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Archive for March 9th, 2012

Yesterday at the Holiday Inn in Belfast, Osborne King held one of their now regular property auctions – the catalogue is here, the results are here and are summarised below. 18 lots were up for grabs though on the day, only 16 were offered as one was sold beforehand and one was withdrawn. As with the Allsop Space auctions in Dublin, Osborne King use the concept of  “maximum reserves” so punters know in advance the price above which a winning bid is guaranteed to get the property. Yesterday six of the 16 properties didn’t reach their reserves so overall the auction saw prices achieve being 33% above maximum reserves and a 63% success rate, considerably down on Allsop Space’s 90%-plus performance with far higher volumes of lots. Overall the result was also considerably behind the last Osborne King auction in Belfast in December 2011 when a 82% success rate was achieved and the overall sales total exceeded the maximum reserves by 8%. I don’t have a report from the auction floor yesterday but it seems that the secondary market in Northern Ireland might have a finite cash ceiling available to it, though another interpretation is that Osborne King’s pricing of maximum reserves this time round was not as accurate as last time (8% above max reserves in December 20111 when sales were achieved, 33% yesterday).

 

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Ireland’s finances are shaky and have been for four years since the collapse of the banking and property sectors left the country with a dangerous deficit between what is collected in taxation and what is spent on state services and social welfare. We’re gradually closing the gap, and with a fair wind we will only need to borrow €100m per week in 2015 when we officially project our deficit will be 2.9% of GDP, or €5bn.

Between now and the end of 2013, we have relatively cheap funding from our Troika benefactors – the IMF, the EU and the ECB. And although some think the country will need a second bailout at the end of 2013 because we will not be able to economically borrow from the traditional sovereign bond market, that’s by no means a certainty. If our finances stabilise, if our export markets recover and domestic growth comes about, we may well be able to convince the bond markets to lend us money at affordable rates until we have eliminated our annual deficit entirely which will be sometime after 2016.

But what happens if those traditional sovereign bond sources of funding weren’t willing to lend us money at affordable rates next year after the Troika bailout ends? That’s “ludicrous” according to Minister Noonan, but let’s indulge the question. We could go to the IMF with the begging bowl, but traditionally that organisation will lend a specific country a maximum of a certain multiple of its contribution to the IMF, and the IMF has already exceeded those limits in Bailout Number One.  Another option would be to cut the deficit immediately but that would mean a €6bn annual adjustment in 2014, on top a €3.8bn adjustment in 2012 and a €3.5bn adjustment in 2013 – in other words compared to 2011 we would need cut €13.3bn from the annual budget in 2014. Or we could go to the European bailout fund which is now known as the European Stabilility Mechanism. We signed the Treaty for the creation and management of this fund on 11th July 2011– there’s a blogpost on the signing of the Treaty here, together with an amusing photograph of Minister for Finance, Michael Noonan looking a little unsure of himself at the signing ceremony.

But almost unbelievably, one month ago, Minister Noonan snatched the ESM away from Irelandand signed a codicil to the ESM Treaty which stipulated that in order to access ESM funding, Irelandhad to sign the Fiscal Compact – that’s the Compact on which we will shortly have a referendum, the outcome of which looks finely balanced. No seriously, that’s what he did.  The old copy of the ESM Treaty from 11th July 2011 is here. A copy of the new version incorporating the new stipulation signed on 2nd February 2012 has been requested from the European Council, as oddly, it does not appear to be available from the Council’s website.

And what did Minister Noonan get in return for this almost unbelievable concession? Did he get a reduction to the burden ofIreland’s bank bailout burden, a burden borne in no small part so that other banks acrossEuropecan be repaid their incautious lending during the heady noughties? Did he get a commitment to an economic stimulus? Did he get an undertaking that financial transaction taxes would not be imposed on Ireland unless the same taxes applied in competing centres, particularly London and the UK? Did he at least get the French off our backs in their obsessive attempts to get Ireland to increase its corporate tax rates or makes concessions on the corporate tax base? Incredibly, it appears as if the concession was signed by Minister Noonan, without regard to the fact that Ireland will be practically deprived of funding from the end of 2013 unless it can regain access to traditional bond markets, and without any consideration provided in return.

The emergence of this astonishing negligence in throwing away our access to ESM funds, is really just dawning now. Veteran journalist Vincent Browne drew attention to it last Sunday in his weekly column in the Sunday Business Post. This is the recent history of the matter.

11th July 2011. Finance ministers from the 17 EuroZone countries sign the Treaty creating the European Stability Mechanism.

30th January, 2012. The text to the Fiscal Compact treaty is agreed and includes a provision “STRESSING the importance of the Treaty establishing the European Stability Mechanism as an element of a global strategy to strengthen the Economic and Monetary Union and POINTING OUT that the granting of assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned and, as soon as the transposition period mentioned in Article 3(2) has expired, on compliance with the requirements of this Article”

30th January 2012, In a press conference  by president of the European Commission, Manuel Barroso, President Barroso commends that day’s discussions and says “it was important that the Treaty establishing the European Stability Mechanism is now ready for signature and the objective is that it enters into force in July 2012. So after all discussions we can now conclude that this was agreed at Heads of State or Government level” Now this is confusing because the Treaty was in fact signed in July 2011, so that being the case, how could President Barroso say the treaty “is now ready for signature”?

1st February, 2012. Both Sinn Fein’s Peadar Toibin and Fianna Fail’s Willie O’Dea ask Minister for Finance, Michael Noonan about whether the imminent signing of an amendment to the ESM Treaty will make access to the fund conditional on ratifying the Fiscal Compact. To which Minister Noonan replies “The ESM Treaty which is expected to be signed later this week by Euro Area Member States, subject to ratification, also provides that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union by the ESM Member concerned. The linkage between the ESM and the Intergovernmental Treaty to ratification was accepted in the interests of securing agreement on the ESM and its acceleration into force by July 2012.” By the way ” Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” = “Fiscal Compact” and also Ireland isn’t expected to need additional funding until 1st January 2014.

2nd February, 2012 Press release from president of the European Council, Herman Van Rompuy welcoming the agreement to the text of the Fiscal Compact, but also referring to a change to the ESM Treaty which introduced a stipulation that access to ESM funding would be dependent on ratification of the Fiscal Compact.

9th February, 2012 Fianna Fail finance spokesperson, Michael McGrath asks Minister for Finance, Michael Noonan about changes made to the ESM Treaty on 2nd February, 2012. The Minister responds and buries the stipulation about access to ESM funding being dependent on ratification right in the middle of his answer and says “assistance will be provided under strict economic policy conditionality. Furthermore, the modified treaty establishes a new precondition for benefiting from such assistance as of 1 March 2013 (recital 5): member states concerned must ratify the “fiscal compact”, i.e. the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, and implement the balanced budget rule as specified in that treaty within the agreed timeline (one year after entry into force). It has been clarified that the linkage of both the ESM and the Intergovernmental Treaties refers to new applications for assistance under the ESM and will not affect the transfer to the ESM of undisbursed amounts under the EFSF to Ireland(and other programme countries)”

16th February, 2012. Junior minister at the Department of Foreign Affairs, Lucinda Creighton appears before the Seanad and says the following “Senator Katherine Zappone also asked about added value. She particularly wanted to know whether, if we signed up to the treaty, we would be allowed to access the European Stability Mechanism funds should we require them, and whether, if we did not sign up to it, we would be precluded from accessing them. The simple answer is yes. The treaty clearly links its ratification with access to ESM funding. It is not our intention to draw down funding under it; our funding is in place through the EFSF and we are confident that we will meet all our targets, as we have been doing, and that we will emerge from the programme on target. However, the simple answer is that there is a direct link with the ESM. We must consider the logic behind it. We obviously see this challenge from one perspective, while the creditor countries – the remaining triple A credit rated countries in the eurozone – see it from a very different point of view. They want some assurances, as they turn a blind eye to the intervention of the ECB in the last two months and agree to enhance the capacity of the ESM, that they are not putting money into a black hole. That is the sort of language we have heard from a number of finance Ministers of triple A credit rated countries and it is a reasonable perspective. They must go back to their parliaments, as we do, and explain to taxpayers why they are investing money in these funds, in which there is always a risk involved. Therefore, they are seeking some type of assurance that if countries intend, or are likely, to draw down funding from the ESM, they will make every effort to reform their economies, restructure their government spending, reform in so far as is possible and make significant strides in reducing their deficit and debt to GDP ratio. That is, objectively, a reasonable assumption.”

21st February, 2012. Sinn Fein’s leader Gerry Adams asks Minister for Finance, Michael Noonan “if the linking of accessing the European Stability Mechanism to the new fiscal compact treaty was discussed at the EU Council meeting on 30 January 2012; and the position he took on this issue” and the response from Minister Noonan included “it [preamble to the Inter-Governmental Treaty agreed by Heads of State or Government on 30 January ] also states that the granting of new assistance from the ESM will be conditional, from 1 March 2013, on ratification of the Inter-Governmental Treaty. The ESM Treaty contains a similar provision”

28th February, 2012. An Taoiseach Enda Kenny announced to the Dail that, following consultation with the Attorney General Maire Whelan, the Government had decided to hold a referendum on the incorporation of the Fiscal Compact into Irish constitutional law.

6th March, 2012 Fianna Fail finance spokesperson, Michael McGrath asks Minister for Finance, Michael Noonan to confirm that access to ESM funding is conditional onIreland voting yes in the forthcoming Fiscal Compact referendum (or as Michael McGrath put it “contingent on countries ratifying the fiscal compact treaty”. He gets a confirmation that this is indeed the case, but doesn’t get a justification for the concession.

7th March, 2012. Independent deputy Stephen Donnelly asks Minister for Finance, Michael Noonan if, in respect of the amendment to the ESM Treaty, if Irish representatives sought to “influence negotiations in any way”and if Minister Noonan “supported or opposed its inclusion; the justification for this position” There is a non-answer from the Minister which makes no sense for Ireland which is fully funded to 31st December 2013 when the Troika bailout programme comes to an end.

Is it time to demand the Minister come to the Dail and make a statement justifying what now seems a bewilderingly stupid action, which has the potential to strand this country without feasible funding sources in 2014 unless this forthcoming referendum is passed? The July 2011 ESM Treaty made access dependent on fiscal discipline, but the Fiscal Compact now being put to the country goes far further in handing over sovereignty and control of our national finances to a Europe which, in recent times, has not shown itself to be particularly sympathetic to the domestic economic problems of this country. Maybe on 2nd February, 2012 Minister Noonan thought a referendum on the Fiscal Compact would not be necessary and that ratification of the Compact was a done deal. That would have shown serious contempt for the deliberations of the Attorney General, and would also have been incompetent. The Minister now has very serious questions to answer.

UPDATE: 9th March, 2012. The updated treaty is available here, together with a fact-sheet concerning the changes.

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