Five years on, Ireland’s banking inquiry with no teeth

Taoiseach Enda Kenny. Source: Google Images

We are just a few days away from the fifth anniversary of probably the most important event in Irish history since we won our independence.

You don’t remember what it is?  That’s not surprising because it’s something we’d all like to forget.
But this is something that won’t go away, a disastrous decision that is still dragging us down five years after it was made.  It’s one that has had catastrophic repercussions for the country, repercussions that continue today, five years later, and will continue to be felt for at least the next decade.

Yes, of course I’m talking about the blanket guarantee given by the last government here to all the Irish banks at the end of September 2008.

This guarantee covered all the loans, deposits, bonds and other liabilities of all the Irish banks.  It guaranteed that if the banks could not pay back everything they owed, the Irish state would step in and do it for them.

The reason this was necessary was because in the wake of the collapse of Lehman Brothers bank in the U.S. a couple of weeks earlier, a major flight of capital out of the Irish banks which was already in progress accelerated dramatically.   By the end of September 2008, at least two of the Irish banks were facing immediate collapse and the others were under severe pressure.

So the Irish government stepped in and guaranteed the Irish banks.   It was a bold, comprehensive move, deliberately designed to put an end to growing international concerns about the safety of leaving money in Irish banks.

Unfortunately, at the time no one in Ireland was aware of the huge scale of the liabilities of the Irish banks, and no one knew just how far the Irish property market — on which most of the lending of the Irish banks depended -- would fall.

What happened, you will remember, was that within two years the state bank guarantee had bankrupted Ireland.   We had got to the stage where the international money markets simply would not lend us any more.  The bank debts were so huge that the markets knew they were dragging the Irish state down.

A huge budget deficit had also opened up because the revenue from the property boom was gone.

In a word, we were bust.

Faced with the prospect of state collapse, the government had to sign up for an €85 billion bailout from the EU-IMF and enter a four year program of economic austerity, monitored every three months by an EU/IMF team sent to Dublin.  The program was aimed at putting our national finances back in balance again.

Less than a century after we had won our independence, we had lost our economic sovereignty.  We had been shamed before the world, exposed as being unable to run our own affairs.

The anger among ordinary Irish people about all this has been immense.  They threw out the previous government  which had presided over the boom and bust.  The rout of Fianna Fail, once the giant of Irish politics, was so severe that the party may never recover from it.

Apart from the humiliation, the Irish people have been faced with higher taxes and cutbacks in state services as the austerity squeeze has tightened over the past few years.  Each budget since the collapse has added to the misery, and the next one is now just weeks away.

There has been great pressure here for answers.   How did the banks get themselves into such a mess? How did the Central Bank and the regulators allow it to  happen?

Why did our politicians and top civil servants not realize that the boom was out of control and that at some stage the bubble would burst?  Why is the ordinary Irish taxpayer left carrying the can for all the debts piled up by banks, developers and speculators?  How come no one has been jailed for what happened?

The present government initially promised to renegotiate our bailout deal with the EU-IMF, and also promised to make those responsible for our economic collapse accountable for what they did.

The bailout renegotiations have been only partly successful, with the result that the Irish taxpayer is still carrying the enormous burden of our bank debt.  The promise to expose those responsible for our economic collapse has not been successful either.

A lot of the bankers, regulators and politicians involved are gone, mostly on fat pensions. Although criminal cases are underway against one or two bankers, no one has gone to jail so far.

And despite all the public anger, there has been no pubic inquiry into the disaster.

Last week Taoiseach (Prime Minister)  Enda Kenny finally announced in the Dail (Parliament) that an official inquiry is to be held under new legislation called the Oireachtas Inquiries, Privileges and Proced- ures Act 2013.

Which Dail committee is to hold the inquiry has still not been decided.  But it hardly matters because committees of the Dail have little or no power, even with this new legislation.

Unlike in the U.S., our parliamentary committees are toothless wonders.  Because of a Supreme Court decision here a few years back, they are unable to make adverse findings against any individual who is not a member of the Irish parliament.

They can’t force people to give evidence, or even to turn up for hearings.  They can apply moral pressure on people to appear, but that’s hardly likely to weigh heavily with our bankers, as we have learned.

There is also a further complication.  The rogue bank which was the  main driver of the property bubble here, Anglo Irish Bank, cannot be part of the inquiry for some time because of a current court action against its former boss which could drag on for a year or more.   Holding committee hearings into what went on in Anglo might prejudice his trial so that is out.

This means we would have the farcical situation that a public inquiry into the banking crash here would not include the bank that instigated the crazy lending spree which was our downfall.   The Anglo collapse alone is responsible for debts that are close to half of the bailout.

It’s also possible that executives from other banks may refuse to be questioned by members of the Irish parliament, almost all of whom have made scathing comments about the banks in the Dail over the past few years.

The bankers, when it suited them, would be able to claim that the politicians are not objective and therefore are unsuitable to carry out an Inquiry.
And don’t you just know that there are posses of expensive lawyers just waiting to defend their banking clients and bury the work of an inquiry with a succession of court actions.

Of course there is the added worry that very few, if any, or our parliamentarians have the qualifications or experience needed to explore the complexities of the banking collapse.

We have already had two or three expert reports into what happened here over the past few years, but none of these has provided the public with an adequate explanation of what went wrong, why, and above all, who was to blame?

That can only come from a public inquiry with real teeth.  And that is something we are not getting.

Kenny was putting a brave face on it in the Dail last week.  He said he wants the inquiry up and running as soon as possible and he wants it to cover three areas — the bank guarantee and the events leading up to it; the role of the banks and their auditors; and the role of state institutions.

“The objective should be to determine, without fear or favor, and with dispassion and integrity, all of the facts that led to the collapse of the banking sector,” Kenny said.

Don’t hold your breath.

Junior doctor’s strike shows Irish health service needs a cure

Junior doctors counting ballots prior to approving industrial action in Irish hospitals next week.

Next week many of the thousands of junior doctors who actually do most of the work in Irish hospitals are due to go on strike.  And the interesting thing is that, unlike most strikes, this potentially disastrous threatened strike is not about money. It's about grossly excessive working hours.

For years the junior hospital doctors here have been pleading that their working hours should be reduced.  Many of them routinely work 70 or 80 hours a week and 100 hours is not all that unusual.  

Within the very long working week they occasionally have to work very long individual shifts and sometimes -- with cutbacks causing staff shortages -- these non-stop shifts can extend up to as much as 36 hours.  
Junior doctors have talked about how they don't have time to eat, rest, or even to go to the bathroom at some stages.  They have talked about being so sleep deprived that they are out on their feet some of the time, a situation that is dangerous not just for the patients but for the young doctors as well.  

Efforts are now underway to try to avert the strike, due to start on Wednesday of next week.   But given that this disastrous situation has been continuing for many years  and nothing has been done about it, sorting it out at the last minute is not going to be easy.  

The fact that hospitals are under ever greater pressure these days and that winter -- the worst time for hospital admissions -- is almost here doubles the difficulty.

What the junior doctors are demanding is an immediate end to shifts of more than 24 hours.  They also want a detailed plan on how the Irish national health authority, the Health Service Executive (HSE), by the end of 2014 is going to comply with the European Working Time Directive, an EU rule which says workers should not have to work more than 48 hours a week on average.

Incredibly, when this EU law came into force around 10 years ago junior hospital doctors in Ireland were excluded because there was a recognition that it would take time to solve the Irish situation without putting sick people here at risk.   Since then little or nothing has been done.  

Now it's crunch time, and the junior doctors are in no mood to back down or moderate what they are demanding.  They know that if they do the issue will be put on the long finger once again.

So why do the 4,500 junior hospital doctors in Ireland have to work such long hours?  There are a number of reasons, some of them very complicated.  

First of all, there are not nearly enough senior hospital doctors and consultants, who maintain their position and their very high earnings by preserving their elite aura and status.

A new deal has now been hammered out to increase the number of consultants, limit their huge earnings and make them more available in hospitals, but the changes are not extensive or immediate enough to correct the structure of our health system which is still badly skewed.  The fact is that most of the load in our hospitals for all the routine care still falls on the junior doctors and nurses.

The situation is exacerbated by the cutbacks in recent years.  In smaller Irish hospitals in particular with fewer junior doctors available, staff cutbacks and absenteeism mean that overtime has to be worked at pressure times to avoid a crisis.  

Junior doctors would do this anyway, but they are expected or even required to do it by hospital management under their terms of employment.

The obvious answer to the problem might seem to be to train a lot of extra young doctors so that we have a bigger supply for our hospitals.  But it's not as simple as that.

It costs the state a small fortune to put each new doctor through university here because medical students pay only a fraction of the total cost of their medical education.  If you get a top score in your high school leaving exams here you get enough points to do medicine in college, and the state then pays over 90 percent of the cost.  

Even if the state had the money to produce more junior doctors, the fact is that around 75 percent of them emigrate once they have completed their compulsory one year hospital internship after finishing college. They have to do this year to be fully qualified but once it's over, most of them are out of here.  

And it's not that they leave just to get more money in other countries, because  junior hospital doctors here are well paid (their pay is higher than in Britain, for example, starting at around €30,000).   Working overtime they can easily double that,  or even triple it.

So it's not primarily about money.   They leave, they say, because they need to get experience in other countries where medical technology and systems are  more advanced.  

Some do come back eventually to be senior hospital doctors and consultants, but a lot of them never return.   Which means that the Irish state is funding the very expensive education of a lot of Irish doctors now working in the U.S., Canada, Australia and elsewhere.

This causes justifiable anger among taxpayers here, yet no one seems to know how to stop it.  The medical profession opposes any restriction of their ability to work abroad after graduation.  

One way might be to require medical students to sign contracts to work in Ireland for five or 10 years after graduation, the only exception being students who have paid the full cost of their own education.  But this is also opposed.

The main reason they leave is that they cannot cope with the horrendous working hours.  They can earn as much abroad without having to work a 70 or 80 hour week.

And they can then come back after 10 years or so when they have enough experience to be consultants and join the very highly paid elite of the Irish medical profession.

The real answer to all this involves reducing the God-like status of the consultants, and having far more of them on the hospital floors doing the day to day work at a reasonable cost.  But that's a long way off.

In the meantime, the HSE continues to import doctors from India, Pakistan and African countries to fill junior hospital doctor staff lists here.  Our system is so screwed up that we are doing this at the same time as all the Irish junior doctors educated here at the expense of the Irish taxpayer are leaving!

These doctors are coming here rather than staying in their home countries where they are desperately needed and that's not good.

And it causes problems here as well, with lack of communication due to poor English or even doubts about the medical competence of some of these imported junior doctors.

Most of them seem to be okay, and they have to be approved by the Irish Medical Council before they can work here.  But some recent cases would make you wonder about how thorough this assessment is.  

Dozens of Indian and Pakistani junior doctors hired by the HSE have been refused a license to practice here because of language problems.  Earlier this year there were problems with a doctor from Sudan, and now another very worrying case involving a doctor from Nigeria has come to light.
 
This Nigerian doctor is accused of attempting to read an X-ray while holding it upside down and trying to cut open a patient’s hand with a scalpel in order to insert a tube.  He faces 13 counts of professional misconduct or poor professional practice, including telling a colleague that scans performed on a patient’s kidneys were “fine” when they in fact showed multiple growths.

He also is accused of asking a nurse whether a patient's pulse reading of 165 beats per minute was high; that he was unable to identify the nasal bone in an X-ray when asked to do so; and that he decided that a patient had a benign prostate condition when this was not the case.

The Medical Council inquiry which was in the papers here last week heard that he had been a qualified doctor for 10 years and had previously worked in Crumlin Children's Hospital in Dublin before working as a senior hospital doctor in the Midlands Regional Hospital in the town of Portlaoise in 2009.  

There were complaints about him less than three weeks after he started in Portlaoise.   God only knows what he got up to in the children's hospital.

The hearing into this case has been adjourned because the doctor is now back in Nigeria and is claiming he can't get a visa to return here.  He is a graduate of the University of Nigeria which produces hundreds of medical graduates every year.   Nigeria is a country where corruption is rife at all levels, and there is no reason to assume the universities there are immune.

It's no wonder that some people going into hospital here feel like asking the doctors treating them where they qualified but are afraid to do so because of fears of being called racist.  And it's part of the reason why so many Irish people do whatever they can to avoid hospital altogether.

As they say, if the disease doesn't kill you, the treatment probably will!

Dublin's Priory Hall shows the human cost of the Irish property bust

Hundreds of people took part in a protest march outside of Priory Hall in Dublin last year.

The worst example of the building boom in Ireland, Priory Hall, is a Dublin apartment complex that encapsulates everything that was wrong with the Irish property boom.

It made headlines in the past couple of weeks because of the suicide of one man who had bought an apartment there.  Last week that forced Taoiseach (Prime Minister) Enda Kenny, after a disgraceful two year delay, to finally say something about a situation that has become a national scandal.

But  before we get to the hypocrisy of Kenny, let us first take a look back at why this apartment development in Dublin has come to be regarded as emblematic of everything that was phony and rotten in the boom here.

The apartment complex was built on the north side of Dublin in an area called  Donaghmede, a sprawling working class suburb of small houses where a lot of good people live, but which also has high unemployment and anti-social problems, including drugs.

During the boom, however, even poorer areas like Donaghmede were seen as suitable places for extravagant development, partly because there were vacant sites. In the adjoining Darndale area, which has a worse reputation than Donaghmede, they even built the Dublin Airport Hilton Hotel.  (It's actually at a main roadway junction several miles from the airport, and Dubliners  refer to it derisively as "the Darndale Hilton.")

There is also another huge housing development called Belmayne nearby which became famous because it was launched by former English Premier League soccer player Jamie Redknapp, and because of the raunchy advertising on giant billboards around the site promising a lifestyle of sex and sophistication if you bought a home  inside.  Half of Belmayne is now a ghost estate, and the developer is bust.

Not far from the Hilton and Belmayne, a complex of 189 apartments called Priory  Hall was built by a developer called Tom McFeely, who happens to be a former IRA man and hunger striker.  We need not make too much out of his IRA past,  although it's certainly interesting that someone who claims to have fought on behalf of the people of Ireland went on to behave as he did towards them.

But McFeely is far from the only developer in Ireland whose work was shoddy and who took shortcuts, although he is certainly one of the worst.

The complex was finished in 2007 and went on sale in two phases at the height of the boom.  The unfashionable location did not affect the prices, with the  apartments costing from €250,000 upwards.
Despite the prices, the apartments were cheaper than on the Southside of the city and were just within reach of a lot of young couples desperate to get on the property ladder.

Yes, they were in a poorer area on the Northside, but they were beside a main road into the city center.  So they sold well (those were the days of 100 percent mortgages) and even the City Council bought 26 of the apartments for social housing.

But there were problems almost straight away.  The new residents soon began to notice that beneath the paint the finish was poor, with cracks appearing in ceilings and floors, damp walls, draughty windows and doors, poor sound insulation, scrappy balconies and a basement carpark that flooded.  Getting the developer to come back and fix things proved to be impossible.

And then problems began to emerge that went far beyond comfort or decorative  issues.  The big problem was the discovery that the developer had failed to follow the fire regulations and the whole place was a fire hazard.  This was so serious that the City Council moved its tenants out of the 26 apartments it owned in 2009.

McFeely was ordered to carry out repairs and upgrades to the privately owned apartments as a matter of urgency to fix the problems and in particular the fire risk.  But by then, as we know, the boom was over and

McFeely had financial problems and said he could not afford to do the work estimated to cost over €7 million.

In 2011, having failed repeatedly to get him to adequately correct the problems in the buildings, the courts ordered that the Priory Hall complex be evacuated and the residents moved to temporary accommodation while the matter was resolved.  The judge in the case was so worried that he ordered that a fire engine be on standby at the complex until the 250-plus residents had all left the buildings.

That was two years ago.  McFeely is now bankrupt and Priory Hall is a derelict  site.

But all the people who bought apartments there have been paying their  mortgages ever since (forced to do so by the banks) for homes they cannot live in.  Instead they are still in "temporary accommodation," most of it paid for by the council, although some former residents are paying rent themselves because they moved to more suitable accommodation.

The council is now challenging in court the ruling that it must go on providing free accommodation which is costing a lot of money it does not have.

For those caught in this situation it is an unbelievable nightmare which has  got even more complicated over the past two years as official Ireland has dodged its responsibility because of the costs involved, and various court actions against McFeely have failed to produce any solution.

The developer has no money, or at least no money anyone can get at.  And all the  branches of official Ireland involved have been passing the unwanted parcel. This includes the state at national level and Dublin City Council at local level, as well as insurers and other bodies.

On paper we have a very high standard of building regulations, laid down at state and local levels.  But it's only on paper.

During the boom there was very poor enforcement of the standards, with less than 10 percent of new builds being inspected by officials in a systematic manner with regular site visits.

Council officials were so stretched they could not keep up.  If they visited at all they had to take the builder's word that behind completed walls, the invisible wiring, plumbing,  insulation and fire stops had followed the rules.

In the case of Priory Hall we now know that was not the case.  The construction and finishing were both unbelievable shoddy -- even dangerous -- as the developer cut corners to maximize profits.

The irony is that throughout the boom the state and local councils raked in money from developers with all kinds of taxes and local charges that the builder had to pay before work could start.  This was meant to be spent by councils on infrastructure (roads, pathways, sewage, etc.) and on funding the proper regulation of all building works by officials.

But as we know both the state and local councils spent a lot of the money on other things, and we are now left with shoddy developments and ghost estates and no money to fix them.

Where Priory Hall was concerned everyone ran for cover.  The developer said he was bust, the council blamed the developer, the state claimed it could do nothing until court actions were concluded, the insurance companies -- including the Homebond guarantee backed by the construction industry -- found reasons why it was not liable to pay up ... and the government did nothing.  

Meanwhile, the lives of the unfortunate people who had bought homes in Priory Hall were destroyed as they struggled to survive and were harassed by the banks to go on paying their mortgages.

For one man, Fiachra Daly, a father of two who had been one of the leaders of the Priory Hall residents in their fight to get something done, it all became too much in July.

More demands from the banks that he and his partner Stephanie Meehan keep up payments on their Priory Hall apartment and the failure of the state to intervene finally pushed him over the edge and he committed suicide.   Stephanie went public with the case and with a letter she had sent to Kenny, emphasizing that he had been a great father and a stable person but had been driven to despair by the impossible situation they were in.

Public anger and disgust at what had happened was palpable, so much so that Kenny made a statement on television on the matter last week.  Doing his Mr. Sincere number, he wagged his finger at the camera and said it was an example of the worst excess of the Celtic Tiger and he insisted that he was going to do something soon ... he just needed a report for himself on the matter and a  little time to consider.  

It was breathtaking. Kenny and the rest of his government have known all about Priory Hall for at least two or three years.

They don't need any reports.  And the court case over who will have to pay for the ongoing temporary accommodation does not stop them from acting either.  

The fact is that the state was as responsible for what went wrong during the largely unregulated building boom as much as individual rogue developers like Tom McFeely.  The state should pay up.

The big unknown in all this, of course, is how many more Priory Halls there are out there, and that is what official  Ireland is afraid of.

In the past week there was further evidence of how little anyone cares when it was revealed that the bank that provided the mortgage to Fiachra and Stephanie had sent another payment demand letter in recent days even though he  had committed suicide in July.  That has since been withdrawn and the remaining debt written off in what the bank called a "tragic" case.

But most people think that only happened because it made front page news.  Meanwhile, Stephanie and her two kids remain in temporary accommodation and their future is uncertain.            

Ireland’s home mortgage crisis persists

Though the property market in Ireland is showing signs of an uptick, 
ghost housing estates are still prevalent in many parts of the country. 

A few weeks ago in this column we were looking at the signs of an end at last to the five-year downward spiral in the Irish property market.

In some areas and for some homes, mainly family size houses in good areas in Dublin, there has been a slight recovery in prices this year, although they are still around half what they were at the peak of the bubble.

That's good news, of course.  For those with money to buy or those with secure state-paid jobs who can get mortgages, the signs that the bottom of the market has been reached are prompting them to act now and not to put off buying a home any longer.

Such activity will help the wheels of the economy to start turning again.  There is even talk that a few new housing estates will be built in Dublin in the coming year to meet demand.

Good news, as I said, but it's important to remember that this is only half the story.
The other half of the story concerns the tens of thousands of people here whose lives have been destroyed by the property crash.

These are the people who bought during the boom and who are in negative equity – their homes are worth far less now than they paid for them a few years ago.  So they can’t sell to pay off their mortgage loan.

Unlike in the U.S., here you still owe the bank even if you give them back the keys.  If you do sell at a loss and give the bank the proceeds, you still owe the bank the difference between the sale price and the loan.  
The property price collapse over the past five years also triggered the crash in the wider economy which means that many people in this situation have also lost their jobs, or their businesses have gone to the wall.  That means they can no longer meet the payments on the huge loans they took out to buy their boom time homes.


The latest figures released two months ago showed that the number of homeowners unable to pay their loans has increased to close to 100,000 mortgage holders who are now 90 days or more behind in their payments.

That is nearly 13 percent of all residential mortgage holders in the country and it’s a huge problem for the banks.   Over half of these are more than a year behind in their payments.

The overhang of bad mortgages means that the banks are effectively bust again despite more than €60 billion having been pumped into them, for which the Irish taxpayer is now on the hook.

Instead of using a big chunk of this €60 billion bailout loan from the IMF/EU to write down the debts of Irish homeowners who simply can’t pay, the banks used most of the money to pay off their bondholders, and what was left was used to start rebuilding their capital reserves.


Part of the €60 billion was supposed to be used to allow solutions for distressed mortgage holders like loan restructuring and partial debt forgiveness.  But that never happened.  Instead, the banks continued to avoid the growing crisis and have continued to threaten and squeeze mortgage holders.


The problem for the banks is that once they accept that someone cannot repay the full amount of their loan, they have to show the loss on their books.  And if they have to do that for half of the 100,000 domestic mortgage holders now in trouble they will have a big problem.


For young families who bought their homes to live in themselves, the situation is an absolute nightmare.  They did not cause the property crash and now they have become the victims of it.  Although everyone has sympathy for them, nothing much has been done to help them.


It’s also hard not to have sympathy for many of the older buy-to-let investors who took out loans to buy a second property as a pension investment and now face the possibility of losing both homes.

Around half of the buy-to-let buyers were on interest only payments for the first few years and now cannot cope as full repayments begin.  It’s estimated that at least 15,000 buy-to-let homes are in this situation and could be repossessed by the banks.


The banks don’t want to repossess homes for two reasons.  In the case of owner-occupier homes such cases are highly emotional and attract very bad publicity for the banks.

Even in the case of buy-to-lets, repossessing so many homes and then putting them on the market could make things worse rather than better for the banks by driving prices downwards again.   And that would mean revaluing their entire mortgage loan books downwards.


The government has been struggling to find a way to sort out this mess.  They tackled the  problem of the billions in bad loans owed by the big property developers by setting up Nama, the state bad bank which bought in the loans from the banks at a discount.

Now they have put a structure in place to try to deal with the domestic mortgage crisis.  But it’s far from clear yet whether it’s going to be much help to the tens of thousands of ordinary people who are in trouble.

The government is tackling the problem in several ways.   Firstly, it ordered the banks to begin offering their customers who are in arrears a long-term solution, and they said they wanted at least 20 percent of cases dealt with by the end of June.


It also brought in new legislation that returned to banks the power to repossess properties, something which had been stopped by a court decision in 2011.

The boss of the country’s biggest bank, AIB, claimed recently that one in five of those in arrears on the bank's books were strategically defaulting and that repossessions were inevitable.  He didn’t produce any evidence for this claim, and he was heavily criticized as a result.

But there is no doubt that at least some people were playing this game, and the government's move on the legislation reflects this.


Various solutions are possible, like split mortgages with part of the loan being parked for 10 years or even much longer, like arrears being capitalized (added to the loan) and the slate wiped clean giving the homeowner another chance, or like the loan reverting to interest only payments.

Or even a system where the bank takes part ownership of the home which will be cashed in at some distant point in the future if the home is sold, but in the meantime the family stays on.  Or where the bank takes full ownership and the family becomes a renter of the home they once owned.

These and other possible solutions are all designed to do one thing -- allow the family to stay in the home.


To help people who are in difficulty the government also set up the new Personal Insolvency Service, a new body licensing debt experts to act as Personal Insolvency Practitioners (PIPs) and Approved Intermediaries (AIs).

These advisers will analyze an individual’s financial circumstances and draw up a debt deal and negotiate with the banks on the homeowner’s behalf.


The new law effectively means that a homeowner threatened with repossession can have the case adjourned so that a PIP can negotiate a personal insolvency arrangement with the bank.

The weakness in this is that the bank does not have to accept a proposed arrangement.  However, it then faces the prospect that the homeowner could decide on bankruptcy, and our law means that does not necessarily mean the person loses their home to the bank.  Plus the time to emerge from bankruptcy here has now been reduced from 12 years to three.


All of this has led to situation that is as chaotic as it is tragic, because no one knows how the government's new structure is going to work in practice, how quickly it will get going and how effective it will be.


For example, the new PIPs have to be approved and qualified, and we don’t know yet where they are suddenly going to spring from.  They will also be charging fees, and there is some concern that the system may develop into another quango which costs a lot of money and does not actually solve the problem.


It’s all supposed to be kicking off next week when the legislation says homeowners will be entitled to send in PIPs to their banks to look for a deal.  But no one here is expecting very much other than more confusion.

Meanwhile, the banks continue to harass frightened homeowners who cannot pay their mortgages.

Let the budget cutbacks begin, Ireland’s economy is flatlining

Caroline Dunphy, who cares for her 21-year-old daughter, joined a
 group in July protesting against possible budget cuts against carers this year.

Here we are in the dog days of August when most of our politicians and top officials are on holidays and Ireland is half asleep.   They call it the silly season here because there is so little news that the papers print all kinds of inane stories to fill space.

This year is somewhat different, however.  The reason is that this year, under the new timetable introduced by the European Union, we have to produce our annual budget in mid-October, two months earlier than usual.

And the budget for 2014 is going to be another savage one which will be critical in our getting back control of our economy and turning things around.

Behind those lazy days of summer when not much happens this year, there is frenetic activity going on behind closed doors as ministerial staff struggle to find ways of making the huge savings that our IMF program demands we make again this year.

We're supposed to be near the end of the austerity program.   Indeed, if you read some of the positive commentary on Ireland you might think that our problem is solved already and we are on the brink of economic recovery and normality.

But the reality is the Irish economy is still flatlining and the state is still spending much more than we raise in tax, with the result that we are still borrowing €1 billion a month from the EU/IMF to pay for welfare, health and all the other government services that stop us from turning into Greece.

The budget this October is critical because although we have made progress in closing the tax/spending gap, we still have a distance to go and time is not on our side.

By next January Ireland is supposed to be out of the EU/IMF program that has been propping us up for the past few years.  Over the past three years we have borrowed over €60 billion under the program to avoid national bankruptcy and collapsing as a failed state which can't pay its bills and its debts.

The problem we face now is that the spending cuts and tax hikes we have endured in every budget over the past five years have made it progressively harder to find ways of narrowing our budget gap.

There is very little budgetary fat left.  It's now down to hard choices.   And this year, with another €3.1 billion reduction due in cuts and/or tax hikes under the program, it's going to be harder than ever.

A ferocious debate is going on behind the scenes in the civil service and between the two parties in government, Labour and Fine Gael.   The Labor view is that further cuts and tax hikes of this magnitude will mean our economy will continue to flatline and any chance of growth will be snuffed out.

Taking that much out of the economy at this time is counter-productive, they say, and they are supported by some Fine Gael backbenchers who are feeling the pressure from their voters.  This view is even supported by a former IMF senior executive who was involved in our bailout.

Another factor in the debate is the fact that the state promissory note deal, which greatly lengthened the repayment period for about half of our total borrowing, means that our repayments for this year will be about €1 billion less than we had expected.

So we have a choice. We can use this to get further ahead on our debt repayments or we can use it to make the budget this year softer by modifying cuts in spending.

The strong view of the EU/IMF is that we should stick to the agreed program and use the money to reduce debt (by having to borrow less).

The official Fine Gael view is in agreement with this tough line. We need to press on and "finish the job" even though it's painful.   When we emerge from the IMF/EU program next year we have to be able to borrow on the international money markets, and any backsliding now could send out a wrong signal that could put this in jeopardy.

On balance, the Fine Gael view is probably correct. Yes, it's true that taking even more money out of our economy now is going to depress things even more.   But using more borrowed money for welfare payments to prop up the domestic economy is not the answer either and will make things worse in the long run.

Much more important for our recovery are the signs of a slight recovery in Europe.  Higher demand in Europe will stimulate real growth here in exporting businesses.  And that's real money and jobs that last.

There is general agreement here that tax rates are now at a level that means any further hikes will have a seriously depressing effect on business activity and job creation.   That does not mean there won't be any tax hikes in the budget.  But it does mean that most of the adjustment in the October budget will have to come from cuts in state spending.

Let's say that some kind of compromise is worked out between Labor and Fine Gael to hold the government together, and that instead of making a €3.1 billion adjustment in the budget, they use a third of the €1 billion promissory note “saving” to reduce the adjustment to €2.6 or €2.7 billion.

That may be risky.  But it will reduce the pain somewhat, although major spending cuts in big state departments like welfare, health and education are unavoidable.

Already leaks from official sources have been revealing what may be coming down the tracks.   A cut in unemployment payments, in child payments and in old age pensions have all been floated and have generated outrage from those who would be affected.

What this ignores is that all these welfare payments are much higher than in most other countries in Europe and particularly in comparison with our nearest neighbor, Britain.

Let's take the old age pension as an example.  For a person who has worked and paid taxes all their lives, the state pension here is €230 a week or just under €12,000 a year.  In Britain, it is £110 a week, which is equivalent to around €128 a week or €6,700 a year.  

So pensions here are almost TWICE the level of pensions in the U.K. -- and this after years of Labor governments in Britain!  

This huge gap is replicated across other main welfare areas like payments to people who are out of work and payments to families with children, with Irish rates much higher.  For a country that is effectively bankrupt it is a remarkable situation.

All kinds of reasons are advanced for why welfare payments need to be higher here (the cost of living, etc.), but the reality is that most of these arguments are less than convincing.   Is living here really all that different from living in the U.K.?

The real reason why welfare payments here are much higher is that a boom time overhang still exists, both in pay (try hiring a plumber at less than €25 an hour) and in welfare payments which got big rises in rates during the boom as the government splurged on spending.

Of course you won't get many people here to admit this, and such statements of reality even provoke outrage.

There was fury two weeks ago when word got out that one of the options being discussed behind closed doors is a €10 cut in the old age pension. That would still leave pensions here more than a third higher than in the U.K.   But there is such a fear of a grey voter backlash that ministers were lining up to deny that this was an option.

The fact is, however, that Ireland is no longer a rich country and we need to accept that in both welfare and pay levels.

International commentary on the Irish bust frequently wonders why Irish people have accepted the austerity program without reacting like the Greeks with street demonstrations and so on.  The answer is that our welfare levels and state services still provide a standard of living and even comfort that protect us from reality.  And if this changes we might well see a much more aggressive Athens-style response.

That is one reason why the government is proceeding with caution.   But the reality is unavoidable.

At the end of 2013 Ireland's net debt will be well over 120 percent of national income, a level regarded as unsustainable.   And we will be adding to our debt pile for at least another five years (and possibly longer) until we can get the state finances into some kind of balance again.  

As one senior economist here observed recently, "It is bizarre that continued borrowing, which will add to this debt mountain, is routinely described as austerity."

But routine borrowing will be the norm for Ireland for years to come, some economists say until at least 2020.   And that borrowing will have to come from the money markets at reasonable interest rates.

To get reasonable rates we will have to be able to show that our budget deficits are continuing to come down and that we are keeping up with out debt repayments.   The first step in convincing them will be to stick to the program in the coming budget.

Of course there are other ways of trimming the deficit instead of cutting welfare and health and education services.  But these involve chopping state spending on a wide array of untouchable state institutions and civil service elites and state supported quangos, all of whom claim to be "essential."

That's a whole other story which we will be exploring here when the axe starts to fall.

Has the Irish real estate market finally bottomed out?

Property signs in Dublin city center earlier this year.

It's an obsession that bankrupted the country, but it seems there is no end to the Irish love affair with property.

Despite all we have been through since our property bubble burst and destroyed the state finances and the economy, some people here are starting to believe that it's time once again to get back in the property game.

There is a growing feeling that the worst is over, that prices have reached the bottom and that from here on the only way is up.  

Now, where have I heard that before?

Oh yes, now I remember.  It was when I went to see a two-bedroom apartment in the south Dublin suburbs back in 2006 with a friend of mine who was thinking of buying.  It was a snip at €425,000, the estate agent told us, predicting that it would be worth half a million within a year.  The only way is up, he said. 

Although it had a designer kitchen and cool minimalist furniture, the rooms were small. Plus it was at the very end of the commuter line from the city.

“I’m not sure about this,” I told my friend, who was desperate to get on the property ladder.   I thought he should be able to do better for that kind of money.  He agreed and decided not to buy. 

The following year, 2007, prices peaked and the market started to implode, with overpriced apartments in the outer suburbs losing their value fastest in the following years.  Last year I saw an identical apartment in the same block for sale for €195,000.  In my view, it's still overpriced.  

It's now over five years into the property crash in Ireland, the worst ever in Europe and one of the worst ever in world history. Prices have gone down and down, year after year.  There appeared to be no end in sight.

Nationally prices have fallen by over 50 percent since the peak in 2007.   That's an average figure, so although the fall in some parts of Dublin has been slightly less, in other areas and other sectors (apartments rather than houses) the fall has been higher, over 60 percent.

After five years of falling prices it seemed like the collapse was going to continue forever.  But this year, at last, there have been signs that we may have reached the bottom.

At the end of last month, the Central Statistics Office (CSO) made headlines when its analysis of the country's property market showed that prices had risen by 1.2 percent over the preceding 12 months.
The CSO's Residential Property Price Index is a monthly survey, and this was the first one to show an increase rather than a decrease since the crash began back in 2007.

The news confirmed what most people were sensing, that the market was bottoming out and that prices -- particularly for houses in good areas for family homes -- are unlikely to slip any further.  

In the better areas, agents are claiming that prices are up at least five percent this year. With no building since the crash, demand for family homes is strong and the supply is limited because sellers have been waiting for the crash to end and for prices to recover.

In some select areas like the Southside suburb of Dalkey/Killiney (where Bono lives) or the Northside suburb of Howth (where U2 drummer Larry Mullen lives) agents are claiming that family homes are up at least 10 percent since the start of this year. And the strongest demand is not for the kind of mansions where the U2 boys live, but the average three or four bedroom family home.

Typical of this kind of home is the small Evora Park estate of ordinary sized houses in Howth.  A house there which had been on the market for just two or three weeks was snapped up 10 days ago.

The asking price for the modest four-bedroom semi-detached house was €495,000 and the speed of the sale would indicate that somebody agreed to buy at the full amount.

Which is interesting, because the last house to sell on this road was in January 2010 (three years back) and it made €420,000.  It was identical, apart from having a slightly smaller back garden.

Since then, prices have fallen by at least 20 percent, even in the better areas like Howth. So even if you factor in a five to 10 percent gain since the start of this year and allow a bit extra for the extra garden space, the house which sold in the past couple of weeks should have been around €400,000, not €495,000.  

That indicates a significant strengthening of the market.  But it's for a particular kind of house and it's not at all clear yet how solid this is.

Since we're talking about Howth, the story of another house on a much more expensive road in the same seaside village on Dublin's Northside is a cautionary tale.

Claremont Road in Howth is about as exclusive as you can get; it's the road where Mullen lives. With direct access from the back gardens to the beach, the mansions on the leafy road have always been in demand among those with a million or more to splurge on a dream home.  

But the story of one house on the road shows how all the excitement about the "return" of the property market should be treated with caution, especially if we're talking about big houses.

Back in 2007, as the boom reached its peak, a local developer demolished an existing house on the road and in its place he built a substantial modern home with big reception rooms and bedrooms and a light-filled kitchen/breakfast room with floor to ceiling windows overlooking the beach.

The mansion was featured heavily in the press and the developer told reporters that he reckoned the house could fetch as much as €7 million.

But by the time he had it finished the market had peaked, and when he put it up for sale in late 2008 prices were starting to turn downwards.  So he pitched the price at €4.8 million.

Despite extensive media coverage it did not sell and the following year (2009) the developer reduced his asking price again to €3.75 million, saying that if he went any lower he would lose money.

But still the house did not sell. In fact, despite further price reductions over the next three years, it did not sell until this year when a few weeks ago it was bought quietly for €1.15 million.

That's a long way off the original €7 million. Or even the "reduced" price in 2009 of €3.7 million.
It's an example of how uneven the much-hyped “recovery” in the Irish property market is.  Modest houses, in better areas, which make good family homes, are selling quickly at prices that are up slightly on last year.  But there are still many apartments in outlying areas and houses in ghost estates in rural areas that nobody wants.

The other big unknown at the moment is what is going to happen when the banks start releasing repossessed homes on the market.  As we reported in detail in this column recently, there are tens of thousands of people here who are way behind in their mortgages and have little hope of catching up.

Most of them bought during the boom and they are now in negative equity, with their houses worth half what they paid for them.  

During the boom, tens of thousands of people here also got into property as an investment, the so-called buy-to-let market. As the economy has slid, many of these are also in deep trouble, and estimates indicate that at least one-third of these homes are likely to end up back on the market.  

Two weeks ago one of the main banks said that their figures were showing that up to 20 percent of those behind in their mortgages are “strategic defaulters,” people who are deliberately not paying because they reckon that by going deep into debt they will be able to cut a deal to reduce the amount they owe.  No doubt there are such cases in the present uncertain climate.

But the reality is more likely that in most cases, the people are simply choosing to pay their credit card bills and other loans and expenses first and are putting the mortgage on the long finger.    
The accusation of “strategic defaulting” has led to a furious dispute here with the banks, with people saying they don't understand the pressure home owners and even investors are under.

Whatever the truth, the reality is that many people here are going to lose their homes and those apartments and houses will be back on the market.    

A court judgment here in 2009 prevented banks from repossessing houses, but new legislation has now changed that situation and in the coming year or two the banks will be taking back houses from people who can't pay their mortgages and selling  them again.  That will keep considerable downward pressure on house prices.

So is it a good time to buy here?   Yes, if you're a young couple who want a family home to live in for the next 20 or 30 years.

Such houses are not going to get much cheaper and the sooner you get in the better. But there won't be any doubling of house prices in five to 10 years as happened during the boom.

Those days are gone forever.  And good riddance.

The young leave as new residents arrive, Ireland needs immigration reform too

Immigrations becoming naturalized citizens in Dublin during a ceremony in May.

The debate that's going on right now in the U.S. over comprehensive immigration reform is of some interest to us here, not just because it would help many of the Irish who are illegally there. 

It's also interesting because of the recognition it gives that greater control of immigration is necessary even in a "melting pot" country as large as the U.S.

If a vast country like the U.S. recognizes the need for greater immigration control, then a tiny country like Ireland, which on a proportional basis has had a far higher immigration rate over the past decade than the U.S., should at least be considering its policies.   

The issues involved and the context obviously are different in the U.S.  But immigration is a growing issue in Ireland, and there is widespread  dissatisfaction among people here with the way it is has been handled over the last 10 years. 

Last month, for example, the Economic and Social Research Institute (ESRI), the leading research organization in Ireland, produced a report that showed that when our banks and our economy took a nose dive in recent years attitudes here became much harder on immigration.  

Well, hello? We hardly needed a roomful of academics and statisticians to tell us that. 

But even so, since the ESRI is the leading think tank in the country with the brightest brains working there and it's supported by the state, its reports deserve careful attention.

Its reports are not the kind of anecdotal stuff you read in newspapers. They are based on extensive fact finding, polling and analysis.     

The new report revealed that the number of people here who are opposed to immigration from other European countries (which would be mainly Eastern European countries like Poland, Lithuania, Latvia, and so on) has risen from four percent in 2002 to 15 percent in 2010.  

There may also a slight racial factor in our changing attitudes because when people were asked about immigrants with non-European ethnic backgrounds (Africans, Asians etc.) the number opposing such immigration went up from five percent in 2002 to 20 percent in 2010.    

There are a few points to note about this.  First, people being surveyed on this topic frequently moderate their views because they don't want to appear racist. 

Second, the figures are out of date and, given the trend, the number opposing immigration is likely to be considerably higher now.

Third, a national figure like this is an average that dilutes the number of those opposing immigration in the areas where the concentration of immigrants is highest.  

So it's pretty safe to assume that the ESRI figure is an understatement of the current position nationally, and probably a gross understatement of the number that oppose immigration in an area like north county Dublin where so many immigrants live.    

It's not surprising that the change in attitude mirrors the collapse in the economy here and the climb in unemployment.  That indicates that at heart we are not a racist nation, but we do believe in putting our own people first.  

The immigration aspect of the ESRI report got wide coverage in the Irish papers a few weeks ago. But most of the papers missed something. 

The report was about integration instead of immigration and, in fact, is an annual report done by the ESRI for the Integration Center here (another state sponsored body).  

And when you read the report itself you find that the poll on attitudes to immigration was actually part of the European Social Survey, a bi-annual survey carried out by researchers for the EU.  

The ESRI team took that poll data and analyzed it for a chapter on immigration in their report.  We're so politically correct and paranoid on subjects like race and immigration that we did not even do our own research (in case we get an embarrassing answer).  So for this study the ESRI relied on stuff from Europe that is more than two years old.  

What we do know from our own census data is that the number of non-Irish living here is now well over half a million (a huge change in a very short time in a total population now at 4.7 million.) 

We also know that since the recession began the total number of immigrants here has not declined and, in fact, immigrants are continuing to come here, although in lower numbers.  

The reason for this is straightforward.  Welfare rates in Ireland are much higher than those in Eastern European countries, so even those who are out of work are better off here.  Why go home to Eastern Europe where welfare is a pittance and quickly runs out? 

For non-Europeans, mainly "asylum seekers," the application process and the subsequent appeals process, supported by free legal aid, can be stretched out over years.  Which makes it attractive to stay because the longer you are here the greater the chance of getting rights here.  

What all this means is that Ireland now has a large number of immigrants (about 17 percent of the population) and they appear to be here to stay. 

Most of them are here by right since they are EU citizens -- the enlargement of the EU in 2004 brought in the former communist states in Eastern Europe.   

At that time, Ireland became one of only three EU countries to allow people from these new EU member countries an automatic right of entry to live and work. 

When fears were raised here about this at the time they were brushed off, and we were told that maybe 8,000 to 10,000 Eastern Europeans would come here and that we needed more workers to feed our growing economy.  We were also told that they would be very likely to go home again if they were out of work.  

This turned out to be a farcically inaccurate estimate of the numbers involved and how long they would stay, as we now know.  

As immigration soared during the boom, the politically correct among us then shifted the argument to one about the positive aspects of a "multicultural society," and we were encouraged to embrace "the new Ireland."   Anyone failing to do so or raising doubts was ridiculed as a quasi-racist or some kind of retard. 

A whole industry grew up around making immigration work (support groups, lawyers, extra language teachers in schools etc., all funded by the taxpayer).  

The only problem was that no one had asked the Irish people whether they wanted this high-speed immigration and multicultural society in the first place. 

Now at least five years into the crash, the chickens are coming home to roost.   

There's no money to pay for any of it.  The extra language support teachers have gone, leaving junior school teachers in some areas facing large classes where many of the kids can't speak English. 

The multicultural "new Ireland" turns out to be the same as the old Ireland, but with the addition of particular areas where there are high concentrations of immigrants and where different national groups band together.  

There is huge pressure on the health service and other state services due to the increased numbers.  And as unemployment has climbed among the new arrivals, the welfare bill has gone through the roof. (Unemployment among immigrants is 18.5 percent, among locals it is 14.7 percent.) 

And all of this is now paid for by borrowing.  We don't actually know what the total bill resulting from our high immigration is because official Ireland does not compile such figures because it might be racist and would definitely be unsupportive of the new multicultural Ireland and therefore unacceptable.  

One unofficial estimate I have seen puts the direct costs (welfare, housing, etc.) at close to €200 million a year now and up to €300 million or more if you add in all the extra costs to the state in medical, educational, legal and other services. 

As I said, all of this has to be borrowed right now and will eventually have to be paid back by the taxpayer here.   

Meanwhile, of course, emigration of the young Irish out of Ireland has soared as jobs have dried up. The stresses that this situation is causing are now starting to emerge more frequently, and they are not all that different from what we have seen over the years in British cities with large immigrant communities which are still not integrated after decades.  

In the small towns in north county Dublin where so many immigrants ended up, fights between locals and immigrants are common outside the pubs after closing time.  And the current heatwave here is not helping, with a battle on one of the beaches recently between "locals" and immigrants. 

Some of the heavy East European and African immigrants, reflecting where they have come from, are on the fringes of crime here and are not interested in working.  But the courts find it very hard to remove them.  

Like north county Dublin, the sprawling suburb of Tallaght on the west side of Dublin (a place as big as Limerick), now has streets where African or Arab or Romanian families form their own communities.  In Tallaght as a whole, around 12 percent of the population is immigrant.   

And it's not just in greater Dublin.  Some of the big provincial towns around the country are also experiencing the problem. 

One newspaper here recently highlighted the situation in the town of Monaghan, where 30 percent of the people are immigrant.  Some other big towns in the midlands have numbers that are almost as high.    

All of this is breeding deep resentment among many Irish people who are conscious as the economic downturn has continued that many immigrants are getting welfare and state housing while their own sons and daughters are emigrating to the U.S. and elsewhere to find work.  

Of course official Ireland and those who are fortunate enough to have jobs and live in "nice" areas with expensive housing and good schools, still support the idea of a multicultural Ireland.  

Which is fine for them since their daily lives are unaffected by the stresses of high immigration in other areas.  (And being able to hire a Polish plumber in the black economy is always handy.)

But even among these more liberal people there is a very slight, but detectable, shift in attitude lately, with more questioning of overall policy as their tax burden grows to close the budget deficit.  

Even many of the very idealistic (students and so on) now admit that the situation is not sustainable.   Others would put it more strongly and say that unless we wake up fast we're going to have a major problem here without the resources to tackle it in the future. 

The irony is that it is a self-made problem, one that we created over the past 20 years without really thinking about it.  Mind you, we got more than a little help from the dreamers in the European Union.   

Immigration reform is not just needed in the U.S.