Posts By Donagh Brennan

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Ireland Allows Google To Send it’s Profits Straight to Bermuda Company Which is Actually in Ireland

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In my long article in the first issue of Irish Left Review on Ireland’s corporate tax regime I made the point that Ireland in effect sells its abilities to make tax laws to profit hungry MNCs, in much the same way as it sells to the rights to our natural resources to large oil companies. That is, whatever economic benefit there is, and its small, goes to the ‘agents’ who negotiate the deal, with very little, if any, benefit appearing in the economy.

Still, with all the attention being on Google for a while now, there was one fact about the Irish government’s arrangements with the search engine company that I had missed.

Recently these arrangements, known as the Double Irish with the Dutch Sandwich have been given a lot of attention and are often explained. For example, see this New York Times info graphic. However, while listening to Jim Stewart’s interview on Morning Ireland last Friday in a conversation about Google’s ‘grilling’ before the UK’s Public Accounts Committee on taxation, I found out that the ‘Dutch Sandwich’ is no longer used, and instead Google’s earnings from its EMEA market goes from Google Ireland to Google Ireland Holdings, which is registered in a solicitor’s office at 70 Sir John Rogerson’s Quay and also in Bermuda. So, by passing these to the Bermuda registered company, the earnings go straight to Bermuda. Google Ireland Holdings has no employees and is ‘owned’ by Google Bermuda which also has no employees. Both are unlimited companies, so under Irish law, they do not have to publish accounts.

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Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken? Part 4

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For many the detail about the pressure which was widely reported to have been applied by the ECB for Ireland to enter the 2010 Troika bailout has coloured their understanding of the original blanket guarantee. The extent of the guarantee and the large sums being poured into our failed banks ensured that a bailout would be required. It was hardly a coincidence that the bailout occurred in the months after the blanket guarantee ran out on the 29th of September 2010.

The ECB’s insistence that the promissory note for Anglo Irish Bank and other unsecured unguaranteed bonds should be paid have led people to think that it was ECB pressure that led to the 2008 – 2010 guarantee in the first place. I have tried over the previous posts to unravel this myth and show that it was an Irish decision alone put in place for very local reasons. In fact, the ECB warned the Irish government that under Maastrict (where the cost of borrowing is dependent on maintaining a good credit rating in the financial markets) the guarantee could cause substantial funding problems for the sovereign. Other events disprove it, including the fact that an attempt by the Greek government to also bring in an unlimited guarantee immediately after the Irish made their announcement was rescinded due to pressure from EU Commission. Neelie Kroes, EU competition commissioner at the time said “A guarantee without limits is not allowed”.

Of course, the myth has its own political uses and it’s not surprising that there has been very little examination to date of the guarantee. But even any future Public Accounts Committee examination and its ‘who said what in the room on the night’ scope will not provide much clarity. Looked at from the perspective of class and power, however, examining the guarantee reveals much about how both work in Ireland. Such a focus would not fixate on the technical detail of whether dated subordinated bonds should have been included, or whether Dermot Desmond was there behind the curtain throwing his voice in to the mouth of Brian Cowen. Instead, the focus should be on the decisions made in the context of how the Irish government behaved in the past when other Irish financial institutions went into freefall. We tend to see 2008 as a rupture, but in terms of understanding why certain decisions are made it’s more useful to examine the continuities. After all, this was not the first time that Ireland provided a blank cheque for Irish banks.

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Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken: Part 3

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This article follows on from Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken: Part 1 & Part 2.

Hindsight provides 20-20 vision, but in light of more recent events political spin and a sense of justifiable grievance can cloud the popular understanding of what happened in the past. There is, of course, the accuracy of the historical record to correct the flawed collective memory.

One ‘flawed memory’ is that the bailout by the Troika was forced on Ireland in order to ensure that money from Irish tax revenue was used to pay back French and German banks, and that since the bailout was a consequence of the guarantee, that it too was forced on Ireland by the ECB to ensure that European banks got their money back. At the time that the bailout was announced, Brian Lenihan began the process of conflating the terms and conditions of the program with the guarantee:

“There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the ECB. Those who think we could do so are living in fantasy land.”

But when Irish politicians provided an unlimited guarantee the credibility of the guarantee and therefore its effectiveness in upholding the banking system depended on the willingness of the ECB to prevent a country from defaulting on its sovereign debt.

This is not to say that the actions of the ECB, its rules and structures or even the way that the single currency is arranged and the orthodox thinking that underpins it in the interests of private banking is correct or just. Far from it. However, a clear order of cause and effect must be followed, and the ECB is not responsible for the far reaching consequences of providing an unlimited guarantee.

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Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken? Part 2

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This article follows on from Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken: Part 1.

It is five years since the Irish government announced on the 30th of September 2008 that Ireland was going to provide an unlimited bank guarantee to six covered financial institutions. It’s important to remind ourselves of the context of that event. On the 15th of September 2008 Lehman Brothers collapsed and the subsequent credit crunch ensured that the international banking system was soon struggling to obtain interbank credit. Soon significant problems at European banks came to a head. Towards the end of September France, the Netherlands and Belgium injected €11.2bn into Fortis, Belgium's biggest bank and then, a couple of days later on the fateful 29th of Sept, the Netherlands was forced to take over Fortis’ Netherland operation at a cost of €16.8bn. By the 6th of October the German government had authorised a €50 billion rescue package in its second, and this time ‘successful’ attempt to rescue Hypo Real Estate Holdings. The first attempt was a week previously, again on the 29th of September.

The problems for Irish banks trying to access liquidity in the interbank market were not unique, but Ireland’s solution to resolve it differed considerably to that of every other country in the EU. In the weeks prior to the full guarantee the Irish government had already taken the decision to guarantee deposits up to €100,000. Up to that point deposit guarantees in the majority of European countries was just €20,000 with only Italy providing a deposit guarantee of 100,000. As a result of the Irish extension 97% of all customer deposits in the Irish banking system were fully guaranteed (Carswell, IT Oct 2008, see image below). Yet this wasn’t enough to stem the banking crisis and the loss of liquidity. At this time Anglo Irish Bank that was losing significant deposits of between €50 million and €200 million each, amounting to losses of €1 billion a day, causing Anglo to breach its regulatory liquidity ratio. Most of these deposits were borrowed from the short term money markets.

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Why Ireland’s 2008 Blanket Bank Guarantee Decision Was Taken?

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There seems to be a myth doing the rounds at the moment that the 2008 Blanket Bank Guarantee, which ran for 2 years from September 2008 until 2010, wasn’t put in place to simply stop both Anglo Irish Bank and Irish Nationwide from collapsing in order to protect, as far as possible, the considerable interests that a small group of Irish people had in those cauldrons of greed and corruption.

Rather, popular thinking now goes, the notorious guarantee was put in place because of pressure from the ECB who were eager to ensure that revenue from Irish taxes would be used to pay bondholders in the banks of Core EU countries in full.

Take this recent article published on the 27th of March last which has the headline: “Germany’s rethink on just where the blame lies for the Irish bank bailout”. The implication behind the headline is that the bailout was required because of the guarantee, but also suggests that the statement made by the German Finance Minister that the Irish guarantee was a solely Irish initiative is a ‘rethink’, that is, an attempt to change the narrative that the bailout, and the guarantee that made it inevitable, was dictated by interests of big German banks.

“It was the Irish government that imposed the farthest-reaching guarantee for its banking system at the start of the crisis – on its own initiative,” said German finance minister Wolfgang Schäuble.

The statement itself was prompted by comments made by Irish politicians while negotiating on bank debt. Such comments, of course, are tailored to an Irish audience who are increasingly convinced that the enormous and unsustainable burden of Irish bank debt which the residents of Ireland are being forced to finance is being imposed by the ECB and Germany in order to protect their own struggling banks. This particular framing of the story feeds into the tale told about Timothy Geithner’s phone call and the posthumous yarn about the letters Brian Lenihan received from Jean-Claude Triche.

These Irish politicians are entirely aware, however, that the decision to provide such a broad guarantee was made without the advanced knowledge of the ECB. It is a consequence of this decision which was only put in place to maintain access for Anglo Irish Bank and Irish Nationwide to the interbank market that the vast majority of bonds have been paid off in full.

We know this because on the 3rd of Oct 2008 the ECB published an opinion on the Irish bank guarantee. Here’s the relevant excerpt.

“As a further general comment, the ECB notes that the Irish authorities have opted for an individual response to the current financial situation and not sought to consult their EU partners. In view of the similarities of the causes and consequences of the current financial distress across EU Member States and the potential interdependencies of policy responses, it would have been advisable to properly consult other EU authorities on the envisaged legislative plans.

2.5 A further point relates to the risks to the Government’s budgetary position arising from any financial support to Irish credit institutions. While the ECB appreciates that any guarantees provided by the Minister under the draft law would be contingent in nature, given that the financial exposure of the Irish State under such guarantees is potentially very large, the Irish Government could be obliged to make significant payments in case these guarantees are called over the next two years. At a point in time when the Irish budgetary position is deteriorating and may risk exceeding the 3 % of GDP reference value for public deficits, as specified under Community law12, this is a cause for concern, even when the provision of financial support would, under the draft law, as far as possible ultimately have to be recouped from the credit institution or subsidiary in question.”

More to follow.

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Attack on Wages is About Social Control: Marx, Kalecki, and Socialist Strategy

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In the April edition of the Monthly Review John Bellamy Foster has a piece called Marx, Kalecki, and Socialist Strategy on the Polish economist Michal Kaleck that is well worth getting stuck into – particularly given the outright assault on worker incomes ongoing in Ireland at the moment. It’s also struck me as worth reading in light of Ken Livingstone’s comment today which correctly contrasts the viciousness and failure of Thatcherism with the Post-World War 2 settlement.

Foster first refers to the profit-squeeze theory which is often used to explain why capitalists try to resist full employment, as rising wages hurts profits. He refers to a 1974 article by Raford Boddy and James Crotty’s “Class Conflict, Keynesian Policies, and the Business Cycle” which was developed counter to Kalecki’s suggestion that the pressure from capitalists to reduce wages stemmed not from a concern for profits, but as a form of social control. Writing in the 1940s Kalecki said that with full employment profits would ultimately not be affected. However, what was more important was removing the opportunity for workers to exercise any form of power.

“Kalecki’s views on the profit-squeeze argument, the political business cycle, and socialist economic strategy were rooted historically in his close observation of the French Popular Front government led by Leon Blum in 1936–1937. Kalecki had spent the summer of 1937 in Paris witnessing developments there. In what came to be known as the “Blum experiment,” a concerted attempt was made to implement a forty-hour working week, two weeks of paid vacation time for all workers, and collective bargaining rights. As part of these reforms the Popular Front initiated a substantial increase in the money wages of manual workers, which rose by about 60 percent over the course of a year. This increase in money wages did not, however, have a negative effect on overall output and employment, since wholesale prices were raised proportionately. However it did produce substantial net benefits both for manual workers and large capitalists, and for the industrial sector in general—at the expense of rentiers and other income groups. Yet, despite the fact that big capital had significantly gained from the redistribution toward industry that the wage increase had brought about, it allied itself with rentiers to resist the wage increase, complaining of a profit squeeze. The Blum government eventually succumbed to these pressures, leading to a fatal dampening of the aspirations of workers.

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Ireland is Hardwired into the Tax Evasion Network

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As reported today, “[Eamon Gilmore] did not believe that multinationals having headquarter operations in Ireland that used offshore locations as part of their tax avoidance strategies, put the country in a difficult position when it came to the subject of tax havens”.

The Tax Justice Network has made a point in recent years of replacing the term ‘offshore’ and tax haven with ‘secrecy jurisdictions’. This is their reason for creating the Financial Secrecy Index which lists Ireland at 31.

“The Tax Justice Network has estimated, conservatively, that about $250 billion is lost in taxes each year by governments worldwide, solely as a result of wealthy individuals holding their assets offshore. The revenue losses from corporate tax avoidance are greater. It’s not just developing countries that suffer: European countries like Greece, Italy and Portugal have been brought to their knees by decades of secrecy and tax evasion.

These staggering sums are encouraged and enabled by a common element: secrecy. Secrecy jurisdictions, a term we often prefer instead of the more widely used term tax havens, compete to attract illicit financial flows of all kinds, with secrecy as one of the most important lures. A global industry has developed where banks, law practices and accounting firms provide secretive offshore structures to their tax dodging clients. Secrecy is a central feature of global financial markets – but international financial institutions, economists and many others don’t confront it seriously”.

Irish politicians don’t take it seriously either, for the obvious reason that it remains good business for the Irish executives who operate the subsidiaries of foreign banks here, and who work in the law practices and accounting firms that advise large multinational firms on the international tax strategy. For a relatively small economy Ireland has a disproportionately large number of experts on international taxation.

So it’s unlikely, when talking about the need to attract foreign direct investment, or saying that that the Irish economy has to become more competitive to boost the export sector as a means of reducing the deficit that Eamon Gilmore or Enda Kenny would say that as a means of doing that we have to build on our excellent relationship with our largest trading partner: Bermuda, the off-shore the tax haven.

Taken from Mary Everett, The statistical implications of multinational companies’ Corporate Structures, Quarterly Bulletin, Central Bank of Ireland, April 2012

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Dave Lordan’s New Short Story Collection: First Book of Frags

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Dave Lordan has a new collection of stories coming out called First Book of Frags, published by Wurm Press. You can pre-order copies here.

A book of explosive short fiction from the author of The Boy in the Ring and Invitation to a Sacrifice. First Book of Frags is a projectile flung at convention, capital, and ultimately, civilisation itself.

Some early reactions….

“A new form brings a new kind of fury. Pitched somewhere between the short story and the narrative poem, Frags delivers fragments and stark narrative incisions knitted together by a darkly satirical and formally challenging twenty-first century tone of political urgency. Frags shows up the jaded politico-economic media excursus on the recession and its discontents for the white noise that it is. Whether it is the Orwellian “Street Party”, the vitriolic David Foster Wallace-like “Living in Ikea”, the Beckettian Irish stew of “A Bone”, or the Bolanoesque “Dr. Essler’s Cocaine” the crafted howl of Frags rarely lets up. Cathleen Ni Houlihan is a scavenging Kathleen who sleeps on a “rained on mattress in the woods surrounded by empty wine bottles,” the Iron Lady has been melted down, and Ireland’s Kafkaesque educated unemployed who ponder justice have been transformed into flies, not cockroaches. Dave Lordan’s surreal yet scathing sketches of suffering, violence and ear-splitting silence should capture the hungry imagination of a disillusioned majority.” — Michael O’Sullivan

“echoes of James Joyce and Angela Carter”–Nuala Ní Chonchuir

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50 Truths about Hugo Chavez and the Bolivarian Revolution

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This article by Salim Lamrani was published on Opera Mundi on March 9th 2013. This translated version by Tim Anderson was published on venezuelanalysis.com.

President Hugo Chavez, who died on March 5, 2013 of cancer at age 58, marked forever the history of Venezuela and Latin America.

1. Never in the history of Latin America, has a political leader had such incontestable democratic legitimacy. Since coming to power in 1999, there were 16 elections in Venezuela. Hugo Chavez won 15, the last on October 7, 2012. He defeated his rivals with a margin of 10-20 percentage points.

2. All international bodies, from the European Union to the Organization of American States, to the Union of South American Nations and the Carter Center, were unanimous in recognizing the transparency of the vote counts.

3. James Carter, former U.S. President, declared that Venezuela's electoral system was “the best in the world.”

4. Universal access to education introduced in 1998 had exceptional results. About 1.5 million Venezuelans learned to read and write thanks to the literacy campaign called Mission Robinson I.

5. In December 2005, UNESCO said that Venezuela had eradicated illiteracy.

6. The number of children attending school increased from 6 million in 1998 to 13 million in 2011 and the enrollment rate is now 93.2%.

7. Mission Robinson II was launched to bring the entire population up to secondary level. Thus, the rate of secondary school enrollment rose from 53.6% in 2000 to 73.3% in 2011.

8. Missions Ribas and Sucre allowed tens of thousands of young adults to undertake university studies. Thus, the number of tertiary students increased from 895,000 in 2000 to 2.3 million in 2011, assisted by the creation of new universities.

9. With regard to health, they created the National Public System to ensure free access to health care for all Venezuelans. Between 2005 and 2012, 7873 new medical centers were created in Venezuela.

10. The number of doctors increased from 20 per 100,000 population in 1999 to 80 per 100,000 in 2010, or an increase of 400%.

11. Mission Barrio Adentro I provided 534 million medical consultations. About 17 million people were attended, while in 1998 less than 3 million people had regular access to health. 1.7 million lives were saved, between 2003 and 2011.

12. The infant mortality rate fell from 19.1 per thousand in 1999 to 10 per thousand in 2012, a reduction of 49%.

13. Average life expectancy increased from 72.2 years in 1999 to 74.3 years in 2011.

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