Archive for April 4th, 2011

March 2011 Exchequer Statement

Has been published this afternoon. In terms of our general day to day budget deficit, it is mostly as expected as explained in the accompanying press release. This entry examines the NAMA, banks and bailout elements.

The €49m that the State invested in NAMA as seed capital in 2010 and which was reclassified as a loan in November 2010, was repaid by NAMA to the State in March 2011. Presumably there is an interest repayment also under miscellaneous interest received but it is not separated out. The reclassification of this capital as a loan has raised eyebrows and the Department of Finance’s explanation has never been convincing. The suspicion on here is that the reclassification is to ensure that NAMA bonds are not treated as part of our national debt.

The Banks
You remember those promissory notes that Minister Lenihan used to capitalise Anglo and INBS last year? Well those IOUs need now be funded and in March we spent some €3bn on funding these promissory notes which from recollection total €31bn approx (Anglo’s €29.3bn less €4bn injected in cash and INBS’s €5.4bn less €0.1bn injected in cash).

The Bailout
We have now received more than one quarter of the bailout (€17.8bn out of €67.5bn). In fact given the reduction in the bank element of the bailout from €35bn to €24bn last week with the publication of the stress tests, the external facilities required may only be €56.5bn which would mean we had received just under one third of the total external bailout.

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The Society of Chartered Surveyors (SCS) has today published its annual guide to rebuilding costs in Ireland. In summary costs have generally fallen over the past year and at the extreme the cost of rebuilding a 3-bed semi-detached house in Limerick has fallen by 10.2% from €137 psf to €123 psf (apologies for using the old “psf” per square foot rather than the per square metre which is also shown in the annual guide). No area or building type has increased in cost over the past year and a simple average of the changes between 2010 and 2011 reveals an average drop of 4%.

Here is the rebuilding cost table from the SCS for 2011 just published today.

(Click to enlarge)

Here is the rebuilding cost table from the SCS for 2010.

(Click to enlarge)

Here is a comparison.

The drop in rebuilding costs is perhaps to be expected in an economy that is generally in a depression with construction particularly hard hit. However the guide issued by the SCS seems to be at odds with official figures collated by the Department of the Environment Heritage and Local Government (DoEHLG) which produces a monthly index on building costs which shows that prices have increased by 1.59% in the past year. Both the rebuilding costs produced by the SCS and the building costs produced by the DoEHLG exclude land. I have asked the SCS for a comment on this apparent aberration.

You may be interested in reading a recent entry on here which examines building costs in Ireland and compares Northern Ireland with the Republic. The figures published today by the SCS confirm that building costs here are still almost twice the level of Northern Ireland.

Saving the best till last – for those of you with buildings insurance, you will probably find that your premium is based on the size of your home and the rebuilding cost. Since the rebuilding cost may have reduced you may be able to secure a reduction in your premium from your insurance company. This blog doesn’t give financial advice but it would seem that a sensible next step might be to contact your insurance company and enquire about a reduction based on SCS’s rebuilding cost estimates.

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I wonder what our friend from the IMF, Ajai “Chopper” Chopra really thinks about Ireland and our stance towards bondholders. Will he be surprised when he arrives tomorrow for a 10-day “review mission” with other members of our new creditor consortium and doesn’t see any evidence of unrest or protest towards the latest bailout bombshell last Thursday? Will he continue to observe a diplomatic solidarity with fellow creditors from the EU and ECB and not break ranks in offering us his sincere views on burning bondholders? What will he make of the near defiance of the new government in not implementing certain terms from the bailout agreement? I don’t know what the man himself will think but this entry examines all three and our new tactic, announced by Tanaiste Eamon Gilmore, on RTE’s This Week radio programme yesterday – the diplomatic offensive.

First with respect to protest and unrest; I suppose on one hand we should be thankful not to be witnessing the scenes of destruction seen during riots and protests in Athens, but on the other hand it has been disappointing not to have had any substantial protest march since the 50,000-strong one in Dublin last November. Yesterday in Fermoy a small group of protesters, pictured below, showed what they felt about the latest bailout announcements. The Irish Examiner reports that the march is set to be a weekly event each Sunday and Fermoy protesters will be joined by those from the nearby village of Ballyhea. And on Wednesday this week at 6pm outside the Dail on Kildare Street in Dublin, newly-elected TD Richard Boyd Barrett is to hold a demonstration demanding a referendum on the bailout (both bank and IMF/EU bailouts, as I understand it). In Iceland protesters took to the streets with pots and pans to make their voices heard in what is now referred to as the “Kitchenware Revolution”. Creditors traditionally squeeze their debtors until the pips squeak. If we don’t protest, are we tacitly telling them that the terms of the loan are acceptable?

With respect to the IMF’s position on burning bondholders, it is worthwhile reproducing the transcript of last week’s news conference at the IMF in Washington where the IMF spokeswoman, Caroline Atkinson was fielding questions.

CAROLINE ATKINSON (IMF): I have another question online: What is the IMF’s feeling on the stress tests in Ireland and their utility in restoring confidence? I am just going to put that off -– we are expecting announcements, as you all know, from Ireland on their stress tests later today so I don’t want to anticipate those announcements now.

QUESTION: Aside from these stress tests, does the IMF still believe that Ireland should restructure unguaranteed bank bonds?

MS. ATKINSON: That is like, have you stopped beating your wife.

QUESTION: But it has been a position that the IMF officials have taken before, so I’m wondering if it’s continuing to take that position now?

MS. ATKINSON: As you know, there will be a mission to Ireland in the first part of April so beginning very shortly, which will be our first detailed discussion with the new authorities on the program in the next review. I do not want to anticipate the discussions that will take place there

The IMF does see debt restructuring as acceptable when debt becomes unsustainable. Not so our friends in the ECB who are no doubt fearful of contagion. However, maybe our new government might ask the EU delegation about debt sustainability as outlined in the Stability and Growth Pact which commits EuroZone members to keeping their national debt capped below 60% of GDP. Olli Rehn seemed focused on our deficit:GDP and keeping that at 3% but perhaps our new government might demand more flexibility from the EU.

What will the delegation tomorrow have to say on our new government’s stance on the IMF/EU agreement negotiated by the previous government but democratically approved in the Dail? Eamon Gilmore’s “Frankfurt’s way or Labour’s way” looks pathetic at this stage but what about the terms of the agreement that we have not implemented as planned? What about the €12bn of sub-€20m land and development exposures at AIB and Bank of Ireland and the €5bn of associated lending? This was to have been moved into NAMA but the new Programme for Government rejects this. What about restoring the minimum wage to €8.65 per hour after the €1 per hour cut in January? Taoiseach Enda Kenny now says he needs approval from our creditors in order that he can deliver on that pledge. What about the €24bn additional bailout last week, will this be unequivocally provided?

The only new initiative suggested by our new government is to launch a “diplomatic offensive” in Europe where it is understood our reputation is in tatters. Building alliances can’t be a bad thing and certainly creating a “technical group” of peripheral states facing similar debt problems might create a stronger voice. But that will not be easy. Portugal, Greece and Spain have socialist governments which mightn’t appreciate our “poor mouth” pleas when we allow corporations to operate here with low tax rates. And as for our creditors in countries like France, the UK and Germany? Of course offering communication and dialogue and explaining our position might be positive and all creditors like their debtors to stay in touch. But creditors generally pursue their debts until they can hear the pips squeak and Ireland which is still a relatively rich country by reference to per capita GNP as well as per capita GDP might, not only get a cold reception but might inspire animosity with the apparent hypocrisy of seeking debt forgiveness at the same time as being so relatively wealthy. So the velvet glove of diplomacy might or might not yield results but any results are unlikely to be more than superficial. What is needed is the iron fist of threats to separate bank from sovereign debt, and to treat bank debt like bank debt in other EU countries – as a mostly private affair in which the state has peripheral interest.

I leave you with a short video of yesterday’s Fermoy protest. A repeat protest is expected there next Sunday.

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Thanks to the Irish Examiner, the Department of the Taoiseach has released the briefing notes given to new incumbent Enda Kenny at the start of March 2011 under the Freedom of Information legislation. The notes are in three parts – an overview of the Department of the Taoiseach and the priorities and relevant notes for different policy headings.

There are some redactions to the documents, not many, and overall there is a fascinating picture of how the civil service manage the work of government; for many policy headings there are certainly interesting facts and priorities. There doesn’t appear to be anything on NAMA but there is a troubling note on the economy which won’t probably surprise many but it is nonetheless interesting to see it in black-and-white

The three documents are:

Overview of role of the Department of the Taoiseach

Economic Challenges and Policy Issues

Programme of work and relevant notes for “Social Policy”areas

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