Sunday, September 29, 2013

29/9/2013: Irish Retail Sales: August 2013

Retail Sales Index data was out last week and this is an update on series through August 2013.

From the top (excluding motor sales), 
  • Retail sales activity by value declined from 97.4 in July to 96.0 in August 2013. Current 3mo MA is 96.1 which is still ahead of the 3mo MA through May 2013 at 95.2. Year on year August 2013 reading was down 0.21%. 6mo MA is a 95.7 which is lower than 6mo MA through February 2013 at 96.7. 
  • Value reading in August 2013 stood at exactly the 12mo average for 2012 and 3.47% below annual average for 2005. Crisis period average is 100.6 which is significantly higher than the August reading and 3mo MA reading through August and 6mo MA arcading through August.
  • Retail sales activity by volume remained largely unchanged (statistically) between July (100.9) and August (100.7). Current 3mo MA is 100.3 which is ahead of 99.1 3mo MA through May 2013. Year on year the index is up 1.31%. However, 6mo MA through August at 99.7 was lower than 6mo MA through february 2013 (100.4).
  • Volume reading in August 2013 was 2.22% below crisis period average and 2.22% ahead of 2005 average.

The above figures illustrate the extent of deflation in the sector, where volume activity stayed more buoyant than value activity. Which means retailers have been burning through margins for a good part of five years now. There is severe doubt as to whether there are any profit margins left in the sector. 

Meanwhile, Consumer Confidence indicator is moving sideways, as ever detached from reality. ESRI's Consumer Confidence Index in August 2013 stood at 66.8, only slightly catching up to the downside with the overall retail trade stats, declining from 68.2 in July. CCI is now at blistering 68.5 3mo MA which is massively up on 60.0 3mo MA through May 2013. Year on year the CCI is down 4.6% signalling the index desperate attempt to claw back toward reflecting the trends in the sector.

However, as the chart below clearly shows, the Consumer Confidence Index continues to show no signs of coinciding with the broader retail sector trends.

To remind you, crisis-period correlations between CCI and retail sales are negative: -0.70 for correlation with Value of sales and -0.59 for correlation with Volume of sales. The CCI used to perform better in pre-crisis period, when strong trend in sales was evident. 

My own Retail Sales Activity Index (a composite of there measures weighted by relevance to employment and revenue generation) dipped slightly to 109.4 in August from 110.7 in July. The index is down 0.75% y/y. 3mo MA is at 110.0 in August and this is above 105.9 3mo MA through May 2013. RSAI has modest positive correlation with crisis-period data: value at 0.59 and volume at 0.63.

Overall: weak data for August, despite the fact that pre-school season was running at the time when weather did not impede shopping and given that overseas travel for summer breaks was low this year once again. September will be more important to watch to see how the sales and confidence are moving in advance of key shopping season in November-December.

29/9/2013: Economic Sentiment in Europe: Not Exactly a 'Crisis Over' Signal

There's a lot of optimism in the air nowadays across the EU with eurocrats of all shades of grey busying themselves declaring the end of the euro crisis... and the media is firmly on the bandwagon too - even signs of shallower contractions are interpreted as 'huge bounces' into growth.

Amidst all of this, the data on economic sentiment across all productive sectors, collected by the European Commission is a bit more sombre.

Take this simple chart, showing how economic sentiment in the euro area compares against the same in the EU27.

Yep, that's right: in September 2013, economic sentiment in the euro area was at the lowest point compared to the economic sentiment in the EU27 for any month since the formation of the euro... in fact, it was at the lowest point since July 1988 when many EU27 non-euro nations were struggling members of the Warsaw Pact. Congratulations on that recovery, folks!

Things behind the above numbers are even worse. Here's a chart plotting economic sentiment across the three sets of countries that are members of the euro area: the euro area core (Austria, Finland, Germany, and the Netherlands), the periphery, and the rest...

Things are improving, all right, but are these improvements a miracle of the euro area recovery or a bounce from somewhere else? Take again the gap to EU27...

Now, we already know about downward direction across the euro area relative performance as a whole. Now we also know that all  part of the euro area are under-performing relative to the EU27 and that this underperformance has accelerated in recent months for two sub-regions other than the 'periphery'. Worse, the core is about to hit the levels of sentiment under-performance comparable to the peripherals back in H1 2013, while the non-core, non-periphery states are about to converge in earnest with the periphery. This is some 'improvement'...

29/9/2013: Happy (one of the) Birthday(s), Google...

Cool graphic mapping evolution of Google over time (click to enlarge):

Sometime recently Google celebrated its 15th or 16th anniversary*. Whatever the date or the age is, Happy Birthday!

* Google was incorporated on September 4, 1998, but domain name was registered on September 15, 1997. Officially the company recognises September 27th as its birthday, but apparently this is a new thing, since it is marked as such consistently only since 2006.

29/9/2013: It used to be Taper, now it's a Shutdown...

As the US moves into another pre-shutdown stage of its fiscal debacle, here are few charts to illustrate the partisan nature of the problem:


So basically and roughly-speaking the US 'won' the Cold War on some USD3 trillion, then did something with the War on Terror for ca USD5 trillion more and failed the Great Recession War at USD5 trillion and counting... hmmm...

And via the 1995-1996 crisis dynamics.

More from Pew Research:

Potential impact estimates? Try this (albeit partisan):

Saturday, September 28, 2013

28/9/2013: WLASze Part 2: Weekend Links on Arts, Sciences and zero economics

This is the second part of the WLASze: Weekend Links on Arts, Sciences & zero economics.

The first part focused heavily on sciences and tech, so let's focus on art this time around.

Swedish-born photographer Maja Daniels has won the first Contour by Getty Images Portrait Prize for her Mady and Monette series:

An interesting note on the state of the arts in St Petersburg:
Of course, the city is suffering from the chip-on-the-shoulder syndrome: the greatness of the last weighing heavily on the present. But aside from that, there is plenty of more current events that make for hard environment. Like censorship?.. artists’ icon banned from the web
and the episode covered here:

On a positive note, contemporary art festival Territory will be running October 1-8 in Moscow. Here's some info in Russian: And while on topic, a very interesting article on Moscow Biennale and politics of art:

More on the topic:

Here are some images from the Biennale:

Alia Syed, Panopticon Letters: Missive I (still), 2010‐2013. Single-channel HD digital video, sound, 22:46 min.

Gosia Wlodarczak, Window Shopping Frost Drawing, 2012. 18-day performance, Gallery of Modern Art, Brisbane, Australia.

On unrelated (to Moscow Biennale), but closely linked to the Sayed's work: superbly airy and depth-focused photography of Peter Zeglis:

All via

Street art and nature art are two concepts that impose art onto the landscape usually without any desire to be organic or 'natural'. But nature itself is a fantastic manipulator of imagery. Here's a fascinating set of photographs from Mauritius that shows an underwater seabed structure which creates an image of a waterfall… Funny thing is - if this was man-made, we'd call it Art (as if everything man-made is not subject to randomness), this being nature, we call it a natural wonder (as if nothing in nature can ever be driven by anything but chance...)

A matter of chance as a matter of design or vice versa?..

"The layering of the text renders it illegible", according to the Idris Khan's work that involves repetition of textual lines into forming a meditative exercise that is supposed to translate into a meditative experience for the observer. There is no literal meaning. The show is at Victoria Miro, London.

Art historian Erwin Panofsky thought that we invent the future out of fragments of the past. Here we invent our own reality out of fragments of artists hyper-real and potentially subconscious meditation… The above images are from 'Walldrawing 2013', an installation "featuring 120,000 lines of text, stamped directly onto the white wall of the gallery".

'Less = more'. But 'more of less = more'… Such is non-euclidian geometry of art… My students at UCD will get it… and my TCD class - be ready - you will get it too...

Good Sunday to you all!

28/9/2013: Real v Imputed Labour Cost Competitiveness Gains: Ireland v EA17

I wrote recently about the problems with Irish competitiveness and the thesis of significant gains in it since the onset of the crisis:

However, looking closer at Irish data, one discovers several troubling regularities:
  1. Given the rate of improvement in our labour cost competitiveness and the timing of gains achieved, most of the improvement is simply due to destruction of jobs in two domestic sectors. Per chart below: half of all competitiveness gains were completed by Q1 2010 and some 64% were completed by the end of Q4 2010 - in other words during the period of mass unemployment increases fuelled by jobs shut downs in domestic services and building & construction sectors. Since then the rate of improvements dropped dramatically.
  2. The gap in our competitiveness relative to EA17 when expressed relative to the base of the year 2000 is much more closely reflective of the gap between EA17 and Irish GDP and GDP per capita than for any other base, suggesting that use of any other base is misleading in capturing true relative competitiveness positions between Ireland and euro area average.
  3. Even with the 'gains' achieved, in Q1 2013 Irish economy was some 12 percentage points less competitive than the euro area average for EA17 states.

Controlling for the second point above, I rebased the data set from the Central Bank to two more bases: 2000 base, 2002 base, and compared this against Central Bank-reported 2005 base. Here are the details:

As the chart above clearly shows, the gains achieved in the unit labour cost metrics have been large. However, these gains do not mean that we are now significantly more competitive than Euro area 17 average. Instead, the metric is highly sensitive to the choice of the base year. In other words, if we assume that Irish economy costs were roughly on par with those in the euro area 17 in year 2005, then we are now 11.4 points more competitive than euro area 17. In contrast, if you assume that we were cost-wise on par with the euro area in 2002, then in Q1 2013 we were only 1.8 points more competitive than euro area. If we assume that the two economies were running at similar cost bases in 2000, Irish economy is still about 14 points behind the euro area in terms of competitiveness.

To make the right base choice, we have to look at the GDP and GDP per capita comparatives and these suggest that we were closer to euro area average around 2000 and ahead of the euro area in 2002 and 2005.

Long story short - do not be deceived by the claims of huge competitiveness gains in Ireland. Some 50%+ of these are probably due to jobs losses here, and the rest is due to base year choice and strong performance of Germany during the crisis... Oh, and that is before we start accounting for productivity 'gains' from transfer pricing by the ICT services exporters...

Friday, September 27, 2013

27/9/2013: WLASze Part 1: Weekend Links on Arts, Sciences and zero economics

This is the first post of the week's WLASze: Weekend Links on Arts, Sciences and zero economics

An absolutely fantastic article on the evolution of the Internet of Things via Foreign Affairs:
And a fractal image of the internet:

Favourite quote: "a more profound change that is reshaping major industries, even as it blurs the lines between humans and computers." The best leap not made: "The Internet of Things is a set of technologies that incorporates the physical world into the virtual one through networks of electronic sensors and devices connected to computers."

So when is the Internet of Humans? When will we see human world integrated with technology?

Wait a sec - the answer to that question is… pretty soon:

My personal favourite: cancer-killing "microfluidic" computer chip  that could live in a patient's bloodstream. But think even beyond that: a microchip that can seek out and automatically repair failed neurone connections to fight a score of neurological diseases and conditions and drive memory up beyond our current limits, while sustaining it into old age… Why not?

If storing data in DNA is a feasible proposition, then what is 'cloud' storage but a transitory stage? The bound to all of this is, as I always point out, not technology, but ethics. We will have to maintain human condition in face of extra-human technology.

All of this just powers me on and on with the thesis of human capital-centric economy of the future that I was talking about at TEDx Dublin...

As per human condition - maintaining it might be challenge in the future, but dealing with it is often a challenge today. Nowhere else as pronounced as in our biases in dealing with risks. Here is a fascinating exposition of the risk perception biases:

Quote from a side-line: "Fear is good. It helps protect us. But getting risk wrong — worrying more than the evidence says we need to, or not as much as the evidence says we should — produces stress and leads to unhealthy choices for ourselves and for society. We do have to fear fear itself: too much, or too little. Understanding why the gap exists between our fears and the facts is the first step toward managing the potential risk of risk misperception."

And the best paradox-resolving quote (a sort of Gordian Knot solution): "“No sympathy for the devil; keep that in mind. Buy the ticket, take the ride...and if it occasionally gets a little heavier than what you had in mind, well...maybe chalk it off to forced conscious expansion: Tune in, freak out, get beaten.”
You can always count on Hunter S. Thompson to deliver… Smile!

While on technology side, an amazing promise of pioneering analysis on a fizzled-out platform? You betcha: how image goes viral?
Amazing summary of contingent stats for user-specific attractors:

Adding to the above story on the future of cancer treatments, here is an interesting tale of the DNA test firm, with legacy of Steve Jobs, and Google and Bill gates as investors:

But enough of tech and science and for the end, some fantastic architecture.

The 2013 RIBA Stirling Prize was awarded this week and the winner was absolutely stunning reconstruction of the abandoned medieval castle:
Described as utterly magical, this is really a superb, bold, limit-pushing renovation that fuses modern with medieval and achieves seamless transition across ages, space and materials:

Other short-listed projects are here:

Ireland's own project was also shortlisted:

Somewhat evocative of the Salk Institute ageless architecture:

Stunningly beautiful work.

27/9/2013: Incumbent Subsidies v Innovation: US evidence on R&D subsidies

I wrote about R&D tax credits before and the fact that some recent research has been throwing a spanner in the works of the Governments around the world actively subsidising R&D and innovation. You can read my musings on the subject here:

New research on the same just out from the Bank of Finland.

"Innovation, Reallocation and Growth" is a paper recently published by the Bank of Finland (Discussion Papers 22, 2013 authored by Daron Acemoglu, Ufuk Akcigit, Nicholas Bloom and William Kerr.

From the abstract (emphasis mine):

"We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good Öt to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates."

"We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms."

"On the contrary, substantial improvements (of the order of 5% improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry."

Or put differently, let the creative destruction work. Or even incentivise the creative destruction working (not my preference, though)...

27/9/2013: Internal Devaluation: Picking a Right Target?

Conventional wisdom of the 'internal devaluation' theory goes as follows: if a country like Ireland were to experience a structural shock, the path of adjusting to this shock lies via reduction in the cost of doing business (improving efficiency). Since adjusting the cost of Government or quangoes or Social Partners in the economy is an impossible task to undertake in a corporatist economy, then the only two things that can adjust to effect the 'internal devaluation' are capital costs (interest rates) and labour costs. In reality, however, capital costs are no longer responsive to interest rates since Ireland is in a major asset bubble bust and banking sector collapse. So we are left with deflating labour costs.

Aside from the knock-on effects such policies might have on aggregate demand and household investment, there is a nagging question of: can they be effective in reducing functional costs faced by businesses? In other words, are reduced labour costs associated with economic efficiency gains?

Logic suggests that even if successful, reductions in labour costs can only be as effective as labour costs' share in total output of the economy. How so? Suppose labour costs fall 10% and labour costs share in the economy is 50%, then, assuming freed resources are used somewhere more efficiently, the output boost can be substantial. If, however, labour costs are only 10% of the economy, then the impact will be smaller.

Now, here's a chart from the Robert Schuman Foundation research paper on Labour Costs and Crisis Management in the Eurozone:

According to this chart, Ireland was the second / third (to Greece and Italy) worst candidate in the euro area to implement internal devaluation policies along the lines of labour costs adjustments. And today Ireland is the second worst candidate (after Greece - the unlabelled purple line).

Yes, Ireland was the best candidate to apply these policies as the place with the worst labour costs competitiveness during the pre-crisis period.

But the adjustments, even though only partially successful, may be not impacting significant enough proportion of the economy to make much of the real difference.

Thursday, September 26, 2013

27/9/2013: Consolidating Irish Banking Sector is a Bit of a Efficiency Dodo?

A new paper by Anolli, Mario, Beccalli, Elena and Borello, Giuliana, titled "Are European Banks Too Big? Evidence on Economies of Scale" (August 6, 2013: "…investigates the level of economies of scale, as well as their determinants, for 103 European listed banks over the period 2000-2011…"

H/T to @brianmlucey for spotting the paper. Brian blogged on this today here:

According to the abstract [emphasis is mine]: "The results reveal that economies of scale are widespread and move together for all size classes, although small and medium-sized banks experience the lowest economies of scale and even diseconomies of scale in some of the years under analysis."

The economies of scale concept as applied here is whether banks become more cost efficient when their size increases. In other words, the issue is are TBTF banks more efficient and are smaller banks, perhaps created by a regulatory breaking up of larger institutions in the wake of the crisis less efficient?

According to the authors, in the wake of the crisis: "An intense debate on the “make-them-smaller” is ongoing, and we aim to contribute from a quantitative perspective."

To do so, and "to fill the gap of evidence on European banks over the most recent years, this paper aims to investigate whether, among EU listed banks, there is evidence of economies of scale also for the largest banks in terms of total asset. Moreover it aims to isolate the effects of risk-taking, diversification in the business model and profitability on economies of scale."

"We find that economies of scale are widespread across different size classes of banks, and that they are especially wide for the largest banks. Moreover, there is a scale effect of the financial system, the smallest financial systems (Iceland, Belgium and Finland) and the countries most affected by the financial crisis (Ireland, Iceland, Belgium, Portugal and Spain) experience the lowest economies of scale (if not even diseconomies of scale) probably due to the small/reduced use of their production capacity."

Put differently, in countries like Ireland, the study finds that there is small or negative effect of larger size on greater efficiency of the banking system. Now, wait, but what about Government/Central Bank plans for consolidating the banking system into 3-pillar banks? Ooops...

"As for the effects of risk-taking, diversification in the business model and profitability on economies of scale, higher economies of scale are documented for banks more oriented towards investment banking (in all periods), banks with a higher liquidity but only up to a liquidity ratio of about 5.3 percent (convex curve during the crisis only), banks with a smaller amount of Tier 1 capital (concave, although almost flat, curve during the crisis only), and banks contributing less to systemic risk. The Granger causality tests suggest the existence of unidirectional causality for liquidity, Tier 1 and systemic risk."

So in plain English, this means that authors found that larger banks are more efficient when they are more liquid, take on more risky assets (investment banking), hold less capital (i.e. run greater risk of potential need for larger bailouts) and for banks that are less wired into the economy (contribute lower systemic risks). Oh, and the casualty for the economies of scale efficiencies goes from riskier behaviour and less connection to the economy to greater efficiency related to scale. Which part of these conclusions supports the irish Government/CB plans for 3-pillar banking system? Err… none!

Now onto country-level results: "Table 4 reports the average economies of scale for each country and for the different size classes of banks during the entire period 2000-2011."

"…Three countries (Belgium, Finland and Iceland) show overall diseconomies of scale. Meanwhile in the other European countries…, large significant economies of scale are reported (in particular for banks in the Netherlands and Switzerland). When we combine country and bank size, we observe that diseconomies of scale are experienced by the smallest banks in Finland, Germany, Ireland and Spain, the small banks in Finland, Germany, UK, Iceland and Portugal, and the medium banks in Belgium and the UK. Large banks exhibit diseconomies of scale in Ireland only, whereas largest banks show diseconomies of scale in Belgium only."

Oh, wait, so the 3 Pillars are getting worse (at being efficient) as they get bigger? You betcha… And the solution is… per Irish Government plans... to grow them even more mighty by consolidating the entire banking space in their hands. But more to come on these giants of greatness in the next table.

"Table 5 shows the average values of economies of scale for each country and in each year under analysis."

"Diseconomies of scale are more pronounced during the global financial crisis. In 2007 the number of countries that experience constant economies and diseconomies of scale (Finland, Ireland, Iceland and Spain) increases, but it is especially in 2008 that the number of countries that encountered diseconomies of scale (Belgium, Finland, Greece, Ireland, Portugal and Spain) increases. This evidence confirms, as expected, that the scale of European banks, when volumes declines due to the crisis, resulted to be excessive and inefficient due to excess capacity."

Wait a second, folks… between 2010 and 2011 Irish 'banks have: (a) shed much of their bad assets into Nama; (b) got recapitalised, and (c.) spent the last few years trimming down their operations to deliver on efficiencies demanded from them by the Central Bank… And yet - the economies of scale declined for them between 2010 and 2011.

Crazy stuff, until you realise that none of the 'reforms' we put forward to our banks have anything to do with increasing their efficiency or their capacity to function like proper banks. All our 'reforms' have been designed to suppress the explosion of bad risks on their balanceshets. Extend-and-pretend across the banking system doesn't add up to gains in efficiencies in the banking system? Who could have thought that up to be the case?

Now, how about a novel approach to repairing Irish banking system? How about getting real competition going by encouraging new entrants and freeing up (regulatory) credit unions and post offices to move into banking and consolidate within their sub-sector to form medium-sized banks? That might reduce market concentration and increase the numbers of banks with economies of scale?..

26/9/2013: Framing Budget 2014: Village Magazine September 2013

This is an unedited version of my column in the Village Magazine, August-September 2013

With early Budget looming on the horizon, the circus of the 'austerity is overdone' politics has rolled into town. The Labour and the FG backbenchers are out in force trying desperately to salvage the little popular support they still might command in the streets. Not to be outdone, Fiana Fail, freshly converted into the Church of Socialistas has been unleashing torrents of newly-discovered social consciousness. Things are getting so hot on the anti-austerian' speaking circuit that Siptu was able to get even Jack O'Connor a gig. Their star performer was last seen thundering at the MacGill Summer School a potent brew of outlandishly misinformed comparatives between the European and the American policies for dealing with the Great Recession and calls on the imaginary Government to… no prizes for guessing… end 'human rights-violating' austerity.

Problem is, once you come back from all of the highs of this Keynesian Lollapalooza, Irish Government continues to run an insolvent state with spending not matched to revenues and with the expenditure programmes outcomes not matched to the needs of the society at large. Delivering neither fiscal sustainability, nor growth, nor value for money, our fiscal house is grossly out of shape five years into various reforms. Worse, the fiscal mess we are in has nothing to do with the lack of economic growth and everything to do with the policy institutions that the current Government inherited from the decades of political clientelism presided over by its predecessors.

Let us look at some numbers.

In the first six months of 2013, Irish State has managed to spend EUR27.12 billion on current expenditure, just EUR352 million shy of the level of spending in the same period of 2012 and EUR3.2 billion more than we spent in the six months through June 2011. Meanwhile, tax revenues rose from EUR15.3 billion in January-June 2011 to EUR17.6 billion this year. Crunchy austerity based on savage cuts, five years in still looks more like a tax squeeze and spending re-allocation from one programme to another.

Meanwhile, Department of Health spending is now running at EUR6,539 million for H1 2013, down on EUR6,754 million in H1 2011 - a whooping reduction of EUR215 million. Do keep in mind that 2011-2012 increases in the cost of beds charged to the private insurers (aka to ordinary insurance purchasers) have more than offset the above reductions in spending. Net current (ex-capital) spending on health has shrunk by just EUR128 million over the last two years.

The Department of Health is a great example to consider when dealing with the failure of our reforms. It is a frontline service by definition - the one we all are willing to pay for. Yet, it is also a symbolic dividing line between the poor (allegedly having no access to the services) and the rich (allegedly all those who hold health insurance and as 'private' patients overpopulate public wards preventing the poor from getting necessary hospital beds). Healthcare was also an epicenter of rounds of reforms over decades, including the decades of rapid economic growth and prosperity. And it is one of the two largest departments by voted spending, with budget only slightly behind the EUR6.545 billion spend in H1 2013 at the Department of Social Protection.

For this spending we - the middle classes and other payers - get little value for money in services. Over 35% of Irish households have to purchase private insurance to access any meaningful level of health services. In case you still rest in the camp of those who believes that such purchases of insurance are purely voluntary and constitute luxury, Irish Government is considering making health insurance purchasing purely obligatory.

Even with this expenditure, access to basic, quality of life-improving procedures and healthcare maintenance is shambolic. While run of the mill emergencies are getting reasonably decent attention, complex and time-sensitive treatments are wanting. Thus, Ireland ranks at or below the European averages in treatment of majority of chronic and long-term diseases, before we control for differences in population demographics. Our primary care and access to specialist consultants is pathetic outside the emergency rooms and hospitals' ICUs. Despite seeing the fastest rise in the healthcare expenditure per capita over 1997-2007 period in the entire EU27, per EU assessment, Irish healthcare expenditure increases have made only "a modest contribution to [improved mortality], substantially less than one third of the total, and possibly only a few percentage points".

In reality, of course, Irish healthcare is run for the benefit of Irish healthcare staff. In 2005-2007 pay and salary bill for HSE stood at an average 50.7% of the entire HSE non-capital budget. In 2009 it was 50.1%. In 2010, Irish salaries (excluding other income) for medical specialists were the highest in the EU, with the second highest paid cohort of physicians (in the Netherlands) coming at an average salary discount of roughly 25% relative to their Irish counterparts. These salaries were not inclusive of the Irish doctors earnings from private patients.

Per EU 2012 assessment, 33% of Irish people find access to hospitals unaffordable (8th highest in EU27) and the same find access to GP out of their financial reach (4th highest in EU27), while 53% claim that they cannot afford medical or surgical specialists (8th highest).

This is hardly surprising. Between December 2005 and mid-2012, Irish consumer price inflation (CPI) on cumulative basis has hit 9.5%. Health CPI over the same period totalled 21.4% - more than double the rate of overall inflation. Of EU15 states, Ireland and Holland were the only states where health costs were rising faster than general inflation in the last 7 years. 2005-2011 inflation run at 47.3% in Hospital services (state-controlled charges), followed by dental services 28.6%, Out-patient services 23.5% and Doctors' fees at 21.3%. This inflation took place from the already high cost base present in Ireland at the end of 2005.

By international comparisons, from 2005 through mid-2012 Ireland had the lowest rate of inflation in the EU15, while our health services inflation was the second highest after the Netherlands.

Austerity, it seems, has been a boom-time for healthcare costs. Or put differently, while the rest of the world defines efficiency-improving reforms as changes in delivery of services that reduces the cost of services given fixed or improving quality of delivery, in Ireland we define efficiency gains as providing fewer services at a higher cost.

Despite this, in Irish media and policy circles, assessment of healthcare systems performance starts and ends with the comparatives on public spending levels. Good example of such assessment was the 2010 report to the Oireachtast, titled "Benchmarking Ireland’s Health System". A foreigner reading this report can easily conclude that (a) Irish healthcare is run on a shoestring, (b) achieves great outcomes in terms of reduced rates of prevalence of and mortality from key diseases, and (c.) is delivered to the middle class and the rich, bypassing the poor.

In reality, of course, the inequality of access to Irish healthcare system means that the middle and upper-middle classes are required to buy expensive insurance to gain access to health services. Our achievements in combatting key diseases are primarily driven by our younger (and thus healthier) demographics.

And when it comes to access, only 17.2% of all non-maternity related hospitals admissions in 2011 (the latest for which we have data) were for private patients, with the balance going to public patients. On average, people on private insurance had 2.4-2.6 visits to GP in 2007-2010, while those on medical cards had 5.3-5.2. In 2012, the rich-favouring distribution of access to Irish healthcare so often decried by the media and politicians meant that 39% of population or just under 1.8 million people had access to medical cards, more than the number of private health insurance holders.

Health spending represents the case where we have at least some indications and metrics concerning the inefficiency of services provision. In contrast, in other major areas of state expenditure, there is no basis for efficiency assessments and none are being developed.

Irish welfare system is absurdly complicated, and unbalanced - providing potentially excessive services for able-bodied adults on long-term dependency and insufficient services for adults in temporary need of supports and to people with severe disabilities. Related services - in particular in the areas of skills development and training, placement supports for the unemployed - are glaringly out of touch with reality of the labour market demands. Over the last five years, Irish economy produced ever-increasing shortages of skills in several areas, most notably internationally-traded ICT services, financial services, and back- and front- office support services. Yet Irish system of unemployment supports, planned by Forfas and managed by Fas/Solace, failed to reflect these long-term trends. By the time state training behemoths turn around to face the music, the demands for skills will change again.

Irish state spending - with or without austerity - is a rich sprinkling of waste over a thin layer of substance. And it remains such in the face of five years of boisterous pro-reform rhetoric.
Irish austerity has failed, so much we can all agree on. But the real failure is not in cutting spending too much, but in failing to deliver any real gains in efficiency of public services provision or quality of these services. And it failed in containing the costs of the State, especially if we are to use long term sustainability as the benchmark for assessing the reforms.

The likes of Jack O'Connor and Fiana Fail ‘Nua’ might have discovered a magic trick for conjuring economic growth out of public spending, but reality is that the actual working population is by now sick and tired of being taxed to fund the perpetuation of the public sector mess, best exemplified by our healthcare.

26/9/2013: Sunday Times 15/9/2013: What About Irish Competitiveness?

This is an unedited version of my Sunday Times column from September 15.

Recent experiments in psychology have shown that people routinely distort their interpretation of objective evidence to fit their subjective political beliefs. More ominously, our propensity to ideologically colour evidence appears to be greater the better we are with data analysis.

This ability of humankind to see data through the tinted glasses of our biases is present all around us, including in the interpretation of economic data.
Take two examples.

Recently, the relatively ideology-free World Economic Forum published its annual report on global economic competitiveness rankings for 2013-2014. According to the report, Ireland now ranks 28th in the world in terms of competitiveness, down one place on a year ago. Back in 2005-2006 – at the height of the boom, and amidst rampant business costs inflation, we ranked 21st. Overall, Ireland's global competitiveness has deteriorated by 7 places over the last ten years, with this year's performance just one notch better than the absolute nadir reached in 2011. A more ideologically-informed Heritage Foundation / WSJ Index of Economic Freedom continues to rank Ireland highly in the 13th place in the world in 2013. However, tinted lasses aside, our overall competitiveness score in the latter index declined from around 82-83 in 2006-2009 to below 76 this year.

Meanwhile, Irish political and business elites continue to brag about the remarkable gains in the country competitiveness, brought about by the policies enacted since the beginning of the crisis or at the very least, by the reforms that took place since the last elections. Almost 6 months ago, seemingly unburdened by evidence, Taoiseach Enda Kenny has declared that the government is "making this the best small country in the world to do business in…" Never mind that Ireland ranks outside the top 10 countries in the world in every reasonably comprehensive and objective rankings produced so far. And never mind that our rankings have deteriorated, rather than improved, since the onset of the crisis. The government will still spin the evidence.

The truth, of course, is somewhere in between the two extremes of the opinion.

One core measure of competitiveness is the labour-related cost of the unit of output in the economy, the so-called unit labour costs (ULCs). Based on the ECB data, we  achieved substantial gains in this measure, with ULCs falling 18 percent peak-to-trough. However, since the trough was reached in Q2 2012, Ireland’s performance has deteriorated. In 2009-2010, Irish unit labour costs fell by over 7 percent compared to 2008. The rate of cost deflation declined to 2.4 percent over 2011-2012. So far, since the start of 2013, the ULCs are rising. This exposes the underlying causes of changes in the ULCs over the crisis period. Much of the recent gains in labour competitiveness were driven by a dramatic rate of jobs destruction back in 2009-2011. As the jobs market stabilised, competitiveness gains vanished.  Exactly the same story is being told by the broader harmonised competitiveness indicators published by the Central Bank of Ireland.

However, the data also shows that the key driver for the deterioration in our cost competitiveness in more recent months is government policy.

As the result of our non-meritocratic approach to labour markets, lack of reforms in core areas relating to business development and entrepreneurship, the use of tax policies to fund wasteful bank crisis resolution measures and public spending, Ireland finds itself in an absurd situation where we rank 12th in the world in capacity to attract talent and 40th in capacity to retain the talent we attract. As our openness to FDI is bringing scores of talented workers into the country, our internal markets policies are pushing talent out of the country. Having had their fill of "the best small country in the world to do business in", globally skilled workers tend to get out of Ireland.

As the result of our inability to keep key skills and talent in the country, labour costs are starting to creep up, even before we see serious uptick in new employment. In 2009-2010, according to the OECD,  labour costs accounted for 74 percent of the total inputs costs in production in Ireland. In 2011, the latest for which we have data, this rose above 77 percent. Labour productivity growth, having peaked with unemployment increases in 2009 has fallen back by almost two thirds by 2012.

The latest data from CSO shows that average hourly earnings are now up in eight out of thirteen sub-sectors year on year through H1 2013. Crucially, in the areas under direct Government control, earnings are now rising once again and at speeds exceeding those recorded for the overall economy. Public sector average weekly earnings were up 1.3 percent year on year in Q2 2013 and non-commercial semi-state earnings are up 2.7 percent.

With every new report, the IMF reiterates its advice to the Irish authorities to continue focusing on labour markets reforms. Despite this, the Government staunchly refuses to address the main factors holding back our labour competitiveness. These are flexibility of wage determination (with Ireland ranked 103rd globally), flexibility in hiring and firing (we rank 43rd here) and linking pay to productivity, especially in the public sector (our rank is 38th worldwide). According to the WEF, Ireland ranks 90th in the world in terms of the effect of taxation on incentives to work.

So labour competitiveness improvements of the past are neither a credit to the Government reforms, nor appear to be sustainable over time. Now, lets take a look at other policies-linked metrics.

World Economic Forum report lists the top 5 factors acting to depress our global competitiveness scores. In order of decreasing importance these are: access to financing, inefficient government bureaucracy, inadequate supply of infrastructure, insufficient capacity to innovate, and tax rates. The first two come under direct remit of public reforms aimed at dealing with the crisis. The fourth one, capacity to innovate, is linked a myriad of incentives and subsidies crafted by Irish governments in an attempt to shift the economy away from bricks and mortar toward innovation and exports. The third and the last factors arise from the Government policies since 2008 that saw higher tax burdens and shrinking public capital investment become the drivers of the state response to the fiscal crisis. Thus, by WEF metrics, Irish Government is responsible for dragging down Irish economy's competitiveness, rather than pushing it up.

These findings are broadly in line with the Heritage/WSJ index readings, which shows that we score poorly on Government policies, fiscal performance, and public spending efficiency.
Despite years of austerity and alleged reforms in public sector management since 2008, the WEF report ranks us 55th in the world in terms of wastefulness of government spending, and 29th in terms of burden of government regulation. When it comes to the transparency of Government policymaking, Ireland ranks below 24 other countries around the globe. The latter is a metric directly targeted by the Troika-led reforms and the one where the Irish Government has, allegedly, done most work to-date. We have revamped banks regulation and reporting, significantly altered macroeconomic risk monitoring, fiscal policies oversight, economic policy development mechanisms and more. Yet for all our successes in this arena, we are not even in top 20 worldwide when it comes to policies transparency.

Another obvious flash point of the crisis was the lack of robust audit and oversight over the operations of our banks and some companies. One would expect that 5 years into dealing with the crisis, Ireland would have delivered some serious improvements in these areas. Alas, we still rank 58th in the world in terms of the strength of our audit and reporting standards. In a business oversight metric, the World Bank Doing Business report ranks Ireland 63rd in the world in terms of the  enforcement of contracts, with average time to resolve a dispute of 650 days in Ireland, against 510 days for the OECD average.  As a legacy of the protected sectors inefficiencies, our legal system imposes average costs of 26.9 percent of the total volume of dispute-related claims on contracted parties, against the OECD average of 20.1 percent.

The current Government came into office with a clear promise to reform domestic sectors to breath in more competition into protected markets. This has not happened to-date. State-controlled sectors, such as professional services, health insurance and health services, energy, transport, education, and so on, remain shielded from real competition. As the result, Ireland ranks 42nd in the world in intensity of local competition, and 24th in effectiveness of anti-monopoly policies, even though much of this effectiveness comes via Brussels. Property regulations, planning and permissions systems are as atavistic as they were before the bust, meaning that the World Bank ranks Ireland 106th in the world when it comes to dealing with construction permits.

Ireland’s performance on the competitiveness side is worrying. In the long-run competitiveness metrics and rankings – imperfect as they may be – help global investors allocate capital investment and productive activities of their companies around the world. Even more significantly, these metrics expose structural problems in the economy and governance systems that are holding back Irish domestic entrepreneurship and innovation.

As economies and fiscal positions of governments around the world improve over time, the competition for FDI and new markets for goods and services exports will heat up, once again. Downward pressure on taxes – Ireland’s core competitive advantage to-date – will re-accelerate too. At the same time, capital investment will remain scarce and costly, while skills shortages worldwide will once again start driving up cost of doing business, including here. This means that global investment flows will tend to be concentrated on the markets with the greatest demand growth potential, and where the profit margins are the highest. The only way Ireland will be able to compete is by becoming a competitiveness haven for product innovation and development, advanced specialist manufacturing, distribution, marketing and sales. Being just a tax haven will not be enough.


A financial transaction tax (FTT) on derivatives trades came into power in Italy this week, as a follow on to March 2013 introduction of the FTT on equity transactions. Per new law, derivatives will be taxed at rates that vary with the volume and the type of the contracts traded. Equities transactions are taxed at 0.12% for shares traded on a regulated exchange or 0.22% for over the counter trades. Six months in, the FTT is having an effect. As a number of analysts, including myself have warned prior to the introduction of the tax, Italian trading volumes for equities are down significantly, compared to the rest of Europe. Since March, Italian equity market turnover dropped to EUR50 billion from EUR101 billion a year ago. French equity markets experienced exactly the same effect post FTT introduction. At the peak in 2011, French equity market accounted for 23 percent of the European equity markets turnover. Today, it is at around 13 percent. There is also some evidence that wealthier investors are moving their transactions out of FTT-impacted equity markets. Which means that more burden of the levy – popularly mislabeled as 'Robin Hood' tax – is falling onto the shoulders of smaller investors. Falling trading volumes are now expected to undercut significantly Italian and French estimates for the Government revenues that FTT was expected to raise. With projected funding already allocated in the budgets, any shortfall will have to be compensated for via other taxes or cuts elsewhere. Yet, undeterred by the evidence, the EU continues to press on for a cross-border FTT. John Maynard Keynes once said: "When my information changes, I alter my conclusions." Sadly, his otherwise enthusiastic students in Brussels have missed that lesson.

26/9/2013: Irish Residential Property Prices: August 2013

Residential Property prices Index for Ireland is out today, showing strong gains in property prices in Dublin.

Y/y August 2013 residential property prices increased by 2.8% nationally. This compares with an increase of 2.3% in July and a decrease of 11.8% recorded in the twelve months to August 2012. That is a reasonable number, ahead of inflation rate, which is natural given the contraction in the market experienced so far.

However, several sub-trends are worth noting.

  • Residential property prices grew by 0.9% in the month of August. This compares with an increase of 1.2% recorded in July and 1.3% growth in June. Which implies that the rate of growth has slowed down through August. Seasonality is a factor here. 
  • Annual rate of growth is still rising: from 1.23% in June, to 2.31% in July to 2.76% in August. This means we have: rising rate of growth and three consecutive months of growth. Last time we had three consecutive months of growth was back in 3 months through January 2008.
  • 3mo MA for all properties index is at 66.33 in August, which is the best reading since March 2012. Over the last 3 months property prices rose cumulative 3.4% and over the last 6 months they are up 4.04%
  • August reading is the highest level since January-February 2012, although prices are still down 48.66% on peak.

The above is illustrated in Chart below:

Now, absent other sub-trends, we can be tempted to call a turnaround in the prices at this stage. With two caution notes: (a) this still is subject to adverse risks from the mortgages arrears side, and (b) the above turnaround only applies to Dublin.

Next positive bit: the uptick in the overall index was co-driven by the Houses prices (as opposed to Apartments). Houses prices are more indicative of long-term demand, rather than of short-term lettings demand closer linked to Apartments.

  • Houses price index rose 0.87% m/m and was up 2.65% y/y in August. August annual rate of increase was faster than July (2.06%) and June (0.89%) and marks the third consecutive annual rise. 
  • 3mo MA is now at the levels last seen around March 2012 and the overall index itself is at the levels of January-February 2012. Prices are still down 47.12% on peak.

Chart to illustrate:

Apartments prices have been moving sideways doe the last 8 months, bouncing around 49.5 mean. August reading was weak but slightly up at 50.0.

The core driver for overall RPPI is Dublin:

  • Dublin residential properties prices rose 10.55% y/y in August marking 8th consecutive month of increases. 
  • 3mo MA is at 61.93, the best level since December 2011 and the index itself is at the levels of October 2011.
  • These are solid gains and Dublin market appears to be in full turnaround, although prices are still down 52.86% on peak. Most of these gains was driven by houses, not apartments.

Chart to illustrate:

In brief: 

  • Good news is prices are growing broadly in-line with inflation plus modest recovery in values. 
  • Further good news, Dublin prices are converging up toward national levels - something that should have happened ages ago. 
  • More good news: prices outside of Dublin are slowly correcting down, declining 2.6% y/y in August. 
  • I think we can call turnaround in prices to be sustained for Dublin and getting closer to showing sustained upward dynamics for national level prices. Prices for Apartments and prices for properties outside of Dublin are still in declining or flat mode. 
  • Headwinds and risks remain on the side of mortgages crisis resolution and income dynamics.

26/9/2013: Even with Hopium injections, we are not that far from Greece...

Irish Fiscal Council paper "The Government’s Balance Sheet after the Crisis: A Comprehensive Perspective" authored by Sebastian Barnes and Diarmaid Smyth is an interesting read.

The paper sets out a strong promise: "While discussion often focuses around the debt-to-GDP ratio as referenced by the EU Stability and Growth Pact, the reality is far more complex. This paper takes a comprehensive look at the Government’s balance sheet following the financial crisis. This involves assessing assets and liabilities of the General Government sector, off-balance sheet contingent and implicit liabilities as well as the wider public sector."

Alas, the side of the assets equation is a bit wanting...

While it is good to see the broader approach taken by the authors to the problem of fiscal sustainability of public finances in Ireland, too often, broadening of the coverage of the crisis-impacted sovereign balance sheet slips into the stream of extolling the riches of state-owned assets, whitewashing the liabilities using imaginary assets. The paper does not do this. Which is good. However, the paper is still creating loads of confusion because it provides no clear tabulation of the assets and the way they are accounted for in the analysis.

Instead of a concise tabulation, assets analysis is presented in two parts, both overlapping. This makes it nearly impossible to disentangle what the authors include where and to what specific value.

Let's start from the top:

Per authors: "General Government financial liabilities have increased four-fold since 2007, reaching €208 billion (127 per cent of GDP) in 2012. Over this period, Ireland experienced the largest increase in the debt-to-GDP ratio of any Euro Area country." Yep. Nothing controversial here.

"The Government has substantial holdings of financial assets. These increased modestly over the same period to reach €73 billion (45 per cent of GDP) in 2012. The main assets are cash balances, holdings of semi-state entities and investments in the banking sector."

Now, that's a bit of a statement, in my opinion, open to questions.

Firstly, it creates an impression that most of the assets Government has are liquid. Not so, in my view.

Secondly, it creates an impression that the Government has a functional power to seize these assets. Also a bit of stretch in my view.

Thirdly, is suggests that even if individually liquid and recoverable, these assets can be sold in the market or used as collateral in the case of distress. Again, not something I would agree with.

The authors conclude that "The Government’s net financial assets (NFA), subtracting financial liabilities from financial  assets, gives a broader measure of the financial position of government. NFA have  declined from a position of balance in 2007 to a net liability of €135 billion (82 per cent of GDP) in 2012. Using this broader measure, the Irish government was the third most indebted country in the Euro Area in 2012 (as a share of GDP)."

I am not so sure that EUR73 billion is the real number we should be using in computing Government net financial position. My gut feeling is that we are lucky if we can count EUR50 billion in somewhat liquid and accessible funds. And even then we are at a stretch. With that, our Government's net financial assets position rises to a  deficit of 95-96% of GDP and this means that we are now challenging Greece to the Euro area's title of the second most-indebted country. And that is before Greece Bailout 3.0 which will probably result in some sort of a debt write down for the Greeks (see here: even if small.

Here are some details on my sceptical assessment. The paper lists the following Government 'assets' (comments outside quotation marks are obviously mine):

(A.) Shares and Other Equity. "This broad asset category was valued at €24 billion. It includes: (1) the value of semi-state assets, including the equity of General Government in the Central Bank; (2) a portion of the NPRF; and (3) other equity
holdings." (1) is at least in part imaginary. The valuations of semi state companies are 'hoped for' and are not tested in the market. They also do not account fully for the shortfalls in pension funds and the knock on effects to any purchaser of equity in these companies from the role these pension funds play in running the companies' strategies. They also ignore the fact that with transfer of ownership, the semi-states are unlikely to continue enjoy state protection of their dominant market positions. All in, (1) covers EUR12 billion of semi-states equity, plus EUR2 billion of balances in the Central Bank - of which, my guesstimate is, no more than EUR5-6 billion is recoverable. The authors state clearly that "Considerable uncertainty, however,surrounds the value of these assets." per CB reserves, these are euro system money and I wonder how much of this even technically belongs to the Irish state. (2) covers NPRF-held equities and banks shares. Equities component is small, with total EUR9 billion in NPRF 'assets' accounted for mostly by banks shares (excluding preference shares). National Accounts assign EUR11 billion to the total Government holdings of banks assets. These valuations are off the mark, in my view, as the only value of the banks (ex-Bank of Ireland) today is the value of capital injected into them, net the losses they will sustain on mortgages. The rest is awash on revenue side v cost side. At any rate, these assets are not exactly liquid and if released into the market in any appreciable quantity will cause severe dilution of their value. All-in, say EUR9-10 billion of this 'stuff' is a hoped-for value in any scenario of sovereign distress.

Bit (3) above: 'Other equity holdings' "valued at approximately €3 billion. This includes the value of direct holdings of bank equity by the Exchequer, investments in the insurance sector and capital contributions to the European Stability Mechanism." Seriously? We'd get a rebate on ESM contributions? Insurance sector 'investments'? Shave off some EUR1 billion here for a dose of realism.

(B.) Currency and deposits. "The Government holds a substantial amount of relatively liquid  assets, which are managed by the NTMA. These were valued at €24 billion at end-2012. This figure includes cash balances held by the Exchequer (€18 billion), local government (€1.4 billion) and cash balances held by other Government bodies(such as the NPRF)." Can the Government expropriate the funds belonging to local authorities? Legally and actually? Can the Government capture all balances held by the Government bodies? May be. May be not. Surely it depends on contractual obligations of these bodies and the nature of assets? So suppose that EUR2.4 billion of the above is not subject to capture/recovery.

(C.) Amongst gloriously liquid Irish Government 'assets' the paper (and it is accepted methodology, I must say, which of course doesn't mean it makes any sense beyond purely theoretical exercise) list: "Loans and Other Assets(such as Accounts Receivable). This category was valued at €15 billion and includes a broad range of assets, namely loans from the Housing Finance Authority (HFA)(€4 billion), other Government loans,tax accrual adjustments (mainly VAT and PAYE (€3 billion) and a range of smaller assets such as collaterals, EU transfers and mobile spectrum receipts." Good luck, as one might say, selling these or pledging them as a collateral. The entire notion that all of these assets have the stated face value in the market is questionable. That they might have a stated value in an environment of distress sufficient enough to warrant their seizure is plain bonkers.

And so on… The point is that a claim that EUR73 billion represents assets that can be used to fund any shortfall in Irish Government funding or that they provide any yield that is NOT accounted for on the balance sheet already (remember, current debt is driven by deficits and these are driven by operating costs and revenues of the Government, which in turn are accounting for all asset yields that currently accrue from all of the above assets) is a bit of a stretch and double-counting.

In light of this 'net liabilities' discussion, we need to see some serious, detailed, models-based liquidity and legal title risks analysis of the assets that (a) in total amount to EUR73 billion and (b) amount to EUR45 billion that remains unaccountable in the paper in any appreciable details.

But never mind - on the net, the paper is very useful and worth a read. Here are two little gems (I will blog on rest later):

Ouch! You don't need to be a nuclear scientist to spot the problem above…

The true value of the above is that it shows clearly that even on the 'net liabilities' basis, with all the hopium injected into valuations of assets, Ireland is not that much different from Greece... Have a nice day, ya all...

26/9/2013: Fiscal Council Estimates of the Promissory Note Deal

So the Irish Fiscal Council published tonight "The Government’s Balance Sheet after the Crisis: A Comprehensive Perspective" paper authored by Sebastian Barnes and Diarmaid Smyth. 

The paper is good, interesting, but as always (not a criticism) is open to interpretations, questions and debate. One criticism - it is hard to wade through double-counting and incomplete reporting of the Government assets and charts nomenclature does not appear to correspond to the one used in the text. One simple table listing all assets with the estimated value attached and a column outlining core risks to valuations involved would have saved the authors pages and pages of poorly constructed material.

Overall, however, it is good to see the broader approach taken by the authors to the problem of fiscal sustainability of public finances in Ireland. We rarely observe such. And I will be blogging on this later.

But the very interesting bit relates to the final official estimates of the Promissory Notes deal. Keep in mind, here's my on-the-record estimate of the net benefit from the deal in the range of 4.5-6.3 billion euros over 40 years horizon with most of this accruing earlier on in the life span of the deal. Here's the record (see box-out at the end of the article:

So here are the Fiscal Council estimates:

Mid-range minimum sales of bonds scenario: net savings of EUR 5-7 billion. Accelerated sales scenario: mid-range estimate of EUR 2-3 billion. Base Case for Euribor+150 and Euribor +250 at minimum levels of sales of bonds: EUR4 billion and EUR7 billion. The difference to my estimate is immaterial since I am looking at a longer time horizon for my estimates than the model used by the Fiscal Council does.

Reminder - some other estimates of the net present value of the savings from the deal run into 19 billion euros… ahem!..

I am looking forward to studying the spreadsheet with the model included which the FC is promising to make available on their website.