29/6/2012: Irish Planning Permissions: Q1 2012

After 5 years of continued destruction in the construction sector in Ireland, one simply has to re-test the accepted paradigms that things can continue falling indefinitely. I mean, yes, there's a bound to how far down new construction permits for new dwellings can go, but... who would have thought it might be a zero?

Here are the latest stats on approved Planning Permissions in Ireland for Q1 2012. Not a pretty sight - be warned.

In Q1 2012, number of new planning permissions for new dwellings stood at 957 - a new all-time low for Q1 figures, up 0.2% on Q4 2011, but down 25.1% year on year. Compared to peak, the number of new dwellings being planned in Ireland is now down 87.3%.

Other New Construction permits rose to 695 in Q1 compared to 681 in Q4 2011, but Q1 figure this year is the lowest of all Q1 readings in history. Y/y permits are down 0.7% and compared to the peak, they are down 88.8%.

Extensions approvals rose from 1,312 in Q4 2011 to 1,339 in Q1 2012, marking another historical low for Q1 figures, down 18.2% y/y and now 74.3% below their peak.

Alterations and Conversions permits rose to 377 from 335 in Q4 2011 and are now at a new historical low for Q1 readings. Y/y permits dropped 6.9% and relative to peak they are down 55.0%.

Thus, total construction permits awarded are now at 3,368 in Q1 2012, new historical low for Q1 readings, but up on 3,283 in Q4 2011. Y/y all construction permits are down 16.2% and reltive to peak they are off 80.6%.

These are ugly numbers, folks.

Charts to illustrate:

29/6/2012: The 'deal' - preliminary reaction

Overnight statement from the EA [emphasis mine]:

"We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution- specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. 

The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.

We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.


We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure. These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner.
We task the Eurogroup to implement these decisions by 9 July 2012."

I note that there is NO retrospection in the above - a negative for Ireland. So far we have a statement from some Irish Government members not present at the summit who claim there is retrospective applicability, but as far as I am aware, this is NOT confirmed in any documentary evidence.

I also note that transfers to ESM from EFSF will be carried out "without gaining seniority status" de jure, although it will most likely still be de facto super-senior debt - a positive for Ireland.

It is worth noting furthermore that countries entering ESM without first obtaining funding via EFSF might be able to avoid facing a Troika-imposed set of conditionalities, but will be required to comply only with the internal EU rules (see here). This, however, does not seem to apply to countries like Ireland who will enter ESM from EFSF and, potentially (based on reading of the official statement) to countries that have obtained funding not solely for the purpose of recapitalizing their banks 9again, precluding Ireland from softening of conditionalities).

Per Enda Kenny (via RTE):

• Ireland's government debt (not only banks-related) will be 're-engineered' in other words - it will be restructured (effectively a soft default). "Mr Kenny said the new deal means Ireland's overall debt burden, including the bank debt, can be re-engineered in a way which will give Ireland equal treatment to Spain and any other countries which avail of the new system."

• "where funding is made available through the EFSF it will later be transferred to the ESM" so it is now the Government position that we will have a second bailout. 

So the Irish Government is de facto 'defaulting' and welcomes this. And it is going into the second bailout despite repeated claims that it will be funding itself via markets post 2013. And it welcomes this too. Reverse gear has not been used as much for some time on Merrion St.


I have consistently called both events as inevitable for Ireland. Hence, in my view, the 'deal' is a net positive. However, we cannot tell how positive it is yet.

One area of concern will be the treatment of the banks debt under ESM - with respect to seniority and any attached Government guarantees. In particular, in my view, if ESM were to assume directly unsecured banks debt, even with an attached explicit sovereign guarantee, such debt will have to adversely impact ESM cost of funding.

The biggest issue with the above statement is that it will NOT reduce overall economic debt carried by the EU states, including Ireland. The potential reduction in the cost of financing this debt is good news. The fact that this economy (not banks or some rich uncle in America) - aka us - are still on the hook for debts of insolvent banks remains.

Ditto for Euro area as a whole. You might call it 'Government Debt related to the banks', you might call it 'quasi-Government Debt related to the banks' or 'Non-Government Debt guaranteed by the Government to the super-senior lender related to the banks' or indeed a 'Pink Teddy Bear that stinks up the room' - the debt is... err... still there and there will be more of it post this 'deal'.

Update 1: some interesting thoughts - it appears from the EU statement that any euro area member state in compliance with fiscal constraints can apply for ESM funding of the banking sector measures. Now, if - as the Irish Government are claiming - such funding can be applicable to restructuring past sovereign exposures to banking sector, then:

• As Belgium is already starting to signal, it can be applied  to €4 billion spent on Dexia Banque Belgique plus €54 in guarantees extended to the bank (link covering more current exposures potential), plus €6 billion in Franco-Belgian assistance the bank received back in 2008 (link).
• Germany's €150 billion 'rescues' of Hypo and other banks via FMS (link here)
• Austria - same Hypo (link here) but peanuts so far
• Dutch Government pumped some €32 billion into its banks (link)
• and so on...

Now, give it a thought - ESM is supposed to run at €500 billion absorbing existent EFSF up to €700 billion. So even if Spain just caps EFSF and it transfers to ESM, we have - before Italy comes waltzing in - ESM full capacity potential left after the banks bailouts are retrospected into it - of what? Some €200 billion max?.. or absent EFSF - at the announced running volume - nil.


This sort of suggests there is serious problem with an idea of allowing retrospective roll-backs of banks-related debt and measures to ESM...




Update 2: It appears that Enda Kenny's alleged contribution to the summit ('winning the deal for Ireland') is not a part of the record of the summit, at least as far as I can see (one example - here).


Update 3: H/T to Brian Lucey: this is just in - Germany apparently/allegedly wants ESM bank aid to be tied to acceptance of the Financial Transactions Tax. I suppose compliance with a harmonized corporate tax will be the condition too. In the end, the 'Enda deal' might just become a seismic event... So the logic of FTT link is therefore, in Irish context will be:
Step 1: EA leaders use Irish taxpayers to rescue own speculators and banks from Anglo/INBS etc default on bonds.
Step 2: EA leaders use FTT to demolish jobs in Dublin IFSC, so they can finance their 'growth package'?
The sort of the 'deal' we've been waiting for from our 'European partners'?

Update 4:  Citing Spiegel source, Global Macro Monitor blog states [emphasis is mine]: "What happens to the countries that have already received money from the temporary rescue fund, the EFSF? Officials in Brussels said that the new decision did not change anything about the programs for Greece, Portugal and Ireland. All the agreed goals will continue to apply and be monitored by the troika. But those countries might also start clamoring for the terms of their deals to be relaxed. The summit’s decision gives the Greek government in particular more ammunition for renegotiating the terms of its bailout, a step that new Greek Prime Minister Antonis Samaras has already said he wants to take."

28/6/2012: Retail Sector Activity Index for May 2012

Updating my own Retail Sector Activity Index for May 2012 on the foot of the latest CSO data:

Courtesy of the ESRI Consumer Confidence Index staying above 60 in May (the index dipped from 62.5 in April to 61 in May, marking the third consecutive month of readings above 60 despite continued gloom in actual retail sales), my overall Retail Sector Activity Index - a forward-looking indicator for the sector - remained relatively flat at 108.2 against 108.4 in May despite rises, m/m in core retail sales in volume (98.4 in April to 99.2 in May) and value (95.5 in April to 96.2 in May) terms.

It is perhaps interesting to note in the data in the first chart above that according to the ESRI surveys, Irish consumers do not lack any confidence. In fact, they appear to be lacking realism. Current 6mo average of the ESRI index reads 57.8 which is actually above the previous 6mo average of 57.5. One has to assume things had improved in the latest six months period on previous six months, alas both retail sales volumes (remained flat) and values (declined) do not confirm this. Year on year, Consumer Confidence is up 2.7% while core sales are up only 1.6% in value and just 0.8% in volume.

28/6/2012: Retail Sales for May 2012

The retail sales figures for May are out and are, as expected, not pretty.

The volume of retail sales (i.e. ex-price effects) decreased by 0.1% in May 2012 m/m and there was an annual decrease of 2.1%. The value of retail sales decreased by 0.4% in May 2012 when compared with April 2012 and there was an annual change of –1.5%. 

Relative to annual peak, sales are now down to 72.9% in value terms and 77.9% in volume terms. Relative to monthly peak, they are down 25.6% in value and 19.8% in volume.

We have now gone two consecutive months of m/m declines in value and volume and five consecutive months of y/y declines. Both 3mo and 6mo MA for value and volume indices are ahead of May reading. For value index, 2012 average to-date is 87.28, which is below 2010 average of 88.83 and 2011 average of 88.15. For volume, current 2012 average to-date is 91.02, which is worse than 2011 average of 92.69 and 2010 average of 93.51.

Quarterly movements are shown below:

On core retail sales side (ex-motors), the volume of retail sales increased by 0.8% in May 2012 when compared with April 2012, while there was also an annual increase of 0.8%. There was a monthly increase of 0.7% in the value of retail sales and an annual increase of 1.5%. Value increase is less significant than volume increase, so we are still witnessing margins pressures. Survival of the fittest in the sector is not yet completed.

May marked the first month of core retail sales increase in annual terms since December 2011 in value and volume. Currently, value index is running at 81.11% of the annual peak and volume index is at 84.79% of the series annual peak. However, in value terms the 2012 average to-date (95.7) is slightly ahead of 2011 average of 95.6 and is below 2010 average of 97.6. In volume terms, 2012 average to-date is 98.8, which is lower than 2011 average of 99.8 and 2010 average of 102.7.

Per CSO: The sectors with the largest month on month volume decreases are Bars (-4.2%), Books, Newspapers and Stationery (-2.8%), Electrical Goods (-2.5%) and Motor Trade (-1.9%). A monthly increase was seen in Food, Beverages & Tobacco (6.5%), Hardware, Paints & Glass (6.3%) and Pharmaceuticals Medical & Cosmetic Articles (3.8%). Pills, booze, smokes... hopefully not paint for inhalation purposes.

International comparatives through April are shown above. Not a pretty sights across the board.

26/6/2012: A Tragic, Historical Mistake... by the Germans

As you read this interview with George Soros on Euro Crisis, maybe, like me, you might wonder will there be a single century since 1862 that Europe will free itself from being a victim to some or other ' tragic, historical mistake by the Germans'? We know that neither the 19th nor the 20th centuries qualify. It looks increasingly that the current century is an unlikely candidate for such a distinction either.

25/6/2012: RPPI May 2012: Residential property prices in Ireland

CSO's residential property price index (RPPI) is out for May. Headlines are:

• Overall Index moved from 65.4 in April to 65.5 in May, marking the first (+0.15%) m/m rise since September 2007 (previous best performance months saw zero falls in the index).
• However, statistically (based on data from January 2008), we need to see a raise of 0.32% (1/2 stdev) at least to make a reasonable judgement on upward gain.
• Overall RPPI is now at 3moMA of 65.67, down on 3mo MA of 65.87 in April and 67.5 in previous 3mos period through February.
• Year on year, RPPI slipped -15.27% compared to May 2011 and 3mo MA through May 2012 of 65.67 was significantly below 3mo MA through May 2011 (78.17).
• Relative to peak, RPPI is now down 49.81% in May 2012 - an improvement on -49.89% for April 2012, but, again, not statistically significant improvement.

Improvements in RPPI were driven by houses and Dublin houses in particular, with Dublin Apartments prices continuing to tank.

Looking at Houses and Apartments:

• Houses index rose from 68.1 in April to 68.2 in May, marking the first monthly rise (+0.15%) since August 2010 and the largest m/m rise since November 2007. Monthly rise also failed to be statistically significant (stdev=0.643) for the crisis period (since January 2008)
• 3moMA for houses index is now at 68.4, down on 68.67 in April 2012 and 81.3 in May 2011.
• House prices index is down 15.17% y/y compared to -16.24% in April 2012 and house prices nationwide are now down 48.3% relative to their peak.
• Apartments price index is now at 48.6 in May 2012 down 2.02% on 49.6 reading in April 2012 and down 19% year on year.
• Apartments prices m/m decline in May broke 2 previous months consecutive increases.
• Apartments prices are now down 60.77% to peak.
• Monthly decline in apartments prices was statistically significant (stdev=1.56).

Dublin prices drove the overall index this month:

• RPPI for Dublin stood at 58.4 in May, up on 58.3 in April 2012 (+0.17% m/m) marking the third consecutive m/m increase in the series. However, current rise was not statistically significant (stdev=1.18) and cumulative increases during the last 3 months (total of 1.39%) also fail to be statistically significant.
• Annually, prices are down 17.51% in May, which is worse than 17.3% y/y decline in April.
• Relative to peak, Dublin property prices are now down 56.58%.

So nothing new, folks - the market is looking for a catalyst - which is a fancy way of saying that it might go down or up, or stay flat.