Archive for September 16th, 2012

On Tuesday this week, the 166 deputies put away their buckets and spades for another year and return to the Autumn term in the Dail. Just 19 months into what should be a 60-month term, this may be a make-or-break quarter for the centre left Labour/centre right Fine Gael coalition. Even if it was a 90-seat single party administration, the range of challenges to overcome would be potentially fatal. With two different parties, and with Labour in particular being pressurised on all sides, and with one of the most hostile economic environments ever, the view on here is that there is a 50:50 chance that the government will fall by Christmas. Here’s a preview of the challenges ahead.

1. Bank debt, it is really Minister for Finance Michael Noonan and his Department of Finance that are responsible for this. You will recall that it was at the start of September 2011 – more than a year ago – that we heard about technical discussions with the ECB, there was that non-event meeting between Minister Noonan and then-ECB president Jean-Claude Trichet in Poznan and there were two subsequent Troika review missions and in January 2012, there was An Taoiseach claiming the Troika would prepare a “technical paper” and there was the euphoria in Ireland issuing/rolling over €13bn of debt. There was the June 2012 summit with An Taoiseach doing a “Playboy of the Western World” and telling us of his partners in Europe fearing a “tangle” with himself, and there was even a date given, October, for Ireland to get a bank debt deal. Would we get €10bn or €20bn? Minister Noonan didn’t want to say, asking one journalist if he had ever been to the Fair of Glin or sold a young calf. Now we’re in mid-September and we have precisely nothing except an array of ministers advising that any deal might be “before the Budget”, “before March 2013 when the next instalment of the Anglo promissory notes is payable” or “after Spain gets a bailout” There is utter scepticism on here that any meaningful deal will be done, there is no Santa Claus in Europe, we could theoretically sell our bank shares today for €8bn, changing the promissory note interest is largely futile because the interest is paid by ourselves to ourselves. Ireland has shouldered €70bn of a bank bailout, 45% of GDP. We have dutifully repaid all senior bonds in Irish banks, even ones that were not secured on assets or guaranteed. Enda Kenny told us in December 2010 on the eve of the election that he expected to save €12-17bn on negotiating senior bondholder debt, yet we have continued to pay all senior debt with nonsensical justifications like claiming the banks are paying out of their own resources. Expect some commotion around 1st October 2012 when 99.8% state-owned AIB pays a €1bn bond.

2. Personal Insolvency Bill (PIB), this should be at the top of the agenda for this Dail term, but as presently drafted, the PIB is unlikely to result in any significant number of bankrupts despite this being a country where many are hopelessly insolvent. If the PIB maintains the status quo, then you can expect a generation to be blighted in a half-life of debt repayment. “Serfdom” is an emotive word and often used in an exaggerated way, but it seems that many households are destined to a life where their main priority will be repaying the bank for mortgages on homes that are in large negative equity. The PIB has been drafted with the interests of the banks, which we largely own, prioritised. It is a difficult balancing act to weigh the needs of debtors and creditors, particularly when the State owns the creditors but this PIB does not allow meaningful bankruptcy. Expect more unease as high profile debtors who can afford financially the temporary dislocation to obtain bankruptcy orders in Northern Ireland and in Britain.

3. Property tax, the so-called “expert report” was circulated in Cabinet in July 2012 but has not yet been published. The Independent this week was able to confirm details of how the new tax will operate but ministers are keeping schtum. The IMF suggested a 0.5% tax based on value but Minister Noonan moved to reject that as too burdensome. There is a vocal cohort arguing for a site valuation tax even though it looks as if it will be a property market value tax. Whatever it is, it will face many hurdles before it is introduced. There is still a 39-50% non compliance rate for the €100 household charge. Fianna Fail doesn’t want to see this new tax and argues for substitute measures, this even though it was Fianna Fail which negotiated the agreement with the Troika which commits us to a property tax, Sinn Fein doesn’t want to see this tax introduced even though our neighbours across the Border in the Sinn Fein/DUP administered jurisdiction may be paying €1200-1600 per annum typically – both Opposition parties need clarify and strengthen their objections. Ancillary to the property tax are water charges and septic tank fees, with the former set to be deferred to at least 2014 and the latter still facing massive non-compliance rates.

4. Protests, on Tuesday this week, the Ballyhea/Charleville bank bailout protestors will march from the Garden of Remembrance on the top of O’Connell Street to Leinster House where they will seek to put their message across. Yes, there might only be €190m of bonds left at Anglo and INBS, but there are still largish bonds at AIB including the €1bn payable on 1st October, 2012. But Leinster House better get used to protests generally because it looks as if there will be actual cutbacks between now and the end of December 2012, based on the poor Exchequer returns in August 2012. And of course as kites are launched in advance of Budget 2013, there will be protests just to stem any notions in the bud.

5. Abortion, there doesn’t seem to be a timetable for the completion of the expert report on legislating for the so-called X case where nearly two decades ago, the Irish Supreme Court held that the law needed reform to clarify the existing rights and freedoms in the Irish constitution, something more recently established in the European Court of Human Rights in December 2010. The betting is that legislation, which has arguably been needed for at least two decades, will be deferred until after 2016 so it will be the next administration which deals with the divisive subject. However, already government deputies have been lobbying for a free-vote, posters have gone up promoting one position or the other, and we have seen a taste of the bitterness of the debate with sniping in the press and a number of broadcast discussions. There will be pressure for the expert report to be completed and published.

6. Budget 2013, this is down the list here today, because at this stage we should all know that we are five years into this crisis and we still have an annual deficit of €13bn. Cutting that by 25% or €3.5bn in the sixth year of the crisis, 2013, is modest enough for a country that should be trying its damnedest to balance its income with its expenditure. I don’t think that €3.5bn can be cut next year without impacting on some sacred cows, and in Ireland we have sacred cows on every street corner. So it will be a very difficult budget, but it is unavoidable. The advice from the Fiscal Council for the adjustment in the budget for 2013 accords exactly with the adjustment in the Troika Memorandum of Understanding so the collision course with the Council and the Government has been deferred for a year when in 2014 the Council wants a €3.5bn additional adjustment compared to the €3.1bn in the Troika agreement. We learned yesterday that US Secretary of State, Hilary Clinton is set to visit Ireland just after the delivery of Budget 2013 – maybe she’ll  be bringing the marines with her.

7. Referendums, remember Enda Kenny’s address to the nation on that Sunday in December 2011 on the eve of the Budget 2012, the speech where he told us we were not responsible for the crisis and that if we didn’t have a job that meant we couldn’t find work? He also promised a referendum in 2012 on the abolition of the Seanad. The speech seems to be no longer available on either the Taoiseach’s website or the Government’s MerrionStreet.ie website but here’s the text. Denmark, from whom we’re getting a few hundred million euro bailout abolished its Seanad in the 1950s. But you can expect every sinew in Enda’s body to resist the referendum given the amount of lobbying he has received from both those inside the Seanad and those elsewhere who were expecting a 60-member safety net in case their Dail political aspirations didn’t work out. Instead, we are likely to have a referendum on children’s rights which is arguably not needed because both the Constitution and existing legislation provides for the rights of all citizens including children.

8. Infighting amongst coalition partners. So Fine Gael’s health minister James Reilly doesn’t talk with his Labour junior minister, and Minister Burton and Quinn are accused of positional leaking. And Minister Bruton is coasting in his role. And Minister Hogan has escaped scot-free from both the household charge and septic tank fiascos. Never mind, Minister Shatter didn’t suffer a whit from his dithering with upward only rent reviews which blighted the commercial property market in 2011. Minister Howlin has failed to deliver savings on allowances paid to the public sector or on increments, Minister Reilly (again) has made a hames of his budget. Minister Rabbitte and Bruton have been playing pass-the-parcel with the media ownership segment of the competition bill and of course the unholy atheists in the Labour party have been exchanging potshots with the religious zealots in Fine Gael. 19 months into the new administration and a reshuffle has been taken off the table. Fine Gael have retained poll ratings at or even above their General Election 2011 performance whereas Labour has hovered above single digits. Expect some frosty Cabinet meetings between now and Christmas.

9. Constitution Convention, this may turn out to be a damp squib but it is here and now. In the next couple of weeks, the Government will use polling companies to select 66 ordinary Joes from the electoral register to combine with 33 politicians who can then spend the next year debating nine set questions. The nine questions are all pretty benign, though same-sex marriage might be a difficult subject. Yesterday, Sinn Fein announced that its three participants in the Convention would include Northern Ireland’s Deputy First Minister, Martin McGuinness. So don’t be surprised if all-Ireland matters crop up in the next 12 months.

10. Media ownership: the UK’s Daily Mail yesterday reported that the Irish Daily Star is jointly owned by Richard Desmond’s Northern and Shell, and by “Irish news magnate Denis O’Brien”. We know that the Broadcasting Authority of Ireland (BAI) has written to Independent News and Media reminding the print media group of its responsibility to report events which might mean a change in control of the group. The BAI had in July 2012 determined that Denis O’Brien’s then-shareholding and control of the board did not give Denis control over the media group. With a 29.9% shareholding, his right-hand man installed as chairman replacing the independent Leslie Buckley and with a firm presence on the board with at least two directors doing his bidding, it is difficult to see how Denis does NOT control IN&M today. Pat Rabbitte is the Minister for Communications, Natural Resources and Energy into whose lap the media section of a forthcoming amendment to the competition legislation has been lobbed. With Denis’s control of much of the independent radio sector in Ireland through his vehicle Communicorp and with a history of editorial interference at IN&M in support of his other interests, eg his loans with Anglo, his winning of the mobile phone licence and relationship with Michael Lowry, there will be close scrutiny to see how much longer Denis will have a hand in IN&M. On the other hand with IN&M’s share price hitting 14c last week valuing the group at under €80m, with a balance sheet that is massively insolvent, with vast borrowings and a declining readership, Denis’s money may be needed to keep a major media group afloat. Oh, and let’s not forget that the latest update from Minister Shatter is that “I am informed by the Garda authorities that following their examination of the report of the Moriarty Tribunal, they are consulting with the Director of Public Prosecutions as to whether aspects of it may be pursued from a criminal point of view.”


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