Irish Fantasy 26% Growth

Irish GDP for 2015 has been revised upwards from 7.8% to a whopping 26.3%.

Has the Celtic tiger got a new bounce in its tail, or are these figures utter BS?

The FT clarifies the mystery, it's all to do with inversions (where tax avoiding foreign companies pretend that they are based in Ireland). More specifically it's to do with statistical reclassifications relating to the treatment of inversion deals involving US multinationals, purchases by aircraft leasing firms and companies relocating assets to Ireland.

So what was the real GDP growth for 2105?

Fuck knows!

There are lies, damned lies and statistics!

David Drumm Apologises

David Drumm, ex CEO of the now defunct Anglo Irish Bank, has apologised for the language used in a phone call released by the Irish Independent.

All sorted then!

The Voice of The People of The Eurozone

This one pensioner from Ireland sums up the feelings of the people of the Eurozone towards thier political and financial "elite".

Troika Visit Ireland

"Lucky" Ireland is on the receiving end of the sixth visit of Troika inspectors.

Officials from the International Monetary Fund, the EU Commission and the European Central Bank have begun their 10 day long inspection to see how Ireland is performing under the bailout programmes

The Irish Times reports that promissory notes would be a central focus, as the issue of restructuring of the Euro30BN promissory note issued primarily to Anglo Irish Bank and Irish Nationwide has yet to be resolved.

Ten Countries Most Likely To Default

Bottom 10 Sovereign CDS ranked by spread at end-March 2012

Name    5Y Spread   Change   % Change   Feb ranking
Cyprus     1183             4              0%             N/A
Portugal   1075          -90            -8%             2 (0)
Ukraine      859         101            13%            4 (+1)
Argentina   809           32             4%             3 (-1)
Venezuela  712          -13            -2%             5 (0)
Ireland       572          -27            -5%             6 (0)
Hungary    546            50           10%             8 (+1)
Egypt        544           -52            -9%              7 (-1)
Lebanon    459          -17            -4%               9 (0)
Spain         428           55            15%             16 (+6)

Source markit

Greece is not on the list, because it has already defaulted.

The German Juggernaut

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As the eye of the financial storm moves from Italy to Spain, it was fascinating to learn that the Irish budget was being circulated around the Bundestag for approval, before it was even seen by Irish members of parliament.

Coupled with the fact that both Greece and Italy are now, in effect, German financial protectorates (complete with German appointed Prime Ministers) and we have to wonder what form of "new" European political structure and governance model is being created.

Clearly David Cameron is concerned as well, because he is hot footing it to Berlin for talks with Chancellor Merkel.

Let us trust that something more tangible than a piece of paper will be forthcoming from that meeting!

The Mad Hatter's Tea Party

The world economy stands on the precipice, thanks in no small part to the dishonesty and incompetence of politicians around the globe.

Europe faces the collapse of the Euro; as countries such as Greece, Italy, Portugal (which has just "discovered" a Euron2BN budget hole), Spain and Ireland are going to default on their debts.

Meanwhile in the USA, politicians (thanks in no small part to the pig headed intransigence of the Tea Party) continue to fail to raise the debt ceiling.

Wall Street has at last woken up to the very real danger that the politicians will fail the country, and fail to raise the debt ceiling in time, before the USA defaults on its debts. With no signs of progress from Capitol Hill Wall Street is now falling.

Welcome to the Mad Hatter's Tea Party!

Ireland Downgraded To Junk

Moody's has downgraded Ireland's rating to junk, from Ba1 from Baa3. They are of the view that Ireland will need a secondary bailout.

Ireland now joins Portugal and Greece in the non investment grade hall of shame.

Unsurprisingly the European Commission has issued a statement "regretting" Moody's decision. However, as with all ratings agencies' predictions of doom, there is a very real danger that they become self fulfilling prophecies. The fact the the EC "regrets" it is irrelevant.

Anyone But Brown

The BRICS group of the world's major emerging economies (Brazil, Russia, India, China and South Africa) are peeved that the search for a new head of the IMF, following the demise of DSK, is purely Euro focused.

BRICS claim, with some justification, that only having a European leading the fund somewhat undermines its "international" credentials and legitimacy.

I concur, if a suitable non European candidate can be found.

However, a few counterpoints need to be raised:

1 The World Bank is always headed by an American. As long as that is the case, the Europeans will insist that the IMF is headed by a European.

2 A suitable non European candidate needs to be found. A number of names have bubbled to the surface in the media, from various countries. However, in order for them to stand any realistic chance, the BRICS must first agree amongst themselves which one they will support.

3 The EU (an institution many loath) is in financial crisis, as a result of the debt problems of certain countries (eg Greece, Spain, Portugal, Ireland etc). There is no way that the EU will accept a non European, at this critical stage, to head the IMF. The EU needs a "friend at court".

Political reality is a harsh mistress.

However, there is one thing that the EU and BRICS can all agree on; no one wants Gordon Brown to head the IMF!

Chinese Whispers

It seems that it is not just Portugal, Ireland, Greece and Spain (aka "PIGS") that are under the gimlet eyes of the ratings agencies.

The UK has now also come under attack from the ratings agencies. Bloomberg reports that Dagong Global Credit Rating Co., one of China's official ratings firms, has cut its credit rating for the UK by one notch to A+.

Dagong cite the UK's deteriorating ability to repay debt, much the same reason used by other agencies when they downgraded the "PIGS".

However, we are not alone, the firm also reduced its rating on the US to A+ from AA last November citing a deteriorating intent and ability to repay debt.

Cynics might argue that ratings agencies' ratings/prophecies more often than not become self fulfilling, as the very act of downgrading a country increases that country's costs of borrowing.

Were the agencies to abuse their power, there would be opportunities for individuals, companies and countries connected with them to make a lot of money at the expense of others.

Needless to say, as with other aspects of the global financial services industry, the behaviour, quality and ethics of these agencies is beyond reproach.

Portugal Bailout

Jose Socrates, Portugal's caretaker prime minister, has stated that Portugal has followed Ireland and Greece and agreed to a $78BN bailout from the EU and the International Monetary Fund (IMF).

However, the deal will need broad cross-party support because Mr Socrates resigned last month (as a result of not being able to pass a budget) forcing a general election on 5 June.

Additionally, the interest rate on the bailout loan will not be set until mid May.

Using debt to pay off debt, is of course merely pushing back the day of reckoning.

ECB Loses Touch With Reality

The Telegraph reports that Moody's have downgraded Ireland's debt rating by two notches to Baa3, adding a "negative" outlook.

The cause of the negative outlook?

The ECB's increase in rates!

As has been noted before on this site, the ECB is living on another planet when it comes to the current financial turmoil in Europe. Increases in rates (to appease the gods of monetarism) will cause more problems for the Euro; as those countries in financial ruin (eg Ireland, Greece, Spain and Portugal) cannot afford to pay the current rates on their debts, let alone higher ones.

Until the ECB is taken in hand, by those who live in the real world, this situation will worsen.

The other solution is for Ireland et al to leave the Euro.

Maybe this is what the ECB is hoping for?

The Sinking Euro Ship

The Economist Intelligence Unit has issued a report which states that there is a one in seven chance that Europe's ongoing debt crisis will cause member nations to abandon the Euro.

However, the report manages to muddy the waters by also stating that there is a 50% probability that the eurozone will get through the crisis.

Given how close to economic meltdown some member states (eg Ireland, Spain, Portugal and Greece) are, and that the wealthy states (eg Germany) are thoroughly fed up with propping them up I would suggest that the one in seven probability is massively understated.

It should also be noted that the ECB is likely (despite all reason and commonsense dictating that it shouldn't) to raise interest rates this Thursday. Any increase in rates will worsen the economic situation, and make it even more likely that member states will abandon the ill fated Euro experiment.

Under Pressure

The results of the stress tests on Irish banks published yesterday show that the banks require a further injection of Euro 24BN, if they are to avoid collapse.

Allied Irish Bank will need the largest cash injection (Euro 13.3BN).

The money will be sourced from a draw down on the EU bailout package, and will signal the effective nationalisation of the banks.

This is all very well. However, the fundamental problems remain (no matter who owns the banks), namely the size of the debts and the fact that the Irish state does not have the money to cover the debts in the event of a further meltdown.

This action is merely putting off the day of reckoning.

The Eurozone Crisis - Spain Is Next

All eyes have been focused on Portugal, Ireland and Greece as the Eurozone slowly unravels. However, spare a thought for the next in line for financial chaos namely Spain.

Banco Base (Spain's 3rd largest savings bank) has asked for Euro 1.45BN in state funds to meet "new local capital requirements".

The Euro, as it currently stands, is destined to fail. At best there may be a two speed Euro (split along a North South axis). At worst, the Euro will cease to exist.

EU Pressures Portugal

The EU is putting pressure on Portugal to come cap in hand to the EU for a bailout.

Ewald Nowotny, a governing council member of the European Central Bank, is quoted in the Telegraph:

"From a purely economic point of view one could probably recommend it. The domestic political situation in Portugal has clearly worsened ... the head of the government has stepped down."

Why such advice?

Philanthropy?

No, this is purely self interest based on fear of the Eurozone unravelling as a result of economic chaos in Portugal. Were Portugal to accept a bailout, the people of Portugal would end up having to sacrifice their economic well being for the future of the Euro.

Is this something that they really want?

It is not just Portugal that threatens the Euro, Ireland will need further refinancing and Spain is looking decidedly unstable as well.

Moody's Downgrade Greece

Moody's have downgraded Greece's credit rating from B1 from Ba1. This has caused a spike in yields on the country's bonds and will of course add to pressure on the Euro, as the risk of Greek default grows.

Add in the fact that the Irish economy is on the verge of collapse and that the ECB (for reasons that are unclear to any sane person) have raised interest rates, and it is clear that the Euro's days are looking increasingly numbered.

Data released by the Irish central bank shows that depositors are withdrawing their money from Irish banks at an alarming rate.

The Telegraph reports that outflows in December 2010 were Euro40BN, compared with Euro27BN in November. The total outflow for 2010 was Euro110BN (60% of GNP).

To add to Ireland's woes, Standard & Poor cut Ireland's sovereign rating one notch to A- yesterday and downgraded Bank of Ireland, Allied Irish, Anglo Irish and Irish Life.

This indicates that the Eurozone "rescue" of the Irish economy has all but failed.

Further aid from the Eurozone may be unlikely, as Germany is in no mood to throw more good money after bad.

Irish Woes

Ireland stands on the brink of political and economic chaos, and will drag the Euro down with it.

The resignation from the government of the Green Party, over the resignation of Brian Cowen as leader of Fianna Fail (but not as Prime Minister), means that the government will have to bring forward the date of the general election (originally planned for March 11.

However, the finance bill (scheduled to be debated this Friday) has yet to be passed. The bailout agreed with the IMF/EU is contingent on that bill passing. In the event that it does not pass, the bailout deal will unravel and the Euro will be under renewed pressure as Ireland teeters on the brink of being forced to leave the Eurozone.

Running On Empty

According to the Daily Telegraph, Irish banks appear to be running out of money and have already borrowed Euro51BN from the Irish central bank as at the end of December.

The loans are euphemistically titled "other assets" on the central bank's balance sheet. It should be noted that these banks have already borrowed Euro132BN from the ECB.

The result of this year's Irish general election will be interesting, as it will not only reflect the voters' views on their own government but also their views on the EU/Euro.