Michael Taft: It is difficult to come to a judgement on the NTMA bond sale. That we entered the bond market accessing new money is a plus, especially against a backdrop of yet another twist in the Eurozone crisis. That it builds up liquidity assets in anticipation of a large bond redemption in January 2014 is another plus. However, there are downsides and disappointments.
NamaWineLake compares the costs of the new bonds with borrowings from the EU-IMF bailout and finds that it will cost us nearly €1 billion more in interest payments up to 2020. However, this may not be the best comparator as it is the intention to exit the EU-IMF deal late next year. To test the water, so to speak, was always going to prove expensive at first.
There are two better comparisons. First, how do the interest rates compare with the secondary market? On the day of the bond sale, this is how the comparison stood using Bloomberg data.
For the 5-year bond (raising €3.9 billion):
• Bond sale: 6.1 percent
• Secondary market: 5.3
For the 8-year bond: (raising €1.3 billion):
• Bond Sale: 6.1 percent
• Secondary market: 6.2 percent
The majority of funds (from the 5-year bond sale) were borrowed at rates that compare badly with the secondary market. This is a disappointment. The 8-year sale just beat the interest rates on the secondary market.
Another comparison is with the beginning of 2010 – the year we started sliding into the bail-out with interest rates getting out of control. However, at the beginning of the year out interest rates were sustainable, though still high by comparison with most other EU-15 countries.
For the 5-year bond sale:
• Bond Sale: 5.9 percent
• January 2010: 3.3 percent
For the 8-year bond sale:
• Bond Sale: 6.1 percent
• January 2010: 4.5 percent
Again, the 5-year bond compares badly while the 8-year comparison shows a significant gap.
Can we close these gaps on a permanent basis by the end of next year? The only thing we can conclude from last week’s intervention is that we have a long, long way to go.
6 comments:
One could see these gaps closing very rapidly of the Government were to announce the sale of the ESB and BGE networks. On a pro rata basis the state owns 95 and 97% of these networks, but hasn't provided - and has no intention to provide - one red cent of investment financing. Instead it relies on the CER to hose already hard-pressed consumers to finance a big share of investment up-front - this includes investment in silly artificial 'competition' in Ireland (with no sustainable consumer benefit), in expanding networks to connect the wind-farming subsidy junkies and in empire-buidling overseas. I'm sure the UK Chancellor of the Exchequer and the Secretary of State for Energy and Climate Change must be immensely grateful to Irish electricity consumers for part-financing economic activity and employment creation in Britain.
If the state owns a business, fails to contribute directly to financing necessary investment and compels consumers to pay excessive prices to part-finance up-front both necessary and unnecessary investment, then it forfeits the right to own this business.
I'll put this issue another way. On what grounds would the brains trust of the progressive-left assembled here object to a restructuring, re-financing and sale of the ESB and BGE to pension funds or long-term infrastructure funds with the retention of ultimate state control of the disposition of capacity - particularly when this would result in lower electricity and gas prices (by removing the current 'financing tax'), a reduction in national debt, the release of funds to finance an investment stimulus in sectors where investment is deficient and a highly likely significant reduction in secondary market bond yields which would facilitate an early return to the sovereign bond market (and release from the overlordship of the Troika)?
I suppose I shouldn't be surprised. Ask a question whose answer might provoke some questioning of out-dated, but tightly grasped, ideological baggage and the response is...silence.
The political reality, which most on the progressive-left fail to confront, is that the majority of Irish citizens have been, are and will likely continue to be deeply conservative in many respects.
Across the 26 general elections between June 1927 (when FF first entered the Dail) and May 2007 the combined FF + CnG/FG share of first preference votes averaged 74.2% with a standard deviation of 8.2%. Labour's share of first preference votes across these elections averaged 10.1% with a standard deviation of 3.1%.
This does not mean that progressive policies have never been implemented nor that it is impossible to conceive of them being implemented. But they have been implemented following infrequent, but major, realignments of public policy. The first was the publication and subsequent implementation of 'Economic Development' in 1958 - facilitated by FG's Gerard Sweetman when he gave TK Whitaker and his colleagues their heads and subsequently pursued by Sean Lemass. The second, building on this, was the decision to join the Common Market in 1972.
We've had two, largely self-created, booms and busts since then. A major re-alignment of public policy is now long overdue. But the current and likely future configuration of the political factions precludes this happening.
For Labour, from an historic high of 16.6% in 1969 (when it actually lost 3 seats) there was a decline to 11.6% in 1977 following participation in the first formal coalition government. This was followed by a new high of 19.5% in 1992 which was followed, almost inevitably, by a collapse to 10.4% in 1997. It is again almost inevitable that the high of 19.4% in last year's general election will be followed by a collapse in support at the next time of asking. Yet there is no evidence of any learning.
It is true that, across the six general elections between Nov. 1987 and May 2007, the combined FF + FG share of first preferences declined to an average of 68.1%. And their combined share dipped below 55% last year for the first time since June 1927. But the 'stickability' of the defections from FF that contributed much to the increase in Labour's share is suspect. Once again in coalition, Labour acts as the mudguard for FG and will suffer the wrath of voters disproportionately.
And once again all it knows is to hunker down and defend what it perceives are the interests of its limited core support in the public and semi-state sectors - and of its residual support in the professional and working classes.
After every period in coalition the increase in support that brought it into government migrates left and right and the migration of support to the right copperfastens the centre-right hegemony, often for a number of electoral cycles. And the migration of support to the left helps to enhance the credibility of the cetre-right hegemony in the eyes of many voters.
I think there is no response so far because it's a bit boring rather than nobody having any answers.
I'm no economist but in relation to the ESB i don't see why the state needs to release investment funds? Surely it's big enough and successfull enough to issue bonds direct on market at fairly decent interest rates. This company regulary outbids GE for international contracts for Christ sake. It's an Irish owned industry we can be proud of but never gets the credit due because it is semi-state and that doesn't fit the prevailing economic orthodoxy.
I agree that competition policy is silly and artificial. If the government issued a directive to the ESB forcing them to reduce prices overnight which would crush all the so called competiton. This would help business and citizens recuce expenses, stimulating economic growth; seems the obvious course to me but again doesn't suit the prevailing "science" of economics. So what about it being against EU competition law, the Germans and French ignore this when they want; why not us? They will hardly sanction us over internal energy policy what with everything else that is happening and them desperately needing us to be the best boy in class.
Sale of ESB would raise a lot of money and reduce debt for a short period but citizens would loose out on the hundreds of millions of euros in dividends that ESB pays to the state. Ignoring the immorality of selling a resource that generations of Irish citizens have built up from nothing; it just makes strategic sense to retain this important resouse under direct state control. For instance, recently when oil and coal prices went through the roof, China ordered its electric company to sell electricity at below cost (this was supported through accumulated profits rather than direct taxes) this kept their factories running at a sustainable level and the economy on track.
Also in the decades to come with increased commodity prices and the necessity to use more green energy it is likely that energy generation will become completely unprofitable and require massive state subsidies (much like nuclear energy today). Better that citizens' taxes go to companies under democratic control than privatised industries paying dividends to shareholders and massive bonuses to their executives.
Finally i think the progressive left are well aware of the conservative nature of Irish voters, they probably hold off on complaining about this for fear of being labeled elitist. I agree Labour are finished and deserve to be. What most left wing intelectuals are loath to admit is that the only hope for a left wing government is with Sinn Fein. i suppose it's from the older lefties distaste of their violent past. To be honest i'm of an age that i just dont care about this, they are at a place now similar to FF in the late 20's. Sinn Fein gets criticism from labour over their right wing policies in the North, completley ignoring that the North is not a normal polity and they have to implement dodgy policies as a result of powersharing (better than violence). Sinn Fein has gone as far to the right as they can in the South, they lost too many activists to Eirigi on their last lurch right and wont do it again in a hurry. They can also bring in all the dumb people on board by hiding the lefty policies under bullshit nationalism and the younger middle class dont hate them the way their parents generation do. A Sinn Fein government wouldnt be socialist but at least they would create a European style welfare state.
@Jonathan,
Thank you for your comments. Your candour contrasts forcefully with the ideological platitudes - and occasional spurt of pure bile - that seems to pass muster here.
I could take issue with a number of your observations about the ESB, but, as you say, it is boring and those who have comfortable ideological positions have no wish to engage for fear of exposing their prejudices. I will make just one observation. Rather than having state equity tied up in the ownership and direction of a business which should be well able to finance its activities efficiently - and imposing a 'financing tax' on consumers to compensate for the state's inability to provide necessary finance directly, the state should oversee the competitive provision of investment and investment financing and build up an investment recovery guarantee fund which could, in extremis, be called on to assure investment recovery. But enough on this.
Your observations on the emerging political landscape are spot on. You present a coherent and internally consistent scenario. Voters can only cast judgement on the political choices presented to them. For a variety of reasons I would prefer to see an alternative scenario emerging, but I will fully accept whatever emerges as the democratic will of the people.
There was a time, as you note, when FF built up up a solid electoral base by representing the 'men of no property'. SF is now poised to reprise this in the modern era. It is probably the only way that a centre-right/centre-left divide, that exists in most advanced economies with developed democracies, will emerge in Ireland.
That would be healthy and constructive, but it would need to be accompanied by a re-balancing of power between the Government and the Oireachtas, a devolution of power from a highly centralised government to appropriately empowered and resourced local governance and a diffusion of power from the excessively expansive government apparatus.
My fear is that SF and whatever allies it might muster wish to capture this excessively centralised, dominant and expansive system of governance. Irrespective of which faction or combination of factions secures power, this needs to be changed as a matter of urgency.
@Jonathan,
Thank you for your comments. Your candour contrasts forcefully with the ideological platitudes - and occasional spurt of pure bile - that seems to pass muster here.
I could take issue with a number of your observations about the ESB, but, as you say, it is boring and those who have comfortable ideological positions have no wish to engage for fear of exposing their prejudices. I will make just one observation. Rather than having state equity tied up in the ownership and direction of a business which should be well able to finance its activities efficiently - and imposing a 'financing tax' on consumers to compensate for the state's inability to provide necessary finance directly, the state should oversee the competitive provision of investment and investment financing and build up an investment recovery guarantee fund which could, in extremis, be called on to assure investment recovery. But enough on this.
Your observations on the emerging political landscape are spot on. You present a coherent and internally consistent scenario. Voters can only cast judgement on the political choices presented to them. For a variety of reasons I would prefer to see an alternative scenario emerging, but I will fully accept whatever emerges as the democratic will of the people.
There was a time, as you note, when FF built up up a solid electoral base by representing the 'men of no property'. SF is now poised to reprise this in the modern era. It is probably the only way that a centre-right/centre-left divide, that exists in most advanced economies with developed democracies, will emerge in Ireland.
That would be healthy and constructive, but it would need to be accompanied by a re-balancing of power between the Government and the Oireachtas, a devolution of power from a highly centralised government to appropriately empowered and resourced local governance and a diffusion of power from the excessively expansive government apparatus.
My fear is that SF and whatever allies it might muster wish to capture this excessively centralised, dominant and expansive system of governance. Irrespective of which faction or combination of factions secures power, this needs to be changed as a matter of urgency.
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