Tuesday, 24 September 2013


I am in Germany this week, in the immediate aftermath of the General Election, in which Chancellor Merkel’s CDU/CSU alliance emerged as the largest party in almost every state in Germany.

But, although her own party’s vote is up more than 7 percentage points, her favoured coalition partner, the FPD, is out of the Bundestag altogether, because it did not get the minimum of 5% of the vote in Germany as a whole. They missed the threshold by just 0.2%!
In the last election, in 2009, the FDP got 14.6% % and 90 seats, and Angela Merkel’s CDU/CSU got only 33  %. This time, Angela Merkel wanted her party to be the one to make the big gains, and she succeeded...too well. Her vote jumped from 33% to 41%.
Under the German system of proportional representation, each voter casts two votes, one for the representatives in her/his own district and another for the national lists of one of the parties.

A practice had grown up of some CDU/CSU voters voting for their own party in their own district, but giving their second vote to the national list of the FDP, so they would get over the 5% threshold and be available as the preferred coalition partner for CDU/CSU. 
This time Angela Merkel made it clear she wanted every vote to come to her own party. As a result the  proportion of the CDU.CSU electorate” lending” their vote to the FDP fell from 5 % to 2%. 

As a result the FDP are out, and Mrs Merkel has to look for a coalition with less amenable partners, either the SPD, or the Greens. Her situation is not unlike an Irish politician who headed the poll, but failed to bring in his/her running mate. 
Coalition negotiations will be prolonged and difficult, and all that could have been avoided if just 1% more CDU voters had given their second vote to the FDP, and enabled them to survive!
Given that the SPD lost 11% of the vote in 2009, after their previous coalition with Mrs Merkel from 2005 to 2009, they will not be keen to repeat the experience. Prior to the 2009 election, the CDU/CSU were the biggest party only in four big states in  Southern Germany,-Bavaria, Baden Wurtemburg, Rhineland Pfalz, and Saxony, and the SPD got the most votes in every other German state.

Now, after the 2013 election, the SPD are the biggest party only in their strongholds in Hamburg and Bremen, and in pockets in the Ruhr, Dortmund and Kiel.

The SPD will also look at the more recent experience of the FDP, who went from 14.6% down to 4.8% as the outcome of their coalition with Mrs Merkel, and they will hope  to pass the responsibility over to the Greens. 

The SPD base never fully accepted the 2004 labour market reforms of the last SPD led government, which did so much to improve German competitiveness, and it was the subsequent Merkel led governments, not the SPD, got the credit for the resultant economic growth.

This is important because Germany has some more tough reforms to undertake, if it is improve the productivity of its domestic economy. The OECD has said that Germany’s domestic service economy has low productivity, entry to professions is too tight, and fees and prices are too high as a result. A major overhaul of energy policy is needed too, if Germany is to survive without nuclear power.
A CDU/CSU deal with the Greens would be another way to provide a majority. The social bases of the two parties are similar. Since Merkel agreed to abandon nuclear power, the policy divide is not as wide as it was.  Fewer CDU/CSU Ministers would have to lose their jobs to accommodate the Greens, than would have to step down in a coalition with the SPD. But some Greens would find a coalition with Mrs Merkel to be anathema, and she is cautious and may not want to try such a novel coalition either. 
If no deal with either the SPD or the Greens is reached, a second election is possible, which might favour Chancellor Merkel and allow the FDP to get above 5% and thus to restore the old coalition.

But the prolonged instability involved in a second election would be dangerous for the global economy and for Europe, and that is why it will not happen.

Tuesday, 17 September 2013


Speech by John Bruton, President of IFSC Ireland, at the conference of  FIBI on opportunities for the IFSC in the Marker Hotel, Grand Canal Square, at 8.15 am on Tuesday 17 September 2013


I would like to start by saying something about the broad economic context in which the Irish International Financial Services industry must operate, covering the euro ,the general business environment, the continuing  need for structural reforms, the lessons from the bubble,  and the global regulatory response. I will then focus on the opportunities for the IFSC. 


The existence of the euro, the single currency, has not created the economic crisis in Europe.

This was going to come anyway because of lost competitiveness, the emergence of new competitors, like China, for traditional European industries, and the progressive ageing of European societies. Even more expansionary monetary policy could only have postponed the emergence of the symptoms, it could NOT have prevented the illness.
What the existence of the euro has done is impose discipline and mutual solidarity on Europe.
Without the euro, countries would have pursued the route of devaluation and inflation in response to their problems. Savings would have been wiped out.  This is not possible now, and that is good. Instead problems are now being tackled at their source.
Without the euro, wealthier and stronger European countries would not have come, so quickly, to the aid of other European countries in difficulty. They have now done so on a systematic basis, and that too is good.

The EU is moving toward a common system for winding up banks that need to be wound up, without putting the overall system at risk. It is moving toward a common system of deposit insurance. 

Much better systems are now being put in place in the European Union, to ensure that, in future, public finances, and underlying competitiveness, do not get out of line again.  Out of the crisis, we are now facing up to problems we had ignored for the past 20 years in Europe.
The euro will survive. Not only that, I believe it will eventually be imitated in other parts of the world. 

To sum up, the euro
+   is a protection against the expropriation of savings, through inflation and devaluation.+   is a factor for economic stability in the world, and+   is a major political step forward for unity Europe


8 out of 10 businesses in Ireland are now optimistic about their growth prospects in the next two years according to a survey conducted in the past year by Amarach Consulting. The Survey involved interviews with 200 decision makers in businesses, large and small, native and foreign owned.

Two thirds expect to expand in Ireland in the coming years and half intend expanding abroad.
This is really important because I understand that 95% of all new jobs in Europe are created by owner managed businesses.
A majority intend hiring new staff in the next 2 years, with a strong emphasis on IT and digital skills. Already we hear of vacancies for staff with IT skills notwithstanding the high level of unemployment. 
Irish owned businesses are more optimistic than foreign owned ones

The survey showed that 6 out of 10 of the companies enable their staff to work from home during part of the working week. 77% of businesses supply laptops for work outside the office, and 79% supply smart phones for the same purpose.

Those businesses, which allow some working from home, tend to be more optimistic about their future, and more likely to be contemplating hiring more staff, than ones who do not provide for work from home at all.


To my surprise, the survey suggests that only 53% have a business website. This may explain why Irish based businesses sell much less abroad over the internet, than Irish consumers buy over the internet from foreign websites.
Historically, Ireland, despite its high tech record in other fields, is coming from behind in terms of development of an economy based of use of the internet.
The Boston Consulting Group measured what it called “e intensity” by comparison with GDP per head in 2010 in a number of economies.  “E intensity” measured the reach of the internet infrastructure, amounts spent via internet and the degree to which business , consumers and government are involved with the internet.
With a  higher GDP per head in 2010, Ireland has  50% less” e intensity” than the UK, and almost 100 less than Korea, which had then a GDP per head that was half Irelands. 

Ireland lagged behind Denmark, Sweden ,Netherlands and Finland ,all of which had roughly the same level of GDP per head as Ireland in 2010. Ireland   was at the same level of “e intensity” as Spain and Slovenia, which had considerably lower GDP per head in 2010.

Incidentally the OECD also identifies weaknesses or excess costs in Ireland’s hospital system, drug prescribing practices, legal and court systems, conveyancing, physical planning, as well as job search systems for the unemployed. Expenditure per pupil in primary and secondary education is very high here, by OECD standards, but is not matched by commensurately good results in international comparative tests of proficiency in maths, science and languages.

Rather than obsessing about one year’s budget numbers, we should devise structural reforms in these areas, which could, if undertaken now, be yielding  revenues enhancements, and expenditure savings, every year for the next thirty years or more.


It is also important to reflect on the mistakes of the recent past. 
Writing in the Washington Post yesterday, Robert Samuelson said of his own country:
“ We were victims of success. The crisis originated from 25 years of prosperity, from roughly the end of 1982 to the end of 2007. This conditioned people — bankers, regulators, economists, almost everyone — to take stable growth for granted. The longer the prosperity continued, the more it inspired the risky behaviours that ultimately wrecked the economy.”
To a great extent, that was true of Ireland as well.
In a way, it is easy to see why people in Ireland made the mistake of thinking, in the 2000 to 2006 period, that house prices in Ireland (and household wealth) would never stop rising. Recent history seemed to suggest that the only way house prices could go was up.

House prices had, after all, already risen by 133% between 1994 and 2000. These increases were justified by rapid economic growth, immigration, and new family formation, all of which created a genuine demand for housing.

The trouble is that the increase in house prices continued after 2000, and was financed, not by improved competitiveness, but by excessive lending, and by income generated from, inherently temporary, construction spending. 

The assumption of the bankers, who were lending this money, seemed to be that demand for housing could go on growing, to infinity.

A moment’s thought would have shown how nonsensical that was.  But, in the middle of a boom, people are often too busy, to take a moment to think
The revenue of the Government became unhealthily dependent on taxes derived from property sales such as stamp duty, capital gains tax, and VAT on house sales. Property related revenues reached 18% of all revenues in 2006, whereas they had only  been 8% in 2002.  But once house sales stopped or slowed down, of course, that revenue growth stopped, leaving a huge hole in the Government’s budget.

Again, a moment’s thought would have shown how dangerous it was, to build up permanent spending programmes, on the back of inherently temporary streams of revenue.

But very few people, in politics or outside it, took a moment to think. 
The relevant question to ask about Ireland’s recent experience is
 “How can sensible, and generally public spirited, people make mistakes like this, and how can such mistakes be avoided?”
Robert Samuelson also addresses the question of blame.
He says:
“ The accumulating evidence suggests that false ideas, not evil people, were the main culprits.”
He even cites economic research which suggests that those who were lending recklessly in their professional capacities, were making the exact same mistakes in their personal capacities. They believed their own propaganda, unfortunately.


I would identify two tendencies of policy making in both the public and private sector,that were at the heart of the problem in Ireland 
1.  “Silo tendencies” within institutions, charged with mitigating risks,  where people only thought about their own immediate responsibilities, and did not question wider assumptions.
2. A “consensus approach”, which encouraged a single view to be taken of any issue. Human beings are followers of fashion. We need institutions that deliberately challenge fashionable assumptions, and those institutions did not work, in Ireland, or in the wider European Union.
These errors can occur in ANY country, under ANY political system.

They are not unique to Ireland, Spain, Arizona, California, Florida, or any of the other parts of the world where property bubbles arose. The same mistakes could also be made in China, in the Greater London area, or any other parts of the world where house prices are rising  disproportionately fast.


Simplifying regulations, while increasing penalties for misbehaviour, must be part of any serious effort to make the European economy more competitive. 

Global Regulations in the financial sector may become so complex and costly, that only very big institutions will be able to afford to comply with them.

If that happens, we will be solving one problem, lax regulation, by making another problem, the ”too big to fail” problem, worse
The response to the financial crisis has been ever more complex rules ,that only a tiny number of professional advisors could ever hope to remember, or understand.
In the United States, the Glass Steagall Act, introduced to regulate banking after the Depression of the  1930’s ran to  37 pages .In contrast,  the Dodd Frank Act, introduced in the wake of the recent crisis, runs to  848 pages of basic text, plus 30000 pages of implementing rules.
In the UK, the 1979 banking act ran to 75 pages. The 2012 Financial Services act runs to 534pages.
Businesses themselves lobby for “certainty” in legislation, which often involves more and more complex exceptions and qualifications.  
The ingenuity of lawyers in devising complex ways of getting around rules also drives rule makers to introduce new complexities to close loopholes.

Some of these new laws are so long that parts of them are never properly debated, or even understood, in parliaments.
Complex rules are a sort of regressive tax.

They give an artificial advantage to those who can hire
 “ the most sophisticated risk modeller, the slickest tax accountant”
 as Andrew Haldane, of the Bank of England, pointed out in a speech earlier this year.
 He added 
 “There is also an inbuilt professional inertia among regulators, lawyers and tax accountants with large amounts of human capital invested in complexity”

These complex rules carry economic costs and divert talent, time, and money away from productive activity, to activity that adds nothing to the competitiveness of our economies in international markets.

In a recent study on banking in the world, McKinsey estimated that, if all the regulations currently in the pipeline were now in force, it would reduce the return on equity on European banks from 10% to 6%. This is a non trivial issue for the Irish taxpayer, who has, albeit reluctantly, acquired a disproportionately large equity holding in banks, and needs a return on that equity to meet basic services .  
On the other hand, the increased compliance cost may force financial institutions to look for the most cost effective locations in which to undertake this high cost activity, and this may be an opportunity for Ireland.
Simplifying regulations, while increasing penalties for misbehaviour, must be part of any serious effort to make the European economy more competitive. 


I have been speaking to many people in the industry, and in public administration, in recent days, to discern where they see the opportunities for Ireland  at this juncture.
Firstly we must acknowledge we are working in a really very competitive market place
As McKinsey pointed out lately, for the past thirty years, regulated banking grew faster than the underlying economy. That trend has now ceased, and the sector is contracting almost everywhere in the world, except in parts of Asia. 
This contraction is thus not a problem unique to Ireland, or to the IFSC. Indeed it is truly remarkable that IFSC has maintained its employment and activity levels, against a much changed global background. 
On the fifth anniversary of the fall of Lehmann Brothers, aggregate employment and Foreign Direct Investment (FDI) in the sector are back up to pre crisis levels, and are growing.

The Centre, and the companies operating there, have achieved much and continue to make a significant contribution to their parent companies and to national economic recovery.
IFSC operations are highly productive and efficient. We have a large pool of available talent, and the downsizing of some institutions creates recruitment opportunities for new entrants and for existing institutions here who can expand. We have excellent intellectual capital in our universities and institutes of learning.
The recent decision, contained in the recent Central Bank Act, to allow non EU banks to open branches here is a major opportunity. Some banks, now operating in the UK in high cost locations, may be able to relocate activities, on a branch basis , in Ireland.

The ongoing Review of the workings of the Clearing House Group will help  ensure that  the Institutional arrangements for the future development of the sector are appropriate and effective;

Ireland remains a key jurisdiction for
+ the servicing, distribution, listing and promotion of  international investment funds,+ transaction Banking,+ payments,+ cross border life insurance,+ aircraft leasing and financing,+ financial technology and operations support.+investment management

We must continue to grow and develop the existing base of investment here while focussing on emerging areas of opportunity. These new areas of opportunity include, potentially, 
+clearing and settlement,+ collateral and risk management,+ green and Islamic Finance  and+ Compliance.
Compliance is an increasingly costly activity for banks. Those involved in it are well paid. As I mentioned earlier, complex regulation is an inherently expensive business. Bu for Ireland it can be an opportunity. Just as Ireland has become a centre of excellence in the fields of aircraft leasing and fund administration in the past, we should seek to become a centre of excellence in compliance, and risk management in the future. The IDA and our universities are already putting funds behind R and D in finance and this is a basis to build on.

There are big opportunities here, and this conference will help us seize them. We must ask ourselves what the world’s financial needs will be in 2020, and how Ireland can meet these more effectively than any other jurisdiction, and thereby grow our market share. Change will be constant.  We must combine bravery with imagination, and work together.

Sunday, 15 September 2013


I really enjoyed reading Charles Glass’ book “American in Paris, Life and death under Nazi Occupation 1940-1944”(published by Harper Press). 
This is a story about a small group of unusual people, who found themselves in profoundly unusual circumstances. Yet it offers real insights into ordinary human nature, into how some people will optimistically collaborate with power, while others will resolutely resist, and how it is not always easy to predict in advance who will take which course. 
When France was first over run by the Germans in June 1940, the United States was still a neutral country and many Americans, who had put down roots in France ,felt under no particular pressure to leave. Some were married into French families and other had business interests in Paris. In fact, American citizens initially enjoyed a relatively privileged existence. The German authorities wanted the US to stay out of the war, and treating Americans in France well made sense for them.

In contrast, British, Canadians and other whose countries were at war with Germany since September 1939 were under severe restrictions and many were interned in camps at Compiegne and Vittel.

That changed when America entered the war against Germany in December 1941, but, even then, the French Government at Vichy, which had signed an armistice with the Germans in June 1940 and  administered some of the country, was not at war with the US, and the US continued to have an Embassy at Vichy 
Some American citizens had fairly close links with the Government at Vichy. One American citizen, Rene de Chambrun, was married to the daughter of Pierre Laval, the Vichy Prime Minister.

Another, Charles Bedaux, provided premises for the American Embassy after the French Government had fled Paris, but also enjoyed close business and social links with figures in the Vichy regime and had business contacts with the Germans. Others, like Dr Sumner Jackson of the American hospital in Paris, took the Allied side even before the US entered the war, and helped the French Resistance in many ways under occupation. Yet others, like the bookseller Sylvia Beach, first publisher of some of James Joyce’s work, kept their heads down and tried to survive.
This book brings out the many difficulties of ordinary life under occupation....the endless compromises, the lies, the black market, rationing, and the scramble for food.

City dwellers in France, in 1943/4, were almost starving.  The food needs of German forces got priority.

My own aunt, Hilda Delany, was a young nun in occupied France during the war, and it is widely believed in our family that she never recovered from her privations, and that this accounted for her death at an early age in the 1950’s.

Saturday, 7 September 2013


An alarming article appeared on 4 September in Irish Examiner newspaper, based on an admission apparently made on television by the current editor of the Sunday Independent newspaper.

The Sunday Independent is a paper that goes beyond reporting the news. It seeks to be part of the political battle.
It takes sides. It seeks to build up, or destroy, political figures. Fair enough, perhaps.

On what basis does it do this?
Genuine conviction?
A sense of the public interest?

It now seems, if the article quoted below is to be believed, that it allowed its views on a big national issue in 2007 to be shaped, not by the public interest, but by a deal with  a politician, in return for promises of leaks or scoops.

That is how, it seems, it decided on its stance in 2007 on the issue of the suitability of a particular individual to be head of government. It did so on the basis of its own narrow, private, commercial journalistic interests, not the public interest.
That cannot be right. Yet the paper’s editor still says proudly “That’s what journalism is about”.
Think about it.

In the newspaper business, scoops and leaks generate circulation for the newspaper that gets them. And circulation generates money, a private benefit for the newspaper concerned.

What would one say if a politician applied the same criterion, of private financial benefit, in deciding what line he or she would take on a matter of public policy?!!
Incidentally, a leaker may often have a selfish motive too, that have nothing to do with the public interest, which are rarely probed by anybody.
Below I set out extensive extracts from the article, by Michael Clifford. Readers can judge it for themselves.

The article runs as follows

“ON THE TV3 documentary Print And Be Damned, Anne Harris, the Sunday Independent editor, gave her account of the relationship the paper forged with Bertie Ahern prior to the 2007

According to Harris, Ahern met the newspaper’s then editor, the late Aengus Fanning, at a function in the Shelbourne Hotel in April of that year. At the time, the Mahon Tribunal was investigating Ahern’s finances. A file on Ahern’s finances, originating in the tribunal, but dispersed to various parties, had come into the possession of the newspaper. It was reputedly explosive stuff, although lawyers cautioned against publication.

Harris told TV3 that at the Shelbourne, Fanning put it to Ahern that the paper had a “massive file” on him. Fanning then asked Ahern for some stories, particularly the date of the forthcoming general election.

“He said he would think about it and he went away and the weeks passed,” Harris said.

Then, one Saturday, Ahern phoned the paper, saying he was calling the election and “I won’t be going to the [Phoenix] Park until after you’re off the press with the first edition”. He gave the story to the paper, at a time when even some of his cabinet colleagues didn’t know he was going to call the election.

“That’s what journalism is about,” Harris said. “You work your way around to get people to tell you things. And thereafter he [Ahern] gave many stories exclusively to the Sunday Independent

The revelation has passed with little comment. Yet it throws a completely different light on Ahern’s final year in power; how he won the election; how he managed to stay in office for six months after the truth about his finances began to come out; and, arguably, the slow reaction of his successor in getting to grips with a collapsing economy.

Politicians and newspapers have often found a confluence of interests. But is this the first time that a leading national newspaper acquiesced to ignoring serious questions about a prime minister’s alleged financial impropriety for a series of front-page exclusives? The Sindo had been highly critical of Ahern in the early months of 2007.

Consistently, headlines such ‘Bertie sinks as house market goes under’ (March 4) ‘Fianna Fáil resort to auction politics to woo voters’ (March 25); ‘Ahern denies airtrip with a case of cash’ (April 15, in relation to a tribunal story which had been out some months) cast Ahern in particular, and his government generally, in a bad light. Then, a few weeks before the election, all changed, changed utterly. Ireland’s biggest-selling newspaper found itself backing the outgoing taoiseach to the hilt.

The volte face had long been ascribed to a meeting between the paper’s then main shareholder, Tony O’Reilly, and Ahern and his minister for finance, Brian Cowen.

The three men met in O’Reilly’s Fitzwilliam Square pad in early April. Thereafter, the Sindo’s coverage turned totally in Ahern’s favour.

Received wisdom had it that the two politicians appealed to O’Reilly to intervene with the Sindo in particular, to call off the dogs, and perhaps convinced him that his own interests would be better served by the re-election of an FF-led administration.

The hatching of any agreement was denied by all involved. In any event, favourable coverage only ensued in the Sunday paper. The dailies in the group continued as before.

One way or the other, the Sindo’s coverage arguably had a major role in getting Ahern re-elected. On the Friday prior to polling day, the paper’s leading light, Eoghan Harris, made a passionate case for Ahern on the Late Late Show. The performance has been credited in most quarters as pulling in voters for Ahern. Would Harris’s defence of Ahern have been as well received if everybody knew of Ahern’s deal with the Sindo? Two months after the election, Ahern appointed Harris as a nominee to the Seanad.

Crucially, favourable coverage of Ahern continued in the following months, as he began to give evidence about his finances to the Mahon Tribunal. While most of the media cast a sceptical eye over tall tales of dig-outs and horses, the Sindo continually attacked the tribunal, and anybody it perceived as dissing their man. (There was some balance in the papers, through columnists such as Gene Kerrigan and the late Alan Ruddock, but the front page was consistently pro-Ahern).

The boost to Ahern’s PR battle against the tribunal evidence may well have prolonged his tenure. Favourable coverage — aided by cabinet ministers such as Willie O’Dea — managed to project his travails as a “he said, she said” battle of two sides, rather than the unravelling of Ahern’s threadbare narrative on where he got his money.

EVENTUALLY, Ahern resigned in the wake of the evidence of his former secretary, Gráinne Carruth. That was in April 2008, just as the economy was beginning to hit the skids.

We now know that Ahern’s tribunal woes distracted the cabinet — and the media — from the gathering economic storm. His successor, Cowen, and his minister for finance, Brian Lenihan, didn’t begin to get to grips with the crisis until the back end of the summer of ’08.
What is astounding is not that a leading newspaper would have played such a role, but the basis on which it did so.

It was a straightforward deal between the paper and a taoiseach who had some serious questions to answer about his personal finances. The paper would steer clear of publishing damning information about the money in return for frontpage exclusives which would pump up sales.

Then, after the election, the relationship continued, arguably undermining the Mahon Tribunal, which was an instrument of the Oireachtas. Viewed through the prism of the media’s ostensible role in a democracy, the revelations are astounding”


If a politician allowed himself or herself to be influenced, in his public positions, in the way this newspaper apparently admits to have been influenced itself, in 2007, he would be called corrupt.....by the Sunday Independent !