Cantillon: Chopra’s bailout comments lean to the left

The comments of former IMF mission leader to Ireland Ajai Chopra as he reflected on the organisation's engagement with the Irish bailout are worthy of reflection. A perhaps surprising aspect of his views is the way they might be positioned politically when placed in the Irish context.

Among the five points made were that unguaranteed senior bondholders should not get away free when the public purse is called upon to support distressed banks and that it would have been a “grave mistake” to have given in to those who wanted to close the deficit more quickly at the cost of growth.

Are these the kind of views that would have put Chopra closer to the Irish Congress of Trade Unions than to some figures in the main governing party?

Chopra also noted that it was Ireland’s euro zone partners who prevented the government imposing losses on unguaranteed senior bondholders, a view which chimes with criticism often heard in centre/left circles concerning European policies and politics. So much for the IMF being a right-wing bogie.

The obvious difference of emphasis between the IMF and European approaches to the troika programme and Ireland's banking collapse is probably part of the obvious soreness apparent yesterday in European circles at the way the Government turned its back on Europe last weekend when celebrating our emergence from the bailout.

But that doesn't mean European Commission president Jose-Manuel Barroso is not correct to say the euro was the victim of past Irish economic mismanagement rather than Ireland being the victim of problems created by the euro. The collapse of the Irish banking system was a homegrown affair, whatever about the policies adopted once it materialised.

Back in 2001, when the commission tried to warn Ireland about its pro-cyclical economic policies, the then finance minister Charlie McCreevy famously referred to “green-eyed jealousy”. It was a daft “them and us” response, and the kind of attitude that is best put to one side.

Getting stuffed to pay A/Wear's landlords
It is not just in Ireland that ordinary creditors in retail insolvencies get stuffed in order to protect the interests of landlords. That is precisely what appears to have happened this week with the British operations of A/Wear.

A/Wear entered receivership here last month after a failed tilt at examinership for its 30 Irish stores. Aside from its nine concessions across the water in House of Fraser stores – which are easy to close – the group also had two standalone outlets in Britain.

In what must be one of the worst-timed international retail expansions, A/Wear entered the British market in September 2008 with stores in Bristol and Leicester.

According to a UK court judgment this week, they “traded at a loss from the outset”. In May 2010 the company pulled the plug on the stores and entered an agreement with the landlords to pay a year’s rent – £340,000 (€405,000) for Bristol and £210,000 for Leicester – into an escrow account for future payment in order to break the leases. And that’s where the cash remained.

The landlords wrote to A/Wear in December 2011, giving notice that the agreement had to be honoured the following month.

The two stores subsequently went into administration, and the administrator declined to sanction the release of the cash to the landlords on the basis that they would have to join the queue with other creditors. This was upheld by a court.

This week, the landlords succeeded in getting that ruling overturned at the Court of Appeal, which said it could find no reason that would justify ripping up the May 2010 agreement.

The landlords will now be paid £550,000 (€660,000) that may otherwise have been available to defray some of the losses that will have to be sucked up by suppliers.

Back home, in retail insolvencies, it is de rigueur for the High Court to sanction write-downs in the cash owed to trade creditors to pay compensation to landlords. Even the law is obsessed with bricks and mortar, to the detriment of trading businesses.

Good and bad news for graduates
Ensuring the recovery doesn't bypass the long-term unemployed is a major challenge for the Government. Even with the recent surge in employment growth, the number of people out of work for a year or more remains stubbornly high at about 164,000 – accounting for 58 per cent of the total.

An interesting insight into the shifting composition of this cohort was revealed in a study by the Economic and Social Research Institute this week. The report – Lost in Transition? The Labour Market Pathways of Long-Term Unemployed Individuals in Ireland Pre and Post the Great Recession – was published alongside the think tank’s quarterly economic commentary. One of its key findings was that, prior to the crisis, the number of long-term unemployed peo- ple with third-level degrees was negligible – essentially zero in statistical terms.

Fast-forward to 2013 and almost 18 per cent of those in the long-term category hold a third-level degree or a higher qualification. Now that the Government faces a much more complex unemployment scenario, it remains to be seen if it is using the right tools to address the issue.

It recently published a revised version of its Pathways to Work strategy, which contained a 50-point action plan to combat long-term unemployment.

It included two new initiatives – Momentum and JobsPlus – that focused in part on retra- ining high-skilled workers.

To complicate matters, the ESRI published a separate research paper painting a different picture of the shifting patterns of unemployment, one that runs counter to the prevailing brain-drain narrative. It found that the number of college graduates employed in the economy actually rose throughout the recession, and that there had been a net inward migration of third-level graduates during the crisis.

The ESRI’s John FitzGerald wondered whether the studies might be explained by “a mismatch of skills” in the labour market, which would suggest the emergence of structural unemployment.