Inside the world of business
Does debt default milestone mean we are on the way up?
THIS WEEK represented something of a milestone for Ireland. The cost of insuring Irish Government debt against default converged with the cost of insuring Spanish government debt (at around three times the price of insuring German government debt).
The question now arises as to exactly what sort of journey has taken us past this milestone.
Does it mark our decoupling in the eyes of the bond market from the most troubled tier of euro-zone members, namely Greece and Portugal?
The cost of insuring their debt (as measured by credit default swaps – CDSs) passed out Ireland’s some time ago.
Or is it just another step on Spain’s fall from grace as the markets begin to confront the scale of the problems facing the Spanish economy?
Irish CDS spreads have remained fairly constant over the past six months, indicating the consensus view that we have started to tackle our problems – and so the risk that we will not be able to repay the money we are borrowing has not got any bigger.
Spain is on the opposite tack as the market starts to focus on a familiar list of problems: private-sector debt, falling competitiveness, high unemployment.
Spanish CDS spreads are rising steadily, indicating the convergence would appear to have more to do with the Irish-style structural problems in the Spanish economy finally being exposed than with any great positive shift in sentiment towards Ireland.
Misery loves company in the bond market as much as anywhere, it seems.
A rad-ical approach
“Radiator of hope” is a tough job description to fulfil these days, but someone’s got to do it, and President Mary McAleese has decided that chartered surveyors are the best placed for such a task. Addressing the Society of Chartered Surveyors (SCS) annual dinner in Dublin on Thursday night, Mrs McAleese urged the unemployed and underemployed congregation that they should be “radiators of hope” and not “drains” in the fight against recession.
Quite how such an approach would translate into property tax site valuations – should Mrs McAleese’s advice be taken on board – is not quite clear.
The SCS is, unsurprisingly, quite keen on the advent of a property tax. It might be “controversial and deeply unpopular”, according to SCS president Ken Cribbin, but “recent events showed that local authorities needed proper funding”. Of course, it also helps that the tax would give surveyors something to do.
Some 40,000 more jobs will be lost in the property and construction sector during 2010, according to Cribbin, taking the number employed to less than 100,000 (down from 267,000 at its peak in 2007). The SCS believes the “optimum” number that could be employed directly in the sector is 150,000. It also wants the Government to appoint a construction chief – an executive radiator of hope, so to speak – to oversee responsibility for cross-departmental public infrastructure projects.
Cribbin was sharply critical of the Government’s inaction on unemployment in the sector, describing its failure to tackle the jobs crisis as “totally unacceptable”. For many observers, however, what was really “totally unacceptable” was that the sector was allowed to grow to the unwieldy size that it did.
With the residential property market still in freefall and the commercial market in deep sleep, it is only Government schemes such as the public capital programme, the property tax and Nama that are capable of bringing hope, and pay cheques, to that particular sector.
But as for people working – or not working – in the rest of the economy, the last thing they should do is look to the remnants of the building industry in search of a warm glow.
Glimmer of hope
But if glimmers of hope are your thing, then this week’s news that First Derivatives wants to buy the remains of Cognotec should at least be noted.
While hardly qualifying as a happy situation, particularly for Cognotec’s 65 employees, news of a form of survival for a long-standing company is welcome.
More heartening again is the fact that First Derivatives, a genuinely Irish company that bases itself in less-than-glamourous Newry, is in a position to do a deal at a time when even the bravest are still hiding under their mattresses.
It didn’t take First Derivatives long to make a move on Cognotec, where a receiver was appointed only last week.
The speed of the endeavour suggests the Newry company’s finances must be in fairly good health, even allowing for the discounted price that accompanies receivership.
The move also indicates another positive: that the business operated by Cognotec was a good one after all.
So maybe it wasn’t worth the $60 million (€44 million) in venture capital funding it attracted in the 1990s, and maybe it didn’t win any gold stars for positive cashflow in recent times, but this deal proves that it was home to some good ideas that have lasting power.
It’s not all fabulous but, remember, we’re still only in the market for glimmers.
If, however, it’s out-and-out winners you seek, look no further than Kieran Wallace, one of the most overworked men in Ireland at the moment, otherwise known as KPMG’s star receiver.
It took less than seven days for him to work out a deal for Cognotec – fast work even by celestial standards.
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