Monday, February 28, 2011

Ireland and Iceland: Did Devaluation boost Iceland's Exports?

The following is a contribution to a thread on the Irish Economy Blog, comparing Iceland and ireland during the Great Recession.

Iceland’s total export value is split about 40% each between marine products and the aluminum industry, linked to its geothermal resources.

The biggest annual changes in exports in recent years have been in 2008.

The banking system collapsed early in Q4 2008.

In 2008, marine product exports jumped 33% in value on a volume rise of 13%. This was against a backdrop of global food prices rising to record levels.

Aluminum exports jumped 127% in 2008 and volume increased 71%. US giant, Alcoa, opened a new smelter in East Iceland in mid 2007.

Fish export volume fell 4% in 2009 but the export value jumped 22%; aluminum export volume rose 6% in 2009 but the value of exports fell 6%.

Fish export volume fell 5% in 2010 and the export value rose 5%; aluminum export volume rose 1% in 2010 and the value of exports jumped 30% - - the average aluminum price on the London Metal Exchange in 2010 rose 24%.

As for marine products in 2010, the movement of large shoals of mackerel north to cooler waters off Iceland and the Faroe Islands prompted both countries to unilaterally hike their catch quotas.

Iceland raised its 2010 quota from 2,000 tonnes to 130,000 tonnes and to 147,000 tonnes in 2011.

Without the mackerel windfall, the volume of its fish exports would have fallen more than 5% in 2010.

So the big export volume and value changes happened before the currency collapsed; the price of aluminum fell 40% in Q4 2008.

Paul Krugman identified six ’supertrading’ economies as existing in 1990 - - Belgium, Hong Kong, Ireland, Malaysia, the Netherlands and Singapore and the OECD added six more in 2000.

These economies are dependent on the “slicing up of the value added chain” on an international basis.

US multinationals based in Ireland mainly export to their units in other European countries, Exports to Asia are insignificant and short-term exchange rate movements would not impact supply decisions.

Iceland has an unemployment rate of 7% — almost half the Irish level - - and about 9,000 are employed directly in the fishing and aluminum industries.

This is only 5% of the total workforce.

The equivalent Irish ratio for the internationally tradeable goods and services sectors is almost 13%.

Friday, February 25, 2011

Ireland, unilateral debt default and worst case scenarios

A thread on the Irish Economy blog (see below) in response to an article this wee, in the Financial Times by its economics commentator Martin Wolf, has prompted a number of Irish academics and others to recommend unilateral debt default if the European Union institutions will not agree to Irish debt restructuring.

It's striking that despite a thread of many words, no advocate of unilateral default has detailed a worst case scenario - - which should be an essential aspect of consequential decision making - - be it for the aspiring entrepreneur or political leader.

It’s easy to be on the sidelines making proposals without having any responsibility.

The Irish banks are dependent on funding from the European Central Bank.

The ATMs would be shut down if the ECB also pulled the plug on its lifeline.

“Ah shur, that would never happen” would be the typical excuse to avoid having to address what should be done if the “what if” materialised.

On Sept 29, 2008, the night when a blanket State guarantee was provided to Ireland's banks, it’s very likely that Taoiseach Brian Cowen did not consider the consequences of the builders' bank Anglo Irish Bank collapsing because in his mind, such an eventuality would have been so GUBU that it would have been crazy to even worry about it - - now the price to pay for negligence and incompetence is very steeep.

Irish Economy Blog: Martin Wolf: Ireland Needs Help With Its Debt

Finfacts article: The Irish debt burden and the market for simple solutions

Sunday, February 20, 2011

2010 US Presidential Medal of Freedom Ceremony

President Obama presents 13 exceptional individuals with the Presidential Medal of Freedom. Honorees include former President George H.W. Bush, German Chancellor Angela Merkel, author and poet Maya Angelou, financier Warren Buffett, and Boston Celtic great Bill Russell.


Thursday, February 17, 2011

Irish debt default and 'burning' bondholders

The European Central Bank opposes cutting the debt of senior bank bondholders because of the fear of contagion across the Eurozone; many Irish people say taxpayers shouldn't carry the burden of bank debt.

The European Union's Economic and Monetary Affairs commissioner, Olli Rehn, said on Tuesday that EU finance ministers have 'simply no appetite' for Irish bank senior bondholder 'haircuts' - - forced cuts in the amount of the debt owing.

The commissioner said the restructuring of Ireland's banking sector should be done in line with undertakings already agreed with the EU and the IMF.

"We only expect that this will be done according to the memorandum of understanding which sets the frame for restructuring and reform of the Irish banking sector so that it can become again healthy and resilient," Rehn told reporters after a meeting of the Ecofin council of European Union finance ministers in Brussels.

He added: "There is simply no appetite for considering senior bondholders in this context because we want to avoid any kind of potential contagion effect and therefore this issue is not at the table and that was made very clear yesterday in the meeting of the Eurogroup."

The Fine Gael party's election manifesto, which was published on Tuesday, says imposing losses on senior bondholders in Irish banks would only be extended as part of a European-wide framework and would focus on Anglo Irish Bank and Irish Nationwide Building Society, which are being wound up.

Would we be burning ourselves:

UCC economist says more than half Irish bank bonds owned by investors in Republic of Ireland

Irish Economy Blog Threads:

Burning Bonholders

Gormley On the Guarantee: The McWilliams Option

Monday, February 14, 2011

Ireland when cost of 1 Dublin house would buy 9 similar in Houston, Texas

In 2006, an international survey compared over 300 metro areas using the standard of a 2,200 square foot, 4 bedroom, 2 ½ bath home that would be typical in an area favoured by a management level family. It found that for the cost in Dublin, Ireland at US$1,406,497, you could have bought nine similar houses in Houston, Texas, three in Amsterdam, two in Sydney and almost two in Tokyo.

We hadn't even struck oil; we were host to large American companies and a lot of us were deluded into believing that the fairytale of riches from selling each other houses, would keep going.

A year later, the nternational house price comparison index for 2007 ranked Dublin, Ireland and Beverly Hills, California in top ranks for world's most expensive comparable management level family homes.

Finfacts 2008: International house price comparison index for 2007 ranks Dublin, Ireland and Beverly Hills, California for world's most expensive comparable management level family homes

Finfacts 2006: Global Survey: Cost of typical management level house in Dublin, Ireland, could buy 9 similar houses in Houston, Texas, 3 in Amsterdam, 2 in Sydney and almost two in Tokyo (old format page)

Saturday, February 12, 2011

Seven things you should never do on Facebook

Stuart Miles of Yahoo! News says there are some things that you should never do on social networking site, Facebook:

Click here

Thursday, February 10, 2011

Ireland: Debt default on sovereign and bank debt or not?

Apart from an adjustment of the interest rate in the EU-IMF bailout terms, agreement with the European Commission and European Central Bank on defaulting on both sovereign debt and senior bank debt will not be forthcoming in the short-term.

Basically, before reforms are implemented, as with Greece, the argument that we cannot sustain debt of say 130% of GDP, will not wash.

If the EU-IMF reform programme is implemented, the then view of the IMF on growth prospects and the debt burden, would hopefully have some weight in Brussels and Frankfurt.

The following are reports and presentations from the current week:

Presentation by Lorenzo Bini Smaghi, member of the Executive Board of the ECB, London Business School, 9 February 2011: Slides from the presentation (pdf)

IMF staff report on Ireland: Lingering domestic perception of inequitable burden sharing persists

European Commission’s staff report on Ireland is available here

Goodbody Stockbrokers arguing for debt sharing: Debt Dynamics - With a little help from our friends (scribd)

Thursday, February 03, 2011

Irish General Election 2011: The 'Democracy Now' soufflé

Sarah's Carey's op-ed article in today's The Irish Times: Angry men lack the courage of conviction

This is my comment:

This is an excellent article as it forensically debunks the excuses put forward for the collapse of the 'Democracy Now' soufflé.

It also comes from a commentator who is not an insider in the cosy media club.

I term it a soufflé because there was not much of substance to it; it is easy to be against villainous bankers but if there is an avoidance of inconvenient truths for voters, then it's a repackaging of Bertie Ahern's politics, albeit with some transparency.

Late last year, Fintan O'Toole addressed a public protest organised by the trade union congress, ICTU, and standing beside him was the general secretary who was a board member of the Central Bank from 1995 to 2010.

This is conservative Ireland after all, where the buck stops nowhere system!

The Dublin Chamber of Commerce calls today for “root and branch” reform of the public sector but it has zero to say on a system where lawyers as public contractors can get paid more per day than the claimed bribes they are investigating, while becoming multimillionaires in the process.

Yes to public reform but also for reform in the protected private sector where the Sate is the biggest supporter.

There is no evidence that these 'Democracy Now' folk were going to be iconoclasts and according to Colm Keena's report in the IT on Tuesday, when 5 putative candidates dropped out, the project collapsed.

Credit where it's due to Shane Ross, but the other big names found that it's easier to be a hurler on the ditch.

There was a confusing newspaper headline this week: 'David McWilliams plans Obama-style campaign' - - showing the conflict between the pull of the public limelight and hard choices, including fear of failure - - and Colm Keena also reported that Elaine Byrne, IT columnist and political scientist, got the impression after 3 meetings that McWilliams was planning to stand in the election but he apparently is giving a contrary impression.

Prof. Kenneth Rogoff of Harvard University and co-author of the celebrated book, 'This Time is Different,' in 2002 when he was chief economist of the IMF, wrote an open letter to Prof. Joseph Stiglitz, highlighting how easier it is to be a commentator than a policymaker.

"Joe, as an academic, you are a towering genius. Like your fellow Nobel Prize winner, John Nash, you have a 'beautiful mind.' As a policymaker, however, you were just a bit less impressive."

Open Letter

Finally, I could be fairly termed a hurler on the ditch myself. However, I have stood in a national election and I have the experience of leaving the security of a multinational and starting a business myself - - it takes more stamina than a 4-week campaign!

The Finfacts General Election Page 2011

Wednesday, February 02, 2011

Michael Lewis on the financial crashes in Ireland, Greece and Iceland

Former bond trader, Michael Lewis, author of "Liar’s Poker," "The Big Short" and "The Blind Side," has written for Vanity Fair on the financial crises in Greece and Iceland. In the March issue, he turns his attention to Ireland.

“The Irish became obsessed with their own property market,” he says. “The Icelandic tycoons got obsessed with conquering the world outside of Iceland.”

Lewis said he found it “amazing” that the Irish government has “socialized” the banks—some $80bn in senior and subordinated debt—and made it the financial responsibility of Irish taxpayers, who didn’t create it.

During that period, Lewis said, Merrill Lynch received hefty fees to underwrite bonds by some Irish banks. When a Merrill Lynch employee in London characterized some Irish bankers as “irresponsible,” said Lewis, the firm fired him.

Quoting one of his interview subjects in the Vanity Fair article, Lewis said, “The problem with the Irish, you push them, you push them, and they take it, and one day they go wacko on you.”

When Irish eyes are crying

First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country–from one another. After which their banks and government really screwed them. So where’s the rage?

Beware of Greeks Bearing Bonds

As Wall Street hangs on the question “Will Greece default?,” the author heads for riot-stricken Athens, and for the mysterious Vatopaidi monastery, which brought down the last government, laying bare the country’s economic insanity. But beyond a $1.2 trillion debt (roughly a quarter-million dollars for each working adult), there is a more frightening deficit. After systematically looting their own treasury, in a breathtaking binge of tax evasion, bribery, and creative accounting spurred on by Goldman Sachs, Greeks are sure of one thing: they can’t trust their fellow Greeks.

Wall Street on the Tundra

Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of GDP, its people are hoarding food and cash and blowing up their new Range Rovers for the insurance— resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavík, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown.

Q&A: Michael Lewis and the Irish Politicians That Sank Ireland