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Full Report: Road Map for Financial and Fiscal Reform

Smart Taxes Network Report : Roadmap for Financial and Fiscal Reform

18 March 2009

Global Monetary Reform

The action points below are written within the framework of the current system with reforms that are on the agenda of national and international governance agencies.  In doing so we do not accept the current limited agenda but we recognize the practicalities of achieving a paradigm shift that requires time for existing remedies to be tried, run their full course and fail.  We also recognize the very limited scope that the Irish government has under the EMU rules. We wish to add our voice to support James Robertson’s manifesto to the G20 that could provide a long-lasting solution.

European Policy Innovations

While a systematic reform of the monetary system such as above is unlikely at this point, some major innovations previously unthinkable are now on the table. The UK central bank broke ranks to be the first in Europe to adopt ‘quantitative easing’, a partial creation of debt-free money to address its financial and fiscal crisis.  The rules currently prevent the ECB from buying national government bonds directly.  But commentators believe that it is only a matter of time before the ECB will be forced to follow suit   Firstly, German resistance to quantitative easing is eroding in the light of its own troubles i.e. the precipitous drop in demand for its exports from highly leveraged importing countries.  Secondly there is a serious danger of contagion if an EU member defaults on its bonds or becomes insolvent that could lead to the break up of the EMU.

Ireland will have to pay a high price for borrowing with significant conditions attached if the ECB has to come to the rescue with quantitative easing instruments.  It will by no means solve our problems and might add to them in terms of limiting government options. Quantitative easing will not of itself cause inflation of the euro in the current dangerously deflationary environment.  This means that Irish exporters loss of competitiveness due to the devaluation of the English pound and continued weakness of the US dollar relative to the euro will persist for some time to come.

However, fiscal and monetary innovation is still possible within the EMU – in fiscal mechanisms, in development finance and in complementary money systems that the Irish government can employ.  These can lighten the burden on taxpayers, foster solidarity between the public and private sector and increase productivity and competitiveness. We describe these measures in the following action points.

Banking & Debt Reform in Ireland

1    Nationalise AIB and Bank of Ireland as, together with Anglo Irish, these banks carry the biggest portfolio of impaired property development loans now guaranteed by the Irish government.
1.1    The market has not been appeased by government capitalization injections and guarantee scheme as it has lost confidence in the management and balance sheets of the banks.  Instead, the perceived risk related to these loans has transferred onto government bond issues threatening sovereign fiscal policy. As the government must borrow ahead prudently to provide for spending, this perceived risk should be addressed and minimised.
1.2    Further capital injections will be required before these banks will be confident to lend and lending needs to continue for productive projects. Public funds for capitalisation will have to be borrowed – a call on taxpayers resources for which they should get some share of an upside.
1.3    Finally there is the question of moral hazard.  There is no sign that the bank boards and senior executives have got the message that serious changes in their business models, governance and risk-valuations are needed. These will have to be imposed as part of regulatory reform backed up with action. This was well stated by Matthew Richardson in the case of the US whose banking sector is smaller than ours relative to GDP.

2    Separate out the impaired property development loans into a series of capital or equity partnerships, preferably LLPs (Limited Liability Partnerships).  Following the model described by Chris Cook of NET, the previous stakeholders in the development sites will be given a percentage in the Asset partnership reflecting the changed situation.
2.1    The new equity partnerships should develop the Irish sites to the highest sustainability standards.  Many of the sites are in high visibility central locations which can provide models for urban living.  The buildings should be redesigned to be net positive in terms of energy consumption in use and net negative embodied carbon constructed, with closed loop waste cycles, to a density and use mix adjusted to the new reality.
2.2    There is opportunity in this arrangement to offer some upside to shareholders in AIB and BoI and Anglo Irish, particularly institutional investors, who according to the Irish Association of Investment Managers  are the main opponents to nationalization although we note that most institutionals sold out of their holdings in Irish Banks in February. The real political sticking point is more probably the small domestic investors who hold a large proportions of their pension savings in form of banks shares. The asset partnerships generating rental returns as well as energy services will be very attractive to pension funds because of their secure and inflation proof returns.
2.3    Bondholders can be offered a swap for shares in the equity partnerships which are tax transparent or remain as bondholders in the nationalized bank and pay DIRT (Action point 8).
2.4    A potential pricing mechanism for evaluation of the assets assignable to the LLPs is being proposed in the forthcoming article by Professor Brian Lucey and Dr Constantin Gurdgiev, (see Appendix)

3    Require that the banks and lending agencies offer the option of swapping existing mortgage obligations for shares in an equity partnership created for property owners in repayment difficulties and with negative equity.  The equity partnership would be set up similarly to those for impaired property development sites as described by James Pike of the Urban Forum and RIAI .  The freehold would be transferred to a custodian member; the previous home-owner would not be required to vacate but could rent the property at an affordable rent and could build equity again by maintenance duties or by paying more.  The management company would also become an equity partner.

4    Tighten regulatory oversight on bank lending, capital ratios and reserves requirements similar to Canada’s that protected their financial sector from the worse effects of the crisis.  While financial losses were incurred and mistakes were made, as evidenced by the exposure of some Canadian firms to U.S. subprime paper, the degree of the losses experienced in Canada have paled in comparison to those recorded in the U.S. and European banking systems. This outcome supports the World Economic Forum assessment in October 2008 that Canada had the soundest financial system in the world, with a rating of 6.8 out of 7.  These were briefly:
•    High reserve ratios with a  median ratio of 9.6%;
•    Lower risk lending;
•    Subprime limited to 3% of total mortgages and no adjustable rate mortgages were allowed;
•    Long standing risk assessment systems;
•    The criteria for getting a mortgage did not change considerably during the real estate boom;
•    The investment banks in Canada folded into larger and more diversified institutions. Investment banking takes inherently more risk than retail and commercial banking, so the combination allowed the former to benefit from the lower risk balance sheets of the latter.
4.1    Require that the financial sector executive remuneration and non-executive board members fees do not exceed more than 8 times the average full time wage paid by the bank and that bonuses are similarly bounded and are based on long term sustainable profitability of the institution.

5    Launch a set of Government-incentivised special savings products offers (termed accounts, SSIA-type accounts and/or bonds) in order to generate investment in essential, economically viable infrastructure projects.  These projects, whenever invested into by the special savings schemes, must show a positive return on investment in
5.1    Energy terms i.e. EROI as described by Charles Hall
5.2    Environmental services i.e. carbon capture in soils, water conservation, biodiversity enhancement
5.3    Economic i.e. the added value accruing to either adjacent land or assignable to the proposed infrastructure.  Indicative investments would be upgrading and extending the distributed electrical grid and the gas grid to avail of renewable energy resources and/or to facilitate development of such resources.  Others might include second generation pyrolysis and lignocellulosic processing of organic and biomass inputs especially waste.

6    After these reforms are carried out the previously nationalised banks should be privatized again

7    The process of nationalization and re-privatisation would not be necessary were Bank Ireland and Allied Irish Bank willing to undertake the reforms above on an agreed basis.

8    Extend the DIRT tax to cover the bond holders in all banks covered by the Irish government guarantee as a first step.  Any resident creditor getting relief under the government guarantee should have to pay at least 20% DIRT unless invested under a special tax free incentive account like those run by the Post Office. As well as getting back some value for the guarantee and bringing institutional investors in line with private savers who have paid DIRT since it was introduced on 6 April 1986, this measure will clampdown on tax havens. DIRT should then be extended to all corporate bonds issued from now forward and to all new bonds issued by the commercial semi-state companies.

This reform can raise considerable immediate funds for the government as well as providing a relatively stable flow of funds in the future, reducing the risk of volatility in Exchequer receipts.

Climate and Energy Measures

9    Create an independent democratically elected (perhaps with reformed Seanad Eireann participation) Carbon Trust with authoritative scientific advisors and given the power to impose an upstream cap on carbon emissions from fossil fuels.  Permits would be required to import or mine fossil fuels (industrial peat extraction) using excise duty controls as per Feasta proposal and Comhar reports.  The cap makes the permits to produce or import fossil fuels  valuable and these permits are either distributed  to citizens or auctioned and the revenue distributed to citizens directly.  In this way, CO2 is discouraged by the price signal and investment in low carbon lifestyle and renewable energy production encouraged by the share out.
9.1    However, when the economy is in free fall the cap is likely to be higher than the actual CO2 emissions as fossil energy use declines in tandem thus the permits will have little or no value.  The second option of an auction of permits subject to a variable floor price that equates to an energy price that supports wind energy – made up of the fuel price plus the new permit price less the cost of the ETS CO2 permit should be adopted.
9.2    The requirement to purchase permits should be applicable to both the traded and non-traded sectors of the economy.  However, within the traded sector i.e. the sector comprising large fossil fuel users operating under the  EU ETS, account is taken of the ETS permit price.

10    Distribute at least 66% of the permit income to citizens as their rightful share or dividend of an essential commons resource.  This share also buys the political capital to introduce high energy prices needed to make the shift to renewables. When fuel and ETS permits are low, the citizens share could be circa €400-500 per annum, a significant stimulus for green economic devleopment. (see Appendix). This is very similar to the proposal The Cap and Dividend Solution presented by Peter Barnes before Congress 25 Sep 2008 that is under active consideration by the Obama administration. .
10.1    A significant portion (33%) should be retained by the Trust as a fully ring-fenced fund to provide investment for national infrastructure needed for their future low carbon economy.  These funds could be used to upgrade and extend the electrical and gas grid networks, insulation schemes for low income dwellings and public transport.
10.2    General revenue will be gained from the existing VAT on the higher priced fuels.

Land Value Taxation

11    Announce an annual land value tax (LVT) that will replace existing transaction taxes such as Stamp duty and development levies on property. This will accelerate the reduction in property prices that most independent commentators believe is required before recovery can take place. Most taxes distort economic decisions
11.1    If labor, buildings or machinery and plants are taxed, people are dissuaded from constructive activities, and enterprise and efficiency are penalised due to the excess burden of taxation. This does not apply to LVT, which is payable regardless of whether or how well the land is actually used.
11.2    Because the supply of land is inelastic, market land rents depends on what tenants are prepared to pay rather than on the expenses of landlords, and so LVT cannot be passed on to tenants in the long run.  The only alleged direct effect of LVT on prices is to lower the market price of land.
LVT is justified for economic reasons in the current crisis because if implemented properly, it will not deter production, distort market mechanisms or otherwise create deadweight losses the way other taxes do.   A correlation between the use of LVT at the expense of traditional property taxes and greater market efficiency is predicted by economic theory, and has been observed in practice.
11.3    As current decision-makers will be unfamiliar with the arguments and economics for LVT as property taxes were off-limits for discussion for so many years, the Smart Taxes Network has collaborated with the Urban Forum and others to commission TCD economist, Dr Constantin Gurdgiev to undertake independent research to provide
•    A preliminary research note on Property Taxation including Site Value Taxation. Deadline: April 30, 2009
•    Economic and policy impact analysis, including theoretical and empirical foundations for the proposed introduction of Property Taxation reform based on international evidence. Deadline: August 15, 2009

12    Require that all sale and rental property transactions are recorded accurately in a central database and published to inform the valuation office and the general public. Begin the valuation of city centres and all other commercial and industrial property where property records exist. Extend valuation to zoned development land based on its permitted use.
12.1    The annual land or site tax cannot be realistically imposed until a complete valuation has taken place of land in the country and all beneficial owners registered.
12.2    The Smart Taxes Network is working in collaboration with Dr Patrick Prendergast of Faculty of the Built Environment DIT on two research studies. They will combine to create a fully defensible, evidenced-based land value assessment system with the potential for real time review to provide the foundation of fair and effective taxation system. Two studies are planned;-
•    Macro – building a model using more generic data on the landscape; Timescale 2 year (initial draft September 09).
•    Micro – building a model using data from individual properties and extrapolating this information across a whole county. Timescale 4 years.

13    Replace rates on commercial and industrial premises by an annual land value tax (LVT) including on empty and derelict sites, public buildings and charity owned land with commercial zoning.  This reform is achievable in 2010 as the valuation information is currently available for commercial premises.  This measure will spread the rates burden over a wider base and remove the disincentives to upgrade and extend property of the current rates system.

14    Extend to zoned land while abolishing development levies and Part V contributions.  This is achievable in 2011.  Planning conditions for mixed income housing should remain and be reflected in the LVT valuation.  This will provide a regular and predictable income stream for local authorities to use to invest in infrastructure.  It would also end speculative buying of agricultural land and the pressure on councilors and officials to rezone prematurely.  Development levies and planning gain tax should be kept for unzoned land such as for one-off houses in the countryside otherwise they would be incentivised under this measure.

15    Replace stamp duty on all property transactions with LVT and extend LVT to all residential dwellings when valuation records and estimates are completed. This is achievable for Budget and Finance Bill 2012.   The LVT should be set at a level that corresponds with approximately 2% of land values at the top of the market in 2007.  This represents less than 1% of the capital values of properties at that time.
15.1    it should be pitched to raise after payment of housing benefit (se below) approximately 3 billion per annum. Home owners who bought in the last 6 bubble years should be exempted until their next property transaction.
15.2    Home owners who bought in the 6 bubble years should be exempt until the occupants buy another dwelling at more realistic price levels.
15.3    Home owners over the age of 70 could be offered the option of rolling up payment to be paid by the inheritors of their property for a transition period.
15.4    A housing benefit should be paid from LVT receipts to all adult residents that reduces effective LVT on low income home owners.  This measure offers the opportunity to reform and rationalize the system of housing supports into a equal single benefit to be used for renting or purchase in any of the private, public or not-for-profit sectors

16    Extend the LVT to all land in the state including farmland based on rentals yields and abolish all income tax on farming activities.  Achievable in 2012.  This can be introduced as a voluntary measure in the first instance but should be extended 100% as soon as adoption is more than 50% of active farmers.  A negative LVT (annual grant) for SACs and other biodiversity protected areas can be included in this reform.

17    When economic recovery begins, all increase in land values should be captured by an increase in LVT so that a property boom never has a chance to develop again, and rising LVT revenues allow for the reduction of taxes on income and businesses.

Address Contraction in the Domestic Money Supply

18    Initiate a top level group to consider the design and implementation of an emergency complementary currency to fill the shortfall of euro in circulation because of the overhang of debt and continued contraction of liquidity in the euro system.  This new money should not suffer form the defects of the euro i.e. it should not be debt-based and /or carry an interest charge.  Such a currency might be the ‘quid’, the unit of account of the Liquidity Network proposal under development by Feasta.
18.1    Instruct the banks to create a quid account for every business and personal customer to facilitate the new currency. Each person with a Personal Public Service (PPS) number will be asked to nominate a bank to operate their account. Once their account is open, it will be credited with some fixed amount of funds in the system’s unit, the quid. Accountholders will pay a monthly fee in quid based on the turnover in their account to cover the operating costs of the system. This issue would represent an initial increase in new liquidity issued in quid.
18.2    Support the creation of a Trust to operate the new exchange system which will be owned and controlled by the system participants. The Trust should be run by an elected management committee under a trust deed setting out the basis for operations, management and regulatory compliance. The commercial banks will operate the system under contract with the Trust.

19    Develop a system of parallel VAT taxation reflective of the quid-denominated transactions. Exempt quid earnings from taxes on income and profits as quid is a pure exchange currency and has no store-of-value function. It will be up to employees to agree with their employers how much of their wages they will take in quid. Similarly, shops and other suppliers will state what percentage of the price can be paid in quid. Quid cannot be regarded as wealth to be taxed.
19.1    Permit the payment of LVT at least in part in quid to establish the value of the new complementary currency.  This will have the effect of supporting business and retailers as euro can be conserved to purchase imported goods and to repay debt.  Systematically and gradually replace up to 30% of public sector euro salaries, pensions and social supports with quid as their acceptance grows.  This will allow the government to retain euro to repay borrowings and meet its EMU budget deficit targets.

20    Support the development of other mutual credit cooperatives, barter systems or peer to peer transactions backed by a mutual insurance pool.  These are likely to evolve to meet the need of businesses to invest in future production.   The Liquidity Network’s quid cannot be used for investment purposes as it is designed as an emergency currency simply to facilitate exchange.

Pensions Policy

21    Pensions-provision relief should be gradually reduced to reflect the new investment environment of higher systemic risks and lower economic growth in the medium and long-run future:  In the medium term, all pension taxation reliefs should be at the lower rate of income tax so that the well off do not benefit to a greater degree than the lower income groups.

22    Extend pension and other tax relief (at a lower 20% rate) to a wider selection of local investments such as renewable energy, municipal bonds for infrastructure which reduces Ireland’s dependence on fossil energy.  Energy production capacity is not inelastic like property and demand for it is effectively unlimited so it is unlikely that an asset bubble will develop.  Nevertheless, care should be taken to gradually introduce fiscal measures to match production capacity.

23    As a partial recompense for the pension tax relief moratorium, the Exchequer should use future injections of capital into Irish banking system as the means for repairing the balance sheets of the Irish households. This can be done by issuing stock options with maturity of 3-5 years on ordinary shares in the re-capitalized banks (with options preserved in the case of temporary nationalization). The value of options should be set at the equivalence of the 100% of the value of capitalization funds, and options should be distributed in equal amounts to all resident households. A special one-off rate of CGT at 40% should apply to all in-the-money options exercised on maturity (European style option). Thus, for example a three-year option with the total volume of options issued at equivalent €10bn would yield €2bn in Exchequer revenue in 2012, if the share prices were to appreciate by 50% between today and March 2012.

24    Reclaim the commons for its owners – the people – to establish the capital base for a dividend that will provide economic security for everyone, especially in old age.  This will start with Cap and Share for the atmosphere, Land Value Taxation for land and should be gradually extended to water, soil carbon and access rights etc.  The value of less tangible commons such as the money system can be shared through bank shares as above; ditto the broadcast spectrum should be auctioned and its value shared with citizens.  The virtual unlimited commons of scientific knowledge and culture should be protected from excessive enclosure by patents and copywrite so that it can continue to provide the creative open space to develop solutions for the challenges we face,.


Feasta; Foundation for the Economics of Sustainability
14 St Stephen’s Green
Dublin 2
Tel: 01-661 9572
Contact: Emer O’Siochru;
Project Manager Smart Taxes Network



Converging Crises


The rapidly collapsing world economy, and Ireland’s particular condition within it represent profound and immediate challenges. In addition, with our focus on crisis management we are failing to engage with the near-to-medium term risks of an energy induced systemic crisis that will dwarf the current crisis in consequences and complexity. Meanwhile, the risks associated with climate change are rising, while our efforts to manage those risks is under increasing strain.

The current economic crisis demonstrates the dangers of ignoring risks until a crisis emerges. The house price bubble, soaring debt levels, trade imbalances, and the dangers of complex ‘risk diversifying’ instruments were well sign-posted as a source of  potential systemic danger to the economy in Ireland and globally well before a crisis emerged.. The lack of preparation for such a crisis is manifest in the lack of leadership, slow response times, and an institutional knowledge gap that is apparent now in Ireland and elsewhere. And most of all it is apparent in the failure to manage the risks, through fiscal and other  measures when they first emerged, thus softening the impact or making the economy more resilient where an economic crisis to emerge.

We are now ignoring the huge immanent risks of a peak in global oil production. The consequences are likely to be far more devastating than the current crisis. A range of experts, now joined by the International Energy Agency are warning that as we emerge from this crisis we may be hit by a new spike in energy prices that will act to choke off further economic growth. The simple truth is that without increases in high quality energy inputs to the global economy, it cannot grow. And if energy inputs decrease, the economy must contract. This is an immediate risk and should be risk managed as such. The lack of policy integration on this issue suggests we have learned nothing about risk management from the credit crisis.

The likelihood is that the current crisis will merge into and energy and food crisis. Therefore we must endeavor to manage both. It might be argued that now is not the time to complicate the issue of managing the financial crisis, this is a serious mis-judgment. Firstly because the economic and social complexity of decision making is expected to become even more complex, especially as the energy crisis becomes apparent. Secondly, because we have more policy freedom now than we are likely to have in future. Finally, and most importantly, we need to begin putting in resilient fiscal and other policy tools now before the major consequences of the energy crisis become apparent, to soften it’s blow and ensure some security, as it may be too late in it’s midst.

Clearly, we must deal with the current crisis in concert. If we take the opportunity, we find that we can deal innovatively with the current crisis in ways that are adaptive to emerging risks.  This submission is part of The Smart Tax Network’s effort to draw policy proposals that deal with the current situation but that engage with evolving systemic risk. We are endeavoring  to develop prescient, adaptive, and resilient policy that serves the following objectives:

1.    Common Purpose
Recognizing that in times of increasing social stress there is need for policy that cultivates social cohesion and common purpose through fairness and transparency.

2.    Security
Aims to support human security in all it’s facets, including economic, physical, environmental.

3.    Realism about Ecological Limits
Acknowledging that human welfare, the economy, and civilisation, are on the cusp of major change arising from the unsustainable use of environmental resources and sinks upon which they depend.


The Irish economy is deteriorating rapidly. The inter-related stresses include an increase in unemployment of  69% in the 4th quarter of 2008 over the year; a budget deficit of over 10% while tax receipts are expected to drop by 9% this year after falling by 14% in 2008 ; an annualised decline in broad money supply (M3) in January by 6.7% ; and hanging over it all, a tower of debt. While the potential liabilities from developers defaulting on loans has received most public attention; it is our overall debt levels that are astounding. Debt accumulated by residents, banks, non-financial personal, and the corporate sector to the end of 2008 was €1.67 billion, eight times GDP, and in absolute terms greater than Japan, and a sixth of United States levels. The redemption’s in the period July 2008-July 2009 have been estimated at €300 billion , sucking purchasing power from the economy and entrenching our uncompetitive ness.

A deflationary spiral has already begun. Lending is dropping as businesses and the public loose confidence. Falling prices mean that customers are reluctant to spend, and falling margins put increasing strain on company viability. As money supply drops, and enterprise finance becomes scarcer, more and more companies are being forced to close.  As money supply falls and prices drop, the real cost of existing debt and repayments rises. Thus adding to the banks stock of bad debts, rising unemployment and shattered confidence.

In order for money to be introduced into the economy, it must be borrowed by public or corporations, spent into circulation by government, or we must export our way out while cutting imports. Achieving this within our current economic norms in the short-to-medium term would be heroic, and beyond the medium term, impossible. For the moment we will just look at the heroic option.

As we are one of the most indebted countries in the world. Per capita debt is of the order of €200,000, with an interest payment per annum of €10,000 assuming 5% interest. There is no scope for significant borrowing. While is has been noted that there are significant savings in the economy, these tend to be held by older people who are watching their wealth and pensions fall dramatically, and so are unlikely to take up the spending exuberance to the extent of the last few years. If house prices (currently about €258,000 and falling) were to fall to a long run average price of about 4 times household income (currently about €38,000 and falling), they would have a further 40% to drop. Businesses, even if not heavily indebted, are unlikely to borrow significantly in the face of an unprecedented global contraction, commodity and currency price volatility, and an indebted and fearful consumer.

And even if there was demand for loans, in what state are the banks to offer it? The government has propped up bank balance sheets with capital injections hoping to initiate lending generally, and particularly support struggling businesses with liquidity constraints. The extent of bad debts remain unclear, but with a loan book approaching €400 billion (some €90 billion to developers), it is not unconceivable that well over 25% may have to be written of, some unofficial estimates put expected Bank of Ireland and Allied Irish Banks total bad debts at €40 billion so far. It might also be noted that some of the most extravagant mortgage deals were given to civil servants who were seen as the most reliable clients, any significant cut in pay could trigger large-scale defaults. While payments could be rolled-over, the balance sheets would be impaired. Inter-bank loans are unlikely to make significant difference on the core issue (money supply), especially as the bond market is loosing trust in the government guarantee. As the economy and thus their balance sheets deteriorate further, they are far from being in a position to lend at the scale prior to the crisis.

However even were the banks shorn of their toxic assets as has been widely suggested in various ‘good bank/bad bank’ scenarios, and re-packaged as healthy and viable, the basic problem remains. We are too indebted. Coupled to this, holding onto cash in a deflationary market gives a real return, and less risky than investing in the distressed real economy. In this sense our liquidity trap and solvency worries are not primarily about being unable to lend, but rather that it makes little sense in the first place.

If the public cannot borrow to increase money supply, the government is in not much better shape. The bond market seems to be acknowledging that while the national debt/GDP is low, only 24.8% at the end of 2007, the solvency issue is about the country in general. Broadly the government can cut expenditure and raise taxes, leading to further contractions in money supply and employment, and in doing so take pressure off government finances. Or it can keep taxes low and boost expenditure, thereby increasing money supply and employment, but requiring an increased budget deficit. The classic solution is doing the former while devaluing the currency. Devaluation serves to make employment costs less painful by paying the same nominal wages but reducing their value. It would also help us service our debt. However, we are in the euro so this is not possible.

The state of government finances show little scope for a major reflationary stimulus. The Department of Finance’s borrowing requirements of approximately €20 billion this year are   unsustainable. The government had a deficit of 6.8% in 2008, and are expecting a deficit of 11% in 2009 and 13% in 2010 under a no change scenario, but with a considerable downside risk. As measures of far announced, including the pension levy amount to only 1.5% of GDP, it is questionable how far government can push against public expectations. If obligations are called under the bank guarantee scheme, then these figures are open to a large downside.

If the government has little choice but to borrow to cover our deficits..  This ability is beginning to be strained. A recent National Treasury Management Agency (NTMA) 3-year bond issue may have disappointed in terms of uptake and term, and still cost more than Roche or Barklays UK debt.  The cost of Credit Default Swaps on Irish debt are the nearest thing we have to an estimate if an Irish sovereign default risk, (need up to date figures on this).

The final conventional option is that we export our way out. Our trade surplus continues to grow as exports dropped by 4% from Jan-Nov 08 compared with 2007, and imports dropped 10% . However the destination of recent growth in our exports, in particular China, and Malaysia, are expected to experienced rapid contractions in economic growth, following a recent collapse in imports. Ireland’s current account is in deficit. The principal issue for this strategy of growth is that Ireland is chained to a debt requiring servicing and high cost pay expectations, while  global demand is in rapid decline.

As the euro precludes devaluation, what about leaving the euro outright? This has many advantage for both managing our debt, wage expectations, and competitiveness. It’s principle danger is that such a complex transition (involving bank software, cash printing, delivery) could not be kept secret, and would require the re-denomination of all accounts held. Such a process would lead to a flight of reserves from the economy, and a shut-down  of the bond market.

Default, Rescue and Detonation

Karl Otto Pohl, former head of the Bundesbank has said Ireland and Greece are in danger of defaulting on their sovereign debt, and may be forced out of the euro. He said “the exchange rate would go down 50 or 60% and the interest rates would go sky high because the markets would lose all confidence”. For ex-foreign minister Joschka Fischer , monetary union is beyond saving . Such comments are being heard more often. Beyond them lie the understandable protestations of why prudent Germans should bail out the profligate. It is clear however that preparations for a defaulting euro zone member are being made. Joaquin Almunia, the EU’s monetary affairs commissioner has confirmed  that “If a crisis emerges in one euro zone country, there is a solution before visiting the IMF” .

Avoiding the IMF may be just as well, for the institution is not capitalised to deal with a global systemic crisis of this magnitude. And it’s biggest members outside the eurozone, the US, Japan, and the UK are in little shape to play the white knight to problems on a scale that includes a euro crisis. The World bank has claimed that it and the IMP could be overwhelmed by the crisis .

The EU/ECB could help a member in trouble in despite the “no-bail” clause in the Maastricht treaty under Article 100.2 , which provides that “[w]here a Member State is in difficulties or is seriously threatened with severe difficulties caused by … exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned. …”t This would mean in effect the more solvent member states bailing out the insolvent  The problem for the EU is that the risk of a sovereign default of Portugal, Ireland, Greece, Spain, Austria, and the EU border states (Latvia, Bulgaria say) are not independent. Once one state defaults or finds no takers for it’s new debt in the bond market, contagion is likely to spread through already fragile market for sovereign debt. Coupled to this, European banks are exposed to a $4.9 Trillion loan portfolio to emerging markets, where confidence is plummeting. The net result is that once the dominos begin to fall they could spread rapidly beyond the six eurozone countries mentioned.

Germany and other ‘virtuous’ eurozone members cannot possibly manage a bailout on such a scale. If Pohl’s assumption of 50% over-valuation of countries in the ‘PIGS’ group is correct, then the virtuous members, should they decide to inject currency stability to restore competitiveness would face a massive popular backlash. Virtue would become suicidal as Germans would see all their savings and competitiveness vanish through inflation.   The heroic effort to manage this crisis will be manifest if out of the above array of bad choices we manage an orderly de-leveraging.

The real risk is that we crisis manage events until events finally defeat our ability to manage them. Rolling sovereign defaults will collapse the life-support system of the banks. Governments will be forced to slash current spending and public wages may go unpaid. We may have a currency crisis, balance of payments crisis, and severe risks of major social unrest.

Clearly the future course of events are becoming more uncertain. But the odds are on the downside, whatever that may be.  Because the risks are growing, however uncertain, it is imperative to manage them.

The Debt Delusion

The central contradiction within economic management within Ireland and elsewhere is that we need to initiate further borrowing within the economy to deal with the problem of too much debt. This statement exposes clearly that the central problem is a monetary one. In this respect, we are not  just referring to claims of derivative instruments upon debt, whose nominal value dwarfs the real assets behind them. We refer instead to the essential functioning of our monetary system.

Money is created in the economy as debt. Apart from cash, all money in the economy has been created by loans taken out somewhere else.  And because the debt has to be paid with interest, we must compete to service that debt out of a fixed money supply, or accumulate more debt. If we do not take on more debt as a whole, and old debt continues to be repaid, money supply contracts, and we get caught in a deflationary spiral. And if money supply expands through further borrowing, the debt and burden of debt servicing must rise in tandem.

If we are to repay those debts we must produce and sell more goods and services. That is to say, the economy must grow.

Debt itself is a call on the expectation of future growth. That growth is necessarily underpinned by an increase in energy and materials. The correlation between energy use and economic growth should come as no surprise, the evolution of human civilisation, from hunter-gatherers to the information age have been predicated on the quality and quantity of energy sources used. The growth and complexity of our civilisation, of which growing Gross World Product (GWP) is a primary economic indicator, is fundamentally a thermodynamic system. As such our economies are subject to fundamental laws .

The rise in oil prices in to nearly $150 in 2008 was almost certainly the major contributory factor to the bursting of the credit bubble. When the price of oil was $135 per barrel, the US was spending the equivalent of $1 Trillion per annum, equivalent to 15% of take-home pay for all tax payers. This does not account for the indirect rise in the cost of natural gas (oil price indexed), and food (fossil fuel dependent and competitive with bio-fuels). In Ireland, the bill for oil accounted for a 4.17% share of our GNP, and 7.61% of the value of our exports.

That economic growth requires growth in energy inputs to the economy should not be surprising. What should be surprising is that a near term continuous decline in global oil production has barley entered economic or policy planning. Ignoring widespread warnings of the dangers of house price inflation relative to income; escalating levels of debt; and the exotic debt dispersing instruments that lead to the current crisis was mark of our stupidity. Ignoring the immanent onset of peak oil/ gas, food insecurity, and climate-a systemic ecological crisis, is foolishness on an unconceivable scale.

Peak Energy

There are very good reasons for concluding that this assumption is about to break down due to the imminent onset of Peak Oil, severe natural gas supply issues, and Peak Gas. Recent research also questions the optimism surrounding coal supply. For clarity we will discuss peak oil only, however it should be born in mind that we face a full spectrum energy crisis. The attendant issue is what replacement energy sources are available, the quality of that energy, its cost, and to what extent it can be scaled up to replace the declining fossil fuel input and the increasing energy required by economic growth.

Peak Oil refers to the point at which the global production of oil can no longer increase. It does not mean oil has run out, but that after this point net production will go into decline. There are many factors that may hinder oil production, including geo-political conflict and under-investment in production. However the fundamental point about peak oil is that it is based on geological constraints, not on temporary factors. A rise, peak and decline in oil production has been seen in many local contexts, oil production has been in decline in the lower 48 states of the US since 1971 as predicted by M King Hubbard; and in the UK’s North Sea fields, since 1999. In both cases neither higher oil prices nor new technology arrested decline; decline is the inevitable consequence of production .

It is almost universally agreed that peak oil will occur; the debate is about timing. Some believe that we are on the plateau of a peak today; at the other extreme, that it may not happen until after 2030.  The majority suggests the peak will be prior to 2012. There are provisional grounds for assuming we are on a plateau at present, with little hope for further production increases, and growing risks of permanent decline. The International Energy Agency (IEA)  recently reversed its over-optimistic production forecasts (really an assumption that production would follow demand) when it warned of a looming supply crunch. They argue that six ‘new’ Saudi Arabias would be needed fill the gap between economic growth implied demand, and depleting old field production by 2030, a feat which they suggested was exceedingly unlikely.

The decline rate could lie between 3% and 12% according to various estimates. What is important is the combination of production required for growth, plus the decline rate, plus the extra energy cost of bring production to market. The last issue is of immense importance as it reflects to growing energy cost of exploration and production as fields get smaller, are found in more difficult locations, or require very energy intensive processing (such as from tar sands) . We can get a sense of what such a drop might mean by considering that the Food and Agricultural Organisation (FAO) food price index rose 140% between Feb 2002-Feb2008, with both the World Bank  and Goldman Sachs  attributing the main part of that rise to biofuels. Yet this represented only 1.5% of global production of liquid fuels, and less than 1% in energy terms.

Oil forms 40% of energy traded and over 90% of transport fuel globally. Ireland has the third highest oil consumption per capita in the EU, arising from its use in transport and electricity generation, though in the latter case it is being phased out. This makes Ireland very sensitive to oil price shocks, and peak oil in general.

We have large complex infrastructures and capital invested in our current energy generation, distribution and modes of use. The transition from our current patterns of use to a new form would be time consuming and expensive. Robert Hirsch has emphasized the rate of turn-over of capital stock as 9 years for road transport stock, and 22 years for aircraft. Because our economy and spatial development is so dependent on car use, adapting to a sudden change would be very difficult by reversal or adaptation. Hirsch suggests we would need 20 years prior to the onset of peak to prepare for the transition; thus 10 years would be very difficult and traumatic . Hirsch did not do a fundamental economic analysis of the effects of peak oil, however our work in this area suggest that the transition is likely to be far more traumatic than even he suggested.

The fundamental thermodynamic issue is that the economy will not be able to grow without increasing energy inputs. Indeed, the complex structures that evolved as part of our civilisation will begin to disintegrate without the energy required for their maintenance.

Economic Impacts of Energy Decline

We outlined earlier that in the medium-term getting out of our debt crisis even with heroic efforts would be nigh impossible. Our debt-based money system, and the inability of the economy to grow due to peak energy is the explanation.

The interlinkages between economic growth and energy prices is likely to mean that we will not notice when we have passed the physical peak of global oil production, but rather a point will come when the ability of our economy to continue to grow will be chocked off by energy price rises, leading to a further depression, and so on. We may have a cycling between smaller spurts of growth and higher energy prices followed by deeper depressions and falling energy prices, until growth falls away to ongoing depression.

In the context of our current crisis, we will find that as the economy begins to recover, energy and food prices rise, choking off further growth. Or as the economy continues to decline, energy and food prices rise, driving the economy down further.

As the peak of global oil production is felt, quoting the price of oil may obscure the changed context of what such a price might mean. Clearly quoting an energy price requires faith in the value of the money in which it is quoted. The facilitators of economics and trade, such as liquid cash, credit, bonds, and equities, currency exchange; and the institutional structures such as banks, markets and infrastructure will become increasingly insecure and volatile.  In such a context, price might be more meaningfully measured in relation to an asset of direct use. However , in short, when we refer to higher prices we will assume it is measured relative to wealth.

Rising oil prices, will lead to increasing energy prices in general. Food production, already suffering the effects of climate change, water access, and declining marginal returns on agricultural production is very vulnerable. The whole food life-cycle is fossil fuel dependent, from fertilisers, irrigation pumps, and tractors, to packaging and delivery. More and more of personal income will have to go to pay for energy and food, and thus declining discretionary income will lead to business failure and growing unemployment. Businesses will close, but it will be harder for large-scale new businesses to form as there will be little credit and debt available, and international trade for both imports and exports will be more difficult.

Financial and trade risks will tend to favour smaller businesses with low capital costs, especially ones that service new markets such as repair and re-servicing; energy and food production.

As economies cannot maintain growth, our claims on the future of economic growth in the form of debt will become unpayable. Losses on government bonds, corporate and household debt will grow. Banks will be unable to lend, as bad debts eat into their capital, which itself becomes uncertain and their customers’ economic future becomes more risky and insecure. Indeed, the collapse of the whole banking and financial system would be expected. The unwinding of debt will mean:

•    A deflationary spiral within currencies.
•    A growing number of sovereign defaults and a collapse of the bond market.
•    Governments will not be able to reflate through debt.
•    Growing defaults of personal and corporate debt.
•    Growing number of bank insolvencies.
•    An inability to access credit.
•    Collapse of the long-term debt financing market.
•    Exchange rates becoming volatile and opaque.
•    Increase in risks of hyperinflation.

One of the most severe risks is that our financial and banking system freezes arising from a global insolvency crisis. The result of this could be a spread of insolvency risk and illiquidity to the trade in real goods and services. Every trade that does not involve cash requires bank intermediation, and the longer and more complex the supply chain the greater the density of bank interactions. If Letters of Credit cannot be issued, and the solvency of state and financial counter-party cannot be established, a rapid freeze in international trade is the likely result. This could shut down manufacturing across the globe as components in production chains would not be delivered. This is particularly problematical when we rely on just-in-time delivery for essential goods, food for example. It is estimated that there approximately three days in system food in the country.

Lest this be seen as far fetched, we have already seen glimpses of it arising from the crisis so far. John Whelan, CEO of the Irish Exporters Association warned in November :

“In a period when credit is restricted from the banking sector internationally, and lack of export credit insurance means that it becomes almost impossible for Irish exporters to trade in these markets”

A collapse in the Baltic Dry Shipping Index, which measures costs of shipping mainly commodities such as ore, cotton, and grain by 93% at the end of 2008 was said by Klaus Nyborg, Deputy CEO of Pacific Basin to have been partially due to tighter credit .

International Trade & Balance of Payments

While the costs of international trade may increase, the principle problems are not direct but indirect. The collapse on much of the financial system will mean that exporters and importers will have increasing problems securing payment and credit. Even if payment is secured, the unit of account such as the dollar or euro may seem to be increasingly risky.  The most vulnerable goods and services are the ones that are most complex; they have complex supply chains that are highly optimised; they have limited replacement companies for key components (because they are very complex, proprietary technology, high value, small throughput).

The possibility of governments running current account deficits based upon debt will become increasingly difficult. As general imports and exports drop due to the demand destruction, the key traded goods are likely to be energy and energy infrastructure, food, and critical infrastructure and basic needs supports. For countries unable to export these sorts of good and services in high enough volume, they could face an inability to pay for important imports. The result could mean energy or food shocks, as well as various types of system failure.

David Korowitcz
Feasta ;Foundation for the Economics of Sustainability
14 St Stepehn’s Green
Dublin 2

APPENDIX 2: Towards an Irish National Equity – a Manifesto


APPENDIX 3 : Tax & Share


The imposition of a carbon levy is expected in the budget. It is likely to work as, and be seen as merely a method to raise government income. To put in an efficient carbon tax, the value would have to be very high, which would be clearly unpopular with the public and business.

There is another way, one that provides income for government and supports a high carbon tax by returning income to citizens. Some of the economic effects will be similar to those covered under the Comhar commissioned report into Cap & Share, with which this method has many similarities.

In one example described below,  a 90€ t/CO2 tax, with the ETS permit price of  10€ t/CO2 would give the government a revenue of €1,049million, plus €675 million for direct investment (including €204 million for the National Oil Reserve Agency, as recommended by a recent report to the DECNR); and finally every adult in the country would get a cheque for €443. The effect would be to raise energy prices across the economy. For example, petrol prices would rise to €1.33/L, and diesel prices to €1.27/L.  The citizens dividend would compensate for the general rise in energy prices, though the net costs (and price signaling) would be felt more by higher carbon users.

Tax & Share is an upstream carbon tax applicable to both the traded and non-traded sectors of the economy. A common tax is charged, but account is taken of EU-ETS permits held by the tradable sector. As the right to emit greenhouse gasses is seen as a commons right, some of the income is returned to citizens as a dividend. It is designed to return income to government, and to develop alternative energy sources. The effect of the tax will be to raise energy prices across the economy.

This system has a number of advantages:

•    Give a price signal for energy and carbon that will reflect their future scarcity so that businesses and individuals can adapt now. This includes the near-term future.
•    Give a proper incentive for alternative energy development, and encourage inward investment. This, if enacted in a timely manner will benefit from a collapse in alternative energy infrastructure prices, a situation which may not last long.
•    Increases Government revenue substantially.
•    Give buy-in for citizens who receive direct cash payments in a fair and transparent manner. Because there is a direct citizens dividend included, the carbon price can be set high. This  dividend will help compensate for higher energy prices.
•    Because the carbon tax from the non-traded sector is returned to the citizens, it mainly serves to re-distribute wealth from high carbon users to low carbon users. As low carbon users tend to be poorer, they are more likely to spend that revenue directly into the economy.
•    Increase support for the National Oil Reserve Agency to invest in storage capacity and take advantage of low international oil prices.
•    It pushes forward our climate change goals.
•    It will act to suppress our energy imports, helping our balance of payments.
•    Is an easy system to administer.
•    The scheme would work well in conjunction with an asset backed finance (LLP) scheme.
•    It would be very adaptive in conjunction with a complementary currency, and as the foundation of a citizens income.

The System

A. The Carbon Tax: Traded Sector

The system covers the traded and non-traded sectors of the Irish carbon economy. It is an upstream system. It does not include land based emissions or agriculture.

A tax rate in €t/CO2 is chosen, and paid when it is introduced into the economy. For the traded sector they pay a moving price equal to the carbon tax-EU-ETS permit price. For example, last year the EU-ETS permit price was nearly €30t/CO2, today it is €8 t/CO2. Thus natural gas being brought into Ireland today, assuming a €40t/CO2 carbon tax  would pay €32 t/CO2 in lieu of resultant downstream emissions.  If on the other hand our national carbon tax is €10 t/CO2 and the EU-ETS permit price is €40 t/CO2,, no tax revenue is taken by the state.  Such a tax would be easy to administer as the sources have already been monitored under the National Allocation Plan.

The argument for including the traded sector is firstly, that the permits they received under the ETS were allocated free. Secondly, that the main holders of allocated permits are power generators (64.6%) , where there is not direct competitive pressure causing leakage (except from alternative energy sources, but this is a very small sector of power generation and one we are trying to encourage).Finally, energy providers are among the most economically resilient industries in the current market. The second largest group are the cement producers (19.1%). As production has dropped considerably due to the collapsing economy throughout the world, most of these companies have a large surplus of permits, essentially money for nothing. The final traded market segment (16.3%) is quite diverse, but again the permits were free, and it is economically important that the sector move in the low energy/carbon direction

The total quantity of allowances for the traded sector in the 2008-12 period is 20.1Mt CO2 per annum.
The resultant revenue for various carbon tax rates, assuming various ETS permit values is shown in table:1.

Carbon Tax
€t CO2    0    10    30    50    70    90
ETS Price
€t CO2
0    0    201    603    1005    1407    1809
5    0    100    502    904    1306    1708
15    0    0    301    703    1105    1507
25    0    0    100    502    904    1306
35    0    0    0    301    703    1105
45    0        0    100    502    904

Table:1 Total Carbon tax revenue for traded sector only in € millions.

This system encourages government to set a higher tax than the expected range of EU-ETS price movements. However, for traded sector companies their ETS allocations are acknowledged.

B. Carbon Tax: Non-Traded Sector

We are only considering transport part (not aviation) of the non-traded sector. This means that additional income could be easily generated using the same system in other non-traded sectors.

Carbon is added as an upstream tax added to oil and diesel imports. Carbon tax is added in the following chain:

Purchase price petrol/diesel= Cost+Excise duty+Carbon Tax+ NORA levy+VAT

This is simple to administer. In the following models, we have increased the National Oil Reserve Agency levy from 1% to 2%, this is to reflect the increased investment required to manage growing risks from energy shocks.

€ /tCO2    0    10    20    30    40    50    60    70    80    90
Petrol    101    106    109    113    116    119    123    126    129    133
Diesel    97    100    104    107    111    114    117    121    124    127
Table: 2 Price in cents for fuel under a carbon tax. Excise duty and VAT assumed constant. NORA levy up 1%.

€ /tCO2    0    10    20    30    40    50    60    70    80    90
C Tax €M    0    120    240    360    481    601    721    841    961    1081
Additional VAT €M    0    34    61    87    113    140    166    192    219    245
Table 3:  Revenue from Carbon Tax on petrol/ diesel, and additional VAT arising in cents..

For market efficiency we expect a single tax across traded and non-traded sector.

The Share

The following is proposed as an essential part of the scheme. All the revenue from the carbon tax derived from petrol/gas is returned directly back equally to all citizens in addition to a share (to be determined) of the revenue from the traded sector. This is understood as a citizens dividend or income deriving from the use of a common resource (earth’s ability to absorb CO2). Their PPS numbers are used as an identifier. However, the share for children under 18 is put into a Future Fund or Children’s Fund. The Future Fund is designed to invest in resilient infrastructure with a focus on direct stimulus.

The government retains the revenue from increased VAT on petrol/diesel and half of the revenue from the traded sector. In the model we assume petrol and diesel use has dropped to 4500ML per annum, with an equal split between fuels.

Direct Government Revenue

The government revenue is made up of (say) half the revenue from the non-traded sector plus the increase in VAT receipts.

Thus if the ETS permit price remained at €10 t/CO2 , the carbon tax was 60€ t/CO2 and the government share of the traded-sector revenues was 50%, then the additional direct revenues would be:

50%x €1.005billion (Non-traded)+€166million VAT (fuel)=€668 million

or for a 90€ t/CO2 tax, with the ETS permit price of  10€ t/CO2 then the additional revenues would be:
50%x€1.608billion (Non-traded)+€245million VAT=€1,049million

Citizens Income

Continuing the example from above, they share:

50%x €1,005billion  +€721 million=€1,223million or €287 per capita

As approximately 25% of the population are under 18, their share goes to the Future Fund.

If the carbon tax was 90€ t/CO2 then the citizens dividend is:

50%x€1,608million+€1,081million=€1,885 or €443.5 per capita

Investment Income

The additional investment income using the same examples as above comes to:

25% x €1,223 million (Future Fund)+ €51 million (additional NORA levy)=€357million

and with 90€ t/CO2 tax, and 10€ t/CO2 ETS permit price

25%x€1,885 million (FF)+€204 (NORA)million= €675 million

The Future Fund

We suggest that the Future Fund could underwrite local energy initiatives using an Limited Liability Partnership (LLP) model, the securitised output of which could be used as pension units.

David Korowitcz
Feasta; the Foundation for the Economics of Sustainability
14 St Stephen’s Green
Dublin 2
Tel: 01- 661 9572



To date, the prevailing discussion internationally on how to rescue failed Banks focused on repairing the damages done by the symptoms of the malaise afflicting their balance sheets. This is however, ignores the underlying cause of the problem – the deterioration of the capital base caused by the ongoing worsening in their assets base. In other words, putting it into Clintonesque terms, “it’s the bad assets, stupid”.

For now, the policymakers have absolutely no plan or even a faintest idea as to what can be done to remove these bad assets off the banks balance sheets. About the only means that we know of for doing this is by establishing a ‘bad bank’ – a pool of non-performing or stressed
assets, taking these off the banks balance sheets. Two main problems then arise:
(1)     Who pays for the assets to be removed, and
(2)    What is the value of these assets?

In the US, the Treasury Department has launched a program to use “stress tests” to identify, in advance of heir reclassification as being impaired, the bad assets. The approach relies on financial models that estimate future loan values and loss rates under different economic scenarios. This gets the Treasury into the game by identifying which institutions will need help first.

Ireland is yet to make even this first step, but currently neither the CBFSAI nor the DofF have the capacity or institutional competence to develop and administer such model-based testing procedures.

Even were CBFSRIA and the DofF to overcome their ingrained reluctance to hire external professional specialists, and bring on-board staff that can actually think in terms of risk-pricing relations, there remains a nagging problem of pricing the stressed assets. The problem
here is that the price must reflect two conflicting objectives:
•       set the prices too low and the banks will have to be forced
into parting with the threatened assets;
•       set the prices too high and you will get a transfer of wealth
from the taxpayers to the banks shareholders.

In other words, if there is no market mechanism for pricing these assets, and as of yet there is none, there is a significant risk of creating more damage via the ‘bad bank’ system.

In the US, this is precisely the reason as to why the original Secretary Paulson’s plan for buying impaired assets has failed.

This is a non-trivial problem, given that, based on the Anglo Irish Banks results for 2008 some 12.5% of their ROI loans have seen severe stress increases in just one year. We define such as the loans becoming either non-performing, stressed or rolled over with little chance of repayments starting any time soon. Making this a lower bound of the true state is the facts that:

(1)     loans under threat in 2008 will almost certainly remain under threat or deteriorate through 2009-2010, so the effect is a cumulative one;
(2)     at least the first quarter of 2008 was still consistent with a relatively benign trading environment; and
(3)     the economic troubles underlying the rapid asset quality deterioration are set to deepen and intensify in 2009.

Many estimates of future impairment charges for the banks are currently running at 4-5% for 2009. Recognizing the fact that an officially impaired loan has a number of non-impaired, but also non-paying loans behind it leads to a conclusion that something to the tune of 12-15% of the entire asset pool of the banks in Ireland are under stress.

We know nothing now about the recovery rate on these assets. But, as the Financial Times reported globally, AAA rated CDOs carry the recovery rate of only 32% on face value, while for mezzanine vehicles the recovery rate is only 5%. Now, given the perilous state of Irish economy, and the extent of the property-related exposure for Irish banks one can guess that the recovery rate on our development and real estate-linked loan books will be at best in the neighbourhood of average AAA-rated CDO paper. If we assume that  non-default probability of our private sector assets is at least as good as that for the government debt (a very optimistic assumption under the normal circumstances) we see as reasonable a 65% recovery rate on the development and real-estate loans.

This estimate is an approximation, but it is close to the historically based expected housing and commercial real estate prices contraction for this cycle. Taken across the banking loans books the above recovery rate implies a bad assets pool of  14-15% of the entire loan book of Ireland Inc. Again, the above number is in the ballpark with the 12-15% estimate  of the size of the problem arrived at from the Anglo Irish Bank results, giving the estimate more comfort.

In summary, the pool of potentially toxic assets on Ireland Inc banks’ balance sheets is a gargantuan 12-15% of the €350bn in outstanding credit relating to household finances, real estate-linked activities and the financial corporations as of December 2008 , a sum of c €42-53bn in assets that might  be in the need of moving off the balance sheets of Irish and other resident financial institutions. For anyone who thinks that 12-15% write-down on existent pool of credit is an unrealistic assumption, a recent McKinsey study showed, in the case of the US, that out of $2 trillion of impaired assets the eventual write-down on the book may total ca 67% or $1.5 trillion).

Removing such toxic assets off the banks balance sheets is imperative.

How can these toxic assets be valued in the current market conditions? Assets on bank balance sheets are valued either at hold-to-maturity value or at fair value. Both frameworks fail in the current environment. Hold-to-maturity framework requires continuous payment of interest (if not principal) – something that is increasingly under threat as developers, business owners and households are starting to default on their debt. Interest rollups are now common – out of sight and out of mind, but not out of the woods. Absent an active markets for loans, marking to market fails and fair value accounting simply does not work.

Thus, creating a functional market for both types of assets requires marking the value of these loans to some model-based pricing. The choice of a particular model for pricing will determine the winners and losers in the process of trade. Purchasers naturally want to price to a model with extremely risk-sensitive assumptions, lowering the price of securities to near zero. This should include the Exchequer engaging in purchasing such loans to create a ‘bad bank’. The banks, as the sellers, would prefer the opposite, arguing that any risk-related assumption for valuing the stressed or non-performing loans should be based on current publicly available impairment charges – the levels that are unrealistically optimistic. Thus, neither side has an incentive to reach an equilibrium until the moment the risky loans become actually a drag on the bank’s balance sheet, by which time it is of course too late.

One solution to this problem is that the Government can set up a quasi-voluntary scheme that would establish a functional resale market for the risky (non-performing, impaired and at risk) loans. To do so, the Government should set a basic level of discount (fixed on the assets valuation at the mark-to-discount date of the Government scheme announcement to prevent future manipulation of the fair value by the banks) on the assets based on their quality.

For example, at risk loans with interest and principal non-payment of less than 3 months can be sold at a fixed discount of, say 10%, while non-performing loans with interest and principal non-payment of between 3 and 6 months can be sold at a fixed discount of 20%.. Non-performing loans with interest and principal non-payment in excess of 6 months can be traded at a 40% discount.  Once the discounted asset is sold to the Exchequer or the ‘bad  bank’, the shareholders will absorb the write-down (10-40%) via a hit on the share capital and/or other provisions.

The Exchequer in return converts its preferred stock in the specific bank to common non-voting shares for the amount of the discount taken, thus recapitalizing the bank balance sheet. The Exchequer-held non-voting common shares should be convertible into ordinary shares on the day of their future sale by the Exchequer. For institutions with no existent Government shareholding, the Exchequer will swap the discounted price of assets for common non-voting shares in a form of new capitalization.

The advantage of this scheme is that involves a voluntary decision by the banks as to which loans they would want to sell, alongside an incentive structure for them to actually put potentially toxic loans on the market. The clean up of banks balance sheets will be systematic and will proceed in an orderly and non-distortionary manner.

The taxpayers exposure to the scheme is also well underpinned by the fixed discount and by the increasing common share holdings.

Finally, the scheme offers flexibility to address any future deepening of the crisis. Should loans performance across the banks books be imperiled further, the Government can simply reset the discount amounts and/or mark-to-discount date to either increase or decrease incentives for the banks to put loans for sale.

One potential problem is that for banks that have insufficient existing capital the state may be required to do an initial recapitalisation to allow the banks to write down. This should be done as much as possible via ordinary (non-voting) share capital.

Perhaps the best aspect of the scheme is that the Government will be relatively well protected from any overpayment for the toxic assets it buys through the scheme. This is so because the Exchequer, upon buying the discounted loans will also take up an increased shareholding in the banks. Thus, its shareholdings will rise in value if the assets it bought from the banks were under priced relative to their true value (or in other words, there is an upside to the Exchequer from an upside to the bank). Alternatively, if it underpays for the assets, it will benefit from stronger recovery when the assets are held to maturity.

Dr Constantin Gurdgiev is Adjunct Lecturer in Finance and Brian Lucey is Associate Professor of Finance, School of Business Studies, Trinity College.


APPENDIX 5: Land Value Tax (LVT)

The current financial crisis has added urgency to the original objectives of the Commission on Taxation ; to keep the overall tax burden low and implement further changes to enhance the rewards of work while increasing the fairness of the tax system as well as to provide a better method of funding for local government.  We believe that these objectives point inexorably to annual land value taxation.  But while many leading economists and politicians agree that LVT works in theory, the political and logistic barriers have always been overwhelming.. Political barriers to property tax reform are now crumbling. The precipitous loss of revenue from the transaction-based taxes in the downturn has created an urgent need for a sustainable replacement that will not impede productive investment and economic recovery. Only annual land tax has the potential to deliver this result.

Most taxes distort economic decisions If labor, buildings or machinery and plants are taxed, people are dissuaded from constructive activities, and enterprise and efficiency are penalised due to the excess burden of taxation. This does not apply to LVT, which is payable regardless of whether or how well the land is actually used, because the supply of land is inelastic, market land rents depend on what tenants are prepared to pay rather than on the expenses of landlords, and so LVT cannot be passed on to tenants.

Figure 1: Perfectly_inelastic_supply.: A supply and demand diagram showing the effects of land value taxation. Note that the burden of the tax falls entirely on the land owner, and there is no deadweight loss.

The only alleged direct effect of LVT on prices is to lower the market price of land. LVT is justified for economic reasons because if it is implemented properly, it will not deter production, distort market mechanisms or otherwise create deadweight losses the way other taxes do.  Nobel Prize winner William Vickrey believed that “removing almost all business taxes, including property taxes on improvements, excepting only taxes reflecting the marginal social cost of public services rendered to specific activities, and replacing them with takes on site values, would substantially improve the economic efficiency of the jurisdiction.”  A correlation between the use of LVT at the expense of traditional property taxes and greater market efficiency is predicted by economic theory, and has been observed in practice.[

We urge the government to recognize that acute expression of the financial crisis in Ireland is a land value boom and bust caused by lack of land taxation combined with excessive debt-based credit.  A large part  the solution therefore lies in implementing an annual land value tax as soon as is practically possible.

We accept the current generation of decision-makers will be unfamiliar with the arguments and economics for LVT as property taxes were off limits for discussion for so many years.  To rectify this, the Smart Taxes Network is collaborating with the Urban Forum and others to commission Dr Constantin Gurdgiev to undertake independent research in the field.  Two main deliverables are planned;

1    Preparation of the preliminary research note on Property Taxation including Site Value Taxation, identifying the need and the scope for policy reform in relation to sustainability objectives and containing a broad outline of proposals for national and local government fiscal reform. Deadline: April 30, 2009

2    Economic and policy impact analysis, including theoretical and empirical foundations for the proposed introduction of Property Taxation reform with particular reference to an Annual Site Value Taxation in Ireland. This stage will extend also to cover assessment of international evidence on the efficiency and effectiveness of Annual Site Value Taxation with references to other kinds of local taxes including general property taxes. Deadline: August 15, 2009

A colloquium of professionals and decision-makers to discuss property taxes will be hosted by the Urban Forum for the 1st of April and the School of Philosophy and Economic Science has orgnaised a public lecture by Fred Harrison author of Boom Bust on land economics for the 2nd of April in Trinity college.

Considerable logistical and methodological barriers due to years of neglect also need to be overcome.  Ireland does not possess a full register of land and property ownership; property parcel boundaries are not fixed and information of property sales and rents have not been collected systematically since the abolition of rates.  The inconsistencies that built up due to infrequent rate revisions led to the unfairness that fed the impetus for their abolition.  The methodology for assessing land values from property sales and rentals is well understood but has to be set out so that the public, the social partners and politicians can evaluate its accuracy and fairness.   New technology in the form of Geographical Information Systems has transformed the possibilities of quickly correcting these interlinked informational deficiencies.

The Smart Taxes Network is working in collaboration with the Dr Patrick Prendergast of Faculty of the Built Environment, Dublin Institute of Technology on two research studies. They will combine to create a fully defensible, evidenced-based land value assessment system with the potential for real time review to provide the foundation of fair and effective taxation system.  They will also provide a roadmap and timescale for the valuation of the entire country land resources to inform government action.

Two studies with two approaches are planned;-
1    Macro – building a model using more generic data on the landscape, such as: CSO census data in conjunction with the new small areas; Public transport routes and nodes (actual and planned); EPA land cover maps and soils maps including CORINE to distinguish scrubland from productive agricultural land. This information will be supplemented with: National and local authority datasets relating to conservation areas (SACs, SPAs, NHAs, etc.); Local Authority land use classifications; DTM to create aspect and gradient maps; Water features and forested areas. Timescale 2 years.

2    Micro – building a model using data from individual properties and extrapolating this information across a whole county. The minimum information needed is expected to include: House type, number of bedrooms & building area; Market price (asking price for sale) & sales history for similar houses in area; Property location – address + coordinate; Local Authority land use designation; Site area.  Timescale 4 years.

Preliminary Proposal for Introduction of Land Taxes

An annual land value tax based on an up to date appraisal of land values should form the foundation for local government.  This LVT should ideally fall on every land parcel at the same rate we suggest about 2% of  the current capital value of the land.

In some cases where substantial infrastructure is required, the local land and property owners could be canvassed to see if they would agree to a further charge based on the land value created by the investment in order to finance it i.e. civic bonds.  All Impact Assessments for transport should consider land value impacts and should not proceed if the land value upswing does not justify it.

Windfall taxes on development land gains at the point of sale or development have never succeeded in the many instances where they were introduced as they can be evaded by avoiding the transaction.  The ‘Use it or Lose it’ proposal is a very unwieldy and probably discriminatory mechanism to claw back planning gain windfalls unless ALL zoned development land in both urban and rural areas comes under the proposal.  Targeting some landowners over others is invidious and constitutionally suspect.  The purchase cost of the land even for agricultural plus 25% value would absorb a huge allocation of scarce fiscal resources.

The LVT should replace Section 48 and 49 levies and would provide a more flexible, predictable and fairer mechanism than ‘Use it or Lose it’.  It could immediately raise revenue for local authorities to provide energy, waste, educational and transport infrastructure for local communities.  It would also reduce pressure on elected representatives to over zone or rezone prematurely for development.


1    Transaction taxes such as stamp duties, VAT and sales taxes inhibit proper market functioning; are an inducement to the grey economy and should be phased out and replaced with annual land taxes and other commons use charges etc.

2    A cadastre of real property should be immediately developed as required by the UN CSD 16 and the EU INSPIRE Directive.  All property should be registered according to fixed GIS locations; all transactions notified to a central resource; inputted into real time land value map to assist market functioning, prevent fraud, planning corruption and establish the basis for annual land value taxes.

3    An annual development land tax of about 5% of the upswing in value due to designation should be immediately introduced on zoned green field development land in replacement of section 48 levies, discounted by Section V and other planning contributions.

4    An annual land value tax representing circa 2% of capital value of the land element of property should be phased in as follows; to replace commercial rates, on second homes, on rental property, on charity and public land, on all residential land, and finally on agricultural land on a voluntary basis as alternative to income taxes on farming activities.  It should be allowable against income tax for those who have bought homes in the last six years of the property bubble until their next property transaction.  It should be capable of being rolled up on homes of senior citizens to be paid after death.

5    A single housing benefit that can be used to rent or buy in any city or county should replace all other housing supports including mortgage relief.  Local authorities and not for profit housing providers should design and construct homes for a mix of tenure and income groups.

6    As the annual land tax grows to remove inflation in land values, the surplus over that required for local infrastructure and services should be distributed to all local authority residents on an equal per capita basis to makeup with the Carbon share, water and other resource royalties or rents, a citizens income


Emer O’Siochru
Feasta; the Foundation for the Economics of Sustainability
14 St Stephen’s Green
Dublin 2
Tel: 01- 661 9572


APPENDIX 6: Escaping the Liquidity Trap

The world economy is collapsing at frightening speed. Sales and orders are drying up, not because people’s wants have been satisfied – they are as large as ever – but because many people’s ability to find the money to pay for their wants is shrinking. The root of the problem is that money is being returned to the banks to repay past loans faster than new money is being injected into the global economy by fresh loans being taken out.

Governments have injected billions into their banking systems in the hope that the banks will stop the money supply contracting by lending more but, in the US and Europe at least, the strategy has failed. The rate at which loans are being taken out for everyday purposes such as property purchase and industrial investment is still falling.

This is entirely understandable. In present circumstances, why would the banks lend to the public and why would the public borrow? The fall in demand has left excess capacity in every major sector of the global economy and prices are falling. In the light of this, what projects can be found that would give borrowers a return sufficiently high to compensate them for running the risk necessarily involved in pledging their assets to secure a loan? They could lose their assets and make themselves substantially worse off. And, since their assets are falling in value anyway, would their banks accept them as adequate collateral to safeguard them against losing money themselves? The only people wanting loans these days are likely to be those whose businesses are in such deep trouble that the banks would not want to lend to them anyway,

This situation is called a liquidity trap. No matter how low the base interest rate goes – and in Britain and the US they are approaching zero – almost no-one is prepare to lend or to borrow. As a result, the amount of money in circulation is continuing to contract, cutting demand and making it progressively difficult for existing borrowers to assemble the money they need to service their loans. Whenever they fail, the banks’ bad debts increase and the governments responsible for them feel compelled to come to the rescue by borrowing money themselves and handing it over to make good the losses.

Unfortunately, these government injections do nothing to improve the situation. They merely stop things getting worse by preventing the banks collapsing or having to call loans in prematurely to maintain their capital adequacy ratio. ( Calling in loans would be very damaging as it would force customers to try to raise money quickly by selling off property in a market in which no-one could borrow the funds to buy it.)

For the government money to do any good it has to find its way into the accounts, or pockets, of people and firms who would spend it. However, it’s surprisingly hard to put it there while maintaining conventional ideas on what constitutes financial discipline. For example, now that it has become clear that ultra-low interest rates are not solving the problem, the US government is trying to get more money into circulation by “quantitative easing”. This involves it buying up government bonds and other securities from individuals and pension funds at attractive prices.

This puts money into the vendors’ bank accounts but it does not mean that the accountholders will spend it. If the assets they sold were being held for savings purposes, it’s very likely they will continue to save the government payments they receive and will lodge them in a short-term interest-bearing bank accounts until they can think of something better. The banks themselves will be happy to get the money, even though they will not lend much of it out, because it improves the ratio between their customers’ deposits and the amount they have in outstanding loans. (It was Northern Rock’s poor deposits-to-loans ratio that made it very reliant on the wholesale money markets and, when these refused to lend, led to its nationalisation. Banks with better ratios have less need to borrow internationally and are therefore perceived as being safer. This means that they get a better rate when borrowing wholesale. It also improves the price of their shares.)

So quantitative easing is unlikely to work unless the new money is used to buy bonds issued by manufacturing companies which plan to invest. Such companies are currently thin on the ground.

There are only two other conventional ways that government money can get to where it’s needed. One is for the government to spend it into use. It could, for example, place contracts for infrastructural development. The second way is for the state just to give the money away, perhaps by making extra payments for a limited time to groups such as pensioners and social welfare recipients who would be fairly sure to spend it quite quickly.

The problem with either way is that, if the government proceeded along orthodox lines, it would incur a massive deficit and have to borrow the funds. No government likes doing that because it increases the national debt and means that a higher proportion of its tax income has to be used for servicing its loans, thus restricting its freedom of action for years into future.

A government has therefore to be prepared to adopt unconventional techniques if it wishes to avoid borrowing the money it needs to spend to keep the economy from collapse. One such technique is to create the money using exactly the same method that the Americans are adopted for quantitative easing. The US money is being issued without debt since it would make absolutely no sense for the government simply to borrow the funds to buy its own securities within the country as, if it did, the whole exercise would have no effect on the amount of money in circulation nationally.

Governments other than that of the US are currently reluctant to use this technique. Although Britain has been borrowing money in order to try to stimulate demand by cutting taxes, the Chancellor of the Exchequer, Alistair Darling, has said that nothing on the lines of quantitative easing is planned. “Nobody is talking about printing money,” the BBC  reported him as saying on January 8th.

The European Central Bank is also unlikely to inject debt-free money into the economies for which it is responsible until things get much worse. This is because all sixteen countries that use the currency would have to approve the scrapping of the ECB’s statute which prohibits it from funding governments by purchasing their bonds. At the moment, it can only buy already-issued bonds from those holding them. The governments would also have to agree how much new money was to be created and how it was to be divided up amongst them. This is likely to be contentious as, naturally, they would all like to be given “free” money.

The main reason for the European reluctance is that the technique has been badly misused almost every time it has been tried. This is because, once a government can use the method, it is very much easier for it to create money that way than it is to raise it through taxation. Taxes are politically unpopular. Issuing debt-free money isn’t, at least at first. So governments become lazy and spend too much of their new money around, creating an inflation that erodes their people’s savings. Some inflations caused by government-created money have been dramatic, like the 5,000% a year rate in Argentina in the late 1980s or the 231,000,000% produced by Robert Mugabe in Zimbabwe in July 2008 .

Accordingly, the conventional wisdom is that if governments were to take over at least part of the money creation function from the commercial banks, which is what this technique involves, inflation fears would reduce the value of the currencies concerned in comparison with those created in a conventional way.

Two things can be said about this. One is that, for the immediate future, deflation is a much more serious risk than inflation. Most governments would breathe a sigh of relief if demand became strong enough to start pushing prices up at 3% a year again. Professor Willem Buiter of the LSE, a former member of the Bank of England Monetary Policy Committee, regards refusing to create non-debt money on the basis that it might be inflationary as equivalent to refusing to drink water because one might be drowned . The second point is that there is no essential or legal or political requirement for politicians to be in charge of governmental money creation. Just as the Bank of England’s monetary policy committee was given sole responsibility for setting the interest rate, a truly independent body working to a clear and legally-enforceable brief could be set up to control the issue of non-debt money.

It is important to recognise that debt-based and non-debt-based monies are very different animals and have different roles to play. Non-debt money is intended purely as a medium of exchange. It is being created out of nothing in the US purely to get trading going again. It is not intended as a store of value, a currency in which people keep their savings. If debt-based and non-debt-based currencies are given different names and kept apart – something the US is not doing – then the public’s concerns about inflation should be minimised.

There is no legal or political reason to have only one type of money in circulation at a time.  Having one currency for trading and another for saving would enable the economy to adjust more readily to changing circumstances. For example, if energy prices rose considerably in future, the prices of goods would have to change to reflect the cost of the energy involved in their production. These changes would be by different amounts, and the only way that the different rises could be accommodated easily is in an inflationary environment. A trading currency that was not relied on to keep its value because no-one saved in it and which could be issued in a controlled amount to allow a planned inflation would allow the adjustment to proceed quickly and smoothly.

Non-debt money has another massive advantage over the debt-based kind – it does not disappear from circulation when loans are repaid. Nor does it require people to continue to get into debt for the economy to remain healthy. This characteristic is likely to be very important in future since people are bound to be reluctant to borrow on scale required to keep an adequate amount of trading going on if the economy begins to shrink as the use of fossil energy declines, whether the decline in energy use is as a result of actions to limit climate change or because of resource depletion. Debt-based money worked tolerably well in an expanding world. It is totally unsuited to providing the means of exchange in an economically-contracting one.

So Feasta believes that the new method of money creation required by the liquidity crisis is one that is needed anyway to cope with the peak in global oil production and climate change. However, even if one rejects this view and believes that the world economy will recover and resume its path of expansion, the temporary use of non-debt money can be seen as a pragmatic response to a temporary emergency. Willem Buiter certainly sees the use of non-debt money in this light and talks of its being withdrawn from circulation when the crisis has passed. Whoever is right, once the liquidity emergency is over, the situation can be reassessed in the light of experience. The non-debt money can either be withdrawn or, if it seems that it would be useful on a continuing basis, adopted as a permanent monetary policy tool. If that happened, an arms-length body should be set up to run the currency and the rules governing its creation and distribution established.

The conclusions for Ireland

It looks as though the number of euros in circulation in Ireland will continue to contract because the government is unwilling – and possibly unable – to borrow enough itself to make up for the fall-off in private-sector borrowing. If that’s correct, the growing shortage of money will lead to widespread hardship and increase the difficulty that firms and families experience in paying their taxes and servicing their loans. The banks’ bad debts will grow and the government, unable to meet its guarantees and its other spending obligations, will be forced to default. This outcome seems unavoidable unless some form of non-debt money is introduced to replace the missing euros and free up the remaining ones for meeting debts and external obligations.  Such a currency could be issued like this:

1    A new unit, the quid, would be announced as an emergency currency to be used exclusively for trading purposes. It would not have any fixed exchange rate with the euro although, at least initially, the intention would be to keep it scarce enough for people to change it on a one-for-one basis.
2    The commercial banks would be instructed to open quid accounts for each of their customers. Individuals with current accounts in more than one bank would be asked to nominate the bank at which they wished to hold their quid account.
3    A quantity of quid would be deposited in each individual’s account to allow him or her to buy goods and services. They would transfer the quid they received to each other and to companies using their mobile phones for small amounts and from their computers or through their banks for larger sums. Quid would only exist electronically. This is essential so that quids can fully controlled and easily be removed from circulation.
4    Firms would also have quid accounts. It is not yet clear whether they too should be given an initial float or be expected to earn their float by supplying the public. It would be up to each company to tell prospective customers which goods and services they were prepared to supply for payment entirely in quid and, if not, what the price was in a combination of euros and quid. Equally, it would be up to employers and employees to negotiate how what proportion of wages could be paid in quid.
5    The government would announce that the tax due on quid transactions and earnings could be paid in quid. It, like everyone else, would have to work out a way of handling the two units.
6    Quid accounts would not be confidential; the issuing body would have access to them, regardless of the bank which provided them. so that it could manage the system. The units in each account would not belong to the accountholder. They would be there purely as a measure of value. Anyone wishing to save should use the euro instead.
7    As the volume of business being done in quid increased, the issuing body would watch the velocity of circulation closely and, once it had crossed a previously announced threshold, it would give more quid into circulation by adding them to the accounts of those who had the highest velocity themselves. Anyone whose velocity fell below a certain level would have a percentage of their quid removed. The aim would be the keep the supply of quid tight to maintain its value. If the euro economy began to pick up and less trading in quid was done, units would be removed from the slowest accounts.

Presented as an emergency measure to avoid a default, this system would attract much less criticism from the European Commission, the ECB and the other member states than a decision to leave the eurozone and revert to a national currency. The government would point out to its partners that if the global economy recovered and euro flows increased, the use of the quid would naturally decline and that this would mean that they were automatically be withdrawn from circulation. Eventually the system would wither away entirely because companies would not want to bother with keeping their books in two currencies and would stop accepting quid. Privately of course, the government might regard the quid as long-term hedge against a permanently depressed eurozone in which  the euro continued to be scarce because it was issued as a debt.

Besides being more acceptable than leaving the eurozone to Brussels, the quid system would be very popular with the public. They would credit the government with responding well to the crisis and with giving them something free. After months of what has been seen as the bailing out of the better-off, the state would be seen as doing something for ordinary people. Anyone with euro debts would immediately find that their problems were eased because, now that they had the quid for some of their expenditure, they could use their euros to keep up payments to their bank. This would immediately cut the banks’ bad debts and thus the risk of the state’s guarantees being called.


Richard Douthwaite
Feasta, the Foundation for the Economics of Sustainability
14 St Stephen’s Green
Dublin 2
Tel: 01- 661 9572


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