Category Archives: Finance

Ireland exits bailout of €85bn

Three years after being saved from bankruptcy, Ireland will exit the Eurozone bailout programme on 15th December 2013.

The Troika programme

A three-party committee led by the European Commission, the European Central Bank and the International Monetary Fund was organised loans to Greece, Portugal, Ireland and Cyprus.

Of all the four counties that have benefited from the bailout due to the Eurozone crisis, Ireland will be the first country to exit from the bailout programme.

The price of bailout

Ireland cut spending and raised taxes to balance the economy after seeking bailout in 2010.

The government earned €28bn through budget cuts and increases in tax over the last three years. Taxes were hiked to €5.3bn and a cumulative spending cut was €9.6bn.

Ireland’s cost to borrow money has now fallen to 3.5% from the earlier 15%.

Ireland invested about €64bn into the banking system during the crisis – equivalent to 40% of the gross domestic product (GDP).  Income of €4.2bn has been generated by the bank guarantee for the Exchequer. €2.3bn has been repaid in 2013 following the sale of the Bank of Ireland CoCos (Convertible Contingent Capital), the successful sale of Irish Life and the redemption of the preference shares to the State by Bank of Ireland.

Future of the bailout

Ireland’s ability to exit the bailout has been driven by a focus on managing public finances, restructuring the banking and financial system and focusing on jobs and growth enhancing strategies.

“This isn’t the end of the road. This is a significant milestone on the road,” said Michael Noonan, the minister of finance, said at a press conference.

Before the bailout, about 7,000 jobs were being lost every month. Over the last year, the Irish economy has created 58,000 new jobs. The unemployment rate is now 12.5%. Public sector wages have dipped by 5%.

The current level of debt is 124% of the GDP is above the European average of 94%.

Advertisements

Leave a comment

Filed under Finance

The Bitcoin mania

FC-Bitcoin-Frontview-SingleCoinIn November 2008, an unknown person who goes by the pseudonym Satoshi Nakamoto published a paper that led to the creation of the first decentralised virtual currency called Bitcoin. Since then the value of the currency has increased and can be used to buy pizza or even pay tuition fees.

What is Bitcoin?

 

Bitcoin mining

Bitcoins are generated using a process called mining. The computer is given a complex mathematical problem to solve and the goal is a 64-digit number. The person who solves this algorithm will get 50 bitcoins. The network creates a difficulty where 50 bitcoins are created roughly every 10 minutes.

It is open source and uses peer-to-peer networking, digital signatures and cryptographics to generate currency.

“With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless,” says Satoshi Nakamoto, Bitcoin Developer

Bitcoin is a mobile phone app or a computer software called a wallet that is used to send and receive bitcoins.

Growth of bitcoin

The bitcoin is highly volatile. The currency has experienced fluctuations several times.

There will be only 21 million bitcoins that will ever be created. Therefore, mining bitcoins is like mining any precious metal that is limited. So far about 10 million bitcoins have been unearthed. Most users would not have the patience to solve the algorithm to earn bitcoins. Therefore, they would buy and sell them from a bitcoin exchange. In such exchanges, bitcoins can be purchased using local currency and even stored.

BTC China is the oldest and largest bitcoin exchange in the world. Other bitcoin exchanges include Hong Kong-based Asia Nexgen, Tokyo-based Mt. Gox and London-based Bitstamp. Bitcoin exchanges exist in Germany, USA, Bulgaria and Canada.

Wikileaks and WordPress have started accepting bitcoins as cash. The Royal Canadian Mint has recently launched the MintChip, an electronic currency backed by the Canadian government. A bitcoin ATM was opened in Vancouver in October 2013 allowing people to buy and sell bitcoins in a coffee shop. University of Nicosia in Cyprus has become the first accredited university in the world where tuition fees can be paid using bitcoins.

Legal issues

Bitcoin is a decentralised electronic cash system that is unregulated. This means, there are no banks, no governments and no borders. Hence, they could be manipulated and speculative. It could be used for money laundering.

Bitcoin is the currency that runs The Dark Web using a software called Tor where users can hide their identity online and access the online black market called the Silk Road. Illegal drugs like LSD, heroin and marijuana have been sold on the Silk Road using bitcoins.

Hackers have attacked wallets and bitcoin exchanges to steal bitcoins. Several bitcoin exchanges such as Bitomat, MyBitcoin, Bitfloor and others have shut down due to hacking and theft of bitcoins.

Bitcoin is an open system where people can view all transactions. However, the identity of the owner is protected.

Leave a comment

Filed under Finance, Technology

Swiss banks end secrecy

It is a well-known truth that many wealthy individuals stash their extra cash in Swiss banks to evade tax. The latest development is not going to benefit many countries that can obtain a list of high net worth individuals who have accounts in Swiss banks

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters

Switzerland became the 58th country in the world to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters at the Organisation for Economic Co-operation and Development (OECD) in Paris.

The Swiss Federal Council approved the treaty on October 9. This major step means that Switzerland will be breaking its own time-tested laws on banking secrecy.

The Multilateral Convention provides for all forms of mutual assistance in the form of exchange on request, spontaneous tax examinations abroad, simultaneous tax examinations and assistance in tax collection, while protecting taxpayers’ rights.

Banking secrecy

Banking secrecy became entrenched in the Swiss law in 1934. For over 300 years, Swiss banks had a code of secrecy that forbids the disclosure of banking and account holders without their consent. The exceptions are drug trafficking, organised crime and insider trading. Thus Switzerland earned the reputation of being the world’s biggest tax haven for funds, which ensured confidentiality.

Swiss banks were under tremendous international pressure to cooperative with authorities to share information on accounts in Swiss banks. Several whistleblowers’ had exposed details of money laundering and tax evasion.

Switzerland’s Ambassador to the OECD Stefan Flückiger said: “Switzerland has been committed to complying with international standards in tax matters since March 2009. The signing of the Convention confirms Switzerland’s commitment to the global fight against tax fraud and tax evasion with a view to safeguarding the integrity and reputation of the country’s financial centre.”

Leave a comment

Filed under Finance, International

Royal Mail to be sold

Royal Mail shares are now available for sale either online or through an intermediary or through a paper application pack from the Post Office. Each share is being sold at the price of between 260 pence and 330 pence.

Royal Mail Ownershiproyal mail

Up to 150,000 eligible UK-based Royal Mail employees will own 10% of the shares.

The offer comprises between 401 million (40.1%) and 522 million (52.2.%) shares that will be sold to private investors and the general public under the privatisation proposal. The minimum application for the public wishing to purchase shares will be £750 and £500 for Royal Mail employees.

The government’s holding in Royal Mail is expected to be between approximately 37.8% and 49.9%.

The last day for application is 8 October 2013.

Vince Cable, Business Secretary, said: “Today is an important day in the life of Royal Mail: people can now apply to buy shares in this iconic British brand.”

The privatisation won’t affect the Post Office as it is a separate company.

Why is Royal Mail being privatised?

Royal Mail is in need of private capital to invest in innovation, capture opportunities in new markets and compete with other players. The increase in online shopping means increase in the number of parcel deliveries. Similarly, with the convenience of email, delivery of letters has decreased.

The controversies

The Communication Workers Union (CWU) represents the non-managerial staff of the Royal Mail.

Billy Hayes, CWU general secretary said, “Royal Mail is profitable and can continue to be successful in the public sector. The sale is driven by political dogma, not economic necessity, and postal workers and the CWU will continue to fight to save services as well as defend their terms and conditions.”

1 Comment

Filed under Finance, UK

Who will benefit from the snow?

UK has been reeling under snow since the last few days. The metrological department has issued weather warning of a mix of sleet, snow and rain

As temperatures hit sub-zero, some people gain from adverse weather conditions while others suffer losses. Here is a look at the winners and the losers due to the snow.

The Winners

School children are the happiest as schools as closed. They are likely to enjoy a longer vacation.

A well-heated mall is always a blessing to those stranded outside in the cold. Departmental stores may have expected a drop in footfalls due to heavy snowfalls. However, the sale of winter wear, sweaters, jackets and thermal clothing are surely booming. Sales of sledges and shovels have also increased.

Tyre companies are making hay while the sun shines. There has been a sudden increase in demand for winter tyres.

With people getting ready to begin Christmas shopping, the snow may ruin shopping plans. Online stores will be flooded with orders as long as they can deliver the product despite transport problems. Amazon UK has posted a warning stating “Deliveries in some areas of the country may be affected by adverse weather conditions.”

If the snowfall continues, people may resort to panic buying by stocking up on canned food and soup.

The losers

City councils are shelling out amounts as high as £1.2 bn. Not only do they have to invest in salt but also in manpower to clear the snow.

Scotland is worst hit. All six Scottish Premier League football matches have been postponed.

Businesses are running losses as employees are unable to each their workplace. Employees are unable to stick to their travel plans as trains and flights are cancelled.

NHS will have to treat more people for winter-related illnesses. The number of people visiting the A & E with injuries from slips, falls and other ice and snow accidents has increased.

1 Comment

Filed under Finance

How is Britain going to suffer from the Irish bailout?

The UK is not obliged to contribute, but decided to offer support amounting to the equivalent of £300 per household because of the close trading relationship with Dublin.

Speaking to The Telegraph, former Conservative Cabinet minister John Redwood said that European Central Bank should be responsible for ensuring Ireland remains solvent and claimed the burden should not fall on Britain’s shoulders because we are not part of the Euro single currency.

Mr Redwood, who is co-chairman of the Conservative Policy Review Group on economic competitiveness, told Channel 4 News: “I don’t think this is Britain’s problem; I think it’s a Euro area problem. Ireland is part of the Euro because it wanted to be. It is the duty of the European Central Bank to make sure that their banks are solvent and liquid.”

Impact of the bailout on Britain

Sam Bowman, head of research at Adam Smith Institute, the free market think tank said that the Government’s decision to offer around £7 billion in aid, including direct loans, to Dublin, was a “bad deal” for Britain.

George Osborne, the Chancellor of the Exchequer of the United Kingdom confirmed that Britain would provide an international rescue package of around £7bn to support Ireland.

“What we have committed to do is to obviously be partners as shareholders in the IMF in an international rescue of the Irish economy,” Osborne told BBC Radio 4’s Today programme. “But we have also made a commitment to consider a bilateral loan that reflects the fact we are not part of the euro but Ireland is our very closest economic neighbour.”

UK anger

Twitter users from the UK have condemned the governments decision to provide a financial bailout to Ireland. AnnJ says “Is the UK so rich that it can afford to bailout Ireland?” JohnnyLee5 says, “We cannot take this lying down. The government should not be so generous.”

Ireland’s request for a financial bailout

After weeks of speculation into the financial situation in Ireland, the country has come out in the open and has asked for help of £16bn.

Speaking to Channel 4, Irish Prime Minister Brian Cowen said, “The European authorities have agreed to our request. A formal process of negotiation will lead to the provision of assistance on the basis of programme to be negotiated by the government with the European Commission and the International Monetary Fund in liaison with the European Central Bank.”

For over a week, the Irish administration insisted that they did not need financial help. This has left the public angry as they feel thy have been lied to.

People of Ireland have vented out their anger on Twitter. “When have we ever been told the truth about our economy?” asks Bond123 on Twitter. Alpha says, “First they take Northern Ireland and then the entire Ireland will go into UK pocket.”

Leave a comment

Filed under Finance