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Ireland needs a miracle

Iceland’s deficit has been helped by thermal energy and aluminium smelting, Ireland has nothing like

In 2005 and 2006, while working for a Mayfair-based hedge fund investing in asset-backed securities, I made regular trips to Dublin. I never spent the night. The Dublin day trip became part of my working week during those boom years: a dawn flight from the tatty domestic limb appended to Heathrow's Terminal One, a limo to the dramatic futurist development that is Dublin docks, a day spent in meetings at the Irish Financial Services Centre, then back in London for a late dinner.

I never saw Dublin proper, and most of the people I met weren't Irish: the Belgian-French financial group Dexia's fund management arm was based there, as were those of the German banks Depfa and Landesbank Baden-Württemberg. Even the Irish banks I had meetings with were owned by foreigners: ACC is a subsidiary of the Dutch bank Rabobank, IIB part of the Belgian bank KBC, National Irish Bank belongs to Danske. The speed with which these foreign institutions seized upon the myth of the Celtic Tiger and the fleeting nature of my trips there gave everything a sense of impermanence.

Ireland now embodies much of what went wrong with the world in the first years of this century: a bloated financial-services system, a hyper-inflated property bubble in both commercial and residential markets, banks that were under-regulated and far too reliant on short-term funding, high levels of consumer debt and a government that took a number of poor decisions in the early days of the crash. Greece was in many ways an exceptional European crisis - much more like an emerging-market sovereign default. The Irish model will be the example for future busts.

Dublin calling

For a brief period, in the years leading up to the crash, Ireland was at the cutting edge of financial services. Dublin had a near-monopoly on the European securitisation market - from collateralised debt obligations (CDOs) to the special purpose vehicles (SPVs) through which mortgage-backed securities (MBSs) were issued (usually backed by home loans from the UK or Germany, rarely from Ireland). Dublin was able to provide the lawyers to structure transactions and the non-executive directors to sit on the SPVs' boards. The securities would then be listed on the Dublin Stock Exchange.

The Irish banks were major investors in these asset-backed securities and deals were often managed by Dublin-based fund managers. All of this occurred against the backdrop of an unobtrusive regulator and very low corporate tax rates. Even better, Ireland does not enforce "controlled foreign companies" regulation - anti-avoidance rules for foreign profits - making it simpler for investors to shift profits from one tax jurisdiction to another. This is why, as well as banks, firms from WPP to Shire Pharmaceuticals to Google moved their HQs to Dublin.

A joke went round the trading floors in September when the Irish government was forced to nationalise Anglo Irish Bank: "What's the difference between the banking systems of Ireland and Iceland? One letter and two years." At first glance, the comparison looks spot-on. In both countries, the banking system swiftly grew to dominate more traditional industries (in Iceland, fishing; in Ireland, agriculture). And both systems were founded upon the twin pillars of rampant speculation and lax regulation.

Iceland is now in better shape than anyone would have predicted in the dark days of 2008. The budget deficit is some ten billion kronur less than forecast and fishing has been augmented by geothermal energy and aluminium smelting to make up for the loss of financial services income. Most important, the country's rise from the ashes has been helped significantly by the devaluation of the krona in the wake of the crisis. This has helped spur foreign investment and the return of tourists to Reykjavik. Ireland doesn't have that option, and the foolhardy attempt of the government to underwrite the debts of its banks in 2009 ensured a budget deficit of almost 32 per cent of GDP.

Shamrock bottom

The markets haven't been impressed by the bailout. After a brief rally, the euro gave up most of its gains as details of the joint EU/IMF rescue plan emerged on 22 November. Shares across the world fell as analysts predicted that Ireland would not be the last European sovereign to go cap in hand to the EU. The Irish stock market sank almost 1.5 per cent. Moody's stated that it would likely downgrade Ireland's current Aa2 rating by several notches. Credit default swap (CDS) spreads on both the sovereign and the leading banks all widened as speculators gambled that the package would not be enough to save the nation's bankrupt financial system. To insure €1m (£850,000) of Allied Irish Bank bonds with a CDS contract currently costs a staggering €550,000, up from €80,000 in August. Rumours circulated that the banks would be merged, or broken up and sold off; whichever, it was clear that Irish banks would be smaller and humbler than before the crash.

Those bull-market market day trips to Dublin seem like a distant dream. Even if, as seems to be the case, Ireland maintains the lowest corporate tax rate in Europe - 12.5 per cent - companies are likely to pull out of an economy on the brink of meltdown. Some estimates of the final cost of the bailout have now topped €200bn - and this is in addition to the €50-70bn the Irish government has already spent propping up its beleaguered banks. W B Yeats has been quoted by every financial hack trying to lend gravitas to their analysis of the Irish crisis. You can see why - things are falling apart. But I'll call on a less apocalyptic voice, Seamus Heaney, who urged us to: "Believe in miracles/and cures and healing wells." God knows, Ireland needs them.

Alex Preston's column appears fortnightly. His novel "This Bleeding City" is published by Faber & Faber (£12.99)

This article first appeared in the 29 November 2010 issue of the New Statesman, Congo

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Why Theresa May is wrong about immigration

The inconvenient truth: migration helps Britain.

Immigration is a disaster. Well, Theresa May says so, anyway.

May’s speech to the Conservative conference is straight out of the Ukip playbook – which is rather curious, given that she has held the post of Home Secretary for five years, and is the longest-serving holder of the office for half a century. It is crass and expedient tub-thumping (as James Kirkup has brilliantly exposed). And what May is saying is not even true. These are saloon-bar claims, and it is striking that she should unleash them on the Conservative party conference.

“When immigration is too high, when the pace of change is too fast, it’s impossible to build a cohesive society,” May says. Yet, whatever she might say, racism is on the decline. The BNP’s vote in the general election collapsed from 563,000 in 2010 to just 1,667 in 2015. Research by Rob Ford has revealed that the nation is becoming far more tolerant to marriage between races: while almost half of those born before 1950 oppose marriage between black and white people, only 14 per cent of those born since 1980 do. And between 2011 and 2014 (when the figure was last measured), the British Social Attitudes Survey reported a decrease in self-reported racial prejudice, from 38 to 30 per cent.

May also said: “at best the net economic and fiscal effect of high immigration is close to zero.” This is another claim that does not stand up. An OECD study two years ago found that the net contribution of immigrants is worth over £7bn per year to UK PLC: money that would otherwise have to be found through higher taxes, lower spending or more borrowing.

May also asserted that “We know that for people in low-paid jobs, wages are forced down even further while some people are forced out of work altogether.” This ignores the evidence of her own department, who have found “relatively little evidence that migration has caused statistically significant displacement of UK natives from the labour market in periods when the economy is strong.” An LSE study, too, has found “no evidence of an overall negative impact of immigration on jobs, wages, housing or the crowding out of public services.”

The inconvenient truth is that rising net migration is both proof of, and a reason why, the UK economy is doing well. As immigration has increased, so has growth; employment has risen, including for Britons. This is no coincidence.

To win the “global race”, a country needs to attract skilled immigrants who work hard and put in more than they take out. That is exactly what the UK is doing: net migration has just risen to 330,000, a new record. As a whole these migrants “are better educated and younger than their UK-born counterparts”, as an LSE study has found. In the UK today there is a simple rule: where immigration is highest, growth is strongest. The East Coast and Cornwall suffer from a lack of migration, while almost 40 per cent of a immigrants live in the thriving capital.

Lower immigration would make the UK a less dynamic economy. Firms in London enjoy a “diversity bonus”: those with an ethnically diverse management are more likely to introduce new product innovations, and are better-able to reach international markets, a paper by Max Nathan and Neil Lee has found.

Puling up the drawbridge on immigration would have catastrophic consequences for UK PLC. The OBR have found that with zero net-migration, public sector net debt as a share of GDP could rise to 145 per cent by 2062/63; with high net-migration, it would fall to 73 per cent.

So May should be celebrating that the UK is such an attractive place to live, and how immigration has contributed to its success. By doing the opposite, she not only shows a lack of political leadership, but is also stoking up trouble for the Prime Minister – and her leadership rival George Osborne – during the EU referendum.

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.