Archive for June 11th, 2011

With the ending of the daily GreekWatch feature last Monday, following the “staff-level” agreement between the juniors working for Greece’s bailout creditors and the Greek government, a weekly update was promised between now and 15th July when Greece is due to start paying maturing debt. If Greece doesn’t have its next tranche from the IMF/EU by then, there will be the messiest of defaults and that is probably the backstop deadline for Greece to resolve its present difficulties. There will be a weekly roundup over the next four weeks.

In overview, there has been a deterioration in the past week in the prospects for a clean resolution of the Greek crisis. That is evidenced by the interest rate demanded by the market on 10-year Greek bonds rising from 15.94% after the staff-level agreement last weekend to close at 16.72% yesterday. There has been a consequent deterioration in other PIGS bonds. What has happened?

InGreece itself, the plan agreed at staff-level has had a difficult reception. The cabinet has approved it which represents one hurdle overcome, but now it needs to be agreed by the ruling PASOK party (160 seats out of 300 in parliament) and by the parliament itself (the IMF/EU are demanding cross-party “consensus”). The plan itself will now be published before parliament on Monday next but details have been seeping out and if confirmed, it is indeed scary what the new austerity measures required in Greece will include

(1) The country’s 1m public servants will be cut by 15% (remember that’s in a country with a population of 11.3m). Think about what that means compared to Ireland with 350,000 public servants and a population of 4.5m; if you exclude the Greek military (over 100,000), Greece has roughly the same number of public servants per head of population as Ireland now, and the aim is to reduce headcount so that Greece will end up with about 6.7 public servants per 100 population compared with Ireland at 7.1 (that’s after Greece’s plans to cut 15% and Ireland’s to cut 30,000). There will be some voluntary cutting, with the plan to replace natural wastage on a 10:1 basis but there is also likely to be compulsory redundancy.

(2) The working week for public servants is to be increased from 37.5 hours to 40 hours.

(3) On top of reductions in public servant pay of 20% in the past year, there are further cuts forthcoming, though their impact is not precisely known at present. Payscales will be changed to bring parity between the public and private sectors and performance bonuses will be introduced.

(4) A new levy of 2-4% on income, including income in 2010. That’s significant, income that was earned and taxed in 2010 will be subject to additional taxes.

(5) The tax free allowance base to be reduced from €10,000 to €6,000

(6) The property tax threshold (the valuation level below which no tax is paid) reduced from €400,000 to €200,000. Greek’s currently pay about 0.5% of a property’s value each year but only on properties worth more than €400,000

(7) A new tax on swimming pools and yachts (in Germany in particular, there is an image of some Greeks living life on the hog and not paying taxes, so optically these measures may satisfy some creditors. InIrelandit might be helicopters and bouncy castle hires)

(8) Car tax to be increased on larger and more expensive cars

So what has been the Greek reaction? Local strikes, continuing demonstrations inAthensbefore the parliament building and in other cities and an Opposition which has seemingly set itself at odds with the plan. What’s the domestic outlook? More unrest, a general strike next Wednesday, continuing demonstrations, political manoeuvring and point-scoring but at the end of the day, or rather end of the month, the betting is that the plan will be approved byGreece’s parliament. That’s not a certain bet by any means, but it seems to be accepted that Greece must at a minimum balance its primary deficit (what it spends on public servants and social welfare against what it collects in taxes). To say that securing agreement to the plan in Greece will be a challenge would be an understatement.

To an extent though, Greece’s domestic circumstances are less important that the clash of the titans happening outside the country. And it will be in buildings inBrussels, Frankfurt, Berlin and Washington that Greece’s short-term fate will be determined. What’s the likely Greek solution?

(1) A second bailout worth €120bn, on top of the existing €110bn bailout. The €120bn will be funded from a mixture Greece’s own resources (€30bn of additional privatisation, bondholders agreeing to roll-over €30bn of debt and the EU and perhaps the IMF contributing the remaining €60bn)

(2) The second bailout imposing a roll-over of debt on bondholders. This is unlikely to be what the ECB wants – “purely voluntary and without any element of compulsion”  – and is likely to trigger a declaration by the ratings agencies, Fitch, Standard and Poor’s and Moody’s that there has been a default.

What does all of this mean forIreland?

Our approval will be required for a second bailout. That might be a good time to point out that Ireland is not Greece, yet we are being penalised with higher interest rates and parochial demands on corporation tax. Now might be a good time for the EU to recognise our efforts and waive the €7bn profit that the EU had intended making on our loans, and instead provide the loans at cost.

If Greece is defaulting on its loans, as determined by both the ECB and the ratings agencies, then why shouldIrelandhonour bondholders in insolvent banks? If the ECB is to apply parity to its treatment of countries defaulting, then at a minimum there should be an acceptance of bondholder burden-sharing, and not to threaten to withdraw non-standard liquidity measures.

Minister Noonan has so far refrained from shovelling another €24bn into Irish banks, which would mark a point of no return, and it is indeed fortunate at this stage that our creditors have agreed that the recapitalisation can be deferred to the end of July. At that stage, we should be clear on Greece’s position.

For the week ahead, expect a continuing cacophony of opinions, initiatives and rumours outside Greece as the Germans battle the rest of Europe to impose some burden-sharing by bondholders inGreece. Within Greece, expect a lot of anger. And here, hopefully expect officials to be carefully considering various scenarios and courses of action for our country, which is far from out of the woods. The IMF/EU staff level report on Greece should be published and we should have full details of the austerity and privatisation plan.


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Just over a year ago, the media described an auction in Kilkenny with 20 lots as “mega”. At that auction, some two properties sold on the day and it seemed clear that buyers and sellers were still too far apart in Ireland for deals to be struck. But fast-forward a year, with the country in the grips of an IMF/EU bailout, unemployment touching 15%, mortgage arrears and restructurings over 10% of all mortgages, interest rates rising, banks showing us what “deleveraging” means in practice with the withdrawal of new credit, a population that is stagnating at best, an overhang of vacant property put at over 100,000 homes, forbearance measures by banks expiring, the exit from the Irish market of Bank of Scotland (Ireland)  and an anaemic economic outlook and you’d have to say that on the Kuebler-Ross scale that we might be nearing the depression/acceptance stages.

There is certainly the prospect of a large volume of new property coming onto the market in coming months. First of all, there are auctions. And if 20 lots in Kilkenny last year was “mega”, what superlative will be use for auctions with over 100 lots? Here are forthcoming multi lot auctions

GMAC – 62 properties, 24th June, 2011

Gunne – 12 properties, 30th June, 2011

Allsop/Space – 87 properties, 7th July, 2011

Savills – 100 properties, 29th September, 2011

In addition NAMA has announced that it expects to make available a new “negative equity” mortgage product in the Autumn. The agency has not confirmed how many of its properties will be made available with the NAMA mortgage but there has been speculation (not confirmed by NAMA) it might be 5,000.

There are some 23,000 homes on so-called “ghost estates” that are complete and vacant, and an additional 20,000 at varying stages of construction. The latest Ghost Estates report this week makes recommendations for dealing with these estates and one such recommendation is “utilizing housing stock for low-cost sale”. Your heart may sink at the prospect of a new quango dealing with legacy issues in Ghost Estates but it seems that somehow, some property (which was built to be sold) might make it onto the market.

And there are innovative ways of dealing with the unsold overhang of property, the receivership website sale for example. There is some evidence of NAMA’s developers also bringing property to market at last.

Make no mistake, there has been a colossal struggle over the past three years between buyers and sellers, with sellers in particular desperate to avoid sales at fire sale prices, when there is apparently evidence that when prices do hit the absolute bottom, they tend to spike up by 20% soon afterwards. It seems that we are about to enter the phase of a more realistic transactions, where the volume of property available will mitigate against the huge distortions that are still evident. The prediction on here in April, on the eve of the first Allsop auction was that in a very short time, the novelty of large volumes of property coming to market would wear off, and that prediction remains. There will still be distorting influences but it seems that by the end of this year, we might finally be entering a realistic general market for residential property inIreland.

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