Saturday, August 25, 2012

25/8/2012: August 2012 MOU - a base PR touch with little substance


The new installment of the Comics, known as Ireland's MOU (Memorandum of Understanding) with Troika was quietly released yesterday, without so much as giving the media an embargoed copy or a prior notice of forthcoming release (see The Irish Times article on this).

The document was (once again) released in a pdf format that is unmanageable in the Professional version of the software, cannot be searched, cannot be easily scrolled through and loads partially possibly due to non-optimized version saved by the Department of Finance. In simple terms - the release was antediluvian in presentation - a veritable embarrassment to the Government that keeps talking about modernization in the Civil Service etc.

In terms of content, there are some comical moments of  a truly priceless nature. In the week that saw publication of the Central Bank report on Irish banks lending to the SMEs, identifying Ireland as the second worst performer in this area after Greece, the MOU opens up with the following statement, concerning targets delivery by the end of Q3 2012 [emphasis mine, throughout]:
"The authorities... will assess banks' deleveraging ... in line with 2011 Financial Measures Programme. Fire sales of assets will be avoided, as will any excessive deleveraging of core portfolios, so as not to impair the flow of credit to the domestic economy."

Furthermore, in light of the abysmal Q2 2012 data for mortgages arrears and defaults, also released this week, the MOU states: "The authorities will provide staff of the EU Commission, the IMF, and the ECB with their assessment of banks' performance with the work-out of their non-performing mortgage portfolios in accordance with the agreed key performance indicators." One wonders if the 'assessment' of performance will reference the fact that more than 1/2 of all restructured mortgages are now back in arrears (see details here).


As far as a pertinent or substantive part of the 'Financial Sector Reforms', the MOU lists (should we be surprised) only one real tangible measure to be delivered on: "The authorities will also adopt regulations underpinning the Resolution Fund Levy to recoup Exchequer resources provided for the resolution of troubled credit unions." Congratulations to the Government on consistent continuation of the core 'reforms' policy in all spheres of the Irish economy - identification of new taxes/levies/charges to milk the taxpayers. Incidentally, the Levy was not mentioned under the respective heading in MOU from May 2012.


Structural reforms section of the MOU is worth some attention, as always, if only for the complete waffle it contains. Promises to monitor, to report are thick on the paper, but details of any actual reforms are thin. As always, the MOU is really about managing PR for Ireland-Troika relations, not for actual reporting (which takes place much more via ongoing monitoring and Troika reviews).


On personal debt issues, "the authorities will ensure that a programme to facilitate access by distressed borrowers to professional advisory services, funded by banks, will be operational". Of course, not a word on such services needing to be independent of banks in the front section of the MOU, although the said reference is contained in the latter sections. In addition, one has to wonder - the scheme is not operational now and how it can be made operational between last Friday and next Thursday is anybody's guess.


On social 'support' scheme efficiencies (aka social welfare): the set of reporting targets is identical to that provided in May 2012 and majority of these targets remain unaddressed, judging by the CSO data. For example, the MOU promises progress on "Reducing the average duration of staying on the live register." The said duration is continuing to increase. MOU claims to report progress on "Increasing the fraction of vacancies filled off the live register", but there is still no actual data on this reported by the CSO - the official source for Live Register stats. "Increasing the number of unemployed referred to training courses and employment supports" in reality, per latest CSO data, is met with decreasing numbers of those in state training schemes. As per "Providing data on live register broken down by continuous duration, and probability of exit by various durations"... well, the former is normally supplied by the CSO (so no need for MOU-linked reporting) and the latter... oh, may be the Department of Finance can point me to where that has been supplied. Data 'per exit destination' from the unemployment supports - promised by the MOU - is still nowhere to be seen, as far as I know.

Since May 2012, the state was tasked to provide simple stats on evaluation of activation and training policies. As far as I know, this still has not been fully complied with.


When it comes to fiscal 'reforms' there are no new targets for either numerical tax increases (still set at "at least €1.25bn") nor for voted expenditure "consolidation measures" (still at €2.25 bn). Some folks have suggested that the numbers represent scaremongering by the Government in advance of the Budget 2013, but I must disagree - the targets were set ages ago and so far these have not changed.

There is an interesting change of course on the state asset disposals procedures for Q4 2012 MOU compliance plan, which now reads "Government will complete, if necessary, relevant regulatory, legislative, corporate governance and financial reforms required to bring to the point of sale the assets it has identified for disposal". The new bit here is the insertion of "if necessary" clause in place of March 2012 version which read "...will complete the identified regulatory..." In other words, the Government is seemingly lowering the bar for compliance with normal disposal practices.


Despite having more staff per supervised institution than any other Central Bank in the developed world, the Irish Central Bank gets 5 days extension on regular submissions of two core datasets: set C3 and C7 relating to detailed financial and regulatory information on domestic individual Irish banks etc, and deleveraging reports. Surely, not a good sign for the CBofI productivity...


Some of the best examples of the Government spin and distortion of reality are, as always, found in the Attachment 1. Memorandum of economic and Financial Policies.

Take these for examples:

  • The Government reports the return of economy to growth in 2011, but, given this is now August, mentions nothing about the economic decline in Q1 2012 or about the economic conditions since.
  • The Government reports a current account surplus in reference to GNP, but does not reference growth rates in GNP terms.
  • The Government states that "domestic demand continues to decline - albeit at a slowing pace - owing to continuing household balance sheet repair and the still weak labour market." It fails to include in the causes of the domestic demand decline Government-own taxation policies and inflationary pressures from state-controlled sectors. That said, the Government does admit that 'administered price increases' have lifted HICP to 1.8% in H1 2012.
  • The MOU states that "weak trading partner growth dampening export demand eve as further competitiveness improvements cushion this effect". This statement is pure spin, as the declines in our exports are registered in the pharma and related organic chemicals sectors where not the demand weakness, but patents expiry is the core driver. Our competitiveness gains have been flattening out or declining on productivity side, but are improving on forex side.
The MOU now explicitly references only two targets for 'addressing banks-related debts' legacy - Anglo promo notes and PTSB, which has been flagged as a scaling back of Government expectations post June 29 summit announcement already, so no surprise there.



Aside from the above, I can spot no significant changes in the current MOU compared to May 2012 MOU. The same applies to small / marginal changes in the technical MOU. Here is an example where the larger scale changes can be found (although even these are very insignificant):


Post a Comment