couple verbally abused each other in front of them. The female was accusing her partner of beating their child.

Nearby, another tourist favourite -- a line of Dublin Bikes -- was under assault. A group of feral children, oblivious to the onlookers, hacked away at the machines's tyres, saddles and bells, in an attempt to render them unusable.

Everyone seems to have a story. Tom O'Neill and his wife, Anna, a couple in their 50s, were visiting last week from upstate New York, their first visit to Tom's ancestral country. Both were shocked at how grubby Dublin city is and the extent of public drinking -- a criminal offence in the US.

The couple had been looking for the famous Pro-Cathedral in Marlborough Street. "We're staying near Merrion Square and that part of the Dublin is lovely," Tom said, "but I can't get over the difference on this side of the river. I'd no idea there were so many homeless people in Ireland, and there seems to be a major drug problem, too.

"The concierge told us to be careful about coming to this side of town at night time and I can see exactly what he means. We don't feel very safe now. The camera is staying in the bag."

It was a feeling mirrored by Rie and Michael, a pair of marketing students from Denmark, staying in a hostel on Gardiner Street. Neither wanted to walk the area at night.

"Copenhagen has its problems too," Michael said, "but you don't really see it in the centre of the city where the tourists are. I can't believe how many people seem to be drunk in the middle of the day, falling about."

The pair laughed when told Dublin 1 was -- long before the introduction of postcodes -- the most prestigious part of the city. "Well, it definitely does not feel like that now," Rie said. "That must have been a long time ago."

It is indeed difficult to imagine that this part of our capital was far more fashionable than the southside in the early 18th century. It was only when the Duke of Leinster built his imposing townhouse on what's now Kildare Street that the moneyed set followed him across the Liffey.

The north inner city has never truly recovered. O'Connell Street may have had a much-needed facelift in recent years, but the streets off it remain down at heel. It's clear that today's issues are not just about policing; Dublin City Council has much to answer for too.

One need only venture into Sackville Place to see how derelict this part of Dublin truly is. Once you go past the Clery's building you step back to a world that remained untouched by the Celtic Tiger.

There's a desolate row of shops, almost all unoccupied. Last week, an old man lay sleeping in a doorway. The lane near it, Earl Place, is so uninviting, even the homeless avoid it.

I retraced my footsteps and walked down Marlborough Street. There was a persistent smell of urine and it was impossible to walk up the street without noticing the sheer numbers of drug addicts congregating here.

Drug treatment centres pockmark Dublin 1 -- and this is the result, on a once magnificent street parallel to O'Connell Street and just 100m away.

At the corner where Marlborough, Talbot and North Earl streets meet, staff who work in the shops here are on constant alert. Just a stone's throw from the Pro-Cathedral and the HQ of the Department for Education, the area is a notorious hang-out for drug dealers and shoplifters.

West of O'Connell Street and it's much the same story. Middle Abbey and Henry streets are comparatively free of anti-social behaviour, but once you reach Wolfe Tone Park (behind the Jervis Shopping Centre) and environs, it's a depressingly familiar story.

Last week, the park was teeming with tourists and workers having lunch, yet the mood was dominated by a group of drunk men, congregating near The Church pub, and a large group of teenage boys, shouting foul language at strangers and themselves.

Up at Smithfield, a plaza re-developed at vast public expense, the smell of failure was everywhere. The Lighthouse Cinema has closed and numerous other businesses are boarded up. The square was deserted.

I completed my walk on Middle Abbey Street and watched a group of Romany gypsies harassing customers having coffee outside Arnotts. Anti-begging legislation was introduced last year and has been a qualified success, but gangs are still operating across the city.

It's a scene -- like so many others I witnessed on the Dublin tourist trail -- that is almost guaranteed to make visitors say: "We'll never come back again. And we'll advise our friends never to visit Dublin ... "

Article by John Meagher - Irish Independent

Sunday, 8 May 2011

Ireland Is B***ixed!

'Ireland is b***ixed' says hairdresser to the stars Marshall as iconic salon shuts...

Iconic Dublin hair stylist David Marshall, has shut his flagship salon on Dawson Street after 30 years.

The salon, which opened in 1981, closed for business after struggling with high overheads.

Mr Marshall blamed the salon's closure on the pressures of high rents and overheads at a time when business was retracting.

"It's an awful lot of pressure on small businesses," he said. "You are going to see a lot more closures over the next couple of years."

Mr Marshall, one of Ireland's most famous stylists, is now focussing on the David Marshall Academy and School, where he will still be on hand to tend the locks of his long-standing clients.

He continued: "It's a sad day but the whole country is b***ixed," he said. "In my mind there is no give for small businesses anymore."

He said there will be some job "casualties" when the business is wound up but he hoped not too many.

Mr Marshall plans to develop the Academy on Dublin's South Great Georges Street in the coming years. As well as being a training academy, he said "we will cater for any clients that we can here."

The flamboyant hairdresser, who drives a Harley-Davidson, was Ireland's original celebrity hairdresser. He left school in Mohill, Co Leitrim, after doing his 'Inter certificate' and started work as a £3 a week apprentice with the London hairdresser Vidal Sassoon in the late 1960s. He returned to Dublin and opened his first salon on Fade Street in 1974. He went on to open his flagship Dawson Street salon and the David Marshall Academy and School followed.

He and his then wife Jackie Rafter featured in the social pages almost as much as his celebrity clients, who have included Bono and his wife Ali Hewson.

"When we started out in 1974 on Fade Street, there was a serious recession and again in the 1980s. We managed that and we'll manage this one, hopefully, collectively," he said.

The salon is the latest high profile business to close on Dawson Street. Earlier this year, Waterstones shut its flagship book store on the street. Other casualties of high rents and declining sales in the Grafton Street area have been West Jewellers and Hughes & Hughes bookshop.

Carluccios restaurant on the corner of Dawson Street and Duke Street famously shut down for a week last year after failing to secure a rent reduction. It later re-opened when the landlords agreed to drop the rent.

Another Dublin institution, the Bad Ass Cafe, the first 'trendy restaurant' to open in Temple Bar before the area was designated a cultural centre also closed recently. The informal diner opened in 1983 in Temple Bar and over the years has fed U2, Bruce Springsteen, Paul Young and Westlife.

Meanwhile, one of Dublin's best known art galleries, the Oriel Gallery, on Clare Street, is expected to be put in the hands of a liquidator at a creditors meeting later this month.

The gallery has been in business since 1968, when it was opened by well-known art dealer, the late Oliver Nulty.

Another casualty in recent days has been the well-known south Dublin car dealer Maxwell Motors in Blackrock, Co Dublin, according to documents filed in the companies office by receiver Michael McAteer of Grant Thorton.

Report by MAEVE SHEEHAN - Sunday Independent

Irish Taxed To The Hilt...

Stealth charges force us to suffer a lifetime of levies.

Whether it's pensions, insurance or just going to the shop, we're all being taxed to the hilt...

STEALTH taxes have us in their icy grip from cradle to grave -- from the €10 to register a birth to the €10 death-certificate charge when we finally leave a life of levies and hidden charges.

At all points between we are bombarded with demands for money from the State and private companies acting at its behest.

There is no escape. All we can do is bend the knee to our revenue-raising overlords and watch as the money we earn, already taxed to the hilt at source, is taxed again and again as it leaves our purse or pocket.

And a range of increased charges is on its way. The levy for sending waste to landfill will more than double between now and 2012. From September -- it will rise from the current €30 per tonne of waste to €50 a tonne, increasing to €65 in July 2012, and €75 in July 2013. Do we really think the private waste companies are not going to pass it on to customers?

The simple act of buying a bottle of cola in a shop on the main street is now a sharp lesson in multiple taxation and charges that would be almost laughable if they weren't such a source of misery to tens of thousands. You work hard for a living and pay income tax on your earnings. Then you are hit with the new, rapacious Universal Social Charge (USC), designed to amalgamate the health and income levies introduced, and then increased substantially, in the last three years.

But the USC is bigger than both original charges combined for the vast majority of workers. Even those on a medical card pay it, albeit at a reduced rate.

The USC is seven per cent on any income higher than €16,016 and is imposed on gross income and, importantly, before deductions for a pension. So many of us are being taxed on the treble before we take home a penny.

Then there's private health insurance, which, in the case of the VHI, has increased more than 100 per cent in the last decade. All this for the right to jump many hospital queues ahead of the less well-off. All private healthcare policies have a standard €205 levy per adult imposed on each policy each year. Most people are completely unaware of this.

Back to our bottle of cola. You drive into a town or village. There is a charge for on-street and off-street parking in almost all urban areas now, or a hefty fine from a private or State-employed warden if you get caught not paying.

And be careful of the speed cameras. The new, harsh regime is looking less and less like a road-safety measure and more and more like a revenue-raising exercise, given the concentration of resources aimed at law-abiding soft targets driving a few kilometres over the speed limit rather than boy racers.

By the time you get to the shop you have already effectively been hit by four taxes -- the USC, income tax and pension levy on the money you have available to buy the cola, and then there's motor tax on the car, parking charges and tax on fuel. A plastic-bag levy of 22c to carry the soft drink home adds to the burden, as does the money you spend to dispose of the plastic bottle in the recycling bin, which makes it a neat half dozen of direct and indirect taxation.

Then there's road tax, which is about to be increased, with Department of Environment officials feverishly working on a review of tax bands likely to result in hikes across the board.

The motor-tax system introduced in 2008, inspired by the Green Party, which allowed drivers of more fuel-efficient cars to pay less tax every year has been deemed too successful, resulting in a fall in revenues.

The bi-annual National Car Test will now be increased to annual €50 tests for vehicles 10 years or older.

And all those increased road-tax charges haven't stopped the massive rise in road toll charges. It now costs €6.50 to drive from the wrong side of the East Link to Galway. Isn't that what our road tax was supposed to pay for? And it is odds-on that toll charges will rise soon.

In the Programme for Government, there is a proposal to introduce a property tax or site-value tax, and the Department of Finance is examining how best to collect more money from householders at a time when tens of thousands are struggling to meet their basic mortgage payments and their utility bills. And water charges are on the way.

Bord Gais announced last week that it was writing off more than €26m in outstanding unpaid bills. About 115,000 people are in arrears for more than two months. In the first three months of this year, around 100,000 ESB customers entered payment plans, agreeing to pay off arrears in instalments.

Airport charges and taxes are other costs of living that have increased substantially in recent years. Day-trippers going to the Heineken Cup final in Cardiff at the end of the month can expect to pay €75 extra because of charges imposed in both Dublin and the Welsh capital as part of their air-ticket price.

The TV licence fee is now €160 a year. Because more and more people are watching television on their computers, Communications, Energy and Natural Resources Minister Pat Rabbitte wants to replace the licence fee with a new household charge. Expect legislation before the summer and we will probably all end up paying more. Now it's even getting too expensive to stay in. The most damnable thing is that those who live their lives with prudence and a degree of parsimony by looking after the more important things in life seem to be hit hardest.

The new levy on private pensions will cost around €500 a year, while the losses at Quinn Insurance will mean we all have to pay an extra levy on all motor and home insurance policies -- likely to be set at between one per cent and two per cent of the premium cost.

There's a three per cent stamp duty, which applies on all non-life insurance policies, and another one per cent levy on all life assurance policies -- including the policies we take out to protect our mortgage.

This is by no means a complete list of the taxes and charges that are killing us by stealth. Perhaps the €10 death certificate charge will come as a blessed relief.

Report by Jerome Reilly - Sunday Independent

Saturday, 7 May 2011

Ireland Is Facing Economic Ruin...

Ireland's future depends on breaking free from bailout...

OPINION: Ireland is heading for bankruptcy, which would be catastrophic for a country that trades on its reputation as a safe place to do business.

WITH THE Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed.

Ireland is facing economic ruin.

While most people would trace our ruin to to the bank guarantee of September 2008, the real error was in sticking with the guarantee long after it had become clear that the bank losses were insupportable. Brian Lenihan’s original decision to guarantee most of the bonds of Irish banks was a mistake, but a mistake so obvious and so ridiculous that it could easily have been reversed. The ideal time to have reversed the bank guarantee was a few months later when Patrick Honohan was appointed governor of the Central Bank and assumed de facto control of Irish economic policy.

As a respected academic expert on banking crises, Honohan commanded the international authority to have announced that the guarantee had been made in haste and with poor information, and would be replaced by a restructuring where bonds in the banks would be swapped for shares.

Instead, Honohan seemed unperturbed by the possible scale of bank losses, repeatedly insisting that they were “manageable”. Like most Irish economists of his generation, he appeared to believe that Ireland was still the export-driven powerhouse of the 1990s, rather than the credit-fuelled Ponzi scheme it had become since 2000; and the banking crisis no worse than the, largely manufactured, government budget crisis of the late 1980s.

Rising dismay at Honohan’s judgment crystallised into outright scepticism after an extraordinary interview with Bloomberg business news on May 28th last year. Having overseen the Central Bank’s “quite aggressive” stress tests of the Irish banks, he assured them that he would have “the two big banks, fixed by the end of the year. I think it’s quite good news The banks are floating away from dependence on the State and will be free standing”.

Honohan’s miscalculation of the bank losses has turned out to be the costliest mistake ever made by an Irish person. Armed with Honohan’s assurances that the bank losses were manageable, the Irish government confidently rode into the Little Bighorn and repaid the bank bondholders, even those who had not been guaranteed under the original scheme. This suicidal policy culminated in the repayment of most of the outstanding bonds last September.

Disaster followed within weeks. Nobody would lend to Irish banks, so that the maturing bonds were repaid largely by emergency borrowing from the European Central Bank: by November the Irish banks already owed more than €60 billion. Despite aggressive cuts in government spending, the certainty that bank losses would far exceed Honohan’s estimates led financial markets to stop lending to Ireland.

On November 16th, European finance ministers urged Lenihan to accept a bailout to stop the panic spreading to Spain and Portugal, but he refused, arguing that the Irish government was funded until the following summer. Although attacked by the Irish media for this seemingly delusional behaviour, Lenihan, for once, was doing precisely the right thing. Behind Lenihan’s refusal lay the thinly veiled threat that, unless given suitably generous terms, Ireland could hold happily its breath for long enough that Spain and Portugal, who needed to borrow every month, would drown.

At this stage, with Lenihan looking set to exploit his strong negotiating position to seek a bailout of the banks only, Honohan intervened. As well as being Ireland’s chief economic adviser, he also plays for the opposing team as a member of the council of the European Central Bank, whose decisions he is bound to carry out. In Frankfurt for the monthly meeting of the ECB on November 18th, Honohan announced on RTÉ Radio 1’s Morning Ireland that Ireland would need a bailout of “tens of billions”.

Rarely has a finance minister been so deftly sliced off at the ankles by his central bank governor. And so the Honohan Doctrine that bank losses could and should be repaid by Irish taxpayers ran its predictable course with the financial collapse and international bailout of the Irish State.

Ireland’s Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: “You are Ireland’s salvation.”

The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.

The negotiations went downhill from there. On one side was the European Central Bank, unabashedly representing Ireland’s creditors and insisting on full repayment of bank bonds. On the other was the IMF, arguing that Irish taxpayers would be doing well to balance their government’s books, let alone repay the losses of private banks. And the Irish? On the side of the ECB, naturally.

In the circumstances, the ECB walked away with everything it wanted. The IMF were scathing of the Irish performance, with one staffer describing the eagerness of some Irish negotiators to side with the ECB as displaying strong elements of Stockholm Syndrome.

The bailout represents almost as much of a scandal for the IMF as it does for Ireland. The IMF found itself outmanoeuvred by ECB negotiators, their low opinion of whom they are not at pains to conceal. More importantly, the IMF was forced by the obduracy of Geithner and the spinelessness, or worse, of the Irish to lend their imprimatur, and €30 billion of their capital, to a deal that its negotiators privately admit will end in Irish bankruptcy. Lending to an insolvent state, which has no hope of reducing its debt enough to borrow in markets again, breaches the most fundamental rule of the IMF, and a heated debate continues there over the legality of the Irish deal.

Six months on, and with Irish government debt rated one notch above junk and the run on Irish banks starting to spread to household deposits, it might appear that the Irish bailout of last November has already ended in abject failure. On the contrary, as far as its ECB architects are concerned, the bailout has turned out to be an unqualified success.

The one thing you need to understand about the Irish bailout is that it had nothing to do with repairing Ireland’s finances enough to allow the Irish Government to start borrowing again in the bond markets at reasonable rates: what people ordinarily think of a bailout as doing.

The finances of the Irish Government are like a bucket with a large hole in the form of the banking system. While any half-serious rescue would have focused on plugging this hole, the agreed bailout ostentatiously ignored the banks, except for reiterating the ECB-Honohan view that their losses would be borne by Irish taxpayers. Try to imagine the Bank of England’s insisting that Northern Rock be rescued by Newcastle City Council and you have some idea of how seriously the ECB expects the Irish bailout to work.

Instead, the sole purpose of the Irish bailout was to frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted. And the ECB plan, so far anyway, has worked. Given a choice between being strung up like Ireland – an object of international ridicule, paying exorbitant rates on bailout funds, its government ministers answerable to a Hungarian university lecturer – or mending their ways, the Spanish have understandably chosen the latter.

But why was it necessary, or at least expedient, for the EU to force an economic collapse on Ireland to frighten Spain? The answer goes back to a fundamental, and potentially fatal, flaw in the design of the euro zone: the lack of any means of dealing with large, insolvent banks.

Back when the euro was being planned in the mid-1990s, it never occurred to anyone that cautious, stodgy banks like AIB and Bank of Ireland, run by faintly dim former rugby players, could ever borrow tens of billions overseas, and lose it all on dodgy property loans. Had the collapse been limited to Irish banks, some sort of rescue deal might have been cobbled together; but a suspicion lingers that many Spanish banks – which inflated a property bubble almost as exuberant as Ireland’s, but in the world’s ninth largest economy – are hiding losses as large as those that sank their Irish counterparts.

Uniquely in the world, the European Central Bank has no central government standing behind it that can levy taxes. To rescue a banking system as large as Spain’s would require a massive commitment of resources by European countries to a European Monetary Fund: something so politically complex and financially costly that it will only be considered in extremis, to avert the collapse of the euro zone. It is easiest for now for the ECB to keep its fingers crossed that Spain pulls through by itself, encouraged by the example made of the Irish.

Irish insolvency is now less a matter of economics than of arithmetic. If everything goes according to plan, as it always does, Ireland’s government debt will top €190 billion by 2014, with another €45 billion in Nama and €35 billion in bank recapitalisation, for a total of €270 billion, plus whatever losses the Irish Central Bank has made on its emergency lending. Subtracting off the likely value of the banks and Nama assets, Namawinelake (by far the best source on the Irish economy) reckons our final debt will be about €220 billion, and I think it will be closer to €250 billion, but these differences are immaterial: either way we are talking of a Government debt that is more than €120,000 per worker, or 60 per cent larger than GNP.

Economists have a rule of thumb that once its national debt exceeds its national income, a small economy is in danger of default (large economies, like Japan, can go considerably higher). Ireland is so far into the red zone that marginal changes in the bailout terms can make no difference: we are going to be in the Hudson.

The ECB applauded and lent Ireland the money to ensure that the banks that lent to Anglo and Nationwide be repaid, and now finds itself in the situation where, as a consequence, the banks that lent to the Irish Government are at risk of losing most of what they lent. In other words, the Irish banking crisis has become part of the larger European sovereign debt crisis.

Given the political paralysis in the EU, and a European Central Bank that sees its main task as placating the editors of German tabloids, the most likely outcome of the European debt crisis is that, after two years or so to allow French and German banks to build up loss reserves, the insolvent economies will be forced into some sort of bankruptcy.

Make no mistake: while government defaults are almost the normal state of affairs in places like Greece and Argentina, for a country like Ireland that trades on its reputation as a safe place to do business, a bankruptcy would be catastrophic. Sovereign bankruptcies drag on for years as creditors hold out for better terms, or sell to so-called vulture funds that engage in endless litigation overseas to have national assets such as aircraft impounded in the hope that they can make a sufficient nuisance of themselves to be bought off.

Worse still, a bankruptcy can do nothing to repair Ireland’s finances. Given the other commitments of the Irish State (to the banks, Nama, EU, ECB and IMF), for a bankruptcy to return government debt to a sustainable level, the holders of regular government bonds will have to be more or less wiped out. Unfortunately, most Irish government bonds are held by Irish banks and insurance companies.

In other words, we have embarked on a futile game of passing the parcel of insolvency: first from the banks to the Irish State, and next from the State back to the banks and insurance companies. The eventual outcome will likely see Ireland as some sort of EU protectorate, Europe’s answer to Puerto Rico.

Suppose that we did not want to follow our current path towards an ECB-directed bankruptcy and spiralling national ruin, is there anything we could do? While Prof Honohan sportingly threw away our best cards last September, there still is a way out that, while not painless, is considerably less painful than what Europe has in mind for us.

National survival requires that Ireland walk away from the bailout. This in turn requires the Government to do two things: disengage from the banks, and bring its budget into balance immediately.

First the banks. While the ECB does not want to rescue the Irish banks, it cannot let them collapse either and start a wave of panic that sweeps across Europe. So, every time one of you expresses your approval of the Irish banks by moving your savings to a foreign-owned bank, the Irish bank goes and replaces your money with emergency borrowing from the ECB or the Irish Central Bank. Their current borrowings are €160 billion.

The original bailout plan was that the loan portfolios of Irish banks would be sold off to repay these borrowings. However, foreign banks know that many of these loans, mortgages especially, will eventually default, and were not interested. As a result, the ECB finds itself with the Irish banks wedged uncomfortably far up its fundament, and no way of dislodging them.

This allows Ireland to walk away from the banking system by returning the Nama assets to the banks, and withdrawing its promissory notes in the banks. The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner. At some stage the ECB can take out an eraser and, where “Emergency Loan” is written in the accounts of Irish banks, write “Capital” instead. When it chooses to do so is its problem, not ours.

At a stroke, the Irish Government can halve its debt to a survivable €110 billion. The ECB can do nothing to the Irish banks in retaliation without triggering a catastrophic panic in Spain and across the rest of Europe. The only way Europe can respond is by cutting off funding to the Irish Government.

So the second strand of national survival is to bring the Government budget immediately into balance. The reason for governments to run deficits in recessions is to smooth out temporary dips in economic activity. However, our current slump is not temporary: Ireland bet everything that house prices would rise forever, and lost. To borrow so that senior civil servants like me can continue to enjoy salaries twice as much as our European counterparts makes no sense, macroeconomic or otherwise.

Cutting Government borrowing to zero immediately is not painless but it is the only way of disentangling ourselves from the loan sharks who are intent on making an example of us. In contrast, the new Government’s current policy of lying on the ground with a begging bowl and hoping that someone takes pity on us does not make for a particularly strong negotiating position. By bringing our budget immediately into balance, we focus attention on the fact that Ireland’s problems stem almost entirely from the activities of six privately owned banks, while freeing ourselves to walk away from these poisonous institutions. Just as importantly, it sends a signal to the rest of the world that Ireland – which 20 years ago showed how a small country could drag itself out of poverty through the energy and hard work of its inhabitants, but has since fallen among thieves and their political fixers – is back and means business.

Of course, we all know that this will never happen. Irish politicians are too used to being rewarded by Brussels to start fighting against it, even if it is a matter of national survival. It is easier to be led along blindfold until the noose is slipped around our necks and we are kicked through the trapdoor into bankruptcy.

The destruction wrought by the bankruptcy will not just be economic but political. Just as the Lenihan bailout destroyed Fianna Fáil, so the Noonan bankruptcy will destroy Fine Gael and Labour, leaving them as reviled and mistrusted as their predecessors. And that will leave Ireland in the interesting situation where the economic crisis has chewed up and spat out all of the State’s constitutional parties. The last election was reassuringly dull and predictable but the next, after the trauma and chaos of the bankruptcy, will be anything but.

Article by MORGAN KELLY - Irish Times.

The Fragile Eurozone...

Eurozone growing ever more fragile...

THE EU united last night in its denials of reports that Greece was preparing to leave the eurozone. These ranged from the EU Commission to the German government to the Greek finance ministry itself. Other governments across the 17-member currency union were also prepared to dismiss the report.

Yet the mere hint of such a move was enough to push the single currency down almost 1.5pc -- its biggest drop against the dollar in a year. The report, carried in the German magazine 'Der Spiegel', suggested the Greeks were looking to leave the euro because their debts had become unsustainable.

The fact that a leading and reputable German news magazine could suggest such an eventuality simply highlights just how fragile the eurozone has become. It also highlights just how inadequate the European response has been to this economic crisis which began in January 2010. The European approach has been to place a sticking plaster over the problem -- and heavily indebted countries have simply been asked to pile up even more debt.

While Angela Merkel and Nicolas Sarkozy have ruled out -- at least for now -- allowing countries to default on their debts, the markets have refused to stop talking about it, and many observers believe this is where Greece is heading.

Technically a default can be carried out in the eurozone or outside it. Either way the departure of a single country from the eurozone would be likely to cause serious economic disruption across the continent, including here. On the plus side, it would allow Ireland to make itself more competitive by the country going back to the old Irish punt, which would be far less valuable than other European currencies and that would boost our exports.

But this apparent positive is hugely outweighed by a range of negatives. These include what would happen to all the debts Ireland's banks owe other lending institutions and the ECB. They are priced in euros and if Ireland reverted to the Irish punt, paying off this debt would be even harder than before. There is the long-term question of how would Ireland access the European market if is was no longer part of the bigger club, particularly if that club included giant economies such as German and France.

How this latest twist in a crisis is handled will be crucial to avoid a potential feeding frenzy on the markets and to show the stewardship Europe needs to secure its future.

Report - Irish Independent

Friday, 6 May 2011

Ghost Busters!

National group to oversee efforts to deal with ghost estates...

A NATIONAL co-ordination group is to be established within weeks to oversee action by local authorities in dealing with the most problematic ghost housing estates, according to Minister of State for Housing and Planning Willie Penrose.

Addressing the Irish Planning Institute’s annual conference in Galway yesterday, he said one of his top priorities was that “clear, decisive and proactive actions are taken to progressively resolve the issues with unfinished housing developments”.

It has emerged that the National Asset Management Agency (Nama) has 10 per cent of about 150 of the worst ghost estates that are unfinished and pose health and safety issues.

The vast majority of the ghost estates that require the most work were financed by the foreign-owned banks operating in Ireland.

About 28 per cent of the loans at Nama relate to land and development and about 16 per cent are in the Dublin area, where there is a greater demand for housing.

Mr Penrose, who is to chair the co-ordination group, said his officials were already “working hard on innovative ways to find positive uses for vacant housing, including the leasing or purchase of units from Nama” for families on local authority waiting lists.

He will shortly be receiving a report by the Advisory Group on Unfinished Housing Developments, made up of community, central and local government, professional banking, construction representatives, and planners, and he said this would be published.

Mr Penrose said the planning system should be “focusing demand in a way that will rekindle market interest in stalled developments”, while the “core strategy” approach that must now be adopted would help rationalise the “excessive zoning” of recent years.

Referring to the 2010 Planning Act, he said planning was now supported by “evidence-based requirements” and linked to the Government’s strategic plan and capital allocations for infrastructure and suitably located services.

“We are constructively tackling the legacy of over-zoning and moving towards a more co-ordinated and joined-up approach to the delivery of critical services such as schools, public transport, water services and social housing,” he said.

“We are refocusing on revitalising our city and town centres, moving against the tendency of the Celtic Tiger era to envisage extensive, even sprawling extensions of our cities and towns, drawing the lifeblood out of older, established central urban areas.”

However, the institute’s president, Gordon Daly, called for a Government policy on planning that would “set out a clear road map for the country’s physical planning over the next five to 10 years” and harness the potential of agri-food, tourism and renewable energy.

Complaining that policy in the past had been “far too dependent on the vagaries of the marketplace”, Mr Daly said: “We need to have a wider vision and this policy would achieve this by bringing a more balanced view on where we need to go for the future.”

He also moved to allay fears among councillors that the 2010 Act had shifted power to central government, saying he believed it “puts real power in the hands of councillors to make the key decisions” on population growth, housing, transport, retail and services. Referring to a reduction of 25 per cent in the number of planners in local authorities over the past two years, Mr Daly said “we must get more from less”.


Millions Lost In Land Dezoning...

Millions wiped off value of land in dezoning...

DEVELOPERS have taken massive hits on the value of their land banks, as one-in-three local authorities have dezoned land earmarked for development.

The moved has wiped hundreds of millions off the value of land across the country -- with taxpayers facing a massive bill for NAMA loans linked to land returning to agricultural use.

Planning Minister Willie Penrose said yesterday that 12 of the State's 34 local authorities had made changes to their development plans which has resulted in thousands of sites now being classed as unsuitable for development.

Last year, local authorities were ordered to dezone, rezone or forbid development on massive land banks to comply with tough new planning guidelines which set out where houses and commercial units could be built.

The move came because councillors had zoned enough land during the boom years to build more than a million homes that were not needed.

Councils had previously zoned more than 44,000 hectares of land for housing over the past decade.

This was 31,633 hectares more than was actually needed.

Any development land that is dezoned instantly loses a huge portion of its value.

This equates to enough land for almost 1.5m houses and apartments -- but just 400,000 units are needed up to 2016, according to the Department of the Environment.


Speaking at the National Planning Conference in Galway, the minister said that 12 local authorities have already changed their development plans, adding that all 34 councils will have dezoned land by the end of October.

"I recognise that this is a difficult task for local authorities but I am encouraged at the progress made to date," he said.

A reliance on development levies along with pressure from developers and landowners led to a frenzy of rubber-stamping during the boom. One-third, or €20bn, of the toxic property loans going into NAMA are linked to land, meaning taxpayers could be stuck with massive loans linked to fields that may never be developed.

Mr Penrose also said that a blueprint to tackle ghost estates is to be published next week.

More than 2,800 housing estates have been identified where construction has started but has not been completed.

Report by Paul Melia, Brian McDonald and Treacy Hogan - Irish Independent

Thursday, 5 May 2011

Cut Price Homes Beside Google...

Homes beside Google down 65% from peak...

Over 800 people on list for 26 apartments and houses beside Google HQ with prices starting at €155,000

APARTMENTS and townhouses beside Google’s headquarters in Barrow Street, Dublin 4, go on sale today with prices starting at €155,000 – down an average 65.5 per cent from their peak values in 2006.

Twenty of the Liam Carroll-built apartments along with six townhouses in the popular development are being sold by receiver Grant Thorton through sales agents HT Meagher O’Reilly New Homes.

In an unusual move, Ulster Bank which financed Liam Carroll to build the development, is to offer mortgages for the purchase of the units, and will consider applications from investors as well as owner occupiers. Until now banks have been refusing mortgages to investors.

However, David Browne of HT Meagher O’Reilly expects the units to sell mainly to cash buyers.

The agency already has a database of over 800 potential buyers for the one, two and three-bedroom units all of which come with underground parking spaces.

The apartments are located in three blocks in the scheme, The Clayton, The Dickens and The Hibernian.There are none available in the circular building housed within the old gasometer where 200 units were rented out rather than sold

One-beds range in price from €155,000, for a unit that does not have much of a view, to €199,000 for a splendid fifth floor apartment with a ringside view of the Aviva stadium.

A spacious three-bedroom penthouse with the same south-facing view, and a long balcony is priced at €385,000. On average, two-bedroom apartments are priced at €270,000, a reduction of 65 per cent from the peak price of €765,000 including parking.

A row of three-bedroom town houses are priced between €350,000 and €370,000, down 60 per cent from their 2006 peak price of €950,000. These have rented out for up to €1,800 each.

According to Browne, the majority of the units will be sold with vacant possession, though some are tenanted. Rents are strong thanks to the Google workforce. One-bedroom units are currently letting at €1,050 to €1,200, according to Browne, while two-beds are making €1,250 to €1,400.

The Gasworks is one of the most densely built sites in the capital with a total of about 600 units.

Report by ORNA MULCAHY - Irish Times

Wednesday, 4 May 2011

EU Threatened By Its Central Bank...

EU now being threatened by its own central bank...

IN the late 1980s, while studying at the College of Europe in Bruges, I was struck by just how pragmatic the European project appeared to be.

Many of the lecturers and professors were deep EU "insiders" -- distinguished academics from all over Europe who had excelled in their own fields. They seemed to be the pinnacle of cosmopolitan sophistication, enlightened and aware of the various strands that had to be pulled together carefully to make the EU work.

Back then, any moves towards more European power were characterised by patience and prescience -- a little move here, a pull back there, never overplaying the hand and, above all, the entire process seemed to be non-ideological.

Over the past 10 years, this has changed. European wisdom has been replaced by EU dogma; lateral thinking exchanged for tunnel vision. The ECB is to blame.

Those who, during the boom, pointed out that there was a central problem at the heart of the euro were dismissed as cranks. Now there appears to be a realisation that, from Ireland's point of view, the entire euro project might not have been the smartest thing to do. And from an economic perspective, it is becoming apparent that we can't get out of this mess quickly in a single currency with low inflation.

Historically, when a country has been hit by the bursting of a property bubble, a bank crisis and the destruction of the national balance sheet, this has been followed by a massive devaluation of the currency.

This allows three things to happen. First, the country becomes internationally competitive quickly and the exporting sector -- not only the multinational sector but also the domestic exporting sector - gets an immediate boost. Second, the subsequent inflation allows a drop in public sector salaries and the wage bill without huge pay cuts -- which is politically easier to achieve. And third, the same inflation begins the process of inflating away the huge debts built up in the boom, reducing the need for debt forgiveness and reducing the likelihood of default.

That's the way the economy works. It is what happened in the Asian Tigers in the late 1990s and Finland and Sweden in the early 1990s. It is not that complicated really.

However, in a currency union, this process can't happen. What happens instead of the currency falling is that people's wages are supposed to fall. It is important to remember that we are flying blind here. We are in a trial and error process because there has never been a currency union without political union, so we don't know for sure where this will end. But what looks likely is that the dogma of the ECB will cause successive Irish governments to try to grind down wages and prices in order to be competitive. This will take years and much strife.

What does this "drawn out" grinding process do to an economy? In an economy that is facing a balance sheet meltdown -- where the middle classes' balance sheet is bust -- such an approach will result in more financial insecurity, causing people to spend less, not more and result in higher unemployment. Higher unemployment results in a higher social welfare bill, which combined with less taxes causes the budget deficit to explode. This increases the default risk. This is exactly what the financial markets are saying to us. The rate of interest on Irish bonds is over 10pc because the market thinks that the "ECB" approach will make default more, not less, likely.

Unfortunately, our deep establishment -- the political, the academic and the media -- has adopted a position which sees any questioning of the euro project as being "unpatriotic" and "dangerous". Therefore, debate on the currency and the likely trajectory for the Irish economy and people is being actively quashed because to question the wisdom of European central bankers is being seen as unpatriotic. When did questioning a German or French banker's motives and intelligence become anti-Irish?

But this is what has happened. The ECB -- which is only a central bank after all -- has a veto on Irish economic policy. Isn't it time for all of us to question just who are these people, who has mandated them and who are they to dictate anything to anybody?

These guys are there to represent the banking industry, not the people. If the banks' interests and the people's interests move in tandem, then the ECB's world view might reflect our world. But when that changes, as is the case now, we should change and they should listen. But will that happen? Not likely.

Anyone who actually cared to think about it and had any experience with European central bankers would have known that giving a faceless bunch of central bankers the veto over economic policy might have resulted in problems. In the boom, the legates of the ECB in Ireland -- top brass of the Irish Central Bank and the Regulator -- failed miserably and the ECB did nothing. In fact, the ECB presided over a financial crack house with banks in the core lending recklessly to banks on the periphery.

Now the ECB is behind the policy of paying bank bondholders every cent, while the real people of countries like Ireland have to endure deep reductions in their living standards. The logic is that all this austerity will somehow lead to economic growth.

But we know that the Irish economy is shrinking, bank lending falling, insolvencies rising and unemployment rising. This is not growth; it is the opposite of growth. The problem with the ECB is that it seems to believe that there is no economic problem that cannot be answered by austerity.

So, for example, when the economy is growing and in danger of overheating, the solution is cuts in public expenditure and increases in taxes. But when the economy is moribund and in danger of depression, the answer is again, more cuts and increased taxation.

When there is inflation, the answer is austerity and when there is deflation the answer is austerity and when there is stagflation the answer is -- yes, you guessed it, austerity!

So these guys are stuck in an intellectual cul de sac. They have only one policy solution for every economic problem.

For Ireland, the end of the cul de sac is a sovereign default. In addition, by reducing people's wages we involve ourselves in a race to the bottom. If every peripheral euro country cuts wages as the way to growth, we will cannibalise each other. This would truly be a one-way ticket back to poverty on the periphery of Europe -- which was precisely what the EU regional funds and years of regional policy were supposed to arrest.

The EU is waltzing up a financial, economic and ultimately political cul de sac. It is now threatened, not by the likes of Ireland and Greece, but by its own central bank. Students of the 1920s and 1930s, when overly powerful and ultimately stupid central bankers helped destroy the world economy, might not be too surprised by this.

But what was that they said about history: "Those who don't learn from it are destined to repeat it".

Article by David McWilliams - Irish Independent