07/03/2014: To sterilise or not to sterilise... ECBs (possible) next dilemma

Yesterday, I was asked by a journalist a question about the possible effects of ECB non-sterilising SMP operations. 

The question was in relation to the measure that has been rumoured as being a part of the ECB’s toolkit under consideration for adoption and it is bound to come up in the next meeting of the GC.

The answer is that we do not know.

Currently, ECB is sterilising around EUR175 billion via weekly operations. Absent such sterilisations, the money will remain within the euro system banks. This is as far as we know. Beyond this point, we can only speculate as to what will happen. 

In normal monetary and balancesheet conditions, banks will lend this money out into the interbank markets, leading to reduced Eonia and, downstream also Euribor, rates. This, in turn, will increase banks willingness to lend to the real economy - businesses and households, but also to purchase government debt. Traditionally, non-sterilised market interventions are seen as an effective tool for increasing money supply in the environment of zero-bound interest rates. And there are good reasons to believe that such a measure would be more effective in raising supply of credit in the euro system than a 25bps cut in the policy rate, as it will likely have a more dramatic effect on Eonia rate and simultaneously flatten the money market curve. Additional benefit of such a measure will be the signal it will send to the markets. Removing requirement to sterilise its SMP, ECB will be signalling that it is open to the traditional QE measures - extending 'whatever it takes' argument from sovereign risk markets (OMT) to the real economy (deflation risks). This too is likely to add liquidity available in the euro system.

However, we are not in a 'normal' monetary and balancesheet environment. Increasing supply of liquidity via non-sterilising SMP can lead to banks substituting away from their normal ECB funding, and as the result, net liquidity supply may not rise by as much as the reduction in sterilisations. 

Two other, longer-term, effects of non-sterilising SMP are: potential loss of credibility and threat to OMT.

By not sterilising SMP, the ECB will signal a major departure from its past commitments, which does not help market confidence in its other commitments, namely the commitment to hold interest rates low over long term horizon. This is a relatively weak argument against non-sterilising of SMP, as all long term monetary policy commitments are only credible as long as underlying fundamentals warrant them. The second point is more salient. ECB committed itself to sterilising not only SMP but also OMT purchases. So far, ECB did not make any OMT purchases, but it already faces stern opposition to OMT from Germany. If ECB signals willingness to break its commitments to sterilisation under SMP, it can send a wrong signal on its commitments to the same under OMT, further putting pressure on ECB to scrap OMT.

Overall, materially, removing requirement to sterilise SMP will, in my view, result in a moderate drop in Eonia and will provide improved supply of credit to the economies that currently do not witness severe credit constraints, such as Germany, where current credit supply conditions are already the most favourable of any period in recent history.

But I doubt that such a measure will have a material impact on peripheral economies due to the general breakdown in the transmission mechanism within the euro area.

Crucially, if ECB opts for non-sterilisation of SMP over the option of lowering policy rates, such a move will not help existent debtors. As the result, non-sterilisation might help where help is least needed and will do little to provide any support for economies with severe corporate and household debt overhang.

Finally, along the longer range expectations, forward-looking agents will be pricing – in the wake of non-sterilisation now – higher uplift in lending rates when monetary policy returns onto normalisation path. In other words, with non-sterilisation today we can expect higher rates in the future, with sharper rises in the rates to long-term trend levels. This too will hurt current borrowers, as lender will be less likely to pass on margins uplifts they will receive if non-sterilisation does deliver reduction in the interbank lending rates.

Note: my view of the lower/reduced effectiveness of non-sterilised interventions is in line with the view held by many researchers and the ECB that we are operating in the environment with broken transmission mechanism. Application of this argument in the OMT case is exemplified here: http://www.cesifo-group.de/DocDL/cesifo1_wp4628.pdf

6/3/2014: A New Property Building Boom for Dublin? Not So Fast...

This is an unedited version of my Sunday Times column from March 2, 2014.


Much has been written about the alleged turnaround in the Irish house prices and property markets fortunes. With first-time buyers reportedly priced out of the market by the cash-rich investors, the commentary has been focusing on the need to deliver new supply of properties to the markets. Enter the wave of recent calls on the Government to create incentives to restart a new building boom.

Alas, new construction can do preciously little to alleviate the property markets pressures. Instead of calling for more construction permits, those interested in delivering a sustainable long-term recovery should be focusing on the resale markets. Given the causes of the current under-supply of and uneven distribution of demand for second-hand properties, it is hardly surprising that this requires dealing with the problems of legacy debts and the structure of the Irish mortgages pool.


The latest data published this month shows that the overall levels of new mortgages issued to the first-time and mover purchasers in 2013 came in at a disappointingly low level of EUR2.3 billion – the second lowest since the records began in 2005. This is almost nine times lower than at the pre-crisis peak, and around half the average levels of lending recorded in 2008-2012.

Yet, by all accounts, there is a build up of demand for properties within the first-time buyer segment of our population. This assertion is supported by empirical evidence.

In 2005-2008 average number of first-time buyer mortgages issued in Ireland stood at 7,062 per annum. In 2011-2013 the number was 1,202.  Even if we accept that half of the pre-crisis mortgages were issued to households with unsuitable risk and financial profiles, since the onset of the crisis, penned up demand for FTB mortgages has cumulated to some 9,342 or EUR 1.65 billion.

As the result of the penned up demand, rents are up, especially in Dublin and major urban areas, where jobs are now being created and where jobs destruction during the crisis peak was less pronounced. The most recent Daft.ie data showed that Dublin rents were rising at 11% a year at the end of 2013, the fastest rate of inflation since mid-2007. This implies that Dublin rents are now almost 18% above the crisis period trough. Meanwhile, outside the urban areas, jobs remain scarce and long-term unemployment is running at higher levels. Thus, excluding Dublin, rents are either stagnant or growing at significantly slower rates.

Property prices are also confirming the ongoing bifurcation in the markets between Dublin and the rest of the country. Dublin residential property prices are now 18 percent higher than at the crisis period trough. Excluding Dublin, property prices are up just 2.6 percent compared to crisis period low.

However, looking at the peak-to-present changes, residential property prices in Dublin are 49.2 percent below their peak. Excluding Dublin, the figure is 46.8 percent.



Thus, data on rents, property prices and volumes of transactions, suggest that to-date, Dublin property market has been driven by the delayed convergence to national trends. Beyond the on-going catching up, however, the property market in Ireland will remain dysfunctional.

This mis-match between demand and supply drivers will likely push the property prices even higher in Dublin over the next 24-36 months. However, absent any significant improvement in the underlying household finances, this price inflation will start flattening out in years ahead.

The reason for this conclusion is the presence of two concurrent drivers of the market.

Firstly, Dublin's demographic and economic fundamentals suggests that equilibrium prices should be somewhere around 30 percent below their pre-crisis peak. This would require prices for Dublin houses to rise by roughly a third on their current averages. Apartments prices should gain some 25 percent over the next 2-3 years to deliver equilibrium level pricing at around 45 percent below the pre-crisis peak.

Secondly, we are also witnessing separation of prices from underlying household incomes and credit supply. Ongoing long-term changes in employment and earnings push purchasing power toward urban centres and are turning rural communities into focal points of emigration for younger and more skilled workers. At the same time, the financial position of established and middle-age Irish households remains severely constrained. The overhang of legacy mortgages debts, lower after-tax earnings and continued jobs insecurity are all weighing on the credit supply, depressing the funding available for house purchases.

Parallel to these trends, we are witnessing gradual increases in the cost of funding mortgages. Based on the data from the Central Bank, retail rates on loans for house purchases over 1 year fixation in Q4 2013 averaged 4.5 percent, or almost 1 percentage point above their Q4 2009 levels. Were the ECB return its policy rates to their historical averages, current lending margins would require new mortgages interest costs in 6.5-7 percent range

Mean-reversion in the interest rates will mean that the majority of the first-time buyers in the market will not be able to secure a mortgage sufficient to cover house purchases without relying on large (ca 30 percent of the property value) down payments. Another problem is that with the cost of funding rising disproportionately for adjustable rate mortgages, keeping legacy tracker mortgages becomes more attractive to current homeowners. This, in turn, implies reduced willingness to trade up or down, depressing supply of existent properties to the market.

Supply of properties in the market is further adversely impacted by the nature of banks' solutions to the arrears crisis. Irish banks 'permanent' restructurings of arrears predominantly involve increasing the levels of debt carried by the households.

The cost of suppressing foreclosures and debt write-downs in the existent mortgages pool is the severely constrained ability of households to trade in the property markets. On the demand side, the knock-on effect is that younger households cannot rely on their parents to fund their down payments for FTB purchases.


The above problems also contribute to tighter supply of new homes to the market, especially in Dublin.

In 2013, new dwellings completions and commencements were running below those recorded in 2011-2012, based on data through Q3 2013. The overall weakness in the residential construction activity is confirmed by the CSO-reported indices. With data covering the period through Q3 2013, both value and volume of residential buildings construction and the number of planning permissions granted in Ireland are down year on year.  Estimates suggest that since the onset of the crisis penned up demand for first-time and mover purchasers has totaled around 25,000-32,000 dwellings. At current rate of new buildings completion, this is equivalent to up to 15 years of new construction supply.

Lack of funding from the zombified banks means that developers and builders cannot launch new projects. In addition, uncertainty about the future tax status of vacant sites and completed properties, as well as the dominant position of Nama in controlling access to land and development finance, are weighing heavily on potential new supply.

But beyond these supply constraints lies an even bigger problem: we simply cannot expect to build any meaningful quantity of new family homes in the areas where we need them.

In Dublin, new construction implies either building apartments blocks or redeveloping existent neighborhoods to increase density. Apartments are hardly in demand by the growing families beyond serving as a first step on the property ladder. In other words, no matter how much our planners dream about building a mini-Manhattan on the Liffey, Dublin property buyers still want individual homes with own gardens. Just as they did so at the times when property prices were double their current levels.

Demographics also stack up against us in the hope of significantly expanding apartments ownership. After 6 years of depressed volume of transactions, the new generation of First-Time Buyers is older and has larger families than their predecessors in the early 2000s. The one- and two-bedroom apartments developments that we used to produce in the past are no longer suitable for them. Furthermore, the city infrastructure – schools, crèches, shopping and family amenities – that accompanies these developments is not fit for purpose in Dublin City.

On the other hand, redevelopment of existent tracks of housing is a costly proposition that requires rapid inflation in selling prices for new homes. Crucially, it demands high turnover in the market to secure suitable redevelopment sites – something that we are unlikely to witness anytime soon. The very same constraints that hold back supply of second hand homes to the market are also holding hostage large-scale redevelopment projects.


This means that for Ireland to generate significant enough uplift in buildings supply we need to incentivise developers to build suitable apartments and for buyers to opt for these apartments. Even assuming we are successful, the resulting uplift in supply will be unlikely to enough downward pressure on property prices inflation in Dublin. In contrast, to support non-speculative demand and to free the supply of properties, we need to restructure our pool of mortgages away from tracker loans, reduce overall debt levels for current borrowers and improve after-tax incomes across the workforce. Until we do, the polarization of Irish property markets between Dublin and the rest of the country will continue.

Calling for more new construction is a naïve exercise in seeking a quick panacea to a very complex and dynamic malaise permeating every corner of our property markets.

BOX-OUT

In recent written answers to questions by Michael McGrath, TD, Minister for Finance, Michael Noonan, TD stated that the Irish State has received €10.24 billion in various proceeds from the banks since 2008. At the same time, the State shares in AIB, Bank of Ireland and Permanent TSB are currently valued at €13.35 billion. These numbers prompted some commentators to suggest that the net cost to the State of rescuing banks currently stands at EUR40.5 billion down from the originally paid-in EUR64.1 billion. Alas, this accounting misses some major points. Firstly, there is cost of funding. Based on current interest rates, the total costs of funds made available for banks recapitalisations is some EUR1.5 billion annually, with full expenditure at the peak of the capital injections running at more than double that. Tallying up these costs cuts the gross receipts by around EUR7.2 billion. Secondly, the EUR13.35 billion estimated value of the banks shares held by the Exchequer is nothing more than an estimate. Selling AIB and Ptsb shares will be an uphill battle. Even realising the value of the Bank of Ireland equity without destroying the bank's balance sheet is a hard task. Adding insult to the injury, the 'repayments' by banks claimed by Minister Noonan came at the expense of the economy at large. Instead of writing down unsustainable mortgages, restricting viable businesses' loans and supplying credit to the economy, the banks were tasked by the State to sell non-core assets to pay down state funds. Any wonder why the credit keeps shrinking, while Minister Noonan keeps talking about the need for banks to support the economy?

6/3/2014: A 'New Normal' of Ireland's economy

This is an unedited version of my Sunday Times article from February 23, 2014.


Jobs, domestic investment, exports-led recovery and sustainable long-term growth are the four meme that have captured the current Coalition, setting the early corner stones for the next election’s promises. Resembling the ages-old "Whatever you like, we’ll have it" approach to policymaking, this strategy is dictated by the PR and politics first, and economics last. For a good reason: no matter how much we all would like to have hundreds of thousands new jobs based on solid global demand for goods and services we produce, given the current structure of the Irish economy, these fine objectives are largely unattainable and mutually contradictory.

Firstly, restoring jobs lost in the crisis requires restarting the domestic economy and investment both of which call for an entirely different use of resources than the ones needed to sustain exports-led growth. Secondly, domestic and externally trading economies are currently undergoing long-term consolidation. Expansion or growth will have to wait until these processes are completed. Thirdly, replacing lost jobs with new ones will not lead to a significant decrease in our unemployment. Majority of current unemployed lack skills necessary to fill positions that can be created in a sustainable economy of the future.

Torn between these conflicting calls on our resources, Irish economy is now at a risk of slipping into a ‘new normal’. This long-term re-arrangement of the economy can be best described as splitting the society into the stagnant debt-ridden domestic core and slowly growing external sectors increasingly captured by the aggressively tax optimising multinationals. Only a major effort at reforming our policymaking and tax regimes can hold the promise of escaping such a predicament.


In simple terms, Ireland's main problem is that we lack new long-term sources for growth.

Let's face the uncomfortable truth: apart from a historically brief period of economic catching up with the rest of the advanced economies, known as the Celtic Tiger from 1992 through 1999, our modern economic history is littered with pursuits of economic fads. In the 1980s the belief was that funding elections purchases via state borrowing delivers income growth. The late 1990s were the age of dot.com ‘entrepreneurship', and property and public 'investment'. From the end of the 1990s through today, correlation between real GDP per capita growth and the growth rates in inflation-adjusted real exports of goods collapsed, compared to the levels recorded in the period from 1960 through 1989. In the early 2000s dot.coms fad faded and domestic lending bubble filled the void. Since the onset of the 2010s, the new promise of salvation came in the form of yet another fad - ICT services.

Decades of growth based on tax arbitrage and the lack of sustained indigenous comparative advantage and expertise left our economy in a vulnerable position. Ireland today has strong notional productivity and competitiveness in a handful of high value-added sectors dominated by multinationals. As past experience shows, these activities can be volatile. As the recent data attests, they are also starting to show strains.

Last week, the Central Statistics Office published the preliminary data on merchandise trade for 2013. The results were far from pretty. Year on year, total value of Irish goods exports fell to EUR86.9 billion from EUR91.7 billion in 2012, and trade surplus in goods shrunk by EUR5.25 billion. Overall, 2013 was the worst year for Irish goods exports since the crisis-peak 2009.

This poor performance is due to two core drivers: the pharmaceuticals patent cliff and stagnant growth in exports across other sectors, namely in traditional and modern manufacturing.

The data clearly shows that we are struggling to find a viable replacement for pharmaceuticals sector. If in 2012, trade balance in chemicals and related products category accounted for 105 percent of our trade surplus, in 2013 this figure rose to over 106 percent. Just as our exports in this category are falling, our trade balance becomes more dependent on them.

The strategy is to replace traditional pharma activity with biopharma and other sectors that are more research-intensive than traditional pharma. Alas, our latest data on patenting activity shows that Ireland remains stuck in the pattern of low R&D output with declining indigenous patent filings. Institutionally, we have some distance to travel before we can become a world-class competitor in R&D and innovation. The latest Global Intellectual Property Index published this week, ranks Ireland 12th in the world in Intellectual Property environment. Beyond this lies the problem that much of the innovation-linked revenues booked by the MNCs into Ireland relate to activity outside of this country and are channeled out of Ireland with little actual economic activity imprint left here.

From the point of view of our indigenous workforce, it is critical that Irish indigenous exporters aggressively grow in new markets. Yet, Irish exports to BRICS economies and to Asia-Pacific have fallen in 2013. Our trade deficit with these countries has widened by 87 percent to EUR858 million last year.

So far, the short-term support for falling goods exports has been provided by relatively rapidly rising exports of services. This process, however, is also showing signs of stress. While we do not have figures for trade in services for 2013, the IMF most recent assessment of the Irish economy shows that our share of the world exports of services remains stagnant. And the IMF projects growth in Irish trade balance on services side to slow down significantly after 2015.


While exports engine is still running, albeit in a lower gear, domestic side of the economy remains comatose under the huge weight of our combined public and private debt overhang.  Total government and domestically-held private sectors debts stood at 189 percent of our GDP in 2007. At the end of 2013 it was 252 percent. This does not include debts held outside our official domestic banking system or loans extended to Irish companies abroad. The good news is the cost of funding this debt is relatively low. The bad news is – it will rise in the longer term.

And, in the long run, the wealth distribution in Ireland is skewed in favour of the older generations. This leaves more indebted working age households out in the cold when it comes to saving for future retirement and funding current investment in entrepreneurship and business development.

Irish economy is heading for a major split. Across the demographic divide the generation of current 30-45 year-olds will go on struggling to sustain debts accumulated during the period of the Celtic Tiger. They will continue facing high unemployment rates for those who used to work in the domestic economy. A stark choice for these workers will be either re-skilling for MNCs-dominated exports-focused services sectors, emigrating or facing permanently reduced incomes. Even those, likely to gain a foothold in the new ICT-led economy will have to stay alert hoping that the footloose sector does not generate significant jobs volatility.

All in, the unemployment rates in the economy are likely to remain stuck at the ‘new normal’ of around 8-8.5 percent through the beginning of the next decade, contrasting the 5 percent full employment rate of joblessness in the first decade of the century.


At this point in time, it is hard to see the sources of growth that can propel Ireland to the growth rates recorded over the two decades prior to the crisis. Back then, Irish real GDP per capita grew at an annualised rate of some 4.7 percent. The latest trends suggest that our income is likely to grow at around 1 percent per annum over 2010-2025 period - the rate of growth that has more in common with Belgium and below that expected for Germany. Aptly, the IMF puts our current output gap – the distance to full-employment level of economic activity – at around 1.2 percent of GDP, which ranks our growth potential as only thirteenth in the euro area. This clearly shows the shallow growth potential for this economy even in current conditions.

Slow recovery in employment and continued deleveraging of the households mean that Ireland will be staying just below the Euro area average in terms of income and consumption, and above the EU average in terms of unemployment. In that sense, the economic mismanagement of the naughties will be reversed by not one, but two or more lost decades.

Ireland has some serious potential in a handful of domestic sectors, namely food and drink, and agrifood, as well as in the areas where our ability to create and attract high quality human capital can offer future opportunities for growth. We have a handful of truly excellent, globally competitive enterprises, such as CRH, Ryanair and Glanbia. But beyond this, we are not a serious player in the high value-added game of modern economic production. In sectors where we allegedly have strong expertise: pharma, biotech, ICT, and finance, Ireland has no globally recognised large-scale indigenous players.

Ending the lost decades on a note of rebirth of the Celtic Tiger will take much more than setting political agendas for ‘kitchen sink’ growth agendas. It will take big-ticket reforms of the domestic economy, tax system, and political governance. Good news is that we can deliver such reforms. Bad news is that they are yet to be formulated by our leaders.

Box-out: 

Recent research note from Kamakura Corporation provided yet more evidence of the damaging effects of the EU's knee-jerk reaction policies in the wake of the global financial crisis. Specifically, Kamakura study published last week focused on the July 2012-issued blanket ban on short selling in the European Credit Default Swaps (CDS) markets. CDS are de facto insurance contracts on sovereign bonds, actively used by professional and institutional investors for risk management and hedging. The study found that as the result of the EU ban, trading activity declined for eighteen out of 26 EU member states' CDS. Put in more simple terms, as the result of the EU decision, risk hedging in the sovereign debt markets for the majority of the EU member states' bonds was significantly undermined, leading to increased risk exposures for investors. At the same time, liquidity in the CDS markets fell, implying further shifting of risk onto investors in sovereign bonds. Kamakura analysis strongly suggests that investors holding sovereign debts of euro area ‘peripheral’ countries like Spain and Italy are currently forced to pay an excessive liquidity risk premium in CDS markets. At the same time, the EU regulators, having banned short selling can claim a Pyrrhic victory in public by asserting that they have reacted to the crisis by introducing tougher new regulations. In Europe, every political capital gain made has an associated financial, social or economic cost. This is true for economic decisions and financial markets regulations alike. Too bad that those who benefit from the former gains rarely face any of the latter costs.

6/3/2014: Defending Ireland's Tax Regime Requires Reforms

This is an unedited version of my Sunday Times article from February 16, 2014.


Last week, Irish Government delegation to the OECD's Paris-based headquarters was all smiles and photo-ops at the front end, with lunches and joint press conferences at the back. In-between, there were speeches and statements extolling the virtues of our economic recovery and the Government leadership through the crisis.

Only one cloud obscured the otherwise sunny horizon of the trip: our corporate tax regime. Mentioned in the context of Yahoo’s decision to shift all of its European tax affairs from the ‘high tax’ Switzerland to ‘fully transparent’ Ireland, it required a high level intervention. Aptly, the Taoiseach was standing by to point that our effective corporate tax rate (the average tax rate that applies to companies here) is almost 12 percent, higher than France's 8 percent. Ireland 1: Tax Begrudgers  0.

Case closed? Not so fast.

In recent months, Irish corporate tax regime has featured prominently in international debates about European tax reforms, corporate earnings and multinational investment. G20 and G8 mentioned it, as did German, Finnish, Italian, French, the US and the UK leaders. As financial repression sweeps across the OECD member states in the wake of the sovereign debt crises, this debate is far from over.

This week, Professor James Stewart of TCD School of Business produced an insightful and well-researched analysis showing that the effective tax rate for the US MNCs in Ireland was 2.2% back in 2011. Methodologies bickering aside, Professor Stewart study challenges the core research used to support our corporate tax regime – the PWC studies that focus on domestically-trading SMEs.

The problem of course, is that the official discussions of Irish corporate tax regime are nothing more than a tactic of diffusing the issue by deflecting the real debate. Professor Stewart's research hints at this forcefully. The real issue with our corporate tax is not the headline rate, nor its transparency, but a host of loopholes that riddle the system and that allow companies here to dramatically reduce their global tax exposures well below the 12.5 percent rate.

Some of these loopholes, such as the notorious Double Irish scheme, are the subject of the EU Commission and OECD scrutiny as potentially anti-competitive, subsidy-like measures. Contrary to what public exhortations by our Ministers suggest, the threat is so real, the last Budget saw a closure of one of the more notorious features of our tax law that allowed companies to be registered here without having a tax residency anywhere on the face of Earth.

The core focus of the EU analysis, discussed by the Commissioner Almunia this week, centres on an even more worrisome feature: tax base shifting by the ICT Services MNCs. The practice basically permits MNCs to book vast revenues earned elsewhere in Europe into Ireland in order to move these revenues to tax havens. The issue is non-trivial to Ireland: tax-optimising MNCs currently underwrite virtually all growth officially registered in our economy. Not all of their activities are driven by tax optimisation alone, but our tax regime does serve as a major attractor and does generate significant uplift to our economy. Absent their activities, Irish economy would be in a recession, the Exchequer would be in an unenviable position worse than that of Portugal, and our GDP would be at least one fifth lower than it is today.


Instead of the headline rate of corporate taxation, two core questions about the entire tax regime operating in the Irish economy should be at the heart of our public debates. One: Can Irish economy afford the current tax regime in the long run? Two: Is our tax regime sustainable given the direction of European integration in fiscal, monetary and corporate policies development?

Let's deal with these questions in some details.

Current system of taxation in Ireland is directly contradictory to the core growth and development drivers in our economy. Since the collapse of the property lending and public spending bubbles of the 2000s, our sources of growth have rapidly shifted from domestic investment in real estate and infrastructure toward the skills-dependent ICT services, international financial and professional services, and specialist agrifood and manufacturing sectors.

All of these sectors share two fundamental features. They employ large number of highly skilled and internationally mobile specialists. And, they rely on new value creation via innovation. These features are based on investments in human capital, rather than traditional bricks and mortar or physical machinery. And human capital gets its returns either from entrepreneurial returns or wages. The latter dominate the former across the economy.

Faced with an option of having to pay huge direct and indirect tax rates on their labour income, while receiving virtually no services in return for these outlays, the highly skilled workers tend to run out of Ireland within 1-2 years of arriving here. Forced to compete for talent with tax optimizing MNCs, indigenous entrepreneurs are struggling to generate returns on their own investments. And both, innovation-based MNCs and indigenous producers are facing high and rising costs of recruiting key employees.

In 2013, corporation tax receipts totaled EUR4.27 billion, or 11.3 percent of total tax receipts. This compares to 15.3 percent on average in 2000-2004. Over the same period of time, the share of income tax in total tax receipts rose from 31.4 percent to 40.0 percent. VAT receipts share slipped only marginally from 29.3 percent to 28.9 percent.  Thus, the rate of extraction of tax revenues from households’ incomes rose dramatically. Burden of corporate taxation befalling rapidly growing MNCs, meanwhile, declined in relative terms.

Great Recession only partially explains this trend. Instead, the Government policy consciously shifted tax base away from activities with low economic value added, such as property and transfer pricing-driven corporate profits, and onto the shoulders of the households. Given the changes in 2010-2013 in the composition of our exports of goods and services, Ireland-based MNCs are now paying less in taxes per unit of exports than in the 1990s.

With the tax extraction hitting hard the professional and higher skilled workers earnings, our tax regime is damaging our core source of competitiveness. You don't have to troll the depths of datasets to spot this one. Every Budget since 2009 attracted numerous proposals for attempting to address the problem of income tax costs across ICT services, international financial services and R&D intensive activities. These proposals come from both the indigenous sectors and exporters and MNCs, highlighting the breadth of the problem.


In the longer run, Irish economy's reliance on tax arbitrage is similar to the 'curse of oil'. Low effective corporate tax rate accompanied by a very high upper marginal income tax and sky-high indirect levies are driving investment, as well as financial and human capital, away from well-anchored indigenous sectors and toward foot-loose MNCs.

This, in turn, exposes us to cyclical changes in MNCs global production patterns. We have already experienced such events in the late 1990s - early 2000s when ICT manufacturing and dot.com sectors evaporated from this country virtually overnight. And today we are witnessing global re-allocation and re-shaping of pharmaceutical industry. We got lucky in the 2000s when domestic economy bubble replaced deflating MNCs presence. We also got lucky this time around, with pharma patent cliff being compensated for by growing exports of ICT services. With every iteration of these risks, levels of employment in the MNCs per euro of export revenues have been falling. Next time around, things might not turn out to be as easy to manage.

Double-Irish and other loopholes are also costing us in terms of reputational and institutional capital - two major contributors to making Ireland an attractive location for international business and key environmental factors supporting indigenous entrepreneurship. While many MNCs for now have little problem dealing with tax havens, they tend to locate little but shell presence in these jurisdictions. Ireland, not being an official tax haven, offers an attractive alternative for them to both create tax optimising structures and put some real activity on the ground. However, should our reputation continue to suffer from the publicity our tax regime receives around the world as of late, this acceptability of Ireland as a real platform for doing business can change. Reputations, not made overnight, can fall in an instant, and Ireland has plenty competitors in Europe hoping for such an outrun.

Which brings us to the question of whether our tax regime is sustainable in the long run given the current policy climate in the EU and across the Atlantic. The answer to it is a ‘no’.

As this week’s comments by Commissioner Almunia and the numerous previous statements from G20, G8 and the OECD clearly indicate, governments across the advanced economies are moving to curb excessive tax optimisation strategies by the multinationals. In doing so, they are not about to sacrifice their own long-established economic systems. The main driver for this global resurgence of interest in tax avoidance and optimisation is the ongoing process of long-term structural deleveraging of public debts. Another key driver is a long-term restructuring of unfunded pensions and social welfare liabilities accumulated by the advanced economies now staring into the prospect of rapid onset of demographic ageing. Put simply, over the next 16 years, through 2030, advanced economies around the world will be facing a need to fund fiscal and retirement systems gaps of between 9 and 25 percent of current GDP. This funding is unlikely to materialise from growth in GDP alone, and will require significant restructuring of tax revenues.


One way or the other, Irish tax system will have to be reformed. The longer we resist an open and constructive debate about the entire tax system, the more likely that these reforms will be imposed onto us by the EU dictate.  To enhance our reputational and institutional capital, we need to aggressively curb tax optimisation schemes. To develop a domestically-anchored innovation-based economy, we need to shift some burden of income-related tax measures onto corporates. The best way to achieve these objectives is to protect our low corporate tax rate and close the egregious loopholes.

BOX-OUT:

Earlier this month, the EU Commission published a report into public perceptions of corruption across the EU. The findings were described by the EU Home Affairs commissioner Cecilia Malmstroem as exposing a "breathtaking" spread of corruption across the everyday lives of the European citizens. For starters, total annual cost of corruption to the European economy was estimated at EUR120 billion or roughly 10 percent of the EU GDP. According to Ms Malmstroem, the true costs are "probably much higher".

Ireland fared relatively well in the report findings, compared to the worst offenders – the member states of Eastern and Central Europe and the Mediterranean. Still, one third of Irish respondents expressed concern that officials awarding public tenders and building permits are corrupt. More than one fifth of Irish people surveyed thought that various inspectors serving the state are on the take – hardly a solid vote of confidence in our systems.

Spain and the Netherlands were the only two countries where a majority of respondents thought that corruption is widespread among banks and financial institutions, but Ireland was a close third with 48 percent.

The good news is that 13 percent (a relatively high proportion by European standards) of Irish respondents felt that corruption has decreased in the past 3 years. Bad news is that the vast majority believes that there was no improvement at all.

5/3/2014: Who Owns Emerging Market Government Debt: IMF Blog

An interesting breakdown of the ownership distribution of the emerging markets' Government debt via "The Trillion Dollar Question: Who Owns Emerging Market Government Debt" by Serkan Arslanapl and Takahiro Tsuda

Obviously, take a look at Ukraine and Russia. The core difference is that foreign official sector holdings of government debt for Ukraine are well in excess of those for Russia. Foreign non-bank holdings are also larger for Ukraine. Overall, half of Ukraine's Government debt is foreign-held, against around 1/5 for Russia. Last point, private domestic holdings of Government debt of Ukraine are tiny, at around 22-25% against Russia's 75% or so... Ukraine more closely resembles Argentina and Uruguay in this setting...

5/3/2014: Broader Measures of Unemployment in Ireland: QNHS Q4 2013

Completing the coverage of Q4 2013 QNHS results for Ireland.

• First post covering detailed analysis of employment by sectors: http://trueeconomics.blogspot.ie/2014/02/2722014-employment-by-sectors-qnhs-q4.html
• Second post covering employment across broader sectors and categories: http://trueeconomics.blogspot.ie/2014/02/2822014-new-employment-across-broader.html
• Third post covering Participation and Unemployment Rates: http://trueeconomics.blogspot.ie/2014/02/2822014-participation-and-unemployment.html
• Fourth post covering duration of unemployment by age group: http://trueeconomics.blogspot.ie/2014/02/2822014-duration-of-unemployment-qnhs.html

Now, let's take a look at broader measures of unemployment.

Methodology note: CSO reports the following measures of broader unemployment:

• PLS1 indicator is unemployed persons plus discouraged workers as a percentage of the Labour Force plus discouraged workers. This indicator is broadly comparable to the previously published S1 indicator. In the nutshell, PLS1 = unemployed persons plus discouraged workers.
• PLS2 = PLS1 + Potential Additional Labour Force
• PLS3 = PLS2 + others who want a job, not available & not seeking for reasons other than being in Education and training.
• PLS4 = PLS3 + plus underemployed

In addition, I use CSO data from Live Register and emigration to add two more metrics:

• PLS4+STP: PLS4 + State Training Programmes Participant
• PLS4+STPE: PLS4 + State Training Programmes Participants + Emigration

So let's take a look first at labour force. The data is not seasonally-adjusted.

In Q4 2013 there were 2,163,000 people in labour force in Ireland, an increase of 19,600 year on year (+0.9%). A small increase, but a welcome one, suggesting that emigration is not offsetting demographic inflows of workers into the labour force. However, the level of labour force is still below Q4 2011 and is down 137,000 on pre-crisis peak. On average over the entire 2013, levels of labour force were 110,600 behind the pre-crisis period average levels.

As chart above shows, the greater challenge for us is the flat-trending labour force over the period of 2011-2013.

Table and chart below summarise changes in the broader measures of unemployment:

The key takeaway from the above charts and the table is shallower declines in the broadest measures of unemployment officially reported (PLS2-PLS4) compared to PLS1 and the adverse impact of 'sticky' State Training Programmes on the measure. It appears that these programmes are not moving workers out of unemployment fast enough.

Keeping in mind that Emigration is imputed only through April 2013 (we do not have official data beyond that), the PLS4+STP+E measure likely underestimates overall changes in broad unemployment.

Just how bad things are on overall unemployment front? With caveats to data and estimation errors, the above shows that in Q4 2013, 31.7% of Irish potential (including emigrants and state training schemes participants) labour force was either unemployed, underemployed, discouraged from seeking employment, not seeking employment for some reason other than being in education, toiling for free at Job Bridge and other fine 'activation' programmes or 'partying' abroad. Happy times...

That number, incidentally, is down from 32.5% in Q4 2012, but is still above 30.9 in Q4 2011.

4/3/2014: A new Initiative from IMHO

Irish Mortgage Holders Organisation (IMHO) are launching a new programme along with KBC Bank Ireland, aimed at providing independent, consumer-oriented advice and negotiation services to mortgage holders who are currently in arrears or experience difficulties with their mortgages.

Here are the details (click on images to enlarge).

28/2/2014: Duration of Unemployment: QNHS Q4 2013

Continuing with the coverage of Q4 2013 QNHS results for Ireland:
- First post covering detailed analysis of employment by sectors: http://trueeconomics.blogspot.ie/2014/02/2722014-employment-by-sectors-qnhs-q4.html
- Second post covering employment across broader sectors and categories: http://trueeconomics.blogspot.ie/2014/02/2822014-new-employment-across-broader.html
- Third post covering Participation and Unemployment Rates: http://trueeconomics.blogspot.ie/2014/02/2822014-participation-and-unemployment.html

In the current post let us consider changes in duration of unemployment.

The CSO reports two basic duration metrics:
- Less than 1 year,
- 1 year and over
And the data covers different age groups:
- All population 15 years and older
- Population 15-24 years of age,
- Population 25-44 years of age, and
- Population 45 years of age and older.

Here are the charts and quick commentary on these. The data is not seasonally-adjusted, so there is a lot of volatility and I am not going to do q/q analysis here.

For overall population 15 years of age and over:

• Q4 2013 total unemployment declined 14.05% (41,400 in level terms) compared to Q4 2012. In 2012, Q4 y/y decline was -6.1% (-19,300 in level terms). Thus, 2013 numbers are much better compered to 2012 numbers, as one should expect.
• Of these, unemployment numbers for duration less than 1 year have declined 18% (-20,900) in Q4 2013. Te good news - this reversed 2012 y/y rise of 2.0% (+2,300).
• Unemployment with duration over 1 year has fallen as well, in Q4 2013 this was down 11.8% (-20,900) compared to Q4 2012, which is a small gain on decline recorded in Q4 2012 (y/y -10% and -19,700).

So good news here is that numbers are declining for both long-term and short-term unemployed. However, while overall unemployment numbers have now fallen to the levels below those recorded in Q4 2009 (though ahead of those in Q4 2008), long-term unemployed numbers are down to the levels below those recorded in Q4 2010 and are way ahead of those in Q4 2009.

Since the current Government came to power (H1 2011), unemployed numbers for those over the age 15 are down 59,300, of which 36,050 declines came from the ranks of short-term unemployed and 22,050 declines came from the ranks of long-term unemployed.

Given the difficulty of reducing long-term unemployment compared to short-term unemployment, this is still a good record.

However, given that we do not know how many of long-term unemployed are gaining jobs vs how many are dropping out of the labour force (emigration or exits from workforce) we really have little to go in identifying how god the above aggregates really are.

Charts below plot unemployment by duration for different age groups.

Youth unemployment (15-24 years of age) is shrinking. Across total youth unemployment, in Q4 2013 numbers unemployed fell 17.3% y/y (down 10,200 in level terms), building on 12.9% (-8,700) decline in Q4 2012.

Compared to H1 2011, youth unemployment is down 19,950 (-29%) overall, with 11,000 of this decline coming from short-term unemployed figures and 8,450 from long-term unemployed ranks.

The problem with the above numbers is that we do not know the sources for these declines in youth unemployment. These, in addition to people gaining jobs, include demographic transition (entry of new young workers and exists of previously younger workers into the next category of 25-44 year olds), exits to and entries from education and training, including State Training programmes, emigration, including short-term migration on post-education visas and so on).

The weakest performance by age group is in the 45 and over category. Here, in Q4 2013 the numbers unemployed declined only 8.6% y/y (down 6,900 in level terms). The good news is that this reversed the rise in unemployment in this category recorded in 12 months through Q4 2012 (+3.0% and +2,300). Compared to H1 2011, numbers unemployed in this age group are still higher (+2.8% and +2,000). Numbers of long-term unemployed dipped in Q4 2013 only slightly (by 6.7% or -3,700) and compared to H1 2011 long-term unemployment in this age category is still up +11.4% or +5,250.

So overall, these are pretty solid numbers,with core reading showing that total number of unemployed for age 15 and over is currently at the lowest level for any Q4 period since (and including) Q4 2009.

Lastly, on severity of long-term unemployment, consider the chart plotting percentage of long-term unemployed in each age group total unemployment numbers:

This clearly shows that since around H2 2012, the positive trends in overall unemployment are broadly translating into symmetric reductions in unemployment for both short-term and long-term unemployed for all age groups. Again, this is a positive trend in the short run, as long-term unemployment is the hardest (or the stickiest) of all forms of unemployment and we can expect an upward trend in these charts. This was indeed the case in the period prior to H2 2012. Since then, however, we are seeing reductions in unemployment of relatively similar proportions for short-term and long-term unemployed.

28/2/2014: Participation and Unemployment Rates: QNHS Q4 2013

Having covered sectoral and broader aggregates QNHS results for employment levels (see post here for links: http://trueeconomics.blogspot.ie/2014/02/2822014-new-employment-across-broader.html), it is now time to take a look at participation rate and unemployment rate.

At the end of Q4 2013, seasonally-adjusted participation rate stood at 60.4%, up on 60.3% in Q3 2013 and 59.8% in Q4 2012. Compared to H1 2011 average (the period when the current Government came to power), the participation rate is up 0.3 percentage points.

Historical average for the seasonally-adjusted rate is 60.77% so we are just a whisker away from hitting this landmark. At the current rate of adjustment, we should be there around Q2-Q3 2014.

At the end of Q4 2013, official seasonally-adjusted unemployment rate fell to 12.1 from 12.7 in Q3 2013 (a very strong decline),  this marks the second sharpest correction downward in unemployment rate for the entire period of the crisis.

Over the year, seasonally adjusted unemployment rate has fallen full 2.1 percentage points from 14.2 to 12.1, improving on 2.0 percentage points decline y/y in Q3 2013. Compared to H1 2011, unemployment rate is now down 2.5 percentage points.

Q4 2013 marks the fifth consecutive quarter of declines in unemployment rate (q/q terms) and current rate is at the levels comparable with Q2 2009. All of which is very good news, despite all the possible caveats to data arising from potential impact of emigration and state training programmes participation (I will be covering these figures in my analysis of broader measures of unemployment as usual, next).

28/2/2014: New Employment Across Broader Categories: QNHS Q4 2013

In the previous post (http://trueeconomics.blogspot.ie/2014/02/2722014-employment-by-sectors-qnhs-q4.html), I covered detailed breakdowns in employment numbers changes across various sectors of the economy. Here, I will briefly identify sub-trends relating to aggregate data.

A caveat: per my discussion before, I will also report here numbers in employment ex-agriculture. In my view, it is questionable as to how agricultural employment is registered in the first place, since many/some of today's famers used to be construction sector employees or self-employed contractors. How many? We do not know. How many claimed unemployment in the past and now, having run-out of benefits, declared themselves to be farmers or farm employees for the purpose of optimising extraction of subsidies or supports? We do not know. Hence, I will omit farming employment from consideration in one sub-set of the aggregate figures (clearly labeled and identified below). This is done not because all of the employment in this sector is somehow 'bad' or 'unproductive' but because

1. we do not know how much of this employment is real and of what quality, and
2. employment in agriculture is different in nature (and in valued added) to employment in all other sectors of the economy (this is the reason why many other jurisdictions report non-farm employment numbers and/or private non-farm employment numbers).

Definitions for table and chart below:

• Non-agricultural Private Sectors include all sectors, with exception of Agriculture, Forestry & Fishing, and Public & State-controlled Sectors Employment (as defined below)
• Public & State-controlled Sectors Employment covers employment in Public admin & defence, social security (O), Education (P) and Human health & social work (Q). This grouping is not designed to measure public sector employment levels (I will blog on these later separately), but rather identify separately employment in the economy relating to sectors largely controlled by public sector and heavily influenced by state policies on employment and activity.
• High-value added activities employment covers the following sectors: Information and communication (J), Professional, scientific & technical activities (M), Education (P), Human health & social work (Q), Financial, insurance & real estate (K,L)

Table below summarises changes on H1 2011 average and Q4 2013:

The claim is that there were 60,900 jobs added (employment created) in Q4 2013 compared to Q4 2012. Of these, slightly less than half were added in the private non-agricultural employment sectors (29,600), while Public & State-controlled Sectors employment grew by 4,500 and agricultural employment expanded by 26,800. The numbers are strong and positive.

High-value added sectors of employment showed weaker performance, adding only 12,100 new employees in 12 months through Q4 2013. This, of course, comes on foot of strong performance in 2012, as evidenced by the total number in sector employment rising by 23,600 between H1 2011 and Q4 2013.

Although it is unclear if they include any of the State Training Programmes participants (if they do, as we know they are excluded from unemployment counts), then the numbers are less impressive.

Dynamics across the categories are shown in the chart below:

Dynamics across all aggregates are positive, with exception of the Public & State-controlled Sectors where things are moving sideways. Not quite down significantly and not up. Pick up in non-agricultural private sector employment is weak and unconvincing for now, so it would be good to see steady gains over 2014 in this category.

One thing to keep in mind is that the claimed 61,000 new jobs created is a suspect claim for two reasons:

1) It is subject to modification on the basis of quality adjustments (in part, I will do this when I am reviewing full-time vs part-time employment figures; and in part due to agricultural employment issues highlighted above)

2) The impact of the State Training Programmes, which are for now unknown in terms of how they register in the above data

On the other hands, there have been new jobs added in both higher value-added sectors and in non-agricultural private sectors, as detailed above. This, undoubtedly is a good news.

Stay tuned for more analysis of QNHS data tomorrow.

27/2/2014: Employment by Sectors: QNHS Q4 2013

Quarterly National Household Survey is out for Q4 2013. Here is the first post looking at the sectoral jobs distribution and jobs 'creation' or rather employment additions.

The next post will cover aggregate employment levels data.

Key to tables below: red denotes reduced numbers in employment in specific sub-sector/sector, green denotes increases in employment. In the tables, I reference current level of employment on H1 2011 average - the period when the current Government came to power.

Table 1:

As the above shows, there was a massive recorded increase in numbers in employment in agriculture. These numbers are driven by the unknown factors, as they are impacted by revaluations applied by the CSO. CSO detail the issues involved with this data in their notes: http://cso.ie/en/media/csoie/releasespublications/documents/labourmarket/2013/qnhs_q42013.pdf
so there is no need for me to go into deep explanations.

Outside Agriculture, Forestry & Fishing, there were modest y/y gains in Construction sector, totalling just 400 jobs. For all the reported activity in the sector - with investors flocking to our shores and building industry posting alleged revivals, there is preciously little to show here in terms of jobs creation since the current Government came to power. Still, good news is that employment is up y/y. May this be a trend, rather than a blip. Construction sector employment has been trending at around Q4 2013 levels since Q1 2011, showing no serious uplifts.

In contrast, Wholesale & Retail Trade, etc sector saw massive drop off in employment, down 3,000 in a year through Q4 2013. The sector is now at the levels last seen in Q4 2004, and Q2 2013 was the second lowest quarterly reading over the current crisis period.

Transportation & Storage sector is basically showing the same signs as Construction sector, with a small rise in employment of just 600 jobs in Q4 2013 compared to Q4 2012. The sector is still down on H1 2011. Q4 2013 marks the second lowest Q4 on record for the period of the crisis.

Accommodation & Food Services sector is gaining jobs at a nice pace. Employment is up 23,150 since H1 2011 and of this increase, 17,400 came in the twelve months through Q4 2013. This is an unambiguous positive, since the sector is now very close to regaining 2007 highs in employment.

Table 2:

As above shows, things are slipping somewhat in the Information & Communication sector, with employment gains since H1 2011 running at a a strong 7,250 on H1 2011, but employment levels down modest 700 jobs in Q4 2013 compared to Q4 2012. Still, Q4 2012 was the absolute record level for employment in the sector, so some retrenchment, especially mild, is ok. The problem, of course, is that this sector is the focal point of all the talk about Irish economy becoming a haven for ICT services jobs. The technical and specialist jobs in this area go into this category, while business services jobs are absorbed into the next two categories.

The above explains why we are witnessing a significant rise in employment in Professional, Scientific & Technical activities sector, where employment rose 11,500 in Q4 2013 compared to H1 2011, and the rise was even sharper (by 13,000) in 12 months through Q4 2013. Very good signal, of course, is that employment in this sector of activities was on a strong rise now since Q4 2011 and we are now just 2,900 jobs shy of the all-time high posted in Q2 2008.

Things were, however, more mixed in Administrative & Support Services sector, where Q4 2013 employment recorded a decent rise of 1,300 jobs compared to Q4 2012, but still posted a loss of 2,600 jobs compared to H1 2011. We are currently running on flat trend from Q4 2009-Q1 2010 albeit with high volatility in the series.

Public Administration & Defence have been shrinking in employment levels, with employment decline of 1,000 in 12 months through Q4 2013. Over the period from H1 2011, employment in this sector is down 6,800, which sounds impressive, as long as we assume that there was no reclassification of employees from this category to other state-controlled or state-related areas, such as Health and Education, Transport etc. I will blog on public sector employment numbers separately, so stay tuned for more analysis.

Education has returned higher employment in Q4 2013 compared to Q4 2012 - a rise of 1,600, but the levels of employment remain lower (by a very small number of 250) compared to H1 2011. It would be interesting to know if the latest changes are driven by private employment, part-time employment or full-time public employment. Alas, we do not have that information.

Table 3

As with Education, Human Health & Social Work also posted an increase in employment over 12 months through Q4 2013, rising by a very significant 3,900. Despite all the 'cuts' talk, sector employment is now 10,400 ahead of where it was in H1 2011.

The chart below summarises the trends in Human Health & Social Work, Education and Public Administration & Defence:

Back to table 3 above:

Industry employment (excluding Construction) rose strongly, some 6,400 in 12 months through Q4 2013, and employment growth is more moderate, at +4,650 when compared against H1 2011 levels. This is good news and confirms my thesis that we are witnessing some (albeit still fragile) organic recovery in the sector.

Services sectors on the aggregate basis posted a rise of 29,300 jobs in 12 months though Q4 2013 and there was a very similar increase on H1 2011 figures.

However, there was strong contraction in employment in the Financial Services, Insurance & Real Estate sector, with employment down 5,300 on H1 2011 and 5,700 on Q4 2012.

In the next post, I will take a look at the Total Employment, Non-Agricultural Employment, Public Sector and State-Controlled Sectors Employment and other core aggregates.

26/2/2014: IBRC Sale Requires Upfront Clarity on CCMA

Much discussion is ongoing concerning the fate of the IBRC Mortgages which are to be sold in the coming weeks/days. The problem centres on the issue of applicability of the Code of Conduct relating to mortgages arrears. By some reports, the book held by IBRC is 50-70% in arrears.

The Government has reached an agreement with the Special Liquidator on the issue. This is covered here: http://www.finance.gov.ie/news-centre/press-releases/agreement-reached-between-special-liquidator-and-phase-two-bidders-ibrc

The idea behind the agreement is a fine one and the Government objective (ensuring that CCMA applies to IBRC mortgagees) is correct one. The problem is that this agreement is voluntary and not enforceable. Thus, it simply muddies the waters.

Here is my view on this expressed earlier on twitter:

In fact the only way to deal with the #IBRC mortgages sale is by setting clear, legally-binding compliance with the code of conduct requirement. This will give certainty on regulatory constraints to bidders/buyers, reduce their concerns about potential ex-post political interference, as well as provide clear-cut enforcement avenue for regulators & supervisors at the CB. A voluntary compliance system, as advocated currently, will only create confusion on the regulatory side but will still be priced as higher risk (bid discount) by bidders. So proposed voluntary arrangement is a lose-lose for everyone, while compulsory regulatory arrangement is a win-win.

Related background:

• Liquidators for IBRC are proceeding with sales of loans books: http://uk.reuters.com/article/2014/02/26/uk-ireland-anglo-idUKBREA1P0SJ20140226
• IBRC holds 12,702 mortgages accounts of which 10,622 are PDH and 2,080 are BTL accounts
• Credible estimate I have seen is that 50% of IBRC mortgages book are in arrears, compared to about 18% for all banks.
• Total Mortgages book to be sold is around EUR1.8 billion