Sunday, 21 November 2010

US firms warn Irish

Threat of mass exodus if country's low corporation tax rate is raised.

Construction collapses

Building activity in Central London plunges to lowest level in 20 years.


US firms warn Irish over tax move
















The Irish government has been given a stark warning from some of the biggest American

companies in Ireland on the risk of a mass exodus if the country's low corporation tax rate is raised.

Gas price rise? Just say no thanks

Customers can reject their supplier's price rises while switching to another energy provider.

Building construction 'lowest for 20 years'

Construction activity in Central London has fallen to its lowest level in 20 years, highlighting the impact of the recession on property companies and the continuing malaise in the private sector.

Malvern Water - more good news for the Queen

The man behind Tyrrells Crisps wants to restart production of the Queen's favourite mineral water.

Foreign bankers in City exodus


Taxman targets buy-to-let



Half of British businesses hit by profit squeeze


‘Business Distress Index’ reveals firms’ concerns about deteriorating

profits, turnover and market share over the last quarter.


Liam Halligan

Plucky Irish felled by the twisted, self-serving logic of the eurozone

Brian Cowen, Ireland's prime minister.
Brian Cowen, Ireland's prime minister. Photo: Paul McErlane / Alamy

Irish people are known for their fighting spirit. But the Republic of Ireland hasn't stood a chance in recent weeks. The eurozone big boys have decided that Ireland's "insolvency" is now jeopardizing the ability of other bigger countries namely Portugal, Spain and (whisper it) Italy to keep borrowing. So a misguided European bail-out is now being forced upon Ireland.

The Irish government's spending commitments are fully funded until the middle of next year. Repeat: the Republic needs no immediate sovereign financing. Irish government bond auctions previously scheduled for October and November have long since been cancelled. That is the reality and it's because of the tough decisions the Irish government has already taken.

Yet Ireland is now being forced to borrow money from the European Financial Stability Facility (EFSF) the multi-billion euro war-chest set up after last May's Greek crisis to deal with future euro-emergencies. Why? One reason is that the eurocrats are engaged in a misguided attempt to calm down the markets in the hope that yields stay relatively low for Spain and Portugal, countries whose financing needs are far greater and more immediate.

For this Irish bail-out is about a lot more than Ireland. It's about the bull-headed determination of other European governments including the UK to keep avoiding the harsh truths that the Irish, having made their fair share of mistakes in recent years, have now begun to face. This bail-out is about the euro elite's dogged refusal to acknowledge the structural flaws at the heart of the entire single currency project.

This weekend in Dublin, the details of an EFSF programme are being hammered out between the Irish government and officials from the European Union and the International Monetary Fund. The headline figure is expected to be far less than the €110bn Greek rescue but still run into tens of billions, so paving the way for the eurozone's second national bail-out this year.

Given my Irish name and ancestry, some readers will no doubt accuse me of bias. But I'm in no way suggesting that Ireland has done nothing wrong. For a decade, badly-regulated Irish banks borrowed in international wholesale markets and lent with abandon, financing an almighty property bubble. After decades of relative austerity and a rather bleak economic existence by Western standards, far too many Irish people got carried away, as they clambered aboard the Celtic Tiger.

In September, though, the Irish finance minister, Brian Lenihan, sought to tackle the situation head on, forcing Ireland's banks to come clean about the extent of their sub-prime losses to a greater extent than in any other European economy. As a result, some €50bn of Irish taxpayers' money was committed to stabilising the banking system over a number of years, allowing for a programme of genuine and necessary bank restructuring.

This was a staggering number – equivalent to around a quarter of annual national income. But at least the losses were no longer being denied – as in many other eurozone countries, to say nothing of the UK and US. Jean-Claude Trichet, European Central Bank President, called Ireland a "role model" urging other countries to "face up to their problems, as the Irish so clearly have done".

Recognising the bulk of the bank debt, making a genuine assessment of the potential stabilisation costs, then bringing those costs on to the state's balance sheet caused Ireland's projected budget deficit to balloon to an unprecedented 32pc of GDP. This figure has been widely remarked upon. Less well-known is that if several other and much larger European economies included their bank bail-out costs in their national accounts, rather than burying them off-balance-sheet, their projected deficits would be similar.

Following Lenihan's September announcement, the cost of Irish sovereign borrowing fell. The markets judged, rightly, that the programme made it less likely that Ireland would have to tap the EFSF. Since then, though, as Brussels-driven rumours of a bail-out have swirled, Irish bond yields have risen sharply once more.

Perhaps other countries were unwilling to follow Ireland's example and force their banks to fess up their true debts. Perhaps the commercial interests determined to stop that happening were simply too strong. What's undeniable is that once the markets got wind of the politics at work, traders began betting on an Irish "bail-out", making it a self-fulfilling prophecy.

Yet what the rest of the eurozone is imposing on Ireland is absurd. The $1,000bn (£625bn) "shock and awe" package linked to the Greek bail-out hasn't solved anything and has arguably made the situation even worse. All it has done is buy the politicians and the banks a little more time, allowing them to avoid facing the music for a few more months. Now we're presented with the ludicrous notion that adding even more to Dublin's state debt will make Irish bonds more attractive to the markets. I thought such twisted, self-serving logic fell out of favour in international circles when Gordon Brown finally retreated from front-line politics.

The Irish public has taken a huge hit. The fiscal consolidation already imposed amounts to around 6pc of GDP – way beyond the measures being taken in the UK, for instance. And now, under the guise of this bail-out, the rest of the Europe is pushing for Ireland to abandon its ultra-low rate of corporation tax – something which has been in place for years, which other nations should follow and which has been one factor behind the Republic's enviable ability to attract foreign investment.

Ireland's problem is that some of its banks are insolvent, not that its government is insolvent. Yes, the government is, to some extent, standing behind the banking sector, but the Irish authorities have been forcing bank bond-holders to take haircuts – or losses – on their holdings, so sharing the costs with taxpayers.

Bondholders in Anglo Irish Bank have recently accepted that a tough exchange offer is on the cards – under which they would receive just 20pc of the value of their bonds. This has ominous implications for bondholders of other troubled banks elsewhere in Europe. Yet such losses are absolutely necessary and bank restructuring unavoidable if we are to re-boot Western Europe's banking system, shake-out the zombie banks, and get our respective economies moving.

A bail-out is now being imposed on Ireland that is destroying - and, frankly, seems designed to destroy - the Fianna Fail government's credibility, tearing apart the fragile coalition that has managed to impose tough austerity measures, while beginning the painful process of genuinely rebuilding the Republic's bombed-out banking sector.

Ireland, almost uniquely in the Western world, has made a start in terms of confronting the ghastly prospect of an inevitable string of bank failures and restructurings. At the same time, wages are adjusting downwards, exports are booming and investment is still flooding in.

Rather than sabotage Ireland's efforts, the big eurozone members must grasp the nettle of bank restructuring too. Instead of arguing about bail-outs, governments in the largest European economies should be putting in place insolvency regimes that prepare for potential chaos by allowing easy takeovers of the failures by the better capitalised banks, so keeping vital operations going.

The European bigwigs are forcing a bail-out on Ireland not because the Irish state is bankrupt but because, as Ireland faces up to the extent of its banking sector losses, other nations aren't yet willing to do the same. The Irish are discovering, once again, how it feels when a spirited and determined people are denied their own sovereignty.