Cantillon

Inside the world of business

Portuguese rate could prove very interesting for Ireland

OLLI REHN has said that the most pressing priority of the European Union is “to break the vicious circle of unsustainable debt, financial turbulence and sub-optimal growth”.

Taken at face value, his comments can be interpreted as being indicative of a willingness to review the interest rate charged on the EU-IMF facility, which some argue is not sustainable in terms of Irish debt dynamics.

However, veteran Europe watchers will tell you that logic – or even the lack of logic – has never been seen as an insuperable obstacle to any particular course of action by Brussels.

What does seem clear is that Europe is learning the lessons of the Greek and Irish bailouts as it weighs up what to do about Portugal and Spain. A number of ideas are on the table but the clock is clearly ticking with yesterday’s Portuguese bonds auction seen as a stay of execution.

Some sort of halfway house is in the mix, which would see the European Financial Stability Fund make funds available without a formal rescue programme such as those agreed with Ireland and Greece.

This would be far more palatable to Portugal – or Spain if it comes to it – and less embarrassing to Europe as a whole. It would also be in keeping with the line that the markets have got it wrong by doubting the effectiveness of the unilateral moves undertaken by their states to get their house in order. Loans advanced in that context could not really be charged at the penal rates applied to Ireland.

Thus talk of some sort of lower interest rate for Ireland has to be seen in that context and the reasonable expectation that a better deal could not be offered to Portugal than was offered to Ireland without some sort revision of the terms given to Ireland.

Free thinking from America

Ireland’s economy is the seventh most free in the world, according to a new report by the Heritage Foundation, a conservative US think-tank devoted to promoting free enterprise and minimal business regulations. Ireland fell one place but was ranked ahead of other developed countries such as the US, which was placed ninth, and the UK, which was 16th.

But while the Heritage Foundation was satisfied that Ireland had a “mostly free” economy, it’s not completely blind, noting that “the ballooning cost of bank bailouts has prolonged uncertainty in the financial sector and undermined the credibility of the government’s fiscal policies”. Still, its assertion that Ireland has “a low level of corruption” seems debatable.

Freedom in trade and finance allowed Hong Kong to bag the number one slot, but is the approval of the Heritage Foundation something that Ireland should be proud of anyway?

The think tank is the same one that took the opportunity of Hurricane Katrina to persuade the US government to suspend laws requiring federal contractors in New Orleans to pay a living wage, as Naomi Klein has documented.

Its own website is full of the kind of right-wing posturing that is unfathomable outside the particular US political culture from which it hails. Not for it the ringfencing of health and education. Trumpeting economic and personal “freedom”, the Heritage Foundation strongly resists President Obama’s plans to reform the bastion of inequality that is the US healthcare system. It is also against Obama’s approach to education because it involves a commitment of government money to the sector – such a move is “a reckless spending spree”, it believes.

And if its account of American poverty is anything to go by, there’s no point trying to tell a think tank like this one that Ireland’s poorest are now suffering as a result of light-touch banking regulation. “Poor persons in the US have far higher living standards than the public imagines,” it sniffs.

The Heritage Foundation is also against sex education, favouring abstinence programmes. Ah. Maybe it would find a few supporters in Ireland after all.

Risk factor may undo Quinn

For Seán Quinn, any hope that he can gain control of Quinn Insurance is receding, as it becomes increasingly likely that a deal – probably with Anglo and Liberty Mutual – will be announced within weeks.

Quinn’s representatives have repeatedly argued that his bid for Quinn Insurance represents the best deal both for Quinn’s 6,000-strong workforce and for taxpayers. Their argument is simple: Seán Quinn will only be able to repay his €2.8 billion debt to Anglo if he retains some control of Quinn Insurance.

While the ethics of such a contention are suspect – the idea that Quinn should be permitted to run a company purely so that he can repay the colossal debt he personally racked up – in monetary terms his argument is logical. Quinn’s plan is to buy back the insurer for a nominal fee, run it at arm’s length, and sell it or float the business in seven years.

The sale would net up to €2 billion for the tax-payer, with the remaining €800 million provided by the profits generated by the company each year. Ultimately, however, Quinn’s plan is overlooking one central consideration – risk. Whether the taxpayer, through Anglo, can sanction an investment into a company controlled by a businessman who engaged in such a level of recklessness, is questionable.

What Seán Quinn also seems to be overlooking is that Quinn Insurance is not only a profit-making entity – fundamentally it is an insurer. Ultimately, when the future of Quinn Insurance is decided, it will be policyholders’ interests, not the profit-generating potential of the insurer, that will take precedence.

Today

The chief executive of Nama, Brendan McDonagh, will appear at the Public Accounts Committee this morning, where he will be asked to clarify the claim that Irish financial institutions provided deliberately false information to the agency about the value of their property loans.

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