Wednesday, 28 May 2014



The financial service industry would not exist if its sole purpose was to provide jobs for those employed in it, and consequential revenue to the state. Like any other institution, like even money itself, the financial service industry exists because it is socially useful. 

Before jobs or taxes, the industry exists to serve society, and to meet real needs of real people.

Of course, some participants in the industry have done things that were not consistent with social benefit. Sometimes they have spoken about their business to the rest of society , in such impenetrable  jargon, and even with such condescension, that the social goals and benefits of financial services  been completely obscured from  public view.

As President of IFSC Ireland, my job is to promote Ireland as a location for new financial service activities. I put the emphasis on the word “service”.  The industry exists here to provide a service to the rest of the world. If it fails to provide a good service, the business will go elsewhere.

My argument is that Ireland can and does provide these services to global customers better than is done anywhere else in the world. We have had some success in this.


In 2009, 29,704 people were employed in the Irish international financial services. By 2012, according to Department of Finance figures, the number of jobs had risen to 35,698.

And the taxes paid by the industry have risen commensurately. We have estimated that the tax contribution of the International Financial services industry to the Irish Exchequer is 2.1 billion euros.  2.1 billion euros is equivalent to two thirds of the entire voted capital budget of the state, or to 10% of the entire Social Protection budget, and is the same amount as the entire correction that has to be  made in 2015 budget according to the programme agreed with  the EU/IMF. 

Sometimes it is helpful is seeing the value of something by posing the counterfactual, where would we be if we had no international financial services industry? We would have almost 36000 fewer jobs and  would have to make a 4 billion euro budget correction next year, rather than a 2 billion euro one.

That’s important to say.

But it is only possible to say it because our financial services industry provides a service that shrewd professional all around the world are prepared to pay good money to have done in Ireland. And they are only prepared to do that because this industry provides a good service, a social benefit, to their clients .


The basic social goal of the Irish financial services industry, is to help people to all over the world make financial provision, in the most efficient way, to mitigate the risks of life.

Risks are always there.  Mitigating risks, managing risks, and choosing between risks. 

These  are the tasks that have to be undertaken.

In some countries, people mandated the state to cover these risks for them. But as society ages, many states will have  less and less    fiscal capacity to cover all the risks they were able to cover when to working age population was bigger, and the elderly population smaller.  Families all over the world will find themselves having to do more of the risk management for themselves. That  is where  the skills deployed by the professionals in Irish international financial services industry will come into play.

The Irish international Funds industry, for example, invests savings generated by pension contributions, and does so in such a fashion as to ensure that, when people can no longer work for a living, they will have a pension. 

That requires spreading money around different types of investment, so that risks of one type of investment are hedged by other investments.


Unlike what happens when people put money into a share in particular company, or putting it all on deposit in just one bank, putting money into a fund, which invests in different activities, makes sure people do not have all their pension eggs in one basket, so to speak. 

Different funds, and different investment strategies, will be tailored to different purposes. 

An insurance company must ensure it always has money available to pay big claims if there is bad weather or some other such one off unexpected episode. It needs to be in a position to find a lump of money quickly.

In contrast, an investment for a pension fund will aim at having a steady flow of income.

An investment to cover the cost of education will require a different strategy to one to cover end of life nursing care.

The skill of the financial service professional lies in understanding the needs of the client, and tailoring the mix of investments to get the right return, over the right time frame and with the right mix of risk and reward.

The Irish industry can provide those skills. 

It can also look after the administration of the funds, enabling the asset managers to focus on what they do best. 


Another social need met by the financial service industry is that of assembling finance for the  building and renewing the world’s infrastructure of roads, airports, rail links, electricity generation and distribution systems. Here the investor expects no return in the short run, but big and steady returns  ones in the long run. This sort of investment is ideal for pension funds.

The contraction of the European banking system, because of past mistaken lending in the property sector, has  created  opportunities for  other types of finance to  enter the market and fill the gap in the provision of credit for business and house purchase.

 Some of the capital of pension funds and insurance companies can, if supported by innovative intermediaries, be used to meet the social need for finance for family home and business working capital. Irish innovation can play a role here in meeting both local and global needs and in filling gap in the market left by the necessary contraction of traditional banks.


Another social goal the Irish financial services industry should aim to fulfil is that of extending the convenience of a banking service to people who still have to rely disproportionately on cash. 

A Technology centre in the Digital Hub in Dublin has been established to link innovators in the Irish software industry, where we are world leader, with the international financial sector, where we are also a world leader. The aim is to use the most sophisticated information technology to extend banking services to a wider public, as well as complying with necessarily complex rules introduced since the financial crisis.

The application of technology can also help identify gaps in the market, by using the skills n data analytics that exist in this country.


Another area to which we must apply our talents is that of ensuring that the financial and banking crisis, from which we are slowly emerging, never happens again.

Asset bubbles and financial crashes have been part of human history since the invention of money. To mitigate bubbles and crashes, we must  truly understand why and how they happen. 

As the Nobel Prize winning economist, Robert Shiller said in his recent book “Finance and the Good Society”

“As much as Wall Street had a hand in the crisis, it began as a broadly held belief that housing prices could not fall—a belief that fuelled a full blown social contagion”

He was speaking of the United States but he could have been talking about Ireland . In other words, he was asking why people came to believe something that was fundamentally unbelievable, namely that house prices could only go upwards and not downwards.

He went on

“Learning how to spot bubbles and deal with them before they infect entire economies will be a major challenge for the next generation of finance scholars”

He could have added a major challenge for “finance practitioners and politicians”. 
Ireland needs to apply its best brains to this, to preventing this infection happening again, to understanding the psychology of our recent bubble. Only thus can we prevent a future one. 

The task is not so much about apportioning blame. That’s the easy bit.  It is about understanding why people came to believe, what they believed during the bubble. Unfortunately perhaps, no country is better positioned to provide that understanding of recent history than Ireland is. Doing so would be conferring a social benefit on the world.

These are some of the social benefits the Irish financial services industry provides to the rest of the world. Apart from jobs and taxes, what other benefits does it confer on Ireland itself?


It internationalises our country, bringing young people from all over the world to work here, and creating new opportunities for spin off businesses.

It regionalises our country, bringing high quality jobs the places like Limerick, Carrick on Shannon, Navan and Naas, relieving congestion in the capital.


The above is based on remarks made at a business breakfast of the Dublin Chamber of Commerce  on  27 May 2014 by John Bruton, President of IFSC Ireland

Sunday, 25 May 2014


I was in the Far East recently doing some work in Singapore on behalf of IFSC Ireland.

It is a part of the world, like Europe, where a sudden bad political development could easily over turn good economic potential. 

The approach China is taking to oil exploration in the South China Sea, claiming the whole of the sea for itself, is deeply troubling to its neighbours. We see this in the riots in Vietnam in the past few days. There is, unfortunately, no agreement to jointly exploit the resources under the South China Sea, and that is a continuing source of tension, and is leading to an expensive arms race. 

Internal economic problems can often lead to external aggressiveness, as a means of distraction, as we have seen in  the case of Russia.

Many of the players in Asia, notably China, Japan and South Korea, despite their rapid recent growth, have internal problems arising from rising income expectations, indebtedness, and ageing.

Wage inflation in China is running at 18%, which will have a long term effect on its competitiveness. Its banking system has many non performing loans.

Japanese corporations are heavily in debt. The Japanese Government has a debt/GDP ratio of over 200%. Japan is one of the most elderly societies in the world, but is reluctant to allow immigration.

A rise in international interest rate would aggravate all these vulnerabilities. Such a rise will eventually happen.

Meanwhile North Korea, with its nuclear arsenal, remains an existential threat to all in the region. 

Conflict in East Asia could have disastrous implications for the world economy, because it would disrupt the complex, interdependent, and fragile multinational supply chains on which global manufacturing is now based.

Meanwhile, China and the United States are pursuing competing agendas. Each would like to incorporate East Asian countries into rival economic blocs.

The US sponsored proposed Trans Pacific Partnership does not include China, but China is offering an alternative, less demanding, trade deal to its Asian neighbours. The choice is important.

If Senate Democrats continue to deny President Obama the authority to negotiate trade deals, on which the Senate agrees to vote on as a single package rather than pick apart, there has to be a possibility than the Chinese approach will win out.

This would bring about a significant shift in the global balance of power.

Thursday, 15 May 2014


Statement by John Bruton, former Taoiseach

I was very sad to learn of the death of Jean Luc Dehaene today.

He is a great loss to Europe, and to Belgium.

We served together on the European Council in the 1990s , during the time when we were each heads of the governments of our respective countries.

During that time I found him to be a practical, direct and unpretentious leader of his country who was committed to his country and to making the European Union works well for every country.

We gain served together again, in 2002 to 2003, as members of the Praesidium of the Convention on the Future of Europe, which drew up what became the Lisbon Treaty.

As vice President of the Convention, he was able to command the respect and cooperation of all of its very diverse membership.

He had the task of drawing up the Treaty articles governing European Foreign Policy. He could be described as the father of the European Union’s External Action Service.

As someone born in 1940 in enforced exile during the Second World War, he understood the importance of the European Union to peace and security of the world.

Sunday, 11 May 2014


I bought “The Last Kaiser, the life of Wilhelm II” by Giles MacDonogh in the second Storey bookshop in Washington on a recent visit there.

In the aftermath of the First World War there was a big agitation in Britain and other Allied countries to have the Kaiser hanged because of his, and Germany’s, guilt  in starting that  War.

The Versailles Treat of 1919 attributed all the responsibility for the War to the German and Austro Hungarian Empires (who incidentally were  “gallant allies” of the leaders of the 1916 rebellion in Dublin, according to the Proclamation issued by its leaders).

It is lazy to take a relativist view and say that all participant nations were more or less equally to blame for the war, and equally lazy  to argue that an anonymous militarist “system” was to blame.

Those approaches deny all personal responsibility, and are of little help in finding ways to avoid future wars.
The Kaiser certainly made many warlike statements in the pre war years, and for these he must be held responsible. They conditioned and incited public opinion in dangerous ways

But McDonogh concludes that “the German Emperor was capable of saying one thing at one moment, and the reverse the next. When speaking at least, he always fired before he took aim “.

Unfortunately his words may have encouraged others to set a course towards war, which he did not intend, but was too weak or too late to reverse.

A contemporary said he was a man of ”brilliant but unstable intellect”  who found himself by birth destined for an occupation for which he was temperamentally ill suited.

Believing in the monarchical principle, he overestimated his personal capacity to control events. In practice he was willing to compromise, but this was made more difficult for him both by his own past statements, and by the machinations of some of the people around him.
This book describes his unhappy childhood, as the eldest son of Queen Victoria’s daughter and of the German Crown Prince.

His mother, who favoured an Anglo German Alliance, was distant towards him and he reacted against this by initially favouring German Naval rivalry with Britain.

At other times he tried to enhance Germany’s security, by supplementing Germany’s well established  alliance with Austro Hungary, with alliances with both Britain and Russia.

He hoped his close blood relationship with the British King and the Tsar would overcome the divergences of the strategic interests. These efforts came to nothing, because Britain was tied to France, and Russia was an intense rival of Austro Hungary.

The book gives a very interesting account of his abdication in November 1918, his  grant of asylum  by the Dutch Queen , and his life in retirement in the Netherlands up to his death in 1941(when the Netherlands had come under Nazi occupation) . 

Thursday, 1 May 2014


Many in Europe assume that the only really important election in the United States is the Presidential election.  But a President, who cannot get his/her legislative programme enacted by both Houses of Congress, can achieve little.

In fact the relative positioning of the candidates in the Presidential race is influenced by problems in Congress.  Hillary Clinton is away ahead of other potential rivals for the Democratic nomination, if she decides to run. Indeed the polls are so decisive she would find it very hard not to do so. But there is a strong possibility that, if elected, she will face a Congress where one of the Houses is controlled by the Republicans

On the Republican side, Rand Paul and Mike Huckabee show up best in polls in a widely dispersed field. But close observers suggest that Jeb Bush has the best chance of coming through as eventual Republican nominee, because he has a position on immigration that would allow him to win back Hispanic votes.  These are votes that his brother got when he was elected. This is important because the  Hispanic support that George W Bush won  has since been lost to the party because Republicans, who have a majority in the House of Representatives,   refuse to vote on an Immigration Reform Bill that has already passed in the Senate. 

The Republican Speaker of the House, John Boehner, will not schedule a vote because, although the Bill has an overall majority in the House, it lacks a majority within the Republican majority itself. This “majority of the majority” requirement, which has been the approach of Republicans since won a House majority, makes it very difficult to pass any bipartisan legislation. 

Many Republicans in the House were elected on a platform of “no compromise”, and are fearful of being undermined by Tea Party candidates in their party primaries.   

This means that they are also refusing to vote for any tax changes to reduce the deficit. The only tax changes they will support are pure tax cuts.

Likewise Congress has prevented President Obama getting the authority to negotiate a trade deal that would be voted on in Congress as a single package(so called “Fast Track “ authority, without which any meaningful trade negotiation is almost impossible.

Congress is also blocking an agreement on a reweighting of quotas between countries  in the IMF to reflect new global realities. They are refusing to recognise the new weight in the world of countries like China.

This deadlock is frustration for everybody, including the international partners of the United States.  The underlying problem  is in the way in which districts are drawn for House of Representatives elections. 

The districts are not decided at national level, but are drawn up by the State legislatures. In most states the legislatures design Congressional districts to create totally safe seats for one party or the other, and ensure that sitting members are not thrown together in the same one seat district.

This means that Districts often have highly contorted boundaries, and  that the really important contest in House elections is in primaries within parties, rather than in general elections. 

So House members spend their time fundraising to fend off opponents from within their own party who advocate a more fundamentalist view point. There is no electoral incentive to seek middle ground support. That then affects the way members of Congress approach votes in House itself.

There are two ways to resolve this dilemma

One would be to hand over the drawing of the boundaries of Congressional districts to an independent commission in each state, which would draw the lines on the basis of geographical convenience, without trying to create safe seats for particular parties. This is done in seven states.

The other is to have “Open Primaries”, where voters, of all parties and none, would take part in selecting the two top candidates who would contest with one another in the General election. The top two candidates would then run against one another in the general election, even if both happened to come from the same party.

Both of these solutions would  mean that candidates for the House  would  have an incentive to look for middle ground support, rather 

Such solutions could only be brought about on a state by state basis. They could not be imposed  on  a uniform basis in all states, because that would interfere with “states rights”, which are a strong tradition in US politics for the last 200 years.

It is often said that the European Union needs a Constitutional Convention to revise its constituting Treaties. The same could be said of the United States of America.