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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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The strange death of boozy Britain: why are young people drinking less?

Ditching alcohol for work.

Whenever horrific tales of the drunken escapades of the youth are reported, one photo reliably gets wheeled out: "bench girl", a young woman lying passed out on a public bench above bottles of booze in Bristol. The image is in urgent need of updating: it is now a decade old. Britain has spent that time moving away from booze.

Individual alcohol consumption in Britain has declined sharply. In 2013, the average person over 15 consumed 9.4 litres of alcohol, 19 per cent less than 2004. As with drugs, the decline in use among the young is particularly notable: the proportion of young adults who are teetotal increased by 40 per cent between 2005 and 2013. But decreased drinking is not only apparent among the young fogeys: 80 per cent of adults are making some effort to drink less, according to a new study by consumer trends agency Future Foundation. No wonder that half of all nightclubs have closed in the last decade. Pubs are also closing down: there are 13 per cent fewer pubs in the UK than in 2002. 

People are too busy vying to get ahead at work to indulge in drinking. A combination of the recession, globalisation and technology has combined to make the work of work more competitive than ever: bad news for alcohol companies. “The cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of Future Foundation.

Vincent Dignan is the founder of Magnific, a company that helps tech start-ups. He identifies ditching regular boozing as a turning point in his career. “I noticed a trend of other entrepreneurs drinking three, four or five times a week at different events, while their companies went nowhere,” he says. “I realised I couldn't be just another British guy getting pissed and being mildly hungover while trying to scale a website to a million visitors a month. I feel I have a very slight edge on everyone else. While they're sleeping in, I'm working.” Dignan now only drinks occasionally; he went three months without having a drop of alcohol earlier in the year.

But the decline in booze consumption isn’t only about people becoming more work-driven. There have never been more alternate ways to be entertained than resorting to the bottle. The rise of digital TV, BBC iPlayer and Netflix means most people means that most people have almost limitless choice about what to watch.

Some social lives have also partly migrated online. In many ways this is an unfortunate development, but one upshot has been to reduce alcohol intake. “You don’t need to drink to hang out online,” says Dr James Nicholls, the author of The Politics of Alcohol who now works for Alcohol Concern. 

The sheer cost of boozing also puts people off. Although minimum pricing on booze has not been introduced, a series of taxes have made alcohol more expensive, while a ban on below-cost selling was introduced last year. Across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today; in 1998 prices in the UK were only the fourth most expensive in the EU.

Immigration has also contributed to weaning Britain off booze. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” Nicholls says. A third of adults in London, where 37 per cent of the population is foreign born, do not drink alcohol at all, easily the highest of any region in Britain.

The alcohol industry is nothing if not resilient. “By lobbying for lower duty rates, ramping up their marketing and developing new products the big producers are doing their best to make sure the last ten years turn out to be a blip rather than a long term change in culture,” Nicholls says.

But whatever alcohol companies do to fight back against the declining popularity of booze, deep changes in British culture have made booze less attractive. Forget the horrific tales of drunken escapades from Magaluf to the Bullingdon Club. The real story is of the strange death of boozy Britain. 

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