Keith Mullin visits Dublin, but isn’t convinced by the dancing or the data.
I’VE BEEN IN Dublin for the past few days, technically taking a well-deserved break but at the same time curious to get a first-hand feel for the bombed-out but yet to be rehabilitated economy.
So what did I find? Well, I arrived in a city decked out with balloons and where the hotels were full to overflowing. Maybe the Irish had put balloons out to welcome visiting IMF dignitaries, I surmised, who were just here and who approved the latest €770m disbursement under the country’s Extended Fund Facility owing to good behaviour and sticking to the terms of the chunky bailout.
Or were the balloons were up to celebrate the Bank of Ireland’s €500m covered bond? The seven-year offering priced on Wednesday to rapturous applause having picked up €2.3bn in demand, adding to the increasingly alluring Ireland story – and assuaging concerns following Allied Irish Bank’s scantily covered €500m five-year offering that widened immediately in the grey market.
But thankfully Dubliners are not that sad: they were there for the All-Ireland Gaelic football final, which took place last weekend. Dublin beat Mayo by a point in front of 90,000 crazed fans at the city’s Croke Park stadium. On September 28, Clare plays Cork in the replay of the All-Ireland Senior Hurling Championship final. The Irish love their home-grown sports so the atmosphere has been fantastic.
As if sports weren’t enough, September 26 marked none other than Arthur’s Day, a cynical marketing ploy by Diageo but which the city has nonetheless taken to with typical enthusiasm in support of their long-time hero Arthur Guinness, who’s been brewing the country’s best-known export since 1759. The Irish don’t need to be asked twice to celebrate: even if domestic demand is generally weak, at least beer sales are going to be buoyant.
Even the weather in this usually grey rain-swept place has been unseasonably mild. “We’ve had such great weather of late that we don’t know what to do with it. We thought we might be able to sell it to reduce the public debt,” said one local. As a result, the bars have been rammed, as tourists continue to flood the “mock-typical” ultra-touristy Temple Bar district where there isn’t an Irishman to be seen other than those pulling €6 pints of Guinness in a city of eye-wateringly sky-high prices.
Talking to people in and around town, views are mixed as to the state of the economy. “Dublin has become a city of old people and babies; everyone else has just upped and left to find work elsewhere,” one local said. As an irony of sorts, I attended the world premiere of “Heartbeat of home: a dream voyage”, staged by the people who brought you Riverdance. Don’t ask…
The signs appear to be pointing to a resurgence of the economy, but the enthusiasm is a little premature
A GOOD GUIDE to the health of an economy, the theatre was ram-packed with locals raving at the country’s idiosyncratic brand of dancing: upper bodies stiff and immobile but legs a-blur and acrobatically whirring nineteen-to-the-dozen. The show was at the fabulous Bord Gais Energy Theatre, an iconic building in the city’s new docklands development outside the city centre that has sucked in huge amounts of development capital and which is fast becoming its newest business and leisure district.
Here’s the irony: the 2,000-seat theatre was only inaugurated in 2010 but the developer has run into trouble and the theatre is now in the hands of the National Asset Management Agency, the government work-out agency set up at the time of the crash to deal with the aftermath of the banks’ over-exuberant real estate lending.
To put the problem into perspective, NAMA acquired a staggering €71bn in dodgy bank loans from five Irish banks in exchange for government-guaranteed senior bonds. Getting back to the brass tacks of economic performance, the agency had initially forecast it would make a profit of about €1bn by its wind-down date of 2020. This has now been revised to break-even at best.
So even though the signs appear to be pointing to a resurgence of the economy – note that Dublin real estate prices are 10.6% up year-on-year – the enthusiasm is a little premature. The Irish economy grew by just 0.4% in the second quarter, according to IMF data, and that paltry growth wasn’t able to reverse a year-on-year contraction of 1.2%, owing to dipping exports and weak domestic demand – and that was despite a pick-up in employment (albeit leaving unemployment at a still-high 13.4%).
ON THE PLUS-SIDE, the prognosis is positive for the second half of this year and the fiscal deficit – at 6.8% of GDP – is on budget. But public debt stands at 123% of GDP and that number is going to take some time to come down. The IMF noted that Irish banks are returning to profitability but NPLs are still a staggering 26.5% of overall loan portfolios, and credit to the private sector is shrinking by –4.5% year-on-year.
David Lipton, the IMF’s First Deputy Managing Director is satisfied that the Irish authorities seem committed to the terms of the bailout. But he referred to the fragility of the recovery and says “remaining risks to debt sustainability, strong policy implementation and continued European support remain critical for the period ahead”.
The IMF is rightly concerned by the level of NPLs. The government has tasked the banks with hitting specific targets vis-a-vis mortgage arrears as we head towards EBA stress tests next year and amid complaints that the banks have adopted a head-in-the-sand approach to dealing with arrears.