Caught between EU politicking and market sharks, the Irish deserve sympathy not scorn
My sympathies are with the Irish as they find themselves being shoved towards an EU bailout which they regard as a loss of hard-won sovereignty — and it’s pointless to go on scoffing at their earlier eagerness to enjoy the low euro interest rates and fountains of Brussels subsidy that fuelled the grotesque real-estate boom which ended in spectacular bust. Unlike the Greeks, the Irish accepted the need for severe austerity measures without rioting or recrimination. But their tiny economy, one fifteenth the size of Britain’s, is now a pawn in a double game. On one hand, EU leaders want to impose a bailout to prove that they can, to prevent ‘contagion’ — which is code for holding the euro intact at least until the next crisis — and, in passing, to undermine Ireland’s fiscal competitiveness by forcing an increase in its ultra-low corporation tax rate. On the other, bond traders know that the market in Irish government paper is so narrow that they can drive it down at will, making the situation look much worse than it is (Irish ministers say they don’t need to borrow more until next summer), and offering a killing for short-sellers. It can only end badly — but after the debacle, I predict, the Irish will still command more international respect than the incoherent, self-serving EU powers-that-be and their ill-conceived currency.
Poly’s pot?
If urgent injections of liquidity are what’s needed to boost economic recovery, there’s a less dangerous alternative to the inflationary mechanism called quantitative easing: selling old stuff we don’t want to rich foreigners. There have been two win-win examples this past week, both playing to the east-west theme I like to explore in this column. The first is the £53 million sale of an 18th-century Chinese vase that was catalogued alongside assorted Dinky toys and teddy bears at an auction house in Ruislip. The auctioneer, Peter Bainbridge, collects £12 million in commission; HM Treasury collects upwards of £15 million in capital gains tax and tax on Bainbridge’s profits; the unnamed previous owners of the vase get the equivalent of a Euro-lottery win plus space in their living room for a bigger telly; and someone in China reclaims a masterpiece looted long ago by running-dog British capitalists.
Potentially there’s more good news, in a rumour that the buyer was an agent of Poly Group, a weird conglomerate profiled here by Elliot Wilson in 2008 as ‘an arm of the People’s Liberation Army (PLA)… part munitions manufacturer, part real-estate giant, it also acts as China’s de facto cultural ministry, buying and preserving what remains of the nation’s heritage’. Led by a general who happens to be Deng Xiaoping’s son-in-law, Poly represents a reversal of the practice of PLA officers before they got rich, which was to sell off national heirlooms for illicit cash. But since they’ve now made billions out of real-estate dealings at home, it strikes me as healthy for the global economy that they should recycle the loot by buying up bric-a-brac in suburban British salerooms. Better that than using it to stockpile missiles or drive the copper price even higher. Meanwhile, check your shelves for any old pots grandpa picked up when he captained a gunboat on the Yangtze.
The second sale to catch my eye was that of the Grosvenor House Hotel in Park Lane to an Indian billionaire, Subrata Roy, for £470 million. I never cease to be amazed by the follies revealed in the portfolios of our bailed-out banks, especially the Scottish ones, and it’s almost all to do with old-fashioned bricks-and-mortar finance, not the rocket-science of ‘derivatives’ we first thought had brought them down. Here’s this week’s prizewinner: Royal Bank of Scotland, currently 84 per cent owned by the taxpayer, ended up the proprietor of a dozen hotels, including Grosvenor House and the Waldorf in London, as a result of a £1.2 billion sale-and-leaseback with the Le Meridien chain which subsequently fell into trouble. RBS has been trying to get shot of Grosvenor House for years, after investing another £140 million in refurbishing it. First the rulers of Bahrain were rumoured buyers at £720 million; then the ubiquitous Candy brothers were sniffing around at £500 million. Now Subrata Roy — whose Sahara group does everything from life insurance to Indian Premier League cricket — has stepped up. It’s a 500-bedroom beached whale of a place, long past its glory days: we can only wish him luck, and thank him for contributing £470 million to the refurbishment of RBS.
The bonus conceit
Bank chiefs, we’re told, are keen to know what the government’s new rules on bonuses will be, so they can put them into practice for the bonus round due in March on the basis of this year’s profits — and they are quietly talking to each other about reducing the collective pot from £7 billion to a mere £4 billion. I’ll believe that when I see it. I have yet to meet a banker who accepts without qualification the argument — which I have personally put to many, from Bob Diamond down — that the possibility of life-changingly large annual bonuses warps their risk judgment; in short, that City pay is not just an irritation to everyone else, but was a direct cause of the crash. So there’s unlikely to be anyone attending the bonus conclave who believes it would be better for banks and their shareholders if bankers are paid less. More likely, the pressure to be seen to be paid less will generate new creativity in offshore and otherwise hidden bonus schemes. Even in my banking days, when bonuses were relatively small change, there were whispers of deferred payments into Bermuda trusts, and of ‘phantom options’. I even had a few of the latter myself, and when they turned into cash in the middle of a bitter recession, I wrote, ‘it was like coming out of your bunker after the bomb to find the banknotes of some obliterated state wafting in the nuclear wind’. The difference is that I received the bunce as a pleasant surprise; today’s lot believe they actually deserve it. That can only lead them into trouble again.
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