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Ireland (Part 2): The Poster Child of European Recovery?

Tom Burke - Apr 29, 2013
As a Quebecer, one can appreciate the Irish economic narrative and some glaring similarities over the past 50 years. Both Ireland and Quebec were once agrarian based societies under heavy influence from the Catholic church where the evolution had som


As a Quebecer, one can appreciate the Irish economic narrative and some glaring similarities over the past 50 years. Both Ireland and Quebec were once agrarian based societies under heavy influence from the Catholic church where the evolution had some interesting parallels starting in the 1960's. There was a similar resurgence in the cultural and language renaissance, an ongoing conflict of independence and swelling nationalism, and finally an entrepreneurial and pro-business surge starting in the 1980's. But Ireland played its hand and channeled its energy much better, especially in fiscal strategy surrounding foreign direct investment and using the language of its workforce to its advantage, whereas in Quebec the onerous fiscal and linguistic burden of doing business in the province has stifled its economic potential.


Summing up the era of the Celtic Tiger and Ireland's biggest economic surge since the potato famine is simple. The Celtic Tiger was real. The only problem was that it changed its stripes and mutated into a domestic real estate and development bubble. The Tiger emerged after the late '80's and '90's as an export base into the new unified and “de-Sovietized” Europe. The free movement of goods and services in the Eurozone collaborated with Ireland's highly educated English speaking work force and favorable tax environment to create a foreign investment boom on the Emerald Isle. All of that was legitimate growth in high value added industries such as technology, health sciences, and food and beverage. Furthermore a new breed of entrepreneurial and capitalist spirit and swagger emerged that has built some model global enterprises that have provided investors with outstanding long term returns. Kerry Group, CRH, Ryanair, Aryzta and Glanbia are global leaders in sectors such as food and agri products, building materials, and airline travel and have set an example for Irish business excellence on a global scale. But legitimate foreign and domestic investment was overtaken by speculative development and real estate wagering "juiced" by the cheap money and runaway balance sheet growth of Ireland's financial system, and it proved to be catastrophic for such a small nation.


Back in 2010, I wrote that the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) were represented by a spooky metaphor from the rock band Pink Floyd and their album Animals, where images of that famous floating pig are etched in the hallucinogenic warped memories of Floyd fans. Only inflatable PIGS could fly while asset deflating European PIIGS were destined for more grim prospects. But when the metaphor doubles as a coincidence, it gets even spookier. As it turns out, Ireland's National Asset Management Agency (NAMA), the government organization left to liquidate over $30 billion worth of property loans inside and outside Ireland, was left with a loan on its books that was backed by The Battersea Power Station property in England, the iconic facility in the Floyd photos promoting Animals.

So in fact one of the "PIIGS" owned the building that showcased the Pink Floyd "Pigs".

 This was music critic Neil McCormick's supreme analysis of the album: "It's an interesting if ungainly album, with lots of (what were becoming ) Floyd signatures poking oddly from unwieldy songs linked to a rather sneering dystopian concept inspired by Orwell’s Animal Farm, in which human beings are characterised as pigs, dogs and sheep. It’s not terrible but never becomes more than the sum of its rather disunited parts. But whilst the album may be unloved, the gorgeously absurd image of the flying pig has become synonymous with a band who found a kind of surreal elegance in peculiar juxtapositions and an ego-fuelled sense of excess, and so was deemed an appropriate marketing stunt to promote the re-release of newly mastered digital versions of all 14 Floyd albums."

...or maybe a financial industry that found a "surreal elegance in the juxtaposition" of colateralized debt obligations and asset backed securities with - uh - sober reality. And "ego fuelled excess"? This is too good. 


Remember that the ultimate $115 billion EU bailout of Ireland was a rescue mechanism that took strain off of the back of the Irish taxpayer who was unjustly penalized (almost $40,000 per citizen), and who was the backstop of the Irish banking system meltdown and responsible for stopping a Euro contagion of unthinkable magnitude.  In the aftermath of the great meltdown, Ireland's new role seems to be in pioneering a template and model for fiscal and economic rehab in the troubled Euro areas. In studying this historic Irish financial healing in progress, there are some huge lessons for investors. They revolve around the concepts of predicting change and betting on the actors and not the present day numbers that are fully digested and long since metabolized in the market. That change came with a large endorsement from the bond market in July of 2012 - far sooner than all the experts predicted, a re-energized export sector with leadership from some of the biggest Irish companies whose shares began to rally on better company fundamentals, and a resumption of healthy foreign direct investment from tech and pharma companies of multinational caliber.

BILLIONAIRE WILBUR ROSS AND NAMA... Back to NAMA, which is more than just a holding company for real estate relics of Pink Floyd imagery. It became an active ingredient for what an insurmountable toxic pool of assets needs for proper remediation: Segregation, syndication, liquidation, and term extension. In other words, NAMA has initiated the concept of a European bad bank. So while the original $74 billion of valuation has been written down by over $40 billion, NAMA has been instrumental in bringing closure, transparency, and international investor confidence back to Ireland; and now the model of NAMA and its bad bank is being emulated by Spain. 

From a recent article in Bloomberg Business Week: “NAMA is viewed by international investors as having been a very good idea,” U.S. billionaire Wilbur Ross, whose WL Ross & Co. owns 9 percent of Bank of Ireland Plc, said in an e-mail. The strategy of focusing on U.K. sales first “provided near-term proceeds from a relatively stronger market while not flooding the Irish market before the sovereign had stabilized,” he said.

So now for the big question: will Ireland be "retroactively reimbursed" for its banking woes now that the ESM has been setup to divide the issues of sovereign debt with bank debt? The European Stability Mechanism, which some see as Europe's own IMF, initiated a mandate a year ago to directly recapitalize troubled banks. Needless to say this opens a huge possibility for Ireland to stake claim for such a recapitalization, and that would be relief for the Irish taxpayer that has been living in a state of high unemployment and domestic growth prohibition. As Finance Minister Noonan so perfectly described in his interview with Bloomberg TV when he quoted Ronald Reagan: "We took one for the team, and the team owes us now"  (see linked comments below)


What Ireland has truly given the world, and thankfully that trait appears to have withstood all the financial booms and busts, is some of the most articulate, colorful, and passionate writers and speakers over the course of the last few centuries as an almost obsessive angry retort to its historical struggles. The Irish commentators in the modern TV world have willfully indulged us and energized the tradition, as we see in the following clip of an Irish sports analyst who is obviously furious in a post-game recap about the style of play of a squad in a Gaelic football match.