20/2/2013: Irish R&D Spend 2011/2012 - Concerns >> Fanfares

CSO has recently published data on R&D spending in Ireland for 2011/2012. That's right: in the days of Big Data, Open Data, etc our 'Knowledge Economy' is operating in the environment where evidence is more than 13 months old. In fact, the reality is even more bleak: CSO data for 2012 covers only actual data on current spending, with capital spending covered by estimates. In brief, Ireland's pro-Knowledge Economy policy formation is backed by old and hardly impressive in scope data.

However, given we have nothing better to go, let's take a look at what the latest stats tell us about the Irish economy's R&D intensities. In what follows, I reference combined time series with both actual and estimated data points.

Overall, Total R&D Expenditure by all enterprises rose 5.49% y/y in 2012 to EUR1.96 billion. That's right, Irish economy is investing just 1.53% of its GNP on R&D activities. In 2009 that number stood at EUR1.87bn amounting to 1.41% of GNP. The miracle of the 'knowledge economy' or 'Innovation Ireland' is really quite feeble. In 2009-2012, therefore, the R&D spending rose 4.99% cumulatively.

However, the above growth is distributed unequally across a number of items of expenditure and types of enterprises:

1. 2009-2012 Labour Costs associated with R&D activities went up 15.18% (+8.45% in 2012 y/y alone), while total Current Costs rose 12.28% (+7.81% y/y in 2012).
2. 2009-2012 costs associated with Payments for Licenses on IP rose 356.84% (+0.51% y/y in 2012), while software purchases costs shrunk 47.3% (up 18.22% y/y in 2012). Meanwhile own Software Development costs incurred by all enterprises rose 148.01% in 2009-2012 period (up 0.03% y/y in 2012).
3. Total Capital Spending on R&D activities has declined in 2009-2012 period by 29.55% and was down 9.24% in 2012 in y/y terms.

In other words, there is some evidence of potential cost shifting via R&D credits onto workforce, away from physical investment, as well as evidence of re-orientation of our exports away from manufacturing toward services.

In terms of enterprises types (Small enterprises, SEs at <50 at="" employees="" enterprises="" large="" medium="" mles="" to="">50 employees):

1. SEs saw rapid growth in 2009-2012 in Licenses for IP costs (+3,997% and only up 0.87% y/y in 2012), followed by Software purchases (+112% on 2009 and up 29% y/y in 2012) and Software development by the company (+87% on 2009, but down 5.1% y/y in 2012).
2. SEs overall current spending rose 44.75% on 2009 in 2012 and 9.9% y/y, while their total capital spending rose 328.4% on 2009 in 2012 and was down 8% y/y.
3. Total R&D spending by the SEs rose 73.0% on 2009 and was up 4.9% y/y in 2012.
4. In contrast, for MLEs, the largest growth was recorded in Software development by the company (+174% on 2009 and up 1.65% y/y in 2012). There were significant declines recorded in all other categories, with a 86.5% drop on 2009 in payments made for licenses to use IP (also down 11.2% y/y in 2012), 64.9% decline on 2009 and 4.3% decline y/y in 2012 for Instruments & Equipment spending, and a 57% drop (on 2009) in Software purchases, although here there was a rise of 15.3% y/y in 2012. Total Capital spending on R&D by firms with more than 50 employees declined 65.8% on 2009 in 2012 and there was a drop of 10.8% y/y.

The above is consistent with the view that in 2011/2012 there was re-orientation in expenditure to either reduce labour costs and / or support services-focused sectors, away from traditional R&D spend on equipment, software and IP.

Table below summarises relative allocations to specific lines of expenditure by the types of companies:

For SEs I highlighted in color the areas of strength in the new data (green) and weaknesses (red). As can be clearly seen, Irish smaller enterprises are not at the races when it comes to overall investment and spending relating to R&D activities, with 26.5% of the total nationwide expenditure captured by SEa, although the good news is that this number has risen compared to 2007-2008 period. In particular, weak dynamics are present on the labour costs side. At the same time, Irish small enterprises tend to purchase more IP from outside (97.2% of total expenditure nationwide on IP purchases is by SEs) and  tend to develop less software in-house.

The above results show just how much more needs to be done at the SEs levels to drive forward knowledge intensification of the economy. At the same time, overall headline figure of 1.53% of GNP being spent on R&D related investment and expenditures is also a major, system-wide problem. It is even more egregious when one considers the fact that Ireland is the base for European operations of many major multinationals.

I will be blogging more on the analysis of the 2011/2012 figures in coming days, so stay tuned.

20/2/2013: Hungary's 'Return' to Bond Markets

Week ago, Friday, Hungary was downgrade to junk. This Tuesday, despite its newly-minted junk bond status from all three core agencies (Ba1/BB/BB+) Hungary went to the market with a plan to raise USD3bn worth of US Dollar-denominated bonds. 

Now, unlike Ireland, Hungary is NOT in the 'best-of-class' league in Europe when it comes to compliance with the Troika demands and in general. After all, Hungary went on to aggressively interfere with its Central Bank independence, broke off negotiations with the IMF on second 'rescue' package back in November 2012, and basically replaced the Governor of the Central Bank with dovish Monetary Council. The country economy is still in a tailspin based on IMF figures*, although its fiscal performance, external balance and unemployment are healthier than those of the 'best-in-class' country - Ireland: 

-- Hungarian GDP is estimated by the IMF to have fallen by -1.021% in 2012 (against Ireland's estimated increase of +0.353%), with 2013 forecast for a rise in Hungarian GDP of just 0.797% in real terms (Ireland's same period forecast is for a rise of 1.394%).

-- Hungary's unemployment rate is barely budging off the crisis high (11.243% in 2010 to 10.925% in 2012). Ireland's unemployment rate is at the crisis period high with 2012 estimate at 14.7-14.8% and expected to decline marginally to 14.41% in 2014.

-- Hungary's General Government Revenues are shrinking faster than the economy. In 2011, Hungary's Government collected 52.864% of GDP in revenues, which has fallen to 45.787 in 2012 and is expected to shrink to 45.054% in 2013. In the mean time, Ireland's Government Revenues are marginally up from 34.118% in 2011 to expected 34.542% in 2013.

-- General Government Total Expenditure in Hungary is slowly inching up: from 48.672% in 2011 to forecast 48.761% in 2013, against Ireland's contraction from 46.869% in 2011 to 42.065% projected for 2013.

-- General government net lending/borrowing in Hungary stood at a deficit of -2.909% of GDP in 2012 and is forecast to rise to -3.707% in 2013. This compares with the completely abysmal Irish performance at 8.301% GDP in 2012 to 7.523% in 2013 forecast.

-- Hungary's primary deficits are expected to be less than 1/2 of those of Ireland in 2013.

-- Hungary's Government debt is sitting at 74.2% of GDP forecast for 2013, down from 80.6% in 2011, while Ireland's debt is up from 106.5% in 2011 to 119.3% projected for 2013.

-- The Government is aiming to repay the IMF and EU of €3.65bn and €2.31bn in 2013, against Ireland's nil repayments.

-- Hungary's current account balances have been in excess of that for Ireland since 2009, although 2013 forecast is for the current account surplus of 2.69% in Hungary vs 2.71% in Ireland.

*Note: I am using WEO data for the comparatives, instead of individual countries assessments, so some of the data cited is slightly off the latests projections, although the actual comparatives are hardly off by much

In other words, Hungary is clearly more of a sovereign policy, economic environment and monetary policy risk to the investors than Ireland. And despite this, Hungarian Government 10-year bonds have fallen in terms of yields from 5.8% in August 2012 to around 4.7% currently.

And last Tuesday, Hungary has managed to place USD3.25billion worth of new 5- and 10-year bonds with the cover ratio at 12.5-to-3.25. Overall, Hungary had offers for USD5.5bn worth of 4.25% 2018 bond with USD1.25bn allocated, these were priced at 335bps over US Treasuries and 320bps over mid-swap bang on with where the 10-years (2011s) were traded in the secondary market. Last time it sold 10-year bonds back in 2011, these were priced at coupon of 6.375% or full 100bps above the current deal. It also booked USD7 billion book for 5.375% 2023 bond with USD2bn allocated, priced at 345bps over US Treasuries and 336bps over mid-swaps.

Hungarian Government planned to raise some USD4bn worth of bonds in 2013 in total and is now 81% at its target for the year. Geographic allocation of the placement was even more encouraging: US investors took 55% of the 10-year paper, UK and Europe investors took 21% each. Funds took 81%, hedge funds took 9% and banks and retail investors only 5%. The 5-year allocation was similarly spread.

All of this suggests that the markets have little interest, currently, in the underlying risk fundamentals. Instead, pretty much anything offering a yield above the G7 average is simply seen as a target worthy of consideration. While Governments are quick to show up at the sales announcements with proclamations of their policies successes, the reality of the market awash in liquidity and nothing to chase in terms of yield means that investors are rushing into the issues pushed through by the economies that hardly in rude health today or can be expected to return to such a state any time soon. 

19/2/2013: Japan's Woes: 3 recent posts

Some excellent blogposts on Japan's problems via Economonitor:

1) All exports and money printing can't offset Japan's debt, ageing and domestic demand woes: http://www.economonitor.com/edwardhugh/2013/02/12/japans-looming-singularity/?utm_source=contactology&utm_medium=email&utm_campaign=EconoMonitor%20Highlights%3A%20End%20Games

2) Does end of growth (Japan's example) spell end of high quality of life? http://www.economonitor.com/dolanecon/2013/02/15/growth-and-quality-of-life-what-can-we-learn-from-japan/

3) Japan's forgotten (but not fully unwound) debt bubble: http://www.economonitor.com/blog/2013/01/the-setting-sun-japans-forgotten-debt-problems/

All worth a read.

I can add that in 2011 Quality of Life Index by International Living magazine, ranking 191 countries around the world, Japan was in 7th place (rank range is between 7th and 10th), whilst Ireland was in 20th (rank range between 20th and 26th) in terms of overall quality of life, with Japan outperforming Ireland in 4 out of 9 categories of parameters on which the rankings were based and tying Ireland in one category. (link to full rankings)

Note: the above rankings did throw some strange results, so careful reading into them.

18/2/2013: OECD on Corpo Tax Havens for G20

Just as G20 was starting to make noises about corporate tax havens at their meeting in Moscow (here) the OECD produced a convenient paper on the topic of tax avoidance. The paper is rather 'neutered' when it comes to language, but nonetheless offers couple fascinating insights, especially when it comes to Ireland. The report is titled "Addressing Base Erosion and Profit Shifting"

Per OECD: looking "specifically at the effects of income-shifting practices of United States based MNEs [Clausing, 2011],  …finds large discrepancies between the physical operations of affiliates abroad and the locations in which they report their profits for tax purposes: the top ten locations for affiliate employment (in order: the United Kingdom, Canada, Mexico, China, Germany, France, Brazil, India, Japan, Australia) barely match with the top ten locations for gross profits reporting (in order: the Netherlands, Luxembourg, Ireland, Canada, Bermuda, Switzerland, Singapore, Germany, Norway and Australia)."

And then:

"A report of the United States Congressional Research Service (Gravelle, 2010) concludes that there is ample and clear evidence that profits appear in countries inconsistent with an economic motivation. The report analysed the profits of United States controlled foreign corporations as a percentage of the GDP of the countries in which they are located. It finds that for the G-7 countries the ratio ranges from 0.2% to 2.6% (in the case of Canada). The ratio is equal to 4.6% for the Netherlands, 7.6% for Ireland, 9.8% for Cyprus, 18.2% for Luxembourg. Finally, the study notes that the ratio increases dramatically for no-tax jurisdictions with for example, 35.3% for Jersey, 43.3% for Bahamas, 61.1% for Liberia, 354.6% for British Virgin Islands, 546.7% for the Cayman Islands and 645.7% for Bermuda."

Now, of course, Ireland is a conduit via which profits of MNCs are off shored to zero tax jurisdictions, so one wonders, how much of Cayman's and BVI or Bahamas' 'profits' are really coming via Ireland.

The whole report addresses the issue of 'base erosion' in tax systems - the topic also close to heart to Ireland, as CCCTB proposals at the EU level are attempting to deal exactly with that problem and represent a massive threat to Ireland's tax optimisation industry.

Based on the data in the report, here are some revealing charts:

It is first worth noting that in absolute terms, corporate tax revenues overall are not that spectacular in the case of Ireland, contributing at an OECD average levels to the Exchequer. And these revenues have been falling, not rising, in importance despite a severe decline in GDP during the crisis:

Three interesting aspects per above are:

1. It is pretty clear that Irish Exchequer has opted to transfer lower corporate tax burden onto the shoulders of individual Irish taxpayers, and that this process has started well before the onset of the crisis, but became dramatically pronounced in 2007-2009.
2. It is also pretty clear that overall corporation tax is not an important source of Exchequer funding in recent years despite the Government numerous claims that the Corporation Tax receipts are robust and vital to the Exchequer.
3. Domestic boom period was associated with a massive (relative) uplift in tax revenues from the corporation tax, while the MNCs/exports boom during the crisis did nothing of the sorts, showing clearly that the effect of MNCs activities on Irish economy (as instrumented by the Exchequer) is weak.

However, the trend toward deterioration in revenues importance to the Exchequer during the crisis (driving down the 2000-2011 average) stands in contrast with rising importance of the corporation tax in the decade of the 1990s:

It is illustrative to highlight the change in relative importance of the corporation tax revenues over the last decade:

Ireland stands out as the the country with the third largest decline in corporation tax importance in 2011 compared to 2000-2005 average. In contrast, in Switzerland, the corporation tax contribution in 2011 stood at a premium on 2000-2005 average.

Here are some links on the topic of the Irish corporate tax haven from the blog:

http://trueeconomics.blogspot.ie/2012/11/19112012-links-on-irish-corporate-tax.html

http://trueeconomics.blogspot.ie/2012/10/13102012-irish-corporate-tax-haven-in.html

http://trueeconomics.blogspot.ie/2012/10/30102012-feeble-defense-for-tax.html

http://trueeconomics.blogspot.ie/2012/11/19112012-two-points-on-irish-corporate.html

http://trueeconomics.blogspot.ie/2012/10/13102012-irish-corporate-tax-haven-in.html

Enjoy.

18/2/2013: Short-selling and Markets Volatility

A large number of analysts and policy makers tend to believe that highly leveraged trading activity, especially that linked to HFT, is a significant, even if only partial, driver of markets volatility. The channel through this logic usually works is that in the presence of leverage, speed of positions unwinding in response to unforeseen events increases, thus amplifying volatility.

An interesting study by Harrison Hong, Jeffrey D. Kubik and Tal Fishman, titled "Do arbitrageurs amplify economic shocks?" (Journal of Financial Economics, vol 103 number 3, March 2012, pages 454-470) examined the impact of arbitrageurs' activity on stock performance. Based on quarterly data from 1994 through 2007 for NYSE, Amex, and Nasdaq, share prices were examined over two distinct sub-periods: one day before earnings announcement and one day after the announcement. Medium-term performance was analysed for two days before earnings announcement and 126 days after earnings announcement.

The authors find that:

1. Stock price reaction to earnings news is more severe in heavily shorted stocks than in stock with fewer short positions;
2. Changes in the short ratio and earnings surprises counter-move;
3. Share turnover as a result of large earnings surprises is higher for heavily shorted stocks as consistent with (1) above;
4. Positive earnings surprises push up the valu of heavily shorted shares (as consistent with (1) and (2) above)
5. Following positive earnings announcement, returns are higher (in general) for stocks with heavy shorting positions prior to the announcement since price appreciation post-announcement forces covering of short positions and triggers more demand for shares;
6. Consistent with (5) above, post-positive earnings announcement, previously heavily shorted stocks become better targets for further shorting;

Overall, the study finds that:

• Any earnings surprise in any direction (either positive or negative) leads to a corrective action by (either long or short) investors;
• The above increases price sensitivity to newsflow and thus volatility;
• Trading volume and stock price increase abnormally for heavily shorted stocks;
• The abnormal volatility and volume & price effects are temporary and in the medium terms, prices revert to the mean.

18/2/2013: G20 & Currency Wars

Amidst continued rapid devaluation of the Yen, predictably, and per usual, the G20 summit in Moscow has ended with a useless and unenforceable statement. This time around, as was signalled in the days ahead of the meeting, the 'focus' of transnational vacuousness was on the topic de jour: the Currency Wars.

But the background to it was much less economic than political. G20's sole obsession is to drive forward the idea that to survive, the world needs more coordination of top-level policies. This invariably requires (a) finding a convenient newsflow-worthy boggy, (b) making a statement to the effect that greater coordination is needed and that cooperation can cure all ills, and © proceeding to do absolutely nothing about it post-statement. The latests communique went on to conclude that “ambitious reforms and coordinated policies” were the key to achieving strong sustainable growth. Just like that: coordinate and magic shall happen.

Thus, the meeting of G20 has issued a statement rallying against competitive currency devaluations - or in more common parlance, a “currency war”.

In reality, G20 has no power to abate, let alone reverse, the process of currencies debasement. Quantitative easing - in its now fully evolved multitude of forms will go on, with central banks and governments across the OECD continuing to print their ways out of the slump. If G20 communique were to achieve anything, it will be just to push the whole affair under the proverbial rug, with devaluations not explicitly targeted in public pronouncements.

The communique states that G20 states "will refrain from competitive devaluation. [and] will not target our exchange rates for competitive purposes, will resist all forms of protectionism and keep our markets open.” The devil, of course, is in the slight turn of phrase. The G20 committed to not drive down their currencies values for 'competitive purposes'. But as long as money printing is 'necessary' to sustain domestic financial stability or deliver a monetary stimulus or both - then all is ok.

Just how feeble the whole statement is was illustrated immediately, with the worst offender - the Japanese Yen, down 7% in value already in 2013 - posting a slide against major currencies. In many ways, the communique makes it even more likely that sustained devaluation of the yen will be even more damaging now. Prior to G20 statement, the Japanese Government could have simply continued pushing down yen values by focusing on aggressive statements about the need for monetary stimulus and forex rate targeting. Now, it will have to print hard cash silently.

And the Fed is still sitting on a massive bonds purchasing programme that so far has been running at ca USD80bn per month. At G20 meeting this programme has been squarely defended by Bernanke.

Senior Bank of England, Martin Weale went on, during the G20 summit, to praise Sterling debasement, saying that a 25% devaluation of the pound over 2007-2008 period was not enough to boost exports and that more devaluation should be targeted.

In short, the entire G20 summit was a joke. It neither signaled any real policy shift, nor mapped a single tangible policy response to the crises still impacting advanced economies. If anything, via reducing potential rhetorical impact of monetary policy stance, it pushed the G7 countries into a more aggressive real monetary policies responses space. This promises to accelerate the currencies wars, while reducing overall ability of the monetary authorities to quickly unwind the decisions taken in years to come.

17/1/2013: 'Brown' Republicans v 'Green' Democrats?

Farzin, Y. Hossein and Bond, C. A., in their paper "Are Democrats Greener than Republicans? The Case of California Air Quality" (January 16, 2013. FEEM Working Paper No. 97.2012. http://ssrn.com/abstract=2201595 or http://dx.doi.org/10.2139/ssrn.2201595) ask an interesting question: "When it comes to environmental quality preferences, it is popularly believed that Democrats (and more generally, liberals) are “green” while Republicans (conservatives) are “brown”. Does empirical evidence support this popular belief?"

The paper tests the hypothesis that "regional political identification leads to differences in concentration outcomes for several measures of California air pollution indicators, including CO, NO2, SO2, O3, PM10, and PM2.5 concentrations." The authors control for "political party preferences of the local populace, as well as …the political party affiliations at the state-level legislative and executive branches".

And the findings are very much against the grain with the common 'wisdom':  "In general, we do not find a consistent and statistically significant relationship between pollution outcomes and political variables for California. The popular belief is empirically supported only for NO2 and O3, but not for any of the other pollutants, and even in these two cases the relationship only holds at the local regulatory level and not at the state policymaking level. At the state level, for most of the pollutants no significant effect of party affiliation is identified, and in the rare cases where such an effect exists, it is either too weak to be conclusive or is even counter to popular belief."

17/2/2013: Why do economists use models with false assumptions?

An interesting new paper from the PIER on the currently quite acute divergence between academic economics and the general understanding of economic inquiry outside the field of academic economics, namely the divergence in the value attached to theoretical models in analysis. Especially models, that are based on patently false assumptions.

Gilboa, Itzhak, Postlewaite, Andrew, Samuelson, Larry and Schmeidler, David, paper "Economic Models as Analogies, Third Version" (January 27, 2013, PIER Working Paper No. 13-007. http://ssrn.com/abstract=2209153 or http://dx.doi.org/10.2139/ssrn.2209153) argues that although "people often wonder why economists analyze models whose assumptions are known to be false", "economists feel that they learn a great deal from such exercises. We suggest that part of the knowledge generated by academic economists is case-based rather than rule-based. That is, instead of offering general rules or theories that should be contrasted with data, economists often analyze models that are "theoretical cases", which help understand economic problems by drawing analogies between the model and the problem. According to this view, economic models, empirical data, experimental results and other sources of knowledge are all on equal footing, that is, they all provide cases to which a given problem can be compared. We offer complexity arguments that explain why case-based reasoning may sometimes be the method of choice and why economists prefer simple cases."

16/2/2013: Minister Noonan Talks International Finance, briefly

This week, Calgary Herald reported some fascinating remarks made by Irish Minister for Finance, Michael Noonan at the EU Finance Ministers meeting. Quoting from the paper (full link here), with mine emphasis added:

"Arriving Tuesday for a meeting of the 27 EU finance ministers, Irish Finance Minister Michael Noonan said: "I think all this debate about the relative value of currencies is going to be an issue at the G-20 but we're coming through a period where the concern was the volatility of the euro". "It's a bit soon to argue that it's too strong." Noonan said he wouldn't support any proposals that the ECB should intervene in the markets to get the value of the euro down."

This statement bound to raise eyebrows of anyone even remotely familiar with economics and / or international finance.

Minister Noonan - in charge of the Finance portfolio in a Euro area country - seemingly has trouble formulating exactly what the Euro crisis is / was about. Volatility of the euro he cites was never a problem during the crisis. In fact, in major exchange pairs, Euro has not been the driver of the volatility, but the subject to periodically, short-term elevated volatility induced by the changes in policies and fundamentals in non-Euro area countries. And volatility of the EUR relative to any other major currency was actually lower than for exchange rates ex-EUR.

The confusion in his mind seems to arise from the lack of basic grasp of the currency markets.

1. Minister Noonan seems to have no idea that "volatility of the Euro" as a phrase is fundamentally imprecise. Euro (and any other currency) can be volatile only in terms of a bilateral (or in more complicated setting - triangular) exchange rate. He mentions no such pairs. We can talk about EUR/USD exchange rate volatility, or EUR/JPY volatility, etc, but not about 'Euro volatility' in pure terms, unless we want to say that EUR is the driver of volatility in the bilateral exchange rates vis-a-vis all major currencies.
2. Minister Noonan seems to be confusing 'volatility' (definable by a number of statistically objective metrics) and 'uncertainty' (definable only imperfectly by a risk transform approximation). This is more than an innocent failure to understand philosophical differences between risk and uncertainty. By confusing 'volatility' for 'uncertainty', Minister Noonan anchors his analysis of potential and preferred solutions to the crisis solely to policies that can reduce volatility of the exchange rate. By this metric, the crisis was not even worth a footnote in a newspaper.

But then comes a logical step that defies any comprehension. Having stated that the crisis was 'volatility of the Euro', Minister Noonan goes on to say that he opposes ECB intervention to alter the value of the euro. Surely, intervention would be consistent with policy management to reduce the exchange rate volatility that Minister Noonan is so concerned about?

Let's set aside the apparent lack of logic in the statements above. And let's focus on Minister Noonan's longer-term position vis-a-vis the Euro. 

Minister Noonan and his Government have actively pursued policies of extending Irish Government debt maturity. The latest instalment of this strategy was the 'deal' on the IBRC Promissory Notes. In other words, Irish Government entire economic policy (with exception of 'exports-led recovery') can be summed up as a hope for future inflation wiping out real value of Irish Government debt. Forget the fact that such an outcome will destroy the other side of our economy where debt overhang is also present: the households (higher inflation = higher interest rates = higher burden of debt). But what on earth is Minister Noonan doing talking against his own Government policy?

This bizarre combination of 'swinging' focus in policy goes deeper. Irish Government second (and last) pillar for economic policy - other than inflation - is 'exports-led recovery'. 2010-2012 data on Irish exports shows rapidly contracting rate of growth in exports. Monthly and quarterly data show even more reasons for concern. Foreign demand weaknesses and structural issues in the Irish exporting sectors are clearly major drivers. But higher valuation of the Euro are not helping. Yet, Minister Noonan is concerned with preventing devaluation!

Should Enda, perhaps have a chat with Minister Noonan, rather than send troops out after his party backbenchers whenever they are slightly critical about the Government position? Afterall, in the above few words, Minister Noonan has managed to mis-state the source of the Euro problem, derive an implicit but deeply flawed policy conclusion out of this mis-statement, and contradict his Government's two cornerstone policies. 

15/2/2013: Euro Area Banks: Staff & Admin Costs 2008-2011

Brilliant data set on Staff and Admin costs in domestic banking sectors across the Euro Area (H/T to Lorcan Roche Kelly aka @LorcanRK via twitter), via ECB (link) :

So run through these. Over 2008-2001, Admin & Staff costs in banks:

• Declined by 7.84% across the entire Euro Area;
• Went up in Cyprus by a massive 21.9% (banks are now bust), in Spain by 12.16% (banks are largely bust), in Portugal by +4.26% (many banks are zombified)
• Fell marginally by  -0.05% in Italy (some larger banks in pretty dire shape), -3.2% in Greece (banks are bust).
• Fell significantly in Ireland by -26.4% (banks are bust), Luxembourg by 36.5% (brassplates operations), and by 31.3% in shaken Estonia (banks are operating in high risk, low growth environment). Fell consistently in line with overall state of the crisis across the banks-related sectors of the economy in the Netherlands (-10.81%) and overshooting economy's woes in Belgium (-23.2%).
• Fell massively in Germany, where overall banking sector was not as badly mangled (-59.6%).

Go figure...

15/2/2013: Irish CDS mid-day

Mid-day CMA update on CDS markets: Ireland slipping slightly after good rally and so are other peripherals:

Not a game-changer, but then again, Sovereign CDS are hardly a 'game' anymore, given thin trading and other constraints. Still, pleasant to see 167.01 5-year spread.

15/2/2013: Loose Lips of Brendan Howlin & Jens Weidmann's Bother

Strong words today on the Irish Promo Notes deal from ECB's Jens Weidmann via Bloomberg (link to full interview here):

"It’s important that we draw a clear line between monetary and fiscal issues. The transaction in Ireland demonstrates how difficult it is for monetary policy to free itself from the embrace of fiscal policy once you’re engaged. The Irish government in its very own statements underscored the fiscal elements in this transaction.

"I’m rather strict when it comes to the definition of monetary financing. It’s important to draw a clear dividing line and accept the limitations of Article 123 for our actions. It’s not difficult from that to guess what my position is. [I would guess he is 'troubled' by the deal]

"The Irish government liquidated the IBRC. That has repercussions on net financial assets and has to be assessed against the background of Article 123. Of course the Eurosystem has to make sure that its actions are in conformity with its rules and statutes. [Widemann here clearly links NPV from the deal (small but positive by my estimates at EUR4.3-6.5bn, with some other analysts getting their estimates out to EUR8bn or roughly 25% of the original Promo Notes issuance or 30% of the remaining outstanding amounts) to the issue of whether the deal is legitimate.]

"I’m not passing a legal judgment on a particular transaction, but I think it is clear from what I said that I’m very concerned about monetary policy being too closely intertwined with fiscal policy and crossing the line to monetary financing. That’s why I was very skeptical about some of the decisions in the past, and you can be sure that I apply the same benchmark to this transaction.

"Once you cross a certain line, setting a precedent, it’s very difficult to come back and argue against the next similar transaction. That’s why it is important to define our mandate narrowly, so we’re not drawn into fiscal policy matters. There is a reputational issue, there’s a credibility issue. It might make it more difficult to focus on our main objective credibly. If governments had wanted to provide additional funding to Ireland, they could have tapped the ESM.

"We took note of this issue in the Governing Council. Our deliberations aren’t public. Apart from that, the transaction is out there, it’s known, it’s very transparent. Everybody has his own judgment on this -- I have mine.

"The transaction as such is technically a bit complex but it has a fiscal nature as stated by the Irish government. That’s clear enough." [Oh, here we come: Irish Government and senior Ministers have gone out talking about the 'social' dividend on the deal 'savings' etc. This might just bite the Government back. Rhetoric about Government spending (in any way) at least a share of the deal short-term cash flow savings will clearly signal that the Irish Government has pulled ECB into monetary financing and thus opens up the whole affair of the deal to legal challenge in Germany. As they used to say in WWII: 'Loose Lips Sink Ships'... care to listen, Minister Howlin?]