26/05/2013: Ireland Hard at Work on Troika & Tax Haven Fronts

Several recent points raised in relation to the work being done by Minister Noonan are worth a quick consideration.

Point 1: Ireland, allegedly, is the best-performing 'Troika programme' in the 'periphery' (forget the semiotics of a country being a programme and 1/3 of the EZ being a 'periphery'). We are fulfilling all programme requirements and are even ahead of schedule on some (namely - issuance of bonds we don't have to issue). If so, then can Minister Noonan explain:

• Why have we needed all the material alterations to the programme, obtained in conjunction with 2011-2012 Greek 'rescues' (term extensions and rate reductions on loans), the restructuring of the promo notes, etc. If we are satisfying the programme requirements, then why do we constantly attempt (and succeed) in changing the programme?
• If, as a part of well-functioning programme, Ireland has already recapitalized its banks and if the measures - approved by the EU and the Troika - to rebuild Irish banking sector are working, then why does Minister Noonan constantly 'working' on finding ever more convoluted ways to shove more funds into them? As in using CoCos as here: http://www.irishexaminer.com/business/noonan-examining-ways-to-capitalise-banks-232186.html or tapping ESM as here: http://www.foxbusiness.com/news/2013/05/21/ireland-still-hoping-to-refinance-bank-debts-through-esm/

Point 2: Ireland, allegedly, is not reliant in its adjustment on beggaring its neighbours via asymmetric tax regime, when it comes to corporate tax rates. Per Minister Noonan (see: http://www.irishtimes.com/news/politics/oireachtas/us-senate-committee-quoted-incorrect-tax-rates-for-apple-activities-here-d%C3%A1il-told-1.1404834): "The ability of multinational companies to lower their global taxes using international structures reflected the global context in which all countries operated." 

But then, "Mr Noonan said ... “some multinational corporations, with the assistance of legal practitioners and tax advisors, have exploited the differences in these systems to their own advantage”." So, wait a second here: it is down to 'some' MNCs - with help of legal & tax advisors - to 'exploit' tax system to their advantage. "The Minister said tax management was an international business. “Very clever accountants and very clever lawyers are involved in it and they basically try to get into an unspecified space between the tax laws of two jurisdictions." 

Ok, we get the point - bad advisors and bad companies are exploiting good Irish regime or global regime. Were it not for this 'exploitation, one can assume things would have been different, right? Wrong: “Operating in that space, they find ways of avoiding the tax that otherwise would not have been payable.”

Come again? Apparently, some multinationals just love hiring expensive advisors to avoid tax that would not have been payable even absent these advisors. You see, per Minister Noonan, Ireland's reputational problems of being branded a tax haven stem from utter stupidity of some MNCs that are so dim, they hire useless but very clever advisors to devise complicated and clever schemes to avoid that which doesn't exist. 

Seems like Minister Noonan has been exposed to too much logic lessons as of late.

2/4/2013: Talkin of Gettin Things Really Wrong...

When Washington Post gets things badly wrong...

"Ireland doesn’t look likely to cause problems anytime soon. It’s been paying back the 2010 bailout from the E.U. faster than it had too [sic], which has pushed bond rates way down."
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/30/cyprus-luxembourg-italy-or-malta-which-country-will-unravel-the-euro-zone/

Sorry, what?! Ahem... no... WHAT?!

23/3/2013: IMF 9th Review of Ireland's Programme

IMF Completed 9th Review with Ireland:

"Ireland’s strong policy implementation has continued and positive signs are emerging. Real GDP growth was 0.9 percent in 2012, and employment rose slightly over the year, although unemployment remains high at 14.2 percent. Further deepening its market access, Ireland issued €5 billion of 10 year bonds at 4.15 percent in March."

"The 2012 fiscal deficit of 7¾ percent of GDP was well within the 8.6 percent target. In 2013, the fiscal deficit is projected at 6¾ percent of GDP, moving toward the target of below 3 percent by 2015.  Public debt is expected to peak at 122½  percent of GDP this year and decline in later years provided growth picks up from the 1 percent rate projected in 2013."

"Financial sector reforms have continued to advance, but banks remain weighed down by nonperforming loans at about 25 percent of total loans." Per Mr. David Lipton, First Deputy Managing Director and Acting Chair:

"…problem loans remain high and accelerating their resolution is a key to economic recovery. The recent establishment of mortgage loan restructuring targets for banks is therefore welcome, and it will be supported by reforms announced by authorities that facilitate constructive engagement between banks and borrowers, promote the efficiency of repossession procedures as a last resort, provide banks with the right incentives through provisioning rules, and by sound implementation of the personal insolvency reform. Progress with resolution efforts for SME loans is also a priority.

“Building on the strong budget outturn for 2012, sound budget execution remains critical in 2013, including continued vigilance on health spending and a successful introduction of the property tax...

“Prospects for Ireland’s exit from official support have improved, yet continued strong policy implementation remains paramount given risks to medium-term growth and debt sustainability. Timely and forceful delivery on European pledges to improve program sustainability, especially by breaking the vicious circle between the banks and the Irish sovereign, would go a long way toward Ireland’s durable exit from drawing on official support.”

8/3/2013: German Lawmaker Challenges Debt Restructuring for Ireland & Portugal

Not exactly good news, and not exactly earth-shattering either, but...
http://www.reuters.com/article/2013/03/07/eurozone-germany-bailouts-idUSL6N0BZI9320130307

The point worth raising is that if Enda & Co do achieve restructuring of our Troika loans, they would de facto deliver a restructuring of Ireland's super-sovereign debt. This raises a number of issues:

1. Why are we seeking restructuring super-senior sovereign debt ahead of seeking to restructure non-sovereign debt, such as, for example banks debts?
2. If restructuring were to materially impact our long-term debt profile by lowering the NPV of our debt, would this not qualify as a 'structured' or 'cooperative' default? I know - the matter here is not material, but rather a label, yet don't we have a Government that staunchly refuses to default on private debts assumed by the State and then goes for a default (or even quasi-default) on super-senior debt?

These questions closely relate to the work I have done over the recent years on Irish Government debt and most directly to my chapter in What if Ireland Defaults? (link the chapter in a working paper format here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1985617)