28/5/2013: That Cracking Success of the Troika Programmes

Some 'stuff' is coming out of the EU nowdays to greet the silly season of summer newsflow slowdown:

The loose-mouthed Eurogroup head Jeroen Dijsselbloem [http://online.wsj.com/article/BT-CO-20130527-702547.html?mod=googlenews_wsj] is striking again. This time on Portugal's 'progress' on the road to recovery:
""If more time is necessary because of the economic setback, that more time might be considered" as long as the country is being "compliant" with the program, Mr. Dijsselbloem told reporters after meeting with Portuguese Finance Minister Vitor Gaspar."

Of course, Dijsselbloem is simply doing what is inevitable - acknowledging that the EU/Troika programme for Portugal is as realistic as it was for

• Ireland (which undertook two extensions, one restructuring, one expropriation round vis-a-vis pensions funds, and two rates cuts to-date on its 'well-performing programme' and is looking for more), 
• Greece (which received three extensions, three restructuring, PSI - aka outright default, deficit and privatizations targets adjustments),
• Spain (which so far got only banks bailouts, but has already secured two rounds of deficit targets extensions),
• Cyprus (which hasn't even received full 'support' package yet, and already needs more funds).

It is worth noting that Portugal itself has already seen debt restructuring by the Troika in two rounds of loans extensions and two rounds of interest rates cuts.

So in the world of EU logic: if loans restructuring => success.

Please, keep in mind loans restricting ⊥ <=> success (for those of you who tend to argue that my above argument can mean that absence of EU restructuring implies success).


Oh, and while on the case of Ireland, Herr Schaeuble has stepped in to put a boot into Minister Noonan's dream of ESM swallowing loads of Irish banks' legacy debts [http://www.nytimes.com/reuters/2013/05/27/business/27reuters-germany-schaeuble-banks.html?src=busln&_r=0]:"European countries should be under no illusion that they can shift responsibility for problems in their national banking sectors to the bloc's rescue mechanism". Now, recall that Minister Noonan is having high hopes riding on ESM taking stakes in Irish banks to ease burden on taxpayers. See point 1 links here: http://trueeconomics.blogspot.ie/2013/05/26052013-ireland-hard-at-work-on-troika.html

So it looks like another round of loans restructurings is in works, just to underpin the immense success of the Troika programmes in Euro area 'periphery'.

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):

22/1/2012: 'Markets are crazy', says market economy Ireland

So we used to have an 'Innovation Island' here that was run by the Deputy PM who confused Einstein with Darwin. She was directly in charge of Innovation policies.

Now we have a 'Competitive Market Economy' that 'Is Open for Business', as we constantly remind our potential foreign investors (domestic investors we have simply taxed into oblivion already and are even expropriating their wealth through Minister Noonan's 'levy' on pensions), run by the Minister responsible for the following statements (source here HT to @brianmlucey for flashing this one out):

"Michael Noonan, Ireland's finance minister, criticised the involvement of private creditors in the [Greek PSI] talks, arguing that it had made the crisis worse. Mr Noonan told the German newspaper Sueddeutsche Zeitung it had been a "fatal" mistake to involve the private creditors and this had "driven the markets crazy". He said that markets would only calm when they were convinced that eurozone countries were making serious efforts to solve their debt problems."

So, 'markets are crazy' and proper risk sharing with private investors in the case of insolvency is a 'fatal mistake'.

Does Minister Noonan believe in slavery? Because if he doesn't then there is no alternative in the case of Greek crisis resolution options to PSI. Of course, Minister Noonan believes in slavery - the modern variety of it - slavery that subjugates those who do not emigrate from Ireland to decades of involuntary repayment of privately accumulated debts they did not contract to accumulate. Minister Noonan has no problem with the Government of Ireland simply undertaking all private debts of a private insolvent banks and forcing ordinary people - not shareholders or lenders to these banks who were paid to take the risks in the first place - to repay them. Just like that. Without any consent: "Give us your money, granny, or else!"

But there's more to the statement above, which shows Minister Noonan in an equally unpleasant light. You see, Minister Noonan swears by the wisdom of the IMF and the ECB and the European 'partners' when it comes to his domestic policies. He did so officially earlier this week when he used Troika endorsement of Ireland's 'progress' in the programme as the reflection of their support for his policies. Yet, it is the very same Troika he so blindly follows into Ireland's economic oblivion which deemed Greek debt levels unsustainable - aka non repayable even were the modern day debt slavery terms (as imposed in Ireland) deployed in Greece as well.

So, for all our Irish concerns about the sanity of the Troika 'solutions' for Ireland, there's an even greater concern that should be preoccupying our minds - concerns for the positions taken by our own national leaders. And for all those would-be foreign investors into Ireland - please remember, you are about to invest in the economy run by those who think that 'markets are crazy' and contracts for risk pricing are 'fatal mistakes'.


PS: Never mind, Minister Noonan's only plan for Ireland is to attempt, asap, borrowing in the 'crazy' markets to finance his 'sane' fiscal management strategies.