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Inside The World Of Business

More than a letter between Ireland and Iceland

THE RATHER tired joke about the difference between Ireland and Iceland being one letter and six months is about to get a new twist.

Some 18 months after the collapse of their financial system, a special investigation commission has published its 2,000-page report. It found that the then-prime minister Geir Haarde and his former central bank chief David Oddsson were grossly negligent in failing to prevent the collapse of the three big Icelandic banks. They had the necessary information to hand but did not act accordingly, the commission found. Their big mistake was not moving in time to reduce the economy’s exposure to its banking sector, the collapse of which overwhelmed the state.

The two co-governors of the central bank, the finance minister, the banking minister and the former director of the country’s financial services regulator are criticised in a similar vein. The Icelandic parliament will now move onto the issue of deciding whether any legal action will be taken against the named individuals.

The progress being made by Iceland stands in marked contrast to our own rather feeble efforts to establish how everything went wrong. The Government only reluctantly agreed to an inquiry earlier this year but its scope is restricted to events after September 30th, 2008, by which time the seeds of the Irish collapse had been well and truly sown.

The inquiry has yet to start work and awaits the outcome of two “scoping” reports.

The Government’s lack of enthusiasm for apportioning blame is not that surprising given the similarities between the Irish and Icelandic collapses; the banks were effectively out of control and grew too big for the economy before falling over costing the taxpayer billions.

It’s a pretty good bet that, notwithstanding the pre-September 2008 cut-off, the Irish inquiry will uncover the same sort of negligence running through the regulator, Central Bank, Department of Finance and right up to the Taoiseach’s office.

If you are waiting for the Irish inquiry to report, don’t hold your breath. There may have been a partial cleanout at the regulator’s, but the political actors remain the same. A culture of accountability, or the lack of one to be precise, can also be added to the difference between us and out island neighbours to the northwest.

Bono’s losing punts

IT’S BEEN a busy couple of weeks for the Irish man recently dubbed the “worst investor in America” by the influential 24/7 Wall St blog. The man in question is not one of our over-stretched property developers – although several of them have been in trouble in the US lately – but U2 frontman Bono.

The rock star is an investor in and managing director of Elevation Partners, a private equity fund that plays in the media and entertainment industries. It’s biggest punts to date include a $300 million investment in Forbes Media, the publishers of the eponymous US business magazine; a 15 per cent stake in Move.com, a property website, for a reported $100 million; and its acquisition of a 25 per cent stake in smartphone maker Palm in 2007 for $325 million.

The last investment is under the spotlight after Bloomberg reported that Palm has put itself up for sale. Advisers Goldman Sachs have piqued the interest of Chinese PC manufacturer Lenovo and Taiwanese phone maker HTC. As a result the stock was trading as high as $6.27 on the Nasdaq yesterday, having been as low as $3.71 just last month, but still a long way off the $16-plus level it was trading at before Elevation came along.

It’s also now reported that Elevation has acquired a 1 per cent stake in Facebook for about €90 million. Given Microsoft paid $240 million for a 1.6 per cent stake in the social network in October, it suggests at least Elevation hasn’t got in at the peak of the market. The silver lining for Elevation is that it followed its money into Palm buying an additional $100 million of stock in December 2008 at $3.25 a share. Based on yesterday’s share price Ireland’s most famous rock star could yet have the last laugh.

Certainty and sterling

THE QUESTION of whether a particular outcome in the British general election will have an impact on the Irish economy is complex. What is certain is that the current uncertainty about what will happen in a hung parliament is weighing on sterling – and a weak sterling is a sore subject for the UK-facing Irish exporters who are expected by the ESRI, among others, to lead Ireland out of recession.

The Greek fiscal crisis has acted as a counterbalance in this regard. The ESRI notes that forecasts by the UK’s National Institute of Economic and Social Research (NIESR) point to a stronger sterling over the next 18 months than previously expected. NIESR forecasts an average sterling-euro exchange rate of 0.87 in 2010 and 0.86 in 2011: its earlier assumption hovered at the 0.90 mark. Downward pressure on the euro is the main reason for the change.

However, the currency markets move faster than forecasters. A resolution of sorts for the Greek problem boosted the euro yesterday, while a weaker sterling was attributed to concern about Britain’s debt burden.

UK politicians may be staging campaign trail battles about how much expenditure to cut and when to cut it, but the eventual outcome will be much the same whoever gets in. A significant fiscal adjustment will have a deflationary effect on the UK economy, which isn’t great for Irish exporters. However, when uncertainty dissipates and the next British government starts tackling its debt, sterling could strengthen, which is what Irish exporters are hoping for.

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Today

The heads of the National Assets Management Agency, Brendan McDonagh, and the National Treasury Management Agency, John Corrigan, will appear before the Oireachtas Joint Committee on Finance and Public Service as the first development loans are transferred from Irish lenders.