Monday, January 31, 2011

Sovereign debt exposure and confusing Bank for International Settlements data

We shouldn’t be confused by the ‘facts’!

Bank for International Settlements data is often quoted in relation to sovereign debt exposures but it adds confusion to an issue short of hard facts.

In March 2010, Germany’s top bank, Deutsche Bank, had a combined €14.8bn of gross sovereign debt exposure to the “peripheral” EU states of Greece, Spain, Portugal, Ireland and Italy, of which €10.4bn was to Italy.

The FT Jan 31, 2011:

French and German banks have the largest exposure to Greece, according to the Bank for International Settlements, with €59bn and €40bn respectively as of last September. German banks are also among the most exposed to Ireland, with €154bn outstanding.

The FT Nov 25 2010:

The Bundesbank also played down German banks’ exposure to Ireland, estimating direct exposure at about €25bn. This is much lower than the Bank for International Settlements estimates, which suggested about $140bn.

Officials said the difference reflected some indirect exposure such as business routed through Dublin-based special purpose vehicles or subsidiaries.

These Are The 20 Banks Most Exposed To The European Sovereign Debt Crisis

Deutsche Bank have broken down the debt threat facing Europe's banks, and it isn't pretty for many of them.

However, the level for Bank of Ireland does not seem correct, if it is just sovereign exposure.

Wednesday, January 26, 2011

Irish General Election 2011: Irish Waste Policy and Gombeenism

The Fernwärmewerk Spittelau incinerator/heating plant, Vienna. It supplies more than a quarter of a million houses and over 5,000 industrial consumers with heating and is also a tourist attraction. Source: Wikimedia Commons

Former Irish environment minister John Gormley who is also Green Party leader, in office since 2007 until last weekend, spent much of his time trying to counter the economics of a government decision in 2007 to build a waste incinerator in his constituency of Dublin South-East.

In recent weeks, Gormley wrote to his constituents informing them that the incinerator “cannot go ahead” because of planned new levies.

Meanwhile, Dublin City Council has said that it is implementing Government policy.

The cocktail of gombeenism and Nimbyism (not in my backyard syndrome), means that according to 3 State agencies - - Forfás, IDA Ireland and Enterprise Ireland - - in a submission to the Department of the Environment, Heritage & Local Government in April 2010, that in terms of municipal waste treatment, while Ireland has made progress on recycling, rates have slowed in recent years.

Ireland continues to have a high reliance on landfill for municipal waste treatment, landfilling 62% of municipal waste in 2008 (compared to the Eurozone average of 32%). The submission said that it is notable that Ireland currently has no municipal waste-to-energy incinerators and limited incineration capacity (3%) compared to the Eurozone average of 24%. It said it is also worth noting that many countries that are currently expanding waste-to-energy capacity, such as Denmark and Germany, also have the highest recycling rates.

In Germany in 2009, 35.4m tonnes of waste were disposed of in landfills, 6m tonnes or 14.8% less than in the preceding year. As reported by Destatis, the federal statistics office, this week, this is the lowest level since the amounts of landfill waste began to be recorded in 1975. Thus there is a continuing trend to treat or burn waste instead of dumping it.

According to Evridiki Bersi of the Greek newspaper, Kathimerini, Germany had around 50,000 landfills in 1970. Now, in a country of 83m inhabitants, there are less than 300 and they don t take unsorted garbage. They only accept what is left after recyclable items have been removed and the rest has been subjected to various processes that compress it into an inert mass. In 2020, those landfills will be out of operation because by then Germany plans to make use of all garbage and the energy produced by it.

Landfill is a serious threat to water supplies.

The German Business Institute (IW) estimates that Germany saves €3.7bn a year thanks to recycling and the production of energy from waste.

Proper waste processing saves the German economy 20% of the cost of metals and 3% of the cost of energy imports.

The 55,000 old garbage dumps have been replaced by 70 incinerators, 60 biological and mechanical waste-processing factories, and 800 units producing compost from organic waste.

Dublin City Manager John Tierney said in February 2010, that he was implementing Government policy! He said €59.5m had already been spent on the project -- €34m on acquiring the site of the former Poolbeg power station and €25.5m in consultants’ fees.

Consider a well-run country in contrast, Austria, where the unemployment rate is just over 4% - - among the lowest of the EU27 countries.

There is of course a fat chance of the Irish acknowledging the lamentable record of public project implementation and looking to what can be learned from countries like Austria.

Small minded politicians and much of the public who want to have their cake and eat it, leave the country always racing to catch up with standards thankfully set by the reviled bureaucrats in Brussels, where there is claimed to be a “democratic deficit.”

Of course, we are blind to the deficits under our noses.

We had to be shamed by the EU and the contamination of the water supply to the city of Galway to get action on water quality.

It’s always the same old story: respond to a problem only when there is a crisis…sorry…I should say: a dire crisis.

Vienna has three incinerators according to an Irish Times report and one of them supplies more than a quarter of a million houses and over 5,000 industrial consumers with heating.

A total of 9 incinerators in Austria are only one aspect of a sophisticated waste management and recycling system.

In 2010, Austria will generate 78.1% of its electricity from renewable sources - - the highest in the EU - - compared with 13.2% in Ireland.

Forfás, IDA Ireland and Enterprise Ireland Submission to the Department of the Environment, Heritage & Local Government, April 2010

ESRI slams Gormley's gombeenism on incineration; Irish waste policy has “no underlying rationale”; Likely to impose “needless costs on.. economy"

Tuesday, January 25, 2011

Irish Jobs and FDI

Irish jobs in the exporting FDI (foreign direct investment) sector are back to 1997 levels.

Every time Tesco opens a new shop, the United Nations' agency UNCTAD's data includes it as a ‘greenfield’ FDI investment, which of course it is but our surplus on food and drink trade with the UK is evaporating fast and as Ireland’s exports in the sector dipped 15% 2009, the UK posted a 6% rise.

It's good to have services export growth.

However, data from for example the aircraft leasing industry can distort the picture.

Goodbody estimated in 2007 that the aircraft leasing companies based in Ireland were managing a combined fleet of 1,600 across global markets.

Nearly 500 jobs are anticipated to be created over the next three years in the aircraft leasing industry in Ireland, according to the Irish Aviation Authority (IAA). In 2010, about 1,000 people were employed in the leasing industry and the authority predicted a growth of around 45% - - that may well be the usual bs from a state agency!

Avolon, the aircraft leasing group headquartered in Dublin, today announced an additional capital raising of US$465m, bringing the total value of funds raised since it was established in May 2010, to in excess of $2.5bn.

Irish Economy 2011: Rising Irish exports, the 'smart economy' and a jobless recovery

Foreign-owned firms accounted for 91% of Ireland's tradeable exports in 2009; Food & drink exports fell 15%

Monday, January 17, 2011

ECB Director Bini-Smaghi: ‘Ireland’s meltdown is the outcome of the policies of its elected politicians’

The Members of the Executive Board of the European Central Bank
September 2010 Executive Board, European Central Bank: Back row (left to right): Lorenzo Bini Smaghi, José Manuel González-Páramo, Jürgen Stark. Front row (left to right): Gertrude Tumpel-Gugerell, Jean-Claude Trichet (President), Vítor Constâncio (Vice-President).

The Irish Times published an interview with Lorenzo Bini-Smaghi, a member of the Executive Board of the European Central Bank, on Saturday, Jan 15, 2010.

The following is one of Michael Hennigan's contributions to a related Irish Economy Blog thread.

Bini-Smaghi is correct when he implies that there was strong public support for boomtime policies and the slow-motion response to the banking crisis resulted in the eventual collapse of market confidence.

1. If the global credit crunch had been deferred to 2013, the most likely result of the 2012 Irish general election would be a Fianna Fáil-Labour coalition.

While I don’t buy the argument that the whole population had been transformed into a shower of eejits, absent a global downturn that would be much worse than 2000/2001, fiscal prudence was never likely to be popular with the majority of the electorate who had become obsessed with the paper-profits of the bubble.

For older people with their mortgages paid off and the attraction of equity release, they no longer had to dream of summer days competing with pushy Germans for deck chairs on a tacky beach in Spain but they could aspire to their own place in the sun — even if it was somewhere they had never heard of.

2. The credit crunch broke out in early Aug 2007, 7 months after HSBC Bank announced big subprime losses in the US and revealed the rickety state of the US housing market; by mid-Sept 2008 when Lehman Bros. collapsed, Irish political leaders and the Department of Finance were still relying on reassurances from the financial regulator and the banks themselves on the strength of the banking sector.

Using the Pareto 80/20 rule, how long would it have taken to establish the true state - - who was meeting interest obligations etc? One week?

Anglo made a powerpoint presentation to DoF officials days after the Lehman collapse and Fingleton of Irish Nationwide was also reassuring; liquidity not solvency was the problem.

3. Whatever was discussed on the Trichet-Lenihan phone call a week before, the Irish government was the only member of the Eurozone to guarantee existing bank debt and it was presented as a fait accompli to the ECB and both the Ecofin and Eurogroup. The decision of Sept 29/30 was made without access to crucial information by the political leadership or their advisers.

4. Anglo was nationalised in Jan 2009; in Jan 2010, the head of NAMA said on the detail of property loans presented by the banks: “We opened it up and said, ‘Oh, my God,’ What they are telling us is not the reality.”

5. I have seen no credible analysis to support the case that outside of the euro, the same individuals who were responsible for the economic crash would have behaved prudently at a time when the carry-trade would have been attracted by Ireland’s ‘miracle’ economy.

6. All the wealth hasn’t evaporated; some €60bn was invested in commercial property mainly in Europe; investments were made in prime properties in for example New Bond Street in London, where values have recovered and tenants are usually sound PLCs.

The focus has been on the transferring of homes in Ireland; there are surely many overseas investments in shelter vehicles that are difficult to source.

Irish per capita GNP is at the average of the EU27.

7. As for restructuring, in March 2010, Germany’s top bank, Deutsche Bank, had a combined €14.8bn of gross sovereign debt exposure to the “peripheral” EU states of Greece, Spain, Portugal, Ireland and Italy, of which €10.4bn was to Italy.

So depending on the number of countries involved, German banks should be able to handle bond losses well in coming years.

While it should be easy for Greece to make its case for a ‘haircut,’ with a public debt GDP ratio of over 150%, how could Ireland’s case be accepted without including say Italy and Belgium?

Include private debt and argue that Irish consumers weren’t as prudent as Italian counterparts during the credit boom!

8. If parliamentary pay and allowances are an indicator of public costs, Ireland has still some road to travel.

Sweden is one of Europe’s fastest growing economies and the members of the Riksdag receive a basic, monthly pay of SEK 56,000 (€6,200), a sum that is subject to income tax - - and is at a higher level than Ireland’s.

Members living more than 50 kilometres from the Riksdag are entitled to reimbursement of up to SEK 7000 (€780)/month spent on overnight accommodation in Stockholm. However, the Riksdag has about 250 overnight apartments which are provided free of charge for members.

Fifty TDs only get the basic Dáil salary of €92,672 and their overall earnings in 2010 were at an average of €112,000

A TD living in the range 60-90km from Leinster House can claim €30,350 annually with effect from March 2010.

Chart here of Irish bond yield spreads since early 2008:

Tuesday, January 11, 2011

Battle ahead in developed world with public sector unions

Weekly sick leave in Irish public service

The Economist says in its current issue that while union membership has collapsed in the private sector over the past 30 years (from 44% of the workforce to 15% in Britain and from 33% to 15% in America), it has remained buoyant in the public sector.

Public-sector unions combine support for higher spending with vigorous opposition to more accountability. Almost everywhere they have demonised competition, transparency and flexible pay.

While union membership has collapsed in the private sector over the past 30 years (from 44% of the workforce to 15% in Britain and from 33% to 15% in America), it has remained buoyant in the public sector.

In Britain over half the workers are unionised. In America the figure is now 36% (compared with just 11% in 1960).

The Economist says people in the private sector are only just beginning to understand how much of a banquet public-sector unions have been having at everybody else’s expense. In many rich countries wages are on average higher in the state sector, pensions hugely better and jobs far more secure. Even if many individual state workers do magnificent jobs, their unions have blocked reform at every turn. In both America and Europe it is almost as hard to reward an outstanding teacher as it is to sack a useless one.

In many countries including Ireland, there are also powerful combinations in the protected professional sectors, which act no differently to public sector unions.

The Economist: (Government) workers of the world unite! Public-sector unions have had a good few decades.  Has their luck run out?


Sick leave in Irish civil service almost doubled since 1980s; Average employeeabsent for over 11 days in 2007

Could the Irish public sector benchmarking fiasco provide a case for the DPP?

Irish trade union boss David Begg, 'status,' denial and the economic crash

Irish public sector pay/pensions to rise 16% in period 2005-2010; Pay up 11%:Pensions up 66%; Pensioner numbers rise 43% to 103,400

Irish taxpayer to provide €1bn bail-out of FÁS and university pension funds

Sunday, January 02, 2011

Hans Rosling's 200 Countries, 200 Years, 4 Minutes - The Joy of Statistics

The growth of global wealth and well-being over the past 200 years.

Finfacts article: Sweden's Gapminder shatters economic and environmental myths with online animated graphs

The Joy of Stats: Hans Rosling says there’s nothing boring about stats, and then goes on to prove it. Only with statistics can we make sense of the world and harness the data deluge to serve us rather than drown in its confusion.

A one-hour long documentary produced by Wingspan Productions and broadcast by BBC, 2010.

Finfacts article: Global population to grow to 7bn in 2011; Family photo of all humanity could be taken in area of Los Angeles city