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Dublin University’s financial newspaper

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Increase in student contribution to €2250 2% cut in Higher Education funding Post graduate funding cut

BY DAMIEN CARR Managing Director DESPITE A change in format of how the 2012 budget was announced its policies did little in the way of shocking the nation. An Taoiseach, Enda Kenny, told us on Sunday that “the worst was yet to come”. While this may indeed be the case so much of budget 2012 had been leaked prior to the announcements of the last few days that there was little in the way of public outcry at the proposals Despite being well flagged the measures of budget 2012 will still have ramification throughout Irish society. The government tried to be as equal as possible in sharing the pain and while it is inevitable that some will be burned with a greater share of the pain than others no one will escape untouched. The two day budget was divided between both the Minister for

Expenditure and Public Reform, Brendan Howlin and the Minister for Finance, Michael Noonan. Minister Howlin’s part of the budget concentrated on decreasing, as much as was possible, the expenditure of the main money guzzling departments; specifically Education, Welfare and Health. Minister Noonan’s budget aimed to increase government revenues through a variety if increased taxes. €600 million of these taxes had been carried on from last years budget and so the minister was faced with raising approximately €1 billion in new measures. These measures included changes to motor tax, carbon tax and DIRT. While this budget would have been approved by both the IMF and EU it has yet to be seen whether it will provide the measures necessary to return us to stable growth. Budget analysis can be found on pages 4, 10 & 11.

› Ryan Tubridy

› Michael Noonan, Minister for Finance

S&P downgrade heaps pressure on Euro leaders BY OWEN BENNETT Acting Editor EUROPEAN MARKETS were once again thrown into turmoil on Tuesday on the back of news that the world’s largest credit rating agency, Standard & Poor’s, is putting the sovereign debt of practically every Eurozone country on review for a possible downgrade. In addition, the agency also announced that the European Financial Stability Facility (EFSF), a bailout fund of almost €440 billion, is in danger of losing its triple-A rating. Any downgrade of the EFSF would hinder the fund’s ability to raise money on the international markets to finance any future rescue package. The move by S&P wiped out the

gains made by the markets last week in response to an agreement between France and Germany regarding strict new rules for fiscal discipline in Europe ahead of Thursday and Friday’s crucial EU summit. This push towards tighter fiscal integration is seen by many as the last chance to save the embattled single currency. There has been renewed pressure for a definitive solution to the two year old Erozone crisis, with US Treasury Secretary Tim Geithner again calling on EU leaders to enact radical change to stem the crisis which risks plunging the world economy into another recession. German Chancellor Angela Merkel told a news conference yesterday that “on Thursday and Friday we will take the decisions which we

consider important, indispensible, for the Eurozone”. Thursday’s summit will almost definitely break up with agreement that treaty changes are necessary to preserve the Euro. Án Taoiseach Enda Kenny has publicly voiced his opposition to such a move in recent weeks. However, privately, the government is resigned to that fact that given Chancellor Merkel’s support for treaty changes, such a move is inevitable. Under the constitution, the government will be obliged to hold a referendum on the issue should any agreement on treaty changes be reached at the coming summit. Obviously, such a reality is not looked upon with much joy in government buildings. Analysis on pages 7 & 8

RTÉ’S BROADCAST of the Late Late Toy Show on Friday the 2nd December attracted the highest ratings enjoyed by the station since the 1994 FIFA World Cup. The programme is aired annually and showcases potential present ideas for children in the run up to Christmas while featuring musical performances and interviews with children. The show’s runtime comes in at over two and a half hours, which makes the number of viewers all the more remarkable. Viewers tuned in at an average of 1,414,000 – or just over 1 in 3 people in the country. The programme this year only just broke the record for the Late Late Toy Show set last year, with a small increase of 6,300 extra viewers. The success of RTÉ’s online streaming contributed to an estimated 68,000 viewers enjoying the broadcast in other countries, namely emigrants in the UK and the US. One of the advantages of the free RTÉ player service is that the show can be watched again at the consumer’s leisure for 21 days after the original broadcast. The show’s presenter, Ryan Tubridy, refused to take credit for the record number of viewers, instead stating: “Full credit to all the children, who are the real stars of the show...I think the country needed to smile and I hope we made that happen.” By Antony Wolfe 07 DECEMBER 2011 ISSUE 3 VOL 1

2 2.8%



THE BULL 07.12.2011








Pressure Increases on Government as third TD Loses Party Whip mon Hospital one of the pillars of their campaign in the Roscommon constituency, and as a result Mr. Naughton felt he had no choice but to go against his party. Willie Penrose resigned the party whip and resigned from the Cabinet following a decision by the government to proceed with the closure of an army barracks in his constituency in mid-November. Mr. Penrose had been the state’s first ‘Super Junior Minister’, with responsibility for housing and planning before resigning. While all eyes will be on Brendan Howlin and Michael Noonan during the presentation of the budget on Monday and Tuesday, they will be turning to the government backbenches when it comes to the vote itself. In particular there is a feeling that many of Labour’s backbenchers will struggle to side with the government on the budget, while there are


› The Government is under pressure following the loss of three TD’s some in Fine Gael who are not sure things either. In the early stages of the General Election in February Fine Gael were pushing for an overall majority, while Labour believed being the majority party in a coalition was a real possibility. The result was a number of promises made by both parties, entered into lightly, with a significant amount now likely not to be followed through on. Issues such as Ruairi Quinn’s signing of the USI pledge, or Eamon Gilmore’s statement that the Labour party

would protect child benefit rates, will hit home with many once the details of the budget are revealed. With thoughts on their constituencies and possibly the next election, many TDs could find it tough to reconcile supporting a budget which may have such hard-hitting effects. Needless to say, many will be watching the budget this week, not just for its economic fallout, but for its political fallout as well.

Fianna Fáil Strong IPO showing for Groupon gains ground BY DAVE KELLEHER FIANNA FAÍL received a much needed boost this weekend, with the party’s support reaching its highest level in close to two years. In a Red C poll published in this weekend’s Sunday Business Post, Fianna Faíl over-took the Labour Party and Sinn Fein to re-take second place, rising from 14% to 18%. The party hierarchy is said to be delighted with the poll showing as leader Micheál Martin attempts to rebuild a party decimated at the last election. It was also a good result for Fine Gael, who despite a lack lustre showing at the Presidential election and a looming budget, rose one point to 32%. Labour were the worst losers in the poll, dropping 2 points to 15%, joint third with Sinn Fein who are down one point. Independents and others still hold a significant amount of support with 20%. What will be of greater worry to the government parties is that when asked whether the government had broken the promises they had made during the election 66% said that they had. As well as this, when asked whether the government should review the Croke Park Agreement and make greater reduction to public sector costs, 65% agreed with 33% disagreeing.

BY ADAM HAUGH Shares in the daily deals provider Groupon after opening at some $26 on November 4th closed at $19 on Dec 5th. The Initial Public Offering launched last month was underwritten by Morgan Stanley, Goldman Sachs, and Credit Suisse and raised some $700 Million for the Chicago based company. Early in 2011 it was rumored that Groupon might reach a Market Capitalization of $20 Billion however this estimate was lowered after the summer. Last month’s movement generated some $12.5 Billion, which was higher than the figures suggested during the company’s filling earlier in the fall of between ten and eleven billion dollars. Groupon’s share price fell steadily from November 18th and had hit a low of just above $15 by the end of November. However the company has rallied moving into December and is back to $20, the price-tag toted by many analysts as a fair re-


Lack of snow worries skiers

BY DAVE KELLEHER TOMMY BROUGHAN lost the Labour party whip on Thursday following a vote on the extension of the bank guarantee, in which Mr. Broughan voted against his government colleagues. Mr. Broughan joins both Willie Penrose (Labour) and Dennis Naughton (Fine Gael) in being exiled to the opposition benches. Mr. Broughan’s departure was seen by many as inevitable, as a result of his voting against going into government with Fine Gael at the party’s conference following the General Election in February. It is likely that Mr. Broughan’s decision was heavily influenced by the budget which was only a few days away. The first to go was Fine Gael’s Dennis Naughton of Roscommon, who went against the government on a vote to end Accident and Emergency services at Roscommon Hospital in July. Fine Gael had made preserving the services in Roscom-

€2.9 bn

flection on the company pre-public offering. The fall off in share price would have frightened investors who have had reason to doubt the long-term viability of the online provider. To date Groupon has yet to record annual profits, is currently operating on a deficit of nearly half a million dollars and is increasingly seeing competitors enter their market. Regulators were also skeptical about the accuracy of accounting practices at the firm and Groupon made significant changes in the manner in which they record their financials. Fears about the wider tech and media industry have been reflected

in recent growth stocks. Netflix, an online provider of streamed content, initially saw growth in their share price but also saw significant fall off as other providers like Apple and Amazon have moved into the streamed content space. The possibility of Groupon losing market share to more lean competitors in one that no doubt frightens their investors. Groupon is currently embroiled in legal proceedings with the Advertising Standards Authority in the UK for what the watchdog claims are “serious breaches” of advertising law. Such issues are sure to worry investors in the short to medium term.

IT IS now early December and the pressing question for many skiers in Ireland is ‘Will there be any snow for me in January?’ January has proved to be a popular month for Irish skiers, with uncrowded pistes and off-peak deals available through ski tour operators, the concern for January 2012 is that Europe may be facing poor snow conditions. Top resorts such as Les Deux Alpes and Courchevel in France and Sestriere in Italy are currently having a worrying time, with the last significant recorded snow shower on the 6th November, meaning just 5cm has fallen in the space of a month. Les Deux Alpes and Courchevel are high French resorts and have some snow coverage on the upper slopes, but as yet there has been a poor showing on the lower slopes, though Sestriere is yet to receive any snow at all. This is a worrying development not only for Irish skiers (and boarders), but also for Irish ski operators such as Crystal, Direct and Topflight. Many of their available holidays have by this stage been booked and the lack of snow threatens to limit the number of Irish snowsports enthusiasts travelling, and indeed paying for their holidays if the current situation continues. Despite the current lack of confidence in European snow, the Ski-Club UK are enthusiastically predicting snow for this coming weekend; “Around 40cm of snow could fall over the next nine days in parts of France and Switzerland, which should dramatically improve the overall cover across the alps.” This is welcome news for ski and board fans and will hopefully kick-start this seasons’ action.


LAYOUT Owen Bennett Damien Carr Special thanks to Ted Nyhan and Anto Wolfe for all their help during production. This publication is partly funded by a grant from DU Publications Committee and by Trinity Investors Society.

This publication claims no special rights or privileges. For advertising, please contact Serious complaints should be addressed to: The Editor, The Bull, Box 31, Regent House, Trinity College, Dublin 2.



Trinity to launch economic forum TRINITY WILL host over 150 students from universities around the country this February at the Trinity Economic Forum. The weekend is Ireland’s first fully student-organised economics forum, and will see some of Ireland’s top business, economic and political leaders come to share their experience in the Science Gallery and Long Room Hub. According to TEF co-founder, Sean Gill, “TEF will offer much needed engagement & discourse on a national level and promote student participation in shaping Ireland’s future. It will also be a great networking event for students looking for jobs.” Gill started the project earlier this year with BESS students Patrick Lynch and Gary Finnerty. “The conversation about Ireland’s economic future is dominated by three different viewpoints - the economists who look for the theoretically correct answer, the business person who looks at the practical side of things, and politicians, who as far as we can see, just want to get re-elected. Sadly there doesn’t seem to be an awful lot of productive conversation between these viewpoints.” The Junior Sophister Economics and Maths student says “We hope that TEF can bridge the ideas gap between the

Trinity Economic Forum bright sparks who will be contributing to the Irish policy debate in the future.” The format of the forum will echo that of the Global Irish Economic Forum held this September in Dublin Castle, and attendees will take part in workshops as well as attending keynote speeches and panel

discussions featuring Ireland’s top economists and business and political leaders. The two-day agenda features a wide range of different topics, including the future of news, reforming the financial markets, deleveraging Ireland, and the European crisis.

“We didn’t want to get too bogged down in the past when coming up with topics for the panels, workshops and so on - we’re more interested in proactive solutions and original ideas. That’s why we divided the themes of the two days up - Friday will be a day for taking stock; looking at where we are now

and the immediate threat facing us, while on Saturday we’ll take the longer view and try find Ireland, and the world’s best path back to economic strength” The forum will attract students from the economics, business and politics faculties of all of Ireland’s universities. “Realistically, some of the people who will be sitting around the table in fifteen years’ time determining the future of this country are in college right now. We’re hoping that this event will help promote a more open and honest debate among Irish students about important policy issues, so that these conversations might be a little bit more effective in the future.” The idea for the forum has been developing since the start of the academic year and a committee of nine business and economics students is responsible for its organisation, promotion and funding. “We have a really fantastic group with a lot of experience in their respective fields, so we’re just putting the work in now and hoping that the event will be a success”. By Roberta Donovan

EU leaders clash over “Robin Hood” tax BY BRIAN DEVITT LAST MONTH saw the evolution of an intense political stand-off as the issue of a Europe-wide financial transactions tax was raised. The ‘Tobin Tax’ (named after Nobel Prize winning economist James Tobin) proposes a tax on financial transactions made by financial institutions across Europe. Banks and other financial services corporations would be charged a small percentage of each transaction they make in the hope of raising muchneeded revenue for Government Budgets and to help governments meet their international aid obligations. The exact rate has not been agreed and it is expected that it will vary across different financial instruments but figures of 0.1% on equity and bond purchases and 0.01% on derivatives trading are among those being suggested. It has been estimated that, even at these seemingly small rates, the taxation revenue raised from its implementation would be in the region of €57 billion per year. The Tobin tax has been dubbed a ‘Robin Hood’ tax since it targets wealthy investors from developed nations in order to fund aid to developing economies. It has appealed to the political left who feel large banks should be forced to contribute more to a crisis of which they were a significant cause.

› Chancellor George Osborne is said to be strongly opposed to a Tobin tax German chancellor Angela Merkel advocated a month ago that it should be introduced in all Eurozone countries and she has since gathered sizeable support. Billionaire-turned-philanthropist Bill Gates and the Archbishop of Canterbury, in addition to many charity groups are some of those who have publicly endorsed the idea. The opposition to the tax is also substantial, and is mainly coming from the United Kingdom. This comes as no surprise, given that London is the financial services capital of Europe and it is estimated that 80% percent of the tax will be paid from the UK alone. Former British Prime Minister John Major has likened the idea to directing a “heat-seeking missile” at the city of London. Chancellor of the Exchequer

George Osborne has serious concerns that a Tobin tax could force large corporations out of the UK and Europe and into regions where there is no such tax. Speaking to a meeting room of European finance ministers last month he also said: “The (European) Commission itself points out that a European financial transaction tax would have a serious impact on European growth. It would hit the UK economy, it could reduce European GDP by up to 3.5 %.” However Merkel, who is joined on the issue by French President Nicolas Sarkozy, remains adamant that this is a good idea: “We will continue intensively to discuss the proposal by the European Commission to introduce a financial transaction tax in Europe,” she told German lawmakers in Berlin last week. “I won’t give up hope.” The issue has become an embodiment of the current political tension in Europe that has emerged from the sovereign debt crisis. The conclusion to the debate is still unclear but the result will certainly be a significant indicator of where in Europe the real power lies. See Page 12 for extended analysis of the proposed EU wide Financial Transaction Tax

Government renege on bondholder pledge BY PETER JOHN MARTIN YET MORE flip-flopping by the Government was announced last week in a reversal of the decision to give junior bondholders of Bank of Ireland a 90%-100% haircut. Lobbyists employed by American hedge-funds such as Appaloosa Management LP who have bought the bonds have managed to convince the government that they must pay the full amount, with interest. The reality is most of the bonds are not held by pension funds and other such institutions anymore but have been bought up at a cut-price by high-risk market players on the secondary markets. Appaloosa Management, who own a large amount of the subordinated debt, were set up in 1993 and specialise in junk bond investment

seeing spectacular returns coupled with some heavy losses. For example, in 2003 the fund saw 149% returns for investors having lost 29% the previous year. It is clear that this is a risky game in which losses do occur as well as big wins. There is no economic or moral reason for us to repay this debt. These investors have taken a bet and there is no incentive for us to repay it. The markets will not punish us for this. The Government only has a 15% stake in BOI and even if there was a negative reaction the ECB would buy up bonds on the secondary market to quell fears. At this point there is no rationale for repaying anything other than what was strictly guaranteed, especially if the debt is now in the hands of foreign speculators.



THE BULL 07.12.2011

€3.8 billion in fiscal adjustment for 2012 €250 hike in

BY OWEN BENNETT Deputy Editor IN A notable break with tradition, budget 2012 was unveiled over two days this year with Minister for Expenditure and Public Reform Brendan Howlin announcing €2.2 billion in spending cuts, while his colleague in the Department of Finance Michael Noonan, outlined plans for €1.6 billion in increased revenue for the coming year. Few sectors of society were spared from the cuts in this latest austerity budget, the fifth since the beginning of the downturn. The Health budget was the biggest loser in the budget, seeing its annual allocation sliced by €543 million. This was followed by Social protection which suffered a cutback of €475

million while the Education budget for the year was adjusted downward to the tune of €132 million. In a surprising move, the cuts in social welfare payments were far less than originally anticipated with the government cutting the welfare budget by €190 million less than had been projected in last year’s National Recovery Plan. The controversial plan to cut children’s allowance by €10 a month was shelved in response to huge public disapproval. However, a number of technical changes were factored into the social welfare budget with the government altering a number of the eligibility limits for certain welfare schemes. Minister for Health James Reilly has cut the number of hospital beds and implemented charges for

private patients who receive treatment in public hospitals. The move is expected to lead to increases in private healthcare insurance premiums. Education Minister Ruari Quinn reneged on an election promise not to increase the student registration fee. The student contribution will rise to €2250 from next year. This increase in the student contribution toward third level corresponds with a larger cut in the state’s funding to third level institutions. However, Mr. Quinn delivered on a promise not to increase pupil – teacher ratios in state funded schools. Yesterday, Finance minister Michael Noonan announced tax increases of €1 billion . This is allied with tax hikes from last year’s budget which have yet to come into effect

meaning the total increase in taxes next year is expected to be €1.6 billion. As expected, the minister introduced no increases in income tax. However, VAT rose by 2%, while DIRT was also increased slightly. PRSI was broadened to encompass rental income while there were also notable increases in carbon taxes on petrol, diesel and home heating oil. The fiscal adjustments in budget 2012 are expected to produce €3.8 billion in savings and revenue increases. In keeping with the agreement reached with the EU/IMF/ ECB troika, the government is seeking to cut the general government deficit to 8.6 percent of GDP in 2012.

Taoiseach makes State of Nation address BY DAMIEN CARR Managing Director ON SUNDAY, December 4th, An Taoiseach Enda Kenny made a State of Nation address in which he warned the Irish public that “we were not responsible for the crisis” but despite this he also stated that “the worst was not over” and we “still had a long way to go”.

While the Taoiseach was nothing but truthful his speech did little to eleviate the hardships faced by many of the population. The address was if anything a warning for what was to come in the 2012 budget so that we would not be as shocked when it was released. The 2012 buget was annouced on the 90th anniversary of the day we gained indepence from England.


FROM NEXT year, students will face an increase of €250 in the college registration fee. This will be seen as victory for the aggressive tactics employed by the USI in protesting fees as the increase was expected to be much larger. On his speech Minister Howlin said “We have had to make the difficult decision to increase student contributions in order to protect the higher education sector from what would otherwise have been greater cuts in that area.” There will also be changes to the fee and maintenance grants system for post-graduate studies for new entrants, currently benefiting over 9,000 students. The Union of Students in Ireland has said the €250 increase in college fees will cause “enormous hardship for families” while only raising around €16m for the Exchequer however Minister Howlin said, on the RTE Six.One News that 44% of students would not be affected by the decision to raise the student registration fee because they were in receipt of a grant. University chiefs are likely to be disappointed that no long term sustainable form of funding base was secured and that the overall higher education budget which was cut by 2% would not be offset fully by the increase in the student contribution charge.

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THE BULL 07.12.2011

End is nigh for old school teaching Stanford University, in the heart of Silicon Valley, is leading the education revolution. Tony O’Connor comments on what this means for future learning. IT IS only too easy nowadays to be pessimistic about the future state of education. Indeed, funding withdrawals are having a severe impact upon both the rankings of Irish universities, and the quality and quantity of education provided. However, as we speak, important developments are underway in northern California, which will have far-reaching effects on the contemporary education system. In the future, technology will radically increase the standard and quantity of education available to anyone with an internet connection. Specifically, I refer to the pioneering decision by Stanford University, located in the heart of Silicon Valley, to put online for free three of it’s most popular computer science classes. Computer science classes

“SUCH UNCEASING INNOVATION WILL CHANGE EDUCATION AS WE KNOW IT” may seem niche, but the truly interesting developments reside in the delivery of the classes. Unlike many

online classes, the Stanford classes feature video lectures that smack more of a fireside chat, or a personalised grind, than a traditional lecture. The fact that the lecturers are leaders in the field is evident in the clarity and compelling nature of the material taught. The classes also assign homework assignments such as review questions and programming assignments. These assignments have binding deadlines and are automatically corrected. Yet despite the phenomenal success, Stanford refuses to rest on it’s laurels; next term, no less than fourteen classes will be launched online, with the subjects covered ranging from game theory to anatomy to cryptography. Such unceasing innovation shall change education as we know it. In a recent article, Professor Jeffrey Sachs, Director of the Earth Institute at Columbia University, hypothesised that a productivity revolution was about to begin in education and other service sectors such as healthcare. On learning of such developments, and assuming that they will become more widespread, one naturally wonders how it will affect the current modus operandi of third level education. Let us firstly concern ourselves with the change in the student experience. There is an imperfect information element in education, in that some students know not what they will be

taught before they enter a certain course, or choose a certain module. This often results in bad choices; for example, a student may enter a course they either find boring or one with which they cannot cope. They may miss a course which otherwise they would have done well in. Any student in the future facing such choice dilemmas could simply enroll in a class offered online in the given subject, and thereby enlighten themselves as to the correct choice in college. Moreover, we have all experienced a disappointing lecturer, who, despite being a brilliant researcher, may prove ill-at-ease at passing their considerable knowledge onto their students. In a university where this is the case, it may be wise for the lecturer to make lectures non-mandatory, and instead require students to watch high quality online lectures on the same

“THE KEY LIES IN THE DELIVERY OF THE CLASSES” material. The instructor could then spend more time assessing the students with more detailed homework assignments, which he would have more time to correct and offer feedback on. compared to an Irish whiskey sales inrease of 7.1 million litres. Irish whiskey sales in the United States rose from approximately $338.7 million in 2005 to $768.9 million in 2010, accounting for a total increase in sales of $430.2 million. The exponential sales growth of Irish whis-


Whiskey: the economic water of life

By Lisa Maurer

SINCE THE collapse of the Irish economy, the media continuously bombards the public with negative media coverage. Amongst all the negative reports, a certain Irish industry is turning out to be a diamond in the rough. Irish whiskey’s resilience due to increasing global demand allows the industry to

thrive in the hard hit economy. Although many markets across the world are experiencing growth in whiskey sales, Irish whiskey sales in particular are growing exponentially. According to Euromonitor, sales of Canadian whiskey in the U.S. market only increased 3.6 million litres from 2005 to 2010 as

key can be found across many of the world’s markets. Many factors account for the rise in demand for Irish whiskey . In an interview with John Teeling, founder and chairman of Cooley Distillery, Teeling stated, “Young people don’t like to drink what their parents drink because the act of drinking is an expression of self.” Therefore, the younger generation is turning away from more traditional spirits to whiskey. Furthermore, a rise in the demand for Irish whiskey is in part due to growing consumer awareness from large marketing campaigns of brands such as

Drab lecture halls will soon be a thing of the past

One may wonder how long would it take for such progressive dynamics to emerge? It would require the prospective students to be aware of the benefits technology offers within an educational context, and for this awareness to emerge, they would need to be exposed to it in secondary school. If they have positive experiences of technology in secondary school, then they will gravitate to the universities that adopt educational formulas they perceive as successful. This analysis can thus end with a concrete policy recommendation for a government. Identify the course in which the standard of teaching tends to be insufficient. In an Irish context, this may be Leaving Certificate Mathematics. Then, find the best teachers, and request

them to fashion an online course which students may use to supplement their educational adventures through online tutorials, exam questions and solutions. Such resources would be of great use to the advanced student, who could go at a faster pace than the rest of the class. As a result, the teacher could focus more on helping students who are experiencing difficulties. Such developments will obviously take time and with the Irish education system in the midst of severe austerity, progress will be slow in the short term. However, the seeds of a new educational age are being planted in Silicon Valley. There is nothing to stop us planting them here also.

Jameson. Mr. Teeling also stated, “Cooley’s total revenue accounts for only half of Jameson’s advertising expense in the United States.” The demand for Irish whiskey will continue to grow and a race to fill the demand will inevitably create jobs for Ireland’s struggling economy. Ireland’s three distilleries, Middleton, Bushmills and Cooley, will need to increase supply dramatically in attempt to keep up with the demand levels. According to Euromonitor, sales growth in the United States alone is expected to rise 4 million litres from 2010 to 2015 representing a 31.2% increase. Irish distillers, owners of the Middleton Distillery that produces the Jameson brand, already have a major plan for expansion underway to double their current production levels. Irish Distillers will make a multi-million euro investment for forty maturation houses in response to the increasing overseas demand levels. The expansion will not only increase profits but also create jobs in the troubled Irish economy. In stark contrast to the multinational businesses in Ireland that need to lay off workers, the Irish whiskey industry continues to increase its workforce. The industry can only

expect to continue to grow exponentially in the future as Irish whiskey enters new markets, including China and India. It’s not hard to imagine the positive impact on the Irish economy when the Irish whis-

“THE EXPANSION WILL NOT ONLY INCREASE PROFITS, BUT ALSO CREATE JOBS” key industry enters enormous new markets, such as the Indian market with a population of 1.21 billion people. The ability of the Irish whiskey industry to earn profits during a deep recession serves an excellent example of the possibility for the production and exportation of Irish goods to drive the recovery of the economy. The Irish whiskey industry offers life to Ireland’s damaged economy. After all, whiskey in the old Irish language is uisce beatha, which means water of life.



THE BULL 07.12.2011

A United States of Europe? EUROZONE CRISIS

In anticipation of this weeks’ crucial summit, Matthew Taylor ponders the future for the European Project. BY THE time you read this, this country and this continent will probably be much changed. The past while has already seen a change in the political landscape, and a roadmap for the future of the European Union has been proposed by

Mr. Sarkozy and Dr. Merkel, a plan intended not only to solve our current crisis but to phase out any and all economic problems that may arise in years to come. The words, ones which we believed we understood but which we now see we have

not fathomed, are fiscal union. The European Central Bank (ECB) looks likely to begin using its funds to buy the government bonds of ailing member states .France and Germany will use this weeks’ European summit to formally propose treaty changes which will grant Brussels the right to regulate the fiscal policy of member states, or at least greater oversight of the budgetary processes. There has also been some speculation that they will rec-

Merkel and Sarkozy are under pressure to find a difinitive solution to the Eurozone Crisis

ommend that all 17 Eurozone nations adopt national debt clauses into their constitutions, something already employed in Germany, which states that Government debt may not rise above a certain level of GDP. However, the question of jointly secured debt looks likely to remain unresolved. The creation of Eurobonds is, in my opinion, inevitable but not imminent. The pressure from Mr. Sarkozy and the leaders of Italy, Greece and Portugal coupled with the latent support of Mario Draghi will in all likelihood prove too much for Dr. Merkel. She is known for her caution, but as outlined by Mr. Draghi, once meaningful fiscal union is achieved they must be issued to relieve the pressure on individual states. To issue Eurobonds now would be suicidally stupid given the widespread market fears that the currency may not survive from one week to the next; hence issuing bonds on a flailing Euro would irrevocably confirm the markets appraisal of the bloc’s economic health. Dr. Merkel may proclaim till the cows come home that she will not support Eurobonds, but she is a pragmatist if nothing else who will compromise either for international stability or political advantage. Unfortunately we can expect David Cameron, the dichotomously

titled ‘Compassionate Conservative’, to come along and piss on everyone’s pommes-frites. He has made it eminently clear that he will not only oppose but actively obstruct any attempted treaty change. It is obvious that the EU can progress no further as a political entity

“AN EU WITHOUT THE UK MAY NOT BE SUCH A BAD OPTION” whilst dragging the dead, euroskeptic weight of the UK behind it and we may as well throw Denmark out for good measure too. As such, if Europe can secure the radical treaty changes and push for the greater fiscal Union it so desperately needs, there may yet be hope for the European project with a healthy Euro at its core. Any push for greater unity must be met with a greater role for the European citizen. So much popular anger is caused by the feeling of powerlessness we all experience. A participatory, democratic European parliament with legislative power is essential if we are to be expected to sign up to a greater secession of sovereignty.

Draghi must abandon mandate to stem crisis Cian Moynihan outlines the case for a more proactive ECB. THE EURO crisis this week continues to make headlines, with growing despair that Europe’s currency is doomed to fail. Italian bond yields once again rose above 7%, a level which is deemed unsustainable to borrow at, and at a German bond auction only 65% of the bonds sold. Many see the next few weeks as a make or break period for the euro; either the politicians come together now to enact a difinitive solution or the currency will fail. However, there is a straightforward, inexpensive and relatively quick way of solving this crisis which Eurozone leaders have so far been unwilling to countenance. The solution is for the ECB to stand, unconditionally and resolutely behind heavily indebted countries like Spain and Italy by printing unlimited quantities of money to buy government bonds. This would surely help ease the crisis and allow peripheral countries to borrow at sustainable costs. So why hasn’t the ECB done this? Firstly, it is important to note that the ECB has in fact bought some Italian and Spanish government bonds, albeit inconsistently and crucially, not in the quanty required. The reason why ECB efforts in this regard have been insufficient

is because ECB chief Mario Draghi is torn between acting as a lender of last resort to governments and sticking to the bank’s current mandate, which is to maintain stable prices. Herein lies a political problem:

“THE CHANCELLOR HAS RULED OUT EUROBONDS ON A NUMBER OF OCCASIONS” the ECB has no mandate to lend to governments. For the ECB to act as a lender of last resort would be illegal as EU treaties ban direct financing of states. When the ECB first bought government bonds earlier this year, the previous head of the Bundesbank, Axel Weber, resigned due to his discomfort with the policy. Indeed, many quietly complain that Mr. Weber’s views are typical of a German economist, that is, a focus on the long term, a great fear

of inflation and a distrust of policy judgment. A further reason why the ECB hasn’t intervened in a meaningful way is down to the German Chancellor Angela Merkel. The chancellor has ruled it out on a number of occasions, to many people’s dismay as the crisis contagion goes deeper into Europe’s core. Her reasoning is that if the ECB were to step in, bond yields for all euro-zone countries would fall as investors realise there is no chance whatsoever that a country would default. If that were to happen, Chancellor Merkel thinks countries that have heavy debt and high budget deficits would persist as there would be no market pressure for these countries to reform and reduce their debt,. Mrs Merkel has a very valid point, as it is hard to imagine the resolute Silvio Berlusconi, the former Italian PM, stepping down without the intense market pressure on government bonds last month, which ultimately called his hand. It is also could be said that without the pressure from the troika in Ireland, the budget cutbacks and tax hikes would have been less severe. If the ECB gives the impression that it is only willing to do the mini-

ECB chief Mario Draghi

mum to ease pressure on bonds, it will push unpopular yet necessary budgetary reforms through quicker. Indeed, although market pressure has pushed through radical

“THE ECB HAS NO MANDATE NO LEND TO GOVERNMENTS” reforms that were much needed, it looks as if the euro is coming to its end unless some constructive

action is taken. With jointly issued Eurobonds once again being dismissed, it seems only the ECB has the power to put an end to the speculation. It will be massively unpopular, in Germany especially, but Mario Draghi and the ECB must realise that if they don’t do something soon, the euro and indeed even the European project as a whole will ultimately fail. The time has come for European policymakers to step outside their comfort zone and follow their collegeues in the Bank of England and the Fed by utilising the huge firepower available to the central bank.



THE BULL 07.12.2011

Crisis exposes flaws in Frankfurt EUROZONE CRISIS

Andrew Winterbothan critiques the role the ECB has played in the crisis gripping the Eurozone. THE FIRST monetary policy decision taken by Mario Draghi as president of the ECB to lower the euro zone’s benchmark interest rate by 25-basis-points marks the only ray of light in ECB monetary policy actions over the last few months. However, this reversal of interest rate hikes may be too little too late.

“THE CRISIS IS SIMPLY A BALANCE OF PAYMENTS PROBLEM” The interest rate is still higher now than at the beginning of the year for example. This article traces the beginning of the current euro zone crisis by examining the damage that has been enacted by the ECB through its interest rate hikes beginning last April. In essence, the current euro zone crisis is simply a balance-ofpayments problem. Many countries in the single currency accumulated large external debts. To reconcile these debts, deficit countries need to become surplus countries. The absence of the flexibility of a floating exchange rate has made this incredibly difficult to achieve however. This has led investors to doubt the solvency of some institutions, and these doubts, in the absence of a lender of last resort, have morphed into contagion that threatens to leave banks and sovereigns alike bankrupt. When one looks at the crisis this way, it begins to look inevitable. It

is worth pointing out however that perceptions of solvency are very much state-contingent. Take Italy for example, which prior to the crisis was running a budget surplus and lowering its Debt to GDP ratio. The dire situation Italy currently finds itself in marks its shift from one equilibrium to another. Italy was fine as long as investors were willing to finance its old debt at low rates, which they are not willing to do any more. An explanation for this may be simple contagion. The ECB failed to contain market worries as they spread from Greece to Portugal and Ireland. This led investors to reduce their exposure to banks and sovereigns resulting in even greater doubt about the solvency of these countries, contributing to a feedback loop of doom. Others argue that this reversal of fortune for Italy was due to a poor growth outlook. This argument seems less credible though, as Italian growth has been sluggish for years. A more compelling argument

“THE ECB FAILED TO CONTAIN MARKET WORRIES” gaining traction among macroeconomists and which ties the above views together is that the persistent interest rate hikes over the last few months have dramatically lowered growth expectations for the euro zone as a whole. As perceived solvency to a large extent depends on expected growth, this has had a dramatic negative effect on the per-

ceived solvency of several euro zone countries. The amount by which interest rates were raised may seem inconsequential but the signalling effects of these moves, as pointed out by several notable economists, were very strong indeed. While maintaining price stability is, needless to say, of utmost importance, these moves signalled that the ECB was willing to pursue this goal despite and at the expense of a fragile economy, high unemployment, and an intensifying financial crisis. As a result, inflation expectations tumbled and nominal output across most of the euro zone switched from expansion to contraction. In other words, by lowering price expectations to prevent inflation, the ECB successfully engineered a decrease in demand (as people expect future prices to be lower, they decide to spend less today) which most certainly led to a shift in market expectations concerning the solvency

of several threshold economies, pushing those countries that were on the brink of insolvency over the edge. Added to this is the fact that the ECB failed to recognise the risk of contagion by failing to prevent the rise of bond yields of sovereigns across the euro zone. This analysis would imply that the current crisis perhaps was not inevitable and may let individual countries off the

“THE BANK FAILED TO RECOGNISE THE RISK OF CONTAGION” hook to a certain extent. Prudent fiscal policy is rendered almost ineffective amid contagion, where the

ensuing panic effectively blurs the lines between solvency and insolvency. The data verify the assertion that the current crisis dates back to the tightening of monetary policy in April. For example, the euro nominal exchange rate declined markedly upon the first interest rate increase and also bond spreads for German bunds surged dramatically at this time. Whether the euro survives or not, this policy debate certainly highlights some of the inadequacies of a single currency, especially in times of recession. For example, the optimal interest rate for Germany differs greatly than that for the likes of Ireland say. In any case, the action recently taken by Draghi to decrease the ECB benchmark interest rate may be in vain, as the damage has arguably already been done. It seems to be a case of closing the stable door after the horse has bolted.

Baptism of fire for new Spanish government OBSERVING THE woes of Greece, Portugal and Italy, it is easy to blame southern Europe for the continent’s financial turmoil, especially when we hear of their excessive borrowing, long histories of debt, in the case of Greece, creative accounting. With the Spanish government recently changing hands to the conservative People’s Party, looking at their borrowing costs at a worrying 6.3%, it would be easy to assume that Spain has similar problems to their southern counterparts. However, since the conception of the euro, Spain consistently kept to the proposed euro stability pact, in that they kept their borrowing below 3% of GDP and a debt/GDP ratio of less than 60%, every year until 2008, unlike Germany, who proposed the pact, broke it consecutively from

2002 to 2005. Despite balancing budgets, the Spanish economy fell under the spell of a fall in interest rates from 1999 up to 2008. While the Spanish government resisted cheap loans,

New PM Mariano Rajoy

Spanish consumers had no such will power, leading to uncompetitive wage levels, which rose by 36% from 1999-2008, compared with Germany’s 3% over the same period, and also leading to a housing bubble with average prices rising 44% from 2004 to 2008. Following the crash, house prices have has fallen by 17%. Spain’s unemployment rate currenly stands at a worrying 21%, owing to high labour costs and anemic growth. Furthermore, households have drastically cut their spending levels to repay their much accumulated debts. Although Spain has a relatively small national debt, it must borrow huge sums to cover it’s increasing social welfare costs and weak tax yields. The dilemma faced by the new PM, Mariano Rajoy is how Spain

can regain competitiveness, so that a boost in demand and an increase in growth can support the country’s debt burden. The key question is

“SPAIN’S UNEMPLOYMENT RATE IS 21%” how wages can be adjusted to facilitate this. If workers agreed to a large pay cut, then banks will suffer as consumer debt cannot be repaid, which would prove costly for the Spanish government, as well as reducing demand. Furthermore, if wages remain untouched, Spain will continue to lose ground on its competitors. Two possible solutions have

been raised. One unlikely outcome, which Spaniards are hoping for, is that German wages rise, regaining Spain a price advantage, without having to reduce wages. Conversely, Spain could leave the euro and devalue the new peseta, resulting in a fall in nominal wages and a fall in the real value of debt. This would limit the risk of Spain running out of funds, as the Spanish Central Bank could rescue the government, a move which the ECB has refused to do. However, it is exactly the possibility of the break up of the euro, that has markets worried. This decision of whether Europe should inflate, or whether Spain should devalue, is Spain’s economic dilemma. By Kevin O Donohue



THE BULL 07.12.2011

Choppy waters lie ahead Ed Teggin focuses on the brewing tensions in the Far East regarding teritorial claims over the South China Sea. IN THE wake of talks held between Chinese Prime Minister Wen Jiabao and US President Barack Obama over the status of territorial disputes in the South China Sea, US officials have described the Chinese stance as “constructive,” and there is a hope that despite the ongoing

“THE SOUTH CHINA SEA REGION IS DEEMED TO BE EXTREMELY VALUABLE” debate, tensions can be alleviated. The South China Sea is a sea area in the Pacific Ocean stretching

from Singapore to the Strait of Taiwan. The current dispute is centred around the various claims to sovereignty of the area by a number of Asian states, notably China, Brunei, Malaysia, the Philippines and Vietnam. The South China Sea region is deemed to be extremely valuable as approximately one third of the world’s shipping passes through its waters. Moreover, many analysts believe that there are vast oil and gas deposits resting beneath its seabed which have yet to be tapped. The meeting between the two leaders occurred during an East Asian summit in Indonesia. These talks have been used to attempt to patch up Sino-American relations after several high profile spats between Beijing and Washington regarding currency, trade, and critically, the South China Sea. Mr. Obama met Mr. Wen during his nine-day visit to Asia, a tour which

has been heavily focused on trade and boosting American influence in the region to try to counteract China’s growing dominance. U.S. national security advisor Tom Donilon spoke of the meeting as an informal conferance in which issues such as business practice and the free passage of merchant shipping were discussed. Mr. Donilon went on to indicate that although

“THE US HAS A COMMERCIAL CONCERN REGARDING INSTABILITY IN THE SOUTH CHINA SEA” the United States does not have an opinion on the South China Sea dispute, it does have a concern regarding commercial activity; “We don’t

have a claim, we don’t take sides in the claims, but we do as a global maritime power have an interest in seeing these principles applied broadly. On Friday 18th November however, Mr. Wen warned ‘external forces’ not to get involved in the maritime dispute. This warning was clearly directed at America following a Philippine request for assistance in solving the matter and more decisively, the decision to

deploy U.S. marines in Australia to boost America’s military presence in the region. This has been seen as a provocative measure used by the Obama administration, with official Chinese media taking a very blunt line; “If the United States sticks to its cold war mentality and continues to engage with Asian nations in a self-assertive way, it is doomed to incur repulsion in the region,” a stark indication that this dispute is only just warming up.

Modern warfare: currencies

The US and China remain at odds regarding the perceived undervalued Yuan. However, progress is being made. Will Caffrey investigates. THE US is calling on China to allow its currency to float freely against the dollar, as it says that Beijing’s policy is making it extremely hard for the US to compete in the manufacturing industry The roots of this conflict lie in the US - Chinese balance of payments. China is a manufacturing hotbed. It exports much more than it imports and therefore has a current account surplus of around $14.5billion as of August 2011. In order to avoid massive inflationary pressure domestically, China invests this money abroad, mostly in the US. According to the US Department of the Treasury, China holds $1.1trillion of US debt, more than any other country. The huge flow of money into the US causes a current account deficit as America decides to spend all its money (usually by giving tax cuts to the rich). This type of thing has been going on in America for decades. Before China, the money came from Japan. But since the credit crunch hit in 2008, and the subsequent slowdown in world growth, the US is looking to boost its manufacturing industry as the manufacturing middle class have effectively been wiped out through loss of home eq-

uity and unemployment. However, the US cannot compete with China because its currency is valued too high compared to China’s i.e. Chinese goods are cheaper than American goods. This means that the US wants China to allow its currency to float freely. This will inevitably mean an appreciation of the Yuan, which according to the Americans will help their manufacturing competitiveness. The reason China is unwilling to let this happen is that the huge amount of investment it has made into the US will depreci-

“CHINA HAS BEEN TAKING MEASURES TO INCREASE THE AVAILABILITY OF THE YUAN” ate and China will lose billions, as well as the inevitable speculative boom that will reduce the current account surplus and reduce China’s competitiveness.

What has happened before is that protectionism creeps in. This was seen in the post war period when countries tried to help themselves by imposing tariffs and ridiculous sanctions on foreign goods. This did not work of course, but that does not necessarily mean it won’t happen again. The first such measure from America has come in the form of a new bill passed by the senate, The Currency Exchange Rate Oversight Reform Act classes what China is doing to keep the Yuan low as a subsidy. The Economist says that the main reason it was passed was because of America’s jealousy of China’s manufacturing success. Which is a valid point considering that

China’s GDP has grown by around 9% this year versus America’s 2.8%. The implications of this bill could result in the US imposing tariffs and other restrictions on Chinese goods coming into the States. However, on the grounds that the WTO does not classify undervalued currencies as illegal subsidies, China could bring a complaint against the US to the WTO, sparking a trade war. China however, has been taking measures to increase the availability of the Yuan to international trade. An agreement between Hong Kong and China has just been announced, which gives Hong Kong access to 400bln Yuan, up from 200bln. This move, along with the introduction of ‘dim-sum’ bonds,

which are Yuan denominated Chinese bonds, indicate that China is taking the necessary steps to make the Yuan more available. There has been much talk about the Yuan becoming a rival to the US dollar as a foreign exchange currency. This result could be acceptable to the US, as it will mean an appreciation in the Yuan against other currencies, thereby reducing China’s hold over global manufacturing. However, with US policy,makers still claiming the Yuan in undervalued, there is a real threat that the world’s two biggest economies may revert back to economic protectionism, a state of affairs which is in no one’s interest.



THE BULL 07.12.2011

The sinister side of lobbying Peter John Martin explores the moral bankruptcy of corporate lobbying in the US.

CORPORATE DONATIONS and lobbying are integral parts of American politics and there are several reasons why this practice is rotten to its core. It actually works against the general populace by imposing the will of their paymasters. The Tillman Act of 1907 banned all corporate donations and rightly so but there has been a push against this for the last decade or so as corporations have sought to increase their power. This came to a head in the Supreme Court decision Citizens United v. Federal Election Commission last year which allowed corporations absolute freedom with

“THE CURRENT SITUATION IS UNTENABLE” regard to donations; it was a sad day for democracy. The Supreme Court was split 5-4 on the decision which reflects just how controversial the issue is. The dissenting arguments severely criticised the court’s reasoning and short-sightedness.

Corporate personhood has long been a burning issue in America and rightly so. There are those that would have you believe that, as Mitt Romney said, “Corporations are people too.” In part it is hard to disagree with this sentiment. They are owned and worked for by people but they don’t necessarily represent the best interests of all those people all the time and certainly not the general public. For the purposes of taxation and regulation it is easy to think of them in this way. Most definitely they should be offered some of the same constitutional rights as natural legal persons but this should not extend to the point where they can unfairly affect democratic elections. The general rule on corporate donations in most countries is that donations which amount to over 10% of a corporation’s net income, to any one political cause, are corrupt. The American Supreme Court has moved to remove such laws, which banned huge, unchecked corporate donations at the start of the 21st century, to making corporate donations essential to the chances of any candidate running for public

office. The corporate donations are now protected by the first amendment, the right to free speech as well as the fourteenth amendment, the right to be treated equally before the law. The problems arising out of this are significant as they affect the democracy which America

supposedly holds so dear. The current situation is, in many peoples’ eyes, untenable. It needs to be rectified so that the power of citizens to choose their own representatives in a free and fair manner is respected. Constitutional amendments such as Ted Deutch’s, submitted on the 17th of November, have been proposed. It would ban donations from for-profit entities which is hard to disagree with. It is hard to envisage a situation where businesses would donate to candidates in order to achieve goals that aren’t self-serving. However, this amend-

ment is unlikely to get passed while so many politicians are benefitting from the donations that they would be asked to outlaw. One could possibly agree with the idea that corporations should be allowed to make these donations if it was done in a transparent manner but the reality is that it is a shadowy practice and the Disclosure Act which tried to rectify this was shot down in the Senate. With all this money flowing into the coffers of elected representatives being completely unchecked there is no need for brown envelopes. Such is the amount of money being spent, I use the word spent because this money comes with implied conditions, that consultancies such as Karl Rove’s American Crossroads and Crossroads GPS have been established to help corporations get the most “bang for their buck” by offering strategic advice. Another worrying point is that Republicans outspent Democrats by a factor of 7 during the midterm elections where Obama lost so much momentum in affecting the change promised in his manifesto. The reality is that the right can outspend the left and centre so the political scene will inevitably shift if this practice is allowed to continue.

Ultimately it is very hard to see any real benefit accruing to the general public from such donations but there is the huge and worrying potential for private gain for large profit-making institutions through a process that is unfair and again shows the idolatry of the rich and corporatism that is overwhelmingly present in America. If you don’t believe me ask yourself why Lockheed Martin, a weapons manufacturer and only the 10th biggest contributor, would give over $20 million to politicians over the last 10 years. Is there a correlation between this and a continuing futile war effort? What other reasons would they have? And even if it is that they were personally close to

over the next 10 years, and split between defence and domestic budgets. A number of programmes are to be protected, including Social Security and Medicaid. However, there is still too many Republicans in Congress that have refused to listen to the voices of reason and compromise; ‘’At this point they simply won’t budge’’, President Obama lamented last week. Consequently, it seems the politics of congress will continue to outweigh good sense and the US will persist down a path of unnecessary self-destruction. As one Democrat complained, “All next year they will allow the idea to hang in the air, that Republicans

would rather guard the rich against the disappearance of Bush-era tax breaks, than guard their country against attack. Luckily for the US, the European sovereign debt crisis has stolen the spotlight this week. However, with a GDP to national debt ratio which dwarfs that of the Eurozone as a whole, Obama should pray the markets don’t turn against the US in the way they have Europe. Should that happen, it is hard to imagine the world will be able to continue to teeter on the edge of complete meltdown, with contagion across all global markets inevitable. Therefore, perhaps the US

should have a taste of the bitter medicine it had so readily forced upon its European neighbours in recent times. It needs to buckle down and face the situation it has bought upon itself, instead of ignoring the growing fiscal crisis. “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed”. As Mark Mardell of the BBC quipped recently, “The White House may not have wanted failure, but it is well within their gameplan.”


“CORPORATIONS ARE PEOPLE TOO” particular candidates or particularly agreed with their proposals, the usual defences, is it acceptable to twist the democratic process through the use of such large donations?

Politics over sense

Political brinkmanship has hampered US policymakers’ attempts at deficit cutting. Liv Moloney warns of the consequences of such squabbling. SQUABBLING, FINGER-POINTING and procrastination has meant the United States Congress has yet again failed to come to a resolution on its budget-deficit. Despite the humiliating events of last August, a month in which the world’s largest economy brought itself to the brink of default and was ultimately subjected to a humiliating credit rating downgrade from AAA to AA+ by Standard and Poor , one would have though Republican and Democrat congressmen alike would

“IT NEEDS TO BUCKLE DOWN AND FACE THE SITUATION IT HAS BROUGHT UPON ITSELF” have learnt their lesson. However, the emergency ‘Super- Committee’ tasked with reducing the US’s enormous deficit has, somewhat

unsurprisingly, failed to come to an agreement. The Committee, comprising six Democrats and six Republicans, is attempting to broker a deal for a US budget deficit reduction target of $1.2 trillion. The deadline was last week, and the failure to reach an agreement means that automatic across-board cuts will come into effect from 2013. These cuts are thought to be more harmful to US growth prospects than an alternative agreement and are likely to lead to higher yields on U.S. government bonds. This makes it likely that the markets’ focus will turn from Europe’s debt woes to America’s huge debt pile. “The rating agencies might be tolerant of this for a while, but failure to make clear progress could lead to further downgrades of the U.S. sovereign credit rating at some point next year” argues Kevin Logan, chief US economist at HSBC. The debt reduction deadlock owes itself to the ideological minefield which exists between US Democrats and Republicans, with neither side willing to give an inch. Any agreed cuts are to be applied





TAX INCREASES Deputy Editor Owen Bennett assess the Revenue side of Budget 2012 announced yesterday. Minister for Finance Michael Noonan yesterday announced taxation adjustments which are expected to yield €1 billion in extra revenue to the exchequer in the coming year. The minister honoured pre election promises, confirming that there will be no increases in income and corporate tax. In his budgetary speech delivered to the Dáil yesterday, Noonan said the government was “seeking to create conditions to protect and create employment” In that context, the revenue side of budget 2012 is weighted heavily in favour of indirect taxes. Most significantly, VAT will rise by 2% this year bringing the overall rate up to 23%. While this should raise a significant amount of revenue, there is worry that such an increase may further stifle consumer demand, which remains anemic as consumers cut back on discretionary spending. Amid charges from the opposition of VAT constituting regressive taxation, the Minister was quick to point out that many of the essentials which low income earners rely upon are exempt from VAT in all guises. Other notable changes are the increases in Capital Acquisitions Tax (CAT) and DIRT. Both tax rates will rise to 30%, in a move that can


be seen as targeting high earners who benefit from asset and savings gains.

“FROM AN EGALITARIAN PERSPECTIVE, THIS BUDGET CAN BE SEEN AS FAR MORE PROGRESSIVE THAN THE FOUR PREVIOUS” In an attempt to appease those calling for a blanket mortgage forgiveness scheme, the mortgage interest relief rate will rise to 30% for first time buyers who bought between 2004 and 2008. In a move which will undoubtedly be welcomed across the board, the controversial Universal Social Charge has been reformed meaning those who earn less than €10,000 a year will be exempt from payment of the charge. This can be seen as a huge gain for part time and low-income earners as the USC is a wholly regressive tax measure. As such, upon initial analysis, it appears that the taxation element to budget 2012 can be considered for the most part fair and efficient. Crucially, the decision by the government to preserve the current rate of income tax will undoubtedly help boost economic growth. The merits of retaining corporation tax at 12.5% are self-evident.

From an egalitarian perspective, this budget can be seen as far more progressive than the four previous austerity budgets implemented by Fianna Fail. The Universal Social Charge, a completely regressive tax that punished low income earners has finally been reformed. Moreover, the sensible provision of indirect taxation will hopefully ensure that those who earn most, pay most. The hikes in Capital Acquisitions Tax and DIRT ensure that high earners, who tend to hold a signifi-


201 cant proportion of their wealth in the form of non monetary financial assets and savings, will contribute more sizably to the fiscal readjustment this year.



SPENDING CUTS Ted Nyhan looks at the impact of Brendan Howlin’s cuts to public expediture. Enda Kenny proclaimed that we “face exceptional challenges” in the lead-up to the 2012 budget, the first by the Fine Gael/Labour coalition. The challenges are certainly tough and manifold, but they seem sadly unexceptional in the context of a Eurozone coming apart at the seams. Brendan Howlin of Labour alluded to this when he said “Twelve months ago we were Europe’s problem. Now problems in the European and global economy threaten our recovery”.


012 Fiscal retrenchment is now being implemented across numerous European countries, as governments struggle to reduce deficits

“OVERALL 3.8 BILLION EURO IS BEING TAKEN OUT OF THE ECONOMY ... WHETHER THE FIGURE WILL BE SUFFICIENT TO REASSURE INVESTORS AS THE EUROZONE WOES CONTINUE amidst spiraling borrowing costs. For Ireland this is the fifth austerity budget in a programme to restore fiscal rectitude and regain market

credibility. Ireland had sound finances for a decade and a half before the collapse of the banking system precipitated a prodigious taxpayer-funded bailout and astronomical deficits. We now seem to be on a cautious path towards righting the ship, with spending 7% below its peak. The budgetary readjustment naturally relied more on expenditure cuts than taxes. The ratio was roughly two to one, which is clearly the result of compromise between FG and Labour. Overall €3.8 billion is being taken out of the economy and that is likely to further dampen any nascent reemergence of economic growth. Whether the figure will be sufficient to reassure investors as the Eurozone woes continue

“EDUCATION EXPENDITURE WILL COME IN 130 MILLION EURO LESS THAN LAST YEAR” remains to be seen. It does however bring the Republic closer to fiscal sustainability, which is essential to set the stage for recovery. With a sizable percentage of Irish people depending on public welfare support the coalition appeared unwilling to aggressively reduce Ireland’s generous social welfare expenditure, cutting only €500 million. However, this gentle approach is probably appropriate given that we are in a trough of the business cycle, where involuntary non-employment is near 20-year highs. Healthcare spending is to drop by €550 million. This is obviously of concern to most of us and could be particularly detrimental to health outcomes, depending on where the axe falls. This is one area where policy reform is urgently needed to bolster private sector provision of services, shifting some of the burden from the grossly inefficient HSE. Instead of reform, however, the government has cut services without fundamentally modifying the status quo. The short-termism that has enveloped Europe recently is blinding government leaders. Education expenditure will come in €130 million less than last year. These cuts to education are particularly concerning, since Irish universities have been sliding down the rankings. This largely stems from our inadequate funding model, which doesn’t raise sufficient revenue and distorts incentives for stu-

“THE GOVERNMENT HAS MISSED AN OPPORTUNITY; BOTH TO REFORM HOW EDUCATION IS FINANCED AND TO FURTHER CLOSE THE DEFICIT, BY NOT INTRODUCING FULL TUITION FEES” dents. The government has missed an opportunity; both to reform how education is financed and to further close the deficit, by not introducing full tuition fees (supplemented by some form of loan system). In the event, student charges have climbed to €2250, a rise of a mere €250. This was one area where more revenue could have been raised with relatively little economic damage. It’s disappointing that the government saw fit to appease the squeakiest wheel when it came to extracting sacrifices. Despite the fiscal contraction over the past three years, Irish yields remain elevated, at around 8%, as pan-European problems

“HEALTHCARE SPENDING IS TO DROP BY 550 MILLION EURO... INSTEAD OF REFORM, THE GOVERNMENT overshadow the genuine efforts by Ireland to repair its fiscal situation. Panic over the viability of the Euro is proving unquenchable as the inherent flaws in the Eurozone model become more and more evident. Reports of ordinary people converting their euros into dollars abound, as the general public fears the demise of the single currency. Uncertainty pervades markets and the cabinet rooms of Eurozone governments. This 2012 budget is sensible and adequate…but will that be enough.


Michael Noonan, Minister for Finance


Brendan Howlin, Minister for Public Expenditure and Reform


Danny McCoy, Director General, IBEC


Ned Costello, Chief Executive of the Irish Universities Association


Louisa Miller, Welfare Officer, TCDSU




THE BULL 07.12.2011

The ressurection of Robin Hood Sean Tong critiques the recently unveiled Tobin tax on financial transactions.


ritish opposition to the proposed EU financial transaction tax (FTT) has shown no signs of abating in recent weeks, with George Osborne, the Chancellor of the Exchequer, labelling the idea “economic suicide”. Officially presented by José Barroso on behalf of the European Commission in September of this year, the proposal in question would place a tax of 0.1% on transactions involving shares and bonds, and 0.01% on derivatives. A number of exemptions would exist, such as primary equity and bond issues, and spot forex deals. Barroso suggested that the tax would raise €55 billion per annum upon its suggested introduction in January 2014. Financial transaction taxes are nothing new, having been first implemented in 1694 in the form of a stamp duty at the London Stock Exchange. The primary purpose of these taxes is to curb market volatility caused by speculation and to create a more equitable tax system. John Maynard Keynes called for such a tax in 1936 as a means of dampening excessive speculation on Wall Street. The Tobin tax, proposed in 1972 by James Tobin, is a more recent iteration that focuses on foreign exchange trading. This

latest surge in support for an FTT is undoubtedly fuelled by the events of recent years, with Barroso saying that it is “time for the financial sector to make a contribution back to society”. Though certainly popular with the public, the FTT is not short of critics. While the IMF neither endorses nor rejects the idea, reports published by the body in 2003 and 2011 concluded that an FTT would reduce liquidity and ac-

“THE GREATEST OBSACLE FACING THE FTT IS A LACK OF GLOBAL CONSENSUS” tually increase volatility. This latter effect would come about because informed traders, who ordinarily play a role in dampening fluctuations, would be discouraged from investing. The tax has the potential to damage price discovery, as the continuous rebalancing of prices that currently exists would become prohibitively expensive, and valuable information might no longer be incorporated.

Ignoring this, the single greatest obstacle facing the implementation of the FTT is a lack of global consensus. Following failure to convince the G20 to adopt the scheme, particularly in the face of US opposition, key EU leaders have maintained that the proposal is feasible on a unilateral basis. This is the source of the current division, as the UK in particular seeks to protect its domestic financial industry. Cameron, while maintaining that “a global tax would be a good thing”, has said “the danger, we have always believed, is driving transactions to a jurisdiction where it wouldn’t be applied”. Indeed, it is difficult to argue that the introduction of a European FTT would not result in a flight of taxable transactions to other financial hubs, given their relative mobility. Credit Suisse estimates that the proposal would cost €62 billion in GDP, €7 billion in excess of Barosso’s revenue estimate. The European Commission itself issued a report in September that admitted the FTT would likely result in a 90% reduction in derivatives transactions, and a 20-year reduction in EU GDP of between 0.5% and 1.76%. Critics point to the case of Sweden, which implemented a tax on equity and bond transactions between 1984 and 1991. Although a small gain in fixed-income securities taxes was recorded, this was entirely offset by large reductions in capital gains tax revenue following

The Tobin tax is seen by many in the financial sector as a populist measure

reduced trading volumes, as business fled to London. Although it is true that a Stamp Duty Reserve Tax of 0.5% on share purchases, introduced in 1986, still exists in the UK, fundamental differences exist between this and the proposed EU FTT. Firstly, the latter applies to a much broader range of financial instruments, some of which will be much more sensitive to the tax. For example, forex trading currently takes place in London at a cost of about $2 per $1 million traded, according to ICAP. The apparently insignificant proposed tax of 0.01% would thus represent a fifty-fold increase

The rise of boutiques

all business models. The specialization and lack of divergent interests present in boutiques makes them attractive to clients. Frank Quatronne’s Qatalyst Partners is the premier Silicon Valley-focused boutique and it handles a great number of high-value M&A deals in the technology industry group. Perella Weinberg secured the lead financial advisor role in the proposed NYSE-Euronext/

Ted Nyhan looks at the changing dynamic of the financial services industry. ASIDE FROM the piracy-plagued entertainment business, no industry has endured more turbulence in the recent past than investment banking. Sweeping structural changes, which transformed many areas of finance, have been occurring in financial services generally. As I wrote in the last issue, regulatory changes are likely to heavily, and adversely, impact the future nature of banking. However, I probably should have emphasized that this new landscape will not spell universal malaise for financial firms. Like any tumultuous event it will create winners and losers. The main losers, I believe, will be the bulge-bracket investment banks, which metamorphosed into behemoths, peddling a vast array of financial products and becoming so-called “financial supermarkets”. In the US, the elimination of the Glass-Steagal prohibition on firms engaging in both retail and investment banking lead to consolidation and a desire amongst big banks to grow even larger. Giant, diversified balance sheets allowed many risky and profitable lines of business to

be financed cheaply. Conventional investment banks, such as Goldman Sachs, shed their reliance on traditional underwriting and advisory fees and plunged headlong into to deploying their own capital like hedge funds. Investment banking income is now a mere 9.7% of Goldman Sachs total earnings. This presents opportunities for top-tier boutique advisory firms such as Perella Weinberg, Evercore and Rothschild. As industry giants, such as UBS and Bank of America, are left reeling in the wake of crisis and scandal, smaller players are gaining market share. These firms have few of the conflicts of interests


in the cost of this transaction. More significantly, the UK scheme is an internationally-applied tax on domestically-registered companies, whereas the EU FTT would be a domestic tax on international capital. This makes it more comparable to the failed Swedish attempt than the current British one. While there may certainly be merit in the idea of a financial transaction tax implemented at a global level, the EU proposal seems unworkable in its current form. Without consensus between the major financial hubs, it is difficult to see how such a proposal could be effectively introduced.


that litter their larger rivals and less of the porous “Chinese walls” necessary to ensure transparency. Over the past 5 years, four innovative start-up boutiques, Qatalyst Partners, Moelis & Co, Perella Weinberg Partners and Centerview, have taken a combined 5% of M&A deal volume, generating $1.3 billion in fees. In addition, older peers such as Greenhill, Lazard and Evercore, have also expanded their market share. This puts pressure on the now unwieldy titans of banking,

who have neglected their advisory practices for years. Talent has migrated to boutiques as the cultures and fortunes of the bulge-bracket banks deteriorate. Senior executives at many investment banks have left to found or join smaller, nimbler boutique firms. An exodus of skilled bankers has seen some venerable banking houses haemorrhage reputation at the same time as regulatory changes and an economic cycle trough threaten the viability of their over-

Deutsche Borse merger, at the expense of the likes of JP Morgan and Goldman Sachs. Clients trust these firms to commit one hundred percent to ensuring the best outcome for them. With some alleging that certain financial firms were actively betting against their clients and failing to advise them properly, the trust that these elite boutiques inspire seems to be comforting to managers involved in the unparalleled stress of a merger. Small is once again beautiful.



Capitalism: A ticking timebomb THE BULL 07.12.2011

With the capitalist economic model on its knees, Gabriel Corcoran ponders whether the current woes are indicative of a flawed system. IS TODAY’S financial turmoil merely the necessary growing pains of free market capitalism, western democracies most beloved bedfellow, or are cracks beginning to show in the very foundation of what we hold to be the one

“OUR FINANCIAL SECTOR HAS BEEN GROWING AT AN ALARMINGLY FAST PACE” true doctrine of economic growth? We’ve had financial crises before, what’s new? Nothings new, and that may be the precise problem. The way in which we are dealing with this crisis is the same way capitalism seems to deal with all its problems: through a game of pass the parcel, in other words, deal with it in the short term by passing it on to another economic/geographic area

to be dealt with in the future. A significant contributing factor of the economic malaise of the 70’s was the excessive power and demands of labour. This was quashed by the neoliberal deregulation of Thatcher and Reagan. As successful a solution as this was in the short term, as a result, GDP rose disproportionately to wages and stifled effective demand. The solution to this? Credit for one and all, with household debt tripling in the US during the decade of the 80’s. With mounting debt and the balance of power between capital and labour weighing heavily on the capital side now, specifically financial capital, it shouldn’t come as a shock that we have arrived at where we have. And the solution to our current financial crisis? How about we bail out our financial institutions at the expense of a sovereign debt crisis? So where on earth can the parcel be passed next, or has the music finally stopped? Economists at the London School of Economics, the World Bank and the IMF(reluctantly) have begun to entertain the idea that our

current crisis may be due to systemic flaws in the free market system. In other words, this isn’t the result of one industry, component or geographical area, it may be inherent to the system itself. It is with reluctance that I use the M word, but a certain philosopher has been saying this for years. According to Marx, capital accumulation cannot abide by limits, it simply makes them into barriers and finds ways to hop over them or slip around them. The driving force of free market capitalism, financial innovation, some argue has gone too far. Complex financial instruments such as Mortgage Backed Securities(MBSs) and Collateralized Debt Obligations(CDOs) were the notorious culprits of the Lehman Brothers collapse and subsequent domino effect that rippled

“CAPITALISM IS THE WORST ECONOMIC SYSTEM, APART FROM ALL THE OTHERS” through the worlds interconnected financial sector. Claim upon claim was being made on the same basic

underlying assets, like adding story after story to a building with shallow foundations. Architects would be regarded as lunatics for this kind of behaviour, financial economics were lauded as alchemists. In reality our financial sector has being growing at an alarmingly fast a pace in proportion to our real economy, with the ratio of stock of financial assets to world output growing from 1.2 to 4.4 from 19802007. The consequences are current and real, and we don’t have to look too far from home for examples. Irelands financial assets reached a peak of the equivalent of 900% of GDP in 2007, and I needn’t go in to what happened next. The solution? I don’t have one, nor does anyone else it seems. In

the words of economist Ha-Joon Chang, (paraphrasing Winston Churchill), Capitalism is the worst economic system except for all the others. The first step however is accepting that there is a problem. It is time that we seriously start questioning the legitimacy of capitalism in the state we find it today. It’s time to reconsider the merit of our short term growth obsessed society, and slow down, through tougher regulation, the dangerously fast pace of our disproportionately sized financial sector in line with our real economy. It’s time we stop solving the problems of capitalism by passing the parcel, before it blows up in our face.

Europe has closest to a soviet-style centralized governmental body. From a theoretical point of view, the question remains as to whether Europe’s democracy is undergoing its own austerity purge. The mechanisms of democracy still prevail,

the people tolerate the workings of the financial markets at the expense of government legitimacy? Where has the concept of self-determination gone when the fate of 327 million individuals is decided within four grey walls and one door? These questions have nothing in common with the ideological debates dividing capitalism and socialism. Nor does it evaluate the righteousness of markets and financial bodies. It simply raises the issue of the place of democratically elected governments in an epoch of purely technocratic considerations. If Plato could see the state of our regimes today, he would surely smile at the fact that, technocrats – the modern day philosophers of his utopian republic – have finally reached the apex of power.

Bailing out democracy (rated junk bond)

David Schenck comments on the implications for European democracy of a rating agency faux pas. WITH THE Christmas holiday season fast approaching, the ChampsÉlysées, France’s most renowned avenue, glitters with thousands of enchanting lights, illuminating the prestigious 19th century façades of the city of lights. Paris is a living fairytale to the charmed tourist. But what the French government went through in early November was nothing like a fairytale. Rating agency Standard and Poor’s announced early November that it had accidentally informed its clients of France’s downgrade from AAA to AA+. Though the downgrade was quickly disconfirmed, France’s 10-year bond yields skyrocketed to a high 3.45 %, setting a historical level of spread between the German Bund and the bons du trésor. Markets have thereby indicated taking the downgrade threat seriously and have acted, albeit momentarily, on the de facto downgrade. The accident has generated a lot of concern across the channel. French Finance Minister François Baroin announced last week that the government has called for sanctions against the American firm. He described what the rating

agency calls a “small error” as having caused “unacceptable damage” to the image of France and the Eurozone, particularly in such “turbulent circumstances”. In addition, the government has called upon the French financial regulatory body, the AMF, to probe into the accident on the 24th of November.

“DEMOCRACY IS THE LATEST VICTIM OF THE FINANCIAL CRISIS” But more than a procedural investigation in the context of litigation between a foreign private firm and a government, this comes as new evidence of the struggle for authority in a weakened European democratic framework. Indeed, goverrnments are today the latest victims of the financial crisis that has swept across the old continent for the past four years.

Last month, the Greek prime minister Papandreou was replaced with a Eurozone technocrat having for democratic identity nothing but his name. The Troïka – an officious committee of the EU, the IMF and the Frankfurt based European Central Bank – has set up camp in Athens, Rome, Lisbon and Dublin in much the same way as ‘Occupy Wall Street’ had tried to do in New York. In Spain, the anticipated elctions that brought the right wing business-friendly Mariano Rajoy to power are increasingly seen in the light of a rejection of the status quo and of the failings of the previous socialist party government. Last week, Fitch downgraded the credit rating of Portugal to junk, leaving the government in Lisbon to the mercy of alarmed markets. Policy-makers and academics are increasingly calling on European leaders to move towards federalism. The United States of Europe taboo has finally fallen, albeit with some costly delay. Politicians in the Eurozone capitals maintain high expectations for the roadmap of Mario Draghi, the new ECB president. But above all, the ECB is what

“TECHNOCRATS HAVE REACHED THE APEX OF POWER” but the very content of these frameworks have faded to the benefit of supranational financial organizations. Heads they win, tails we lose. But we still play. To what extent will



THE BULL 07.12.2011

Occupy movement spirals in California

Georgia O’Donnell examines the escalation of the occupy movements in California and how just below the cloak of riotousness lies a vein of hypocrisy. “OCCUPY EDUCATION! Stop the cuts! And smash capitalism!” The occupy movement has spiraled in California, without direction and with increasing hypocrisy. Occupy Oakland, CA, resulted in a general strike a few weeks ago and culminated in violence and vandalism of financial institutions. Interestingly minutes from Occupy Oakland’s General Assembly meeting show the group voted to place the $20,000 donation from Occupy Wall Street into Wells Fargo Bank. Yep you guessed it, the very bank the protestors had vandalised and protested outside just a few days prior. Ironically just one week previous the movement had vocally supported the national Move Your

Money Project and the Bank Transfer Day, pushing for bank customers to show solidarity with the Occupiers by transferring their personal savings into a credit union. These blatant double standards are just a few examples of the superficial and bogus approach of many of the protesters, who are now calling for workers to risk their jobs and savings in support of the 99% cause yet don’t have the conviction to follow through themselves on their mounting demands. Whilst most Occupy sites have remained peaceful and others are holding donations in Credit Unions, the autonomous actions of Occupy Oakland highlights the increasingly chaotic and utterly ridiculous direction this movement is taking.

Its proudest feature is also selfdestructing. As a self titled peoples’ democratic populist movement, it

“ IT CRUCIALLY LACKS A “WHO WE ARE, WHAT WE WANT, AND THIS IS HOW WE’LL ACHIEVE IT” DECISION. ” claims inspiration from spring’s Middle Eastern uprisings taking on

the Corporate Enemy in some domains, whilst simply asking to have the right to its own political space – “we are our demands”, in others. This is ideology gone mad. From NYC to San Fran cities across America are Occupied – the movement has a good title and is regularly keeping the Euro off the front pages of American newspapers with dramatic pictures and catchy slogans. However it crucially lacks a “who we are, what we want, and this is how we’ll achieve it” decision. Being told in one sweeping statement that the Occupy University of California Santa Cruz movement was simultaneously hoping to prevent further education cuts and smash capitalism seems like a rather broad and unrealistic demand.

Thank Santa you’re not a kid this Christmas

Hannah Popham takes a trip down memory lane to the ridiculous toy crazes that plagued our youth. I’M GOING to be honest. This article was almost completely inspired by the most bizarre must-have toy to ever have reached Santa’s lists. I was dumbfounded to learn that the supposed toy for 2011 is in fact a plastic Daschund aptly named “Doggie Doo”, whom very conveniently defecates plasticine. Out of the context of being a child at Christmas, I wonder are all Christmas toy fads as odd as this? Consider for a moment the blurry memories of other unfortunate animal-related toys we embraced as children. Were the completely useless Tamagotchi and the absolutely infuriating Furbie any less ridiculous? Let’s face it: we are all a little biased when it comes to nostalgic visions of childhood toys. For anyone aged 22 and below, most of us will have experienced the joys of Gameboys, beanie babies and metal scooters that were tragically dismantled by conflicts with the kerb. It is therefore crucial that someone establishes a countdown of the most inexplicable Christmas toys of our childhood:

5) ALIEN EGGS Around the millennium these were the accessory to have on hand in the playground. Made popular by a vicious rumour that they would in fact dance at the turn of the millennium and were strictly not to be taken out of their goo before this, most ended up thrown on primary school roofs in disgust.

4) THE RUBIX CUBE This little gem of frustration earned its notoriety as a Christmas toy in the early 1980s. Usually hurled against a wall after approximately 3.5 minutes, it could only be completed by gifted kids and noone wanted to be friends with them anyway. I used to swop the stickers.

3) TAMAGOTCHIS Clingier than a new-born puppy and duller than a pet rock, every kid in 1996 had to have one. These digitalised little monsters would die if you God-forbid found something better to do for a few days, to the detriment of the mothers whose care they were left in. It’s OK, a few jabs of a biro later you could get a brand spanking new one. In retrospect, it was an extremely shoddy way to teach children how to look after a pet.

2) BABY BORNS After trawling through more than a few disturbing Zapf Creations advertisements on Youtube, it seems that in fact all their models expelled tears and urine as standard. The recent male-version Baby Wee Wee released in November 2006 shows us that the demand for hard, plastic urinating babies is still

alive and well.


These balls of joy and machinery were both creepy and infuriating. In the late 1990s just about everyone asked for one from Santa, only to end up hidden in wardrobes by New Years with a chain to the wall and a few crosses for good measure. Their own language uttered at completely unexpected times and their hypnotic ritual dances turned out to be mildly terrifying. In fact where the hell did they all go?

Instead why not focus on the criminality of student loan repayments now being charged a staggering 7% yet car loan interest barely touches 0.5% p/a in California. Had the movement been better organized from Day 1 it may have attracted a more sympathetic audience, grateful of a shake-up of American political and economic discourse, and supportive of objections to certain economic decisions currently afoot in the USA. However its moment seems to have long since passed, and now many sites appear to be little more than wannabe hotbeds of anarchy attracting individuals looking for any excuse to clash with the police.



THE BULL 07.12.2011

Last week saw the first of the SU townhall meetings on fees. Here, Rachel Barry and Sam Quirke reflect on the issues raised regarding the divisive topic. By Sam Quirke Staff Writer

R ›

Students speaking at last week’s townhall meeting. Picture by George Voronov, The University Times.

By Rachel Barry SU Education officer


hilst older readers may be surprised to see the SU enter into such a consultation process, having been used to the rhetoric of anti-fees in all their forms, last Wednesday marked the beginning of a wide consultation process on the issue of third level fees organised by TCDSU on behalf of its members to discuss the expiration of the old SU mandate (passed in 2008/09), which mandated the officers of the Students’ Union to “oppose the reintroduc-

“I URGE STUDENTS TO ENGAGE IN THE NEXT STEPS” tion of third-level fees under any guise”. Of course, a fees consultation process based on the fact that SU policy has run out on the matter begs the question - why did the SU participate in the recent USI protest? In fact, it was necessary to have the consultation process as a separate issue to supporting the “Stop Fees, Save the Grant Campaign”, as the timing of the national protest on November 16th left no time for a full consultation. First SU Council took place on the 18th October, and any position to be implemented would have had to be passed at Second SU Council on 1st November - a mere two weeks later. Any ability to hold an emergency council was scuppered by the fact that reading week was the week of 7th-13th November. It was considered that the Union would not be acting in the best interests of students by having

a consultation process for long term policy in such a short period of time, so it was agreed to take the aspects of supporting the USI campaign in the short term and enacting policy the SU could stand behind in the long term separately. To this end the SU did receive a mandate on the USI campaign at the November 1st Council, in the form of an emergency motion arising from a discussion, to support the “Stop Fees, Save the Grant Campaign” and for all elected members of the Union to attend the protest. This was after it was noted that the Union would participate in a full consultation process on a long term policy on fees. It is also important to recognise that there is also a difference between a short term reaction to the propositions on the table and a long term consultation process leading to policy. The fact at the matter is that the propositions on the table at the time of the protest – and today - were not a student loan system (which was ruled out by the IMF), nor a graduate tax (ruled out by Minister Quinn). Quite simply, the only proposal that was left on the table by the Minister was an increase in the upfront Student Contribution Charge at the same time as cutting the basic supports needed for those most vulnerable to access college. Had the TCDSU fees policy been anti-fees or pro-student

“CLEARLY WE NEED MORE REFERENCE POINTS” loans or pro-graduate tax, the outcome would still have been to protest government measures, as these options were not on the table at the time. Whilst there are many different opinions on what is the best solution, the one issue that remains at the heart of most proposed solu-

tions is that one’s ability to access higher education should be based on academic ability rather than personal means. This statement was very much a common theme of Wednesday’s town hall meeting. Despite low attendance, those who did come spoke extremely eloquently, representing the wide range of opin-

“THE BEGINNING OF A WIDE CONSULTATION PROCESS” ions on this issue, from pro to anti fees and anything in between. We learned that even the apparently uncontroversial position of promoting access can trigger debate as to what exactly limits ‘access’ to college in the first place – tuition fees or an underfunded second level system? I would also respectfully submit that the discussion showed the need for the Sabbatical Officers to step up to the mark to ensure that those debating the issue are properly informed of the constraints that we are operating under. One can’t expect the average student to know the ins and outs, the limitations and at times arbitrariness of the grant system, for example. Yet a knowledge of this is vital when making a decision on what direction the Union must take. The discussion was long, varied and ultimately brought about more questions than answers. Clearly we need more reference points than one meeting to frame the rest of the debate. However, I believe that this is a vital first step on one of the most truly democratic consultation processes ever brought about by the Union. I urge students to engage in the next steps.

ecent years have seen several mass protests by students, all for the cause of free 3rd level education for everyone. This topic is a highly debated and controversial one. Those that are organising these protests and leading them claim that we are entitled to a free 3rd level education. This sense of entitlement is unbecoming of our generation and it is a mystery as to where it originated. What we are entitled under Bunreacht na h Éireann and the UN Declaration of Human Rights is a free and indeed compulsory first and second level education. The idea of entitlement to free 3rd level education is therefore not grounded in convention. Indeed, why draw the line at third level. If 3rd level education is an undeniable right, why don’t we protest that the government should pay for our Masters or our PhD’s also? The globally recognised and respected Times Higher Education University Rankings, released last October, showed that Trinity’s global ranking has dropped by 40 points to 117th,   UCD‘s by more than 60 points to  159th, while  UCC and   NUIG are no longer in the top 300. The value of CV’s bearing a degree from any of these 3rd level institutions has taken a severe pounding as a result, and unless a change to the structure in which these institutions are funded is brought about, very soon your degree will not be worth the paper it is printed on. According to the latest figures with the CSO, 2.8million Irish people have ceased their full time education, of which 1.9million never received a 3rd level education. An overwhelming majority of taxpayers in this country are currently paying for us to receive our university degrees, yet they didn’t have the opportunity themselves. Surely it is unfair that they are being asked to pay the cost of something that they have received no direct ben-

“THE USI ACTS IN AN UNDEMOCRATIC MANNER” efit from? Just as the government is forcing the ordinary taypayer to bear the cost of reckless decisions by bankers and developers. we are placing the burden of our educational costs upon the many who never received a 3rd level education. Of course the argument will be made that it’s for the public and civic good that there are more people in the country with college degrees But what use are they if they come

from colleges ranked in the 200’s or even 300’s of the world rankings? The recent ‘Townhall’ discussion by the TCD SU finished with more questions being asked than answers and solutions given. Huge divisions in the student body were revealed, with some parties unwilling to compromise in the slightest. It’s going to be nigh on impossible for the SU to take a stance that suits everyone. Regarding the introduction of fees, SU President Ryan Bartlett has said that ‘the SU hasn’t taken a position as a result of the town hall meeting’ and in order to appease the most people possible, this could be the fairest outcome. However while our SU may refrain from taking a common stance on such a divisive issue, the USI which we are a member of by default, continues to act in an undemocratic manner. Essentially, the views they hold, by default represent my views, and your views, whether they are accurate or not. As an individual, you should have the right to chose if you want to be represented by a national student union that arrogantly presupposes your opinions on the things

“HUGE DIVISIONS IN THE STUDENT BODY WERE REVEALED” that count most. The USI (in the name of all TCD students remember) are conducting embarrassing campaigns of occupation with pathetic statements claiming they ‘have enough food to last them two weeks’, in attempts to conjure up romantic images of revolutionaries fighting the tyrannical government. I do not know the optimum solution to the fee’s question but free 3rd level education is unfortunately no longer viable. The registration fee is just going to have to be faced for the time being as there is no alternative. The SU townhall meeting programme is the first step in a long proccess toward finding a fair yet realistic solution to the fees debate. More and more students are accepting that the current notion of free fees at all cost is simply untenable in this environment. In the short term, the scope for a meaningful solution is limited. However, in the long term, it appears that a student loan system, which places the burden of payment upon the student yet does not impinge upon access to 3rd level for all, is the most desirable outcome. However,if there isn’t headway made on the reintroduction of fees in the coming years, there’s a strong possibility that you and your classmates will be boarding planes to Australia clutching degrees from mediocre universites. Don’t say I didn’t warn you.



THE BULL 07.12.2011




ound bites from Paris and Berlin this week have made clear that Eurozone leaders intend on accelerating moves to create a more integrated federal Europe. In normal times this move would undoubtedly be met with trepidation and indeed hostility in many parts of the continent. However, as has made very clear, we do not live in normal times. There is a growing consensus, somewhat begrudgingly, that centralised budgetary controls are fundamental for the continued existence of the Euro and perhaps the “European Project” itself. Simply put, the Eurozone crisis has laid bare the limitations of independent national sovereignty among states. Countries are no longer in control of their economic destiny. Indeed, the harsh budget that was unveiled earlier this week is indicative of a government that is wholly answerable to the markets. The government does not dictate policy; the markets do. As such, tighter fiscal and monetary integration is imperative to restore some degree of stability in economic affairs. There is safety in numbers and the Eurozone states can either survive collectively, or die individually. However, this move toward more centralised EU governance is not to be viewed with too much joy. It exposes problematic issues concerning democracy, with eurosceptic commentators lamenting the reality that a central EU authority may, in the future, have the power to veto a national budget proposed by a democratically elected parliament. Moreover, centralised decision making, in any context, suffers from asymmetric information and the scourge of bureaucracy. One can legitimately argue that they know what’s best for them, not some detached bureaucrat in Brussels whom they have never met, nor elected for that matter. While such moves are sure to warrant treaty changes, compelling the Irish government to hold another superfluous referendum, it appears there is no alternative. Privately, Chancellor Merkel is resigned to the reality that without a clear path toward federalism agreed in this week’s crucial summit, the euro is doomed to fail in the short term. British Prime Minister David Cameron has pledged to frustrate the move at all costs, but his eurosceptic pandering will most likely result in the UK being left behind as the other European economies and in particular the Eurozone members, forge tighter links. In this context, it appears that there is little room for manoeuvre. Germany, the major actor in European affairs, is pushing hard for tighter budgetary controls and countries like Ireland, living off troika life support, must regrettably follow suit. Decisions that may have until recently had seemed fantastical are now real and necessary. The only way to stem the crisis and restore stability in Europe is to take a momentous step on the road to federalism not seen since the early post war period. Indeed, Robert Frost’s quip never been so apt: “The best way out is always through”.




e waited, and waited, and waited. Then finally just before 3pm Brendan Howlin finally reached the education part of his speech. Breaths were drawn, pins could be heard dropping and then the words we all were dreading to hear “including an increase in student of contribution”… but only of €250. Now don’t get me wrong, I’m as much against forking over an extra €250 as everyone else, but personally I had prepared myself for much worse. Almost everyone had. €250 per student has such a small impact in the over all scheme of things that they may as well not have increased the charge at all. Third level education in Ireland is extremely under funded. Since 2009 Trinity has gone from one of the world’s top 50 to not even in the top 100 and this is primarily down to cuts. This budget further cut what each institution receives by anther 2%. Of course I am not naive enough to think that we’re now finished with increases in student contribution. The €250 is just a mere stepping-stone. We all remember this time two years ago when student contributions of €3000 and €5000 were being batted around the public domain. There was uproar, but, just take a look at what’s happened since. We’ve gone from €1500 to €2000 to €2250. What are the chances that figure becomes €2500 next year or even €2750? Then we’re just a short step away from the €3000 first mentioned by the IMF. All this can easily happen before our loan programme runs out and what’s to say that wasn’t the plan all along? The Irish third level system needs to be funded. The government are no longer in a position to do so therefore we must. We know this and they know this so why not impose these increases now and restore of third level institutes to their former glory rather than playing political games while our educational reputation goes down the drain.

In the business of Ireland Is ensuring economic prosperity the primary function of government? Paul McAufield investigates. Pay cuts, job losses and huge debts. The CEO and Board of Directors are facing into a tough period of market volatility. Revenue has taken a massive hit and voices of protest grow among shareholders and staff, both of whom have had to endure a drop in share prices and pay cuts. All of this austerity is, however, necessary to ensure that the brand and reputation survives in an ever more crowded marketplace. Times are indeed tough at Ireland Inc. But is that it? Are we just a business striving for greatest efficiency? Is the government’s role purely to ensure prosperity? Has Ireland as a sovereign nation taken a back seat to Ireland as a state economy?

“THE NOTION OF A TRULY UNIQUE SOVEREIGN INDEPENDENT NATION IS DEAD” If the government’s role is to maximise profit then we should look at it from a business perspective. Top businesses like Ryanair, Tesco or Walmart appoint a well paid Board of Directors to ensure growth through their specialist expertise in their relevant fields. It would be unimaginable if a company like Tesco appointed a teacher to the role of chief accountant. But this is what happens at cabinet. At present an architect is in charge of education and a lawyer is responsible for the armed forces. A business with that model wouldn’t reach its economic potential. But surely we are much more than a business and politics is about more than ensuring economic prosperity, or is it? If Ireland’s sole function is to

increase exports and boost demand for Ireland Inc.’s workers and products, then a business model is logical. Of course it would have cultural implications. No doubt many of Ireland’s distinct inefficiencies would become unnecessary expenses like the native language or small family farms. But surely we should be thankful that these minor inefficiencies are eradicated in favour of a modern way of life shared by our counterparts in Europe, one that results in greater prosperity for all us Europeans. Immediately the downturn struck, the government looked for savings with “An Bord Snip” calling for the abolition of the Department of Community, Rural and Gaeltacht affairs. Cultural preservation is clearly of secondary importance when prosperity is at stake. The shareholders main concern in any business is the dividend. If this dividend can be increased by a company merger then the option should be explored. If the brand and individual history of the business are redundant to the ultimate demand, financial gain, then is it time the brand was cast away in favour of a stronger label that can return a greater profit? Some would contend this is already happening with the Lisbon treaty where arguably the only thing that changed between both referenda was our economic prosperity. Around the turn of the 20th century, Irish people sought to preserve something which they deemed more important than the economy, they sought to achieve sovereignty, preserve their national identity and social culture. The drastic economic affects of achieving these goals were of secondary importance. But perhaps now what they sought for Ireland is irrelevant and unsustainable in a more globalised world. Clearly indigenous businesses and indigenous workers are insufficient to en-

sure maximum economic growth. After all foreign businesses ensure our very survival as an economy. Perhaps modern times dictate that we surrender our sovereignty and culture in favour of a shared European culture and greater economic growth. Ultimately Ireland Inc. must decide its fate. Or is there anything to decide? Is the western world destined for dull uniformity, a foregone conclusion in which we all shop at

“PERHAPS MODERN TIMES DICTATE THAT WE SURRENDER OUR SOVEREIGNTY AND OUR CULTURE” Tesco, use Facebook, eat Big Mac’s, drink coke and listen to Lady Gaga? Perhaps the notion of a truly unique sovereign independent nation is dead and should be relegated to history and North Korea. Perhaps we want to be just like every other place in the western world and perhaps this is good, perhaps maximum economic prosperity is key and outweighs all else. Either way a conscious decision should be made on the route we take. We are edging closer and closer to being an island that exploits all of its resources for maximum financial gain regardless of everything else. Maybe there is no problem with this, maybe it is to be encouraged, but if this is indeed our aim, we don’t need our electorate to appoint politicians, we need our shareholders to appoint a Board of Directors.



THE BULL 07.12.2011

Bill Cullen speaks to The Bull Bill Cullen outiness his thoughts on fees, student work ethic and the importance of work experience


he typical Disney fantasy of pauper to prince is one we all like to think happens but, deep down, we know we just don’t live in that type of a world. Every so often though those Disney fantasies comes true. Bill Cullen is the poster boy for the rags to riches tale and the living proof that, even in these recessionary times, putting in the work will yield you results. Mr. Cullen was born in Dublin’s north inner city, the oldest of thirteen children. Born into a family of extremely limited means he had no choice but to work from the age of five. His circumstances gave him a real sense of the value of money right from the off and moulded him to the successful entrepreneur we see today. He disagrees with the way everything is being “handed to the kids” today seeing they don’t place the same value on things, i.e. third level education, which was out of reach to the majority just two decades ago. While the benefits associated with further education are not questioned when asked about the structure of third level funding. Mr. Cullen had some very strong thoughts. He feels we need to “examine the way we educate young people” and

he disagrees with spending four or five years in college in a purely academic setting coming out without any experience. Personally he “won’t look at any CV that doesn’t have work experience on it”. The entire education sector needs to be more experienced based and he has even discussed with the Minister for Education the importance of being able to sell yourself. The ability to sell yourself is something Bill knows from experience is essential to further advancement of career and a skill that everyone should be competent at by “age fourteen or fifteen”. When asked about Sinn Fein’s proposal of a 48% rate of tax for incomes over €100000, and despite reported wealth of over €34 million, he agrees that those at the top have to contribute more than those of more limited means. With regard to student fees he points out that students across the world pay for their education and questions why we think we shouldn’t. He does stress however that means test seems to be the best answer to prevent those who cannot afford fees being excluded from third level education. His view on emigration may appear somewhat out of line with covention, especially since he deems it “fantastic”. His logic to make such a

claim is quite sound however. The experience gained almost certainly gives you an advantage over those who do nothing. Bill’s optimism seems eternal. He firmly believes that if you work hard you will succeed and rounded up his interview with two inspirational quotes. Firstly he quotes John Fitzpatrick Kennedy who in 1963 stated: “the Irish are the strongest people on this planet with a DNA that’s unstoppable because of our 800 years of suppression by the English.” Secondly he doesn’t believe in the word “problem”. To him ‘problems’ are “just challenges and with every challenge comes opportunity”. Imagine how different thing would be if we all had such a positive attitude. His advice to students is simple. Always be the best you can be, never stop trying and always “exceed expectations”. BY DAMIEN CARR Interviwer : Fiona Walls

BOOK REVIEW THE ROAD to SERFDOM BY F.A. HAYEK Cathal O’Domhnallain reviews one of the most influential works in modern economic thought MARGARET THATCHER famously stated that “there can be no liberty without economic liberty.” Thatcher, who dismantled Britain’s collectivist oriented economy during her reign as British Prime Minister, viewed the capacity of the individual to employ their resources as they saw fit as one of the central tenets of freedom. Those economies that had failed to liberalize and adapt to contemporary neoliberal market practices saw their economies either stagnate or decay, as had Britain’s during the preceding decade. Thatcher undoubtedly benefited from hindsight. Forty years prior to her ascension to power a British-based Viennese economist named Friedrich August Hayek postulated that very argument in his quintessential work “The Road to Serfdom.” In this book he equates the increasingly centralized and planned economy of Britain with the Nazi rise to power in Germany.

In the introduction of the text he states that “The rise of fascism and Naziism was not a reaction against the socialist trends of the proceeding period, but a necessary outcome of those tendencies.” In Hayek’s mind, once economic liberty vanishes, all other rights and freedoms would soon follow. “The Road To Serfdom” paints a poignant illustration of how socialism erodes the freedom of the people and stifles the entrepreneurial capacity of the individual. To adherents of the Austrian School of Economics, this would eventually lead to totalitarianism and wanton despotism. Socialism employs the rather vague concept of fairness in order to obtain its desired redistributionist outcomes. By becoming the arbiters of what is right and wrong, the behemoth of the State often implements policies that infringe upon the liberties of the individual as well as their fundamental rights to prosperity, property as well as their po-

litical freedoms. Even though a socialist government may claim to achieve the

greater democratic and utilitarian good through programs of collectiv-




Not great


ism and redistribution, it ultimately fails to achieve these outcomes. To Hayek, freedom, not democracy, is the ultimate political expedient that should be sought by government. In many respects, Hayek’s work is largely a reactionary body written in response to the increasing popularity of the socialist Fabian Society in Britain. Thus it is more a speculative caveat against the policies that adherents to their beliefs would implement whilst in office. His continuous argument that the wartime economies of America and Britain would inevitably lead to socialism become largely repetitive and quite boring whilst progressing through the text. Capitalism must have a moral underpinning. He therefore staunchly defends the right of the State to regulate the free market in order to prevent negative externalities that emanate from the production cycle and to address market-failures






that a laissez-faire market could not otherwise solve. This element of his work makes it largely relevant to modern-day readers who view the free-market as the optimal means of generating wealth, yet one that has many structural flaws that require regulation in order to prevent these failures in the wake of the 2008-9 Economic Crash. In the post-Thatcher and Reagan years it’s important to remember that freedom and individualism, not government, have allowed both Britain and America to achieve a level of prosperity not known to previous generations. Only by fostering the initiative of the individual can we create such an affluent society for the present and for posterity. Freedom is too important to be taken for granted and must be safeguarded from governmental encroachments.




The Data

FOLLOWING THE integration of new analysts into the SMF, November has been a relatively quiet month on the operations side. However, on Wednesday, November 30, the fund held an evening with Deloitte in their offices on Earlsfort Terrace. The event was centred on a tutorial on Analysing Financial Statements for Investment Decisions, given by Deloitte’s Oliver Holt. The tutorial gave those in attendance an in-depth guide to analysing financial statements by taking them through the layout of the statements and the significance of each section. While Mr Holt emphasised the importance of broader economic conditions in investment decisions, he went onto explain how financial statements are the basic tools of investors in assessing the financial health of companies, with an identification of healthy cash reserves in a company being an investors main focus in their analysis. The tutorial progressed onto a differential between the unaudited front half and audited back half of companies’ annual reports, with the key components of each section being described. Mr Holt then went onto explain recent developments in the efforts to improve the quality of the unaudited section of companies’ annual reports by the Financial Reporting Council and the introduction of new terminology for the various financial statements, before moving onto to explain the

audited back half using Ryanair’s financials as an example. The talk on financial statements ended with the audience being taken through the three primary tools of analysis: horizontal, vertical and ratio analysis. The final topic discussed during the evening was that of undergraduate opportunities in Deloitte and their annual Student Business Forum. Deloitte’s 2012 summer internship programme provides students with the opportunity to experience life at Deloitte. Students have


Compiled by Marius Nigond

the option to apply for 6 weeks, 12 weeks or a rotation (2 six week periods in different service areas) from June until August 2012, all the while gaining real exposure to client work, participating in their learning and development programmes, as well as any on-going social events. The Deloitte International Student Business Forum is a truly unique opportunity available to students graduating in 2013 or 2014. This three-day event will be held in Athens, Greece, from 15-19 March 2012, and offers a unique mix of business and pleasure - making it an experience students will never forget. The forum provides interaction with top students from around the world, developing critical leadership skills and working as part of a team to solve a complex business case. Attendees will also meet some of the people behind the Deloitte success story who will act as coaches and guides for the threeday forum. The deadline for applications for the 2012 Summer Internship Programme is 5pm, 23 February 2012, while the deadline for applications to their International Student Business Forum is 5pm, 9 February 2012. More details can be found on Deloitte’s website. The SMF would like to extend their gratitude, once again, to Deloitte for their continued support of the fund and the students involved. By Gary Finnerty

Chief investment officer report THE RECEWNT rally in risk assets both today, the 29th, and yesterday, has both cost me money personally and caused the SMF to miss potential trade opportunities. The rally had been caused by a short squeeze; Following last weeks sell off in risk assets, such as the S&P and AUDUSD and EURUSD, a large number of investors and hedge funds alike are covering their short positions and taking profits, driving the prices of these assets upwards. The consensus was that this would be short lived, as the rally has been on particularly light volume, and further bond auctions this week are likely to renew the downward pressure on the euro. Unfortunately for me, the PBOC decided to reduce the required reserve ratio for banks. This caused the AUD to rally. Fol-

lowing that a coordinated move by the ECB, Fed, Bank of Canada, BoJ, BoE, and SNB cut the cost of dollar liquidity swaps by 50bps. This spread between the OIS and Libor is seen as a measure of funding pressure in the market and this spread has been increasing recently. This cut ensured that the dollar slid and the euro rallied. I have been short EURUSD down from 1.3850, taking profits along the way. When it rallied on Monday I increased my short on the way up. Consequently an expensive move as I had placed wide stops on my EURUSD short. In other news The SMF has recently increased our investment holdings; we had a limit buy order for Vodafone filled at 173.8 for 200 shares. This was with a view to an-

other 100, where a limit buy at 165 was debated. This level was hit on Friday but we did not have the order filled. Our broker has recommended that you never buy on a Friday, in case the market has a fit over the weekend. We are also still pending an investment decision ABT. We feel ABT it is only a matter of time before the investment passes; We had a limit buy order at $52 that was not filled, unfortunately for us, as the stock is particularly strong. MSFT is up for significant debate. The company has a strong cash balance but the worry is that it is somewhat unlikely to set the world alight in the coming years, and at the same time its core business, Windows, is coming under increasing threat as Apple and others provide competing software. It also pays a dividend,

a guaranteed income stream is not something to ignore. It is challenging time for the sector managers, and picking winners is as much about timing and luck as it is about fundamental analysis and digging deep into the company’s reports. Another excellent interesting pitch recently was that of Barrick Gold from our basic materials group. My own view on commodities as a whole is particularly bearish, as I see a Chinese hard landing as somewhat imminent, and their demand for commodities will plummet as housing prices fall significantly next year. China residential market is flooded, and there is a plethora of idle capacity. Barrick Gold is an out and out play on the price of Gold. Not a bad play given the extent to which Central Banks are happy to

print money. I feel it is only a matter of time before the bottom falls out of the rally we had this week. Any weak European bond auction will put significant pressure on the Euro. One of the main reasons the euro has managed to remain so strong is due to the fact that European Banks are repatriating their foreign assets. They can only do this for so long before there are none left. With elections looming next year the fear is that the politicians (Merkel) will continue to tip along not really doing anything until the markets force their hands. This is hopefully going to provide us the opportunity to increase the size of the SMF holdings. By Donal O’Cofaigh.



SMF Macro Report Nick Fitzpatrick examines a slowdown in Chinese growth as the a possible hard landing looms THE EXTRAORDINARY growth experienced by China for almost two decades has shown some signs of slowing down and has left analysts wondering whether China is heading for a hard landing. This fear became more prominent recently when the official purchasing managers index dropped below 50 (indicating contraction) for the first time since February 2009. This coupled with a reduction in housing purchases indicated the housing boom may be coming to an end, and that resulting crash may be imminent. Additionally, the slowdowns and possible double dip recessions in Europe and the United States could potentially have disastrous effects on the export sector of the Chinese economy. However, what is not noted in the recent headlines is that this

slowdown may have been exactly what the Chinese economy needs to ensure long term sustainability

“SLOWDOWN MAY HAVE BEEN EXACTLY WHAT THE CHINESE ECONOMY NEEDS” and is certainly no surprise to the Chinese government. The Chinese authorities have been relentlessly tightening monetary policy sharply in order to curtail the potential development of a bubble. It has raised

interest rates significantly and increased the reserve ratio six times in the last year in order to try tighten credit supply and tackle inflation. Recent indicators have shown moderate success in reducing in inflation. Thus the recent slowdown is possibly desired and certainly expected. The issue is that China wishes to preventing overheating, not stop growth entirely. The recent problems in the West have without doubt exacerbated the slowdown. This is why the government has partially reversed its previous actions and relaxed monetary policy recently, with a 0.5 percentage point cut in the reserve ratio. The worsening of the outlook for the United States related to the inability of policy makers to come to a compromise regarding deficit


reduction and the persistent questions regarding the future of the Eurozone will inevitably continue to have bad consequences for China. Importantly Chinese policy makers are not in the same position to deliver the massive monetary stimulus employed in 2008 due to inflationary pressure and worries regarding financial stability. Thus a global downturn could hamper Chinese growth significantly. For now though its recent monetary loosening indicates it is dealing with the recent dip appropriately. Overall, the recent slowdown is perhaps desirable for China and it does not pose a significant threat, given the governments intent to ease policy. The bigger threat is the effect of a US/European recession on China. That could certainly trigger the hard landing which is feared.

Sector Summaries ENERGY


FINANCIALS SOCIETE GENERALE SA, the secondbiggest French bank, is eliminating at least 200 U.S. jobs in investment and corporate banking as Europe’s sovereign-debt crisis persists, people familiar with the matter said. UBS AG, the Swiss bank that reported a $2.3 billion loss from unauthorized trading in September, appointed Philip Lofts as chief risk officer, replacing Maureen Miskovic, who is leaving the firm after less than a year. Home-loan securities guaranteed by Ginnie Mae are trading at about record premiums over Fannie Mae bonds as foreign investors target debt with the strongest backing from the U.S. and lenders including Bank of America Corp. seek notes considered the least risky by regulators. The Federal Reserve-led global effort to ease borrowing costs for financial firms shows both the central bank’s power to jolt markets -- and the limits of its ability to alleviate the European debt crisis. MF Global had been dipping into client funds for weeks before its failure – rather than just in its final days as had been previously reported – say US authorities investigating the broker-dealer’s collapse. This comes as the failed company’s bankruptcy trustee revealed that some customer money from MF would never be recovered. By Cormac Nevin

IT’S THAT time of the year again, with Christmas trees being decorated, the Christmas jumpers being pulled on, carol singers warming up their vocal cords, and all manner of other clichés. However, in the cold, hard world of the Consumer Discretionary sector, this can only mean one thing: Black Friday. While sounding incredibly sinister, this event is actually a huge relief for many in the US retail sector, as it is when they move “into the black” for the first time in the year. The rush to entice customers into spending in the runup to Christmas is especially important this year, given the weakness of US consumer confidence. It was a strong day too: a record level of spending, and the biggest year-on-year jump in sales (at 6.6%) since the heady days of 2007. There has also been a change in how many businesses compete on the day: online sales grew by 24.3% from last year, as many consumers chose to shop from home rather than on the high street. Overall it was a strong performance, but there are worries that the steep discounts shops were offering to pull in consumers are unsustainable. Perhaps it may not be quite such a merry Christmas for the US retail sector after all. By Jack Holmes

CHEVRON WAS pitched by the Energy sector last week. The investment is currently under further scrutiny. Chevron was the centre of media attention over the last couple of weeks as a leak on a Brazilian well surfaced. The leak brings to light a number of points. Brazil hopes to become one of the top five oil producing nations over the next ten years. The source of this oil is mostly in offshore deep-water wells. Petrobras, the Brazilian national oil company, does

CONSUMER STAPLES INDIA HAS opened its doors to foreign retailers, giving them access to a retail market worth $450bn. One of the world’s fastest growing large economies has finally decided to allow greater foreign direct investment in its retail sector. This is good news for retailers like Tesco, WalMart and Carrefour who have been experiencing

not have the experience and technology to extract the oil. Therefore Brazil will continue to rely on the services of the major international companies like Chevron to capitalise on the undoubted geological resources it is sitting on. Though a temporary ban has been place on Chevron’s operations it is impossible to imagine a situation where international oil companies are shut off from Brazil in the way Arab states kicked oil companies out of their countries in the early seventies. By Edward Flahavan

slower growth in the stagnating economies of Europe and the US. Despite difficult economic times Diageo is reporting increased growth in the sale of its super premium brands compared to its value brands. This is a trend that has been typical of the consumer staples sector as of late as we see consumers trading up to affordable luxuries as an upmarket treat. By Emily Meade

The Bull would like to wish all its readers and contributors a very Happy Christmas and a pleasant New Year. We would like to thank you sincerely for all your help in making The Bull what you have in your hand today. We hope that the paper continues to grow and expand it’s readership in the year to come.

The Bull Issue 3  

The third edition of Trinity College Dublin's financial paper including budget 2012 analysis

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