Posted by: Colm Lauder | August 15, 2012

Will Dublin’s Docklands lead the Irish revival?


As per IPD Press Release 8th August 2012

Full Report here.

Hopes for a visible sign of recovery in the Irish property market were postponed for at least another quarter in Q2, as still weak demand from tenants for space led to a further 1.8 per cent fall in property values across Ireland.

This comes despite growing optimism regarding the country from local and international investors – who have been eyeing the discounted assets for the last year – and two of the largest purchases seen in the Dublin office market for the last four years, the purchase of Riverside II by a German fund, and Custom House Plaza IV to a private overseas buyer.

Prime office assets in Dublin’s Docklands are predicted to be the first to see any sign of recovery. The area, Dublin’s financial heartland, is already home to over half of the world’s top 50 banks, and half of the top 20 insurance companies. In the last year it has seen a large rise in interest from TMT companies, as notable lettings to Google and Facebook encouraged others to look for space.

The predominantly modern, large assets have been discounted by almost 60 per cent since the downturn, making them extremely good value, and the recent IPD Global Cities report, found that assets in Dublin now offer the highest income return in the world.

“The Docklands area is an established business hub employing over 40,000 people, and continues to be attractive to multinational and local companies. Substantial potential remains with sites available in the area with the benefit of an extensive infrastructure already in place to facilitate immediate development,” explained Ms. Loretta Lambkin, Chief Executive of Dublin Docklands Development Authority.

Nevertheless, values still fell in the Docklands in the second quarter, but by only 0.5 per cent, a considerable improvement on the 1.8 per cent fall seen by the rest of the Irish market. Colm Lauder, Researcher at IPD continued, “Though Irish property has yet to see any firm signs of recovery, when it comes about, it is likely to follow the same pattern as was seen in the UK, with investors targeting heavily discounted prime assets that can secure strong, long leased tenants, preferably from large multinational companies.

“Dublin’s docklands will tick all of these boxes for investors. Already, we have seen this quarter Ireland delivering higher returns than the UK, for the first time in four years, (0.6 per cent to 0.4). In the Dockland’s that return rose to 1.7 per cent, which is higher even than the return delivered by London City offices, at 1.2 per cent.”

Further promising signs of recovery emerged from the occupier market, where rents have now remained stable for the last two consecutive quarters – despite declines across the rest of Ireland.

Frank Conlon, Head of Property at IDA Ireland commented, “Many of our global clients are in growth mode, which is leading to strong demand for centrally located large office properties of good quality.

“Dublin’s Docklands Area in particular is witnessing a revival with much of the office interest in the city focused on it. The area affords our clients a strong international and flexible talent base, particularly with financial service and digital media skills, and which has a proven transport, utility and social infrastructure.”

“Investors are going to be extremely discerning when looking at Irish property, but the recent sales in the Docklands area, combined with an apparent stabilisation of rental values, are the first signs we have had in the last four years that money is willing to flow back into the market, and that investors are keen to take advantage of the good value Ireland offers”, continued Lauder.

Roland O’Connell, President of the Society of Chartered Surveyors Ireland, concluded, “The Docklands benefitted from having ready to go sites when there were next to none available in the traditional office core during the last development phase, and now competes on an equal footing with the traditional core.

“Demand remains good, with Facebook recently leasing the final floor in their Hanover Quay building and the Central Bank announcing their intention to relocate to the North Quays. The area has proved to be attractive to both local professional firms but especially international financial services and TMT sectors.

“But while availability is good today, a shortage of quality space is on the near term horizon, and unless finance becomes available for new development, both here and in the traditional core, Dublin’s ability to cater for job creating investment from these sectors will be damaged.”

The Irish Times
The Irish Examiner

Analysis area Map as per DDDA

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Posted by: Colm Lauder | April 28, 2012

Analysis: Cork retail property 68% off peak

Some coverage of my recent analysis of Cork City’s retail investment property.

 

Cork retail property 68% off peak

By Tommy Barker, Property Editor

Thursday, April 26, 2012

Retail property values in Cork City have slumped by over 68% from their peak in 2007, the first analysis of the city’s retail property market shows.

Retail property value in Cork fell further than in Dublin, but positive trends are emerging, according to the International Property Databank.

Strong initial yields at low sales values now make Cork City an attractive option “to investors circling distressed, investment-grade assets,” notes IPD research analyst Colm Lauder.

The investment survey, done by the highly-regarded London-based body, said retail values in Cork had slumped by over 68% from their peak in 2007, compared to Dublin’s fall of 46% in retail investment values.

According to Mr Lauder, the initial yields for let retail property in Cork have tripled in the past four years and “falling values mean the sector is now heavily discounted. The income return of 10.3% for 2011 is the highest amongst Irish retail properties, by region, in 2011,” he revealed.

Values continued to fall in 2011, by 11.8%, total return for retail assets in the city centre was still -2.6%, and rental values said the IPD “remained in free-fall, suffering a decline of 22% in 2011, amounting to a cumulative decline of 51% from their peak.”

That compares with a rental decline of 43% in Dublin.

Cork’s retail sector offers good value for prospective tenants and, according to IPD, “with several high-quality developments completed over the last two years, such as Opera Lane, the city is in a good position to attract tenants keen on value”.

Double-digit income returns and greater clarity following the 2012 budget will make Cork of interest to investors, noted Lauder, but he added “until values and rents stop declining, there is unlikely to be any movement into the city”.

“UK and international investors will be considering all possibilities offered in Ireland, and not just in Dublin. They will buy where they believe value exists. Cork’s investment-grade retail properties, with solid tenants, offer extremely good value, and will be attractive to investors due to their strong income returns and competitive rents,” notes the IPD analysis.

A fuller Irish quarterly IPD report is due to be issued this afternoon.
Read more: http://www.irishexaminer.com/business/cork-retail-property-68-off-peak-191770.html#ixzz1tLyp8XmS

Posted by: Colm Lauder | April 28, 2012

REITs could help Irish markets to recover stability

My article as published in The Irish Independent newspaper on the 25th April 2012.

A real estate investment trust, or REIT, could play a key role in helping to relieve stresses on both the Irish commercial and residential markets. However the Government would need to change the law to make it happen.

Where allowed REITs can invest in apartment blocks and property debt such as mortgages, as well as a combination of both.

Individual investors can purchase shares in a REIT and receive dividends and capital returns, similar to equities, enabling REITs to tackle two of the most common barriers to property investment: indivisibility and high transaction costs. Thus REITS provide a liquid and transparent property asset.

Recently, in the US The Empire State Building entered a REIT to improve its investment efficiency — allowing investors to own shares.

These trusts also help work out distressed property assets while recapitalising and providing liquidity to a lingering property market. The development of REITs in early 1990s Asia encouraged more stable and liquid markets leaving them well placed following the post-2008 crisis.

This was at a time when most investors were running scared of real estate, but the trusts were used in both Japan and Korea as they were considered a well-priced and transparent asset compared to the direct sector.

Their experiences provide valuable lessons for Ireland. The goal of the National Asset Management Agency (NAMA) is to maximise return for the Exchequer and minimise the impact of holding and selling such a large quantity of real estate.

This cannot be achieved through normal property asset management procedures.

NAMA is believed to prefer the option of Qualified Investor Funds (QIF) rather than REITs. However, international precedence would suggest that REITs are better and may also generate tax benefits.

QIFs have an effective total tax holiday of up to seven years but REITs will be taxed from the outset via income received from dividends at normal income tax rates.

After Japan introduced REITs the market showed signs of recovery as real estate developers could bypass the banks and use REITs to fund projects.

In South Korea, property values slumped following a foreign exchange crisis in 1997 as investors and banks sold off real estate assets to cover debts. Korean REITs were used to remove property liabilities from bank balance sheets and provide liquidity to the property market.

Since 2001, there have been three REIT structures in South Korea, one of which — the CR-REIT — distributes in excess of 90pc of its profits to shareholders, employs no internal staff and is managed by a specialist company.

CR-REITs were closed-ended, finite, passively managed vehicles with public offerings aimed at international institutional investors.

They had two sources of income: rents paid through dividends and the capital gain distributed when the REIT had run its course.

Annual dividend yields averaged around 9pc during the period from 2001 to 2008.

This type of REIT could easily be utilised by NAMA. Initial analysis has shown a sample Irish REIT comprising select NAMA assets could provide an average annual dividend yield of over 7pc in 10-years. Returns of this level would attract foreign and institutional investors.

Some Japanese banks also established REITs to which they transferred suitable distressed property and then divested their interest in a REIT over a period of time.

Separately, some specialist firms became REITs and used their expertise to maximise returns.

Within three years, REITs helped to stabilise and reinvigorate Asian property markets by providing easy access to investment with low costs, high levels of transparency and accurate pricing.

The lessons from the Japanese and Korean REITs are valuable to Irish policymakers in gauging what can be achieved.

The resurrection of the property market is a primary condition for Ireland’s sustained economic recovery.

Quick disposals of NAMA’s property assets through fire-sales would have a detrimental effect on the wider market, property values and thus the Exchequer.

Consequently, new avenues must be explored and a NAMA REIT is one option. The Government needs to introduce REITs legislation, not alone to help the market but to help overcome the lack of credit in the banking system as well.

Colm Lauder is a research and performance analyst at the IPD

Posted by: Colm Lauder | December 20, 2011

A stimulus for the Irish Investment Property sector

My pre-Budget article as published in The Sunday Business Post newspaper on the 4th December 2011.

London skyline

A stimulus for the Irish Investment Property sector:

The commercial property sector continues to employs thousands of people in Ireland directly and indirectly. Despite the difficult market conditions, and ailing public perception, property firms have continued to employ new graduates and provide new opportunities for young people.      

The Irish commercial property sector is in desperate need of new international investors; Irish banks and funds need cash, but the sector will only be attractive if there is certainty of cash-flow and low transaction costs. The government should be proposing positive policies to stimulate the commercial investment sector and in particular to attract foreign investment. I have here outlined two simple, positive and pro-active policies that would stimulate the sector, thus creating employment and greater economic activity.

Reducing costs & removing barriers: 

The reasons for the trying market conditions are well known with a lack of debt and the uncertainty surrounding changes to rent review legislation, but due to the high transactions costs in Ireland, we have effectively priced ourselves out of the lucrative international investment property market. Currently, the costs of trading commercial property in Ireland are in excess of 8.42%, in stark contrast to approximate 5% cost in the UK. This is an often cited barrier by global investors. London and the South-East have benefitted greatly from international investors and their effect has spear-headed recovery in the sector.    

 There remains a definite need for the Government & Minister responsible to reduce the costs associated with commercial property transactions in Ireland. This can be achieved immediately by reducing the Stamp Duty rate to match that of the United Kingdom’s 4% top rate. This would have no downside for the Exchequer, as there is little to no revenue currently being produced by investment property trading and any increase in activity (even at a lower stamp duty rate) will provide significant amounts of additional revenue for the government.

 This action, combined with the much awaited clarification of the government’s plans on rent review reform will not only protect jobs but provide new avenues for growth and allow Ireland, in particular Dublin, to position itself as a global property investment destination.    

New & innovative products:

In the Fine Gael General Election banking policy document “Credit where credit is due” there included a proposal to examine the possibility of providing provision for an Irish Real Estate Investment Trust (REIT), this was warmly welcomed by the property industry, but now that Fine Gael is in Government this policy must become a reality. 

REITs are a proven method of encouraging a stable market and provide an attractive route to property investment. They offer a new means for investing rather than direct ownership and can encourage a more regulated property market. A REIT can extend and broaden funding channels for developers and rapidly inject badly needed liquidity into the property market at a time when viable developments are stalled or cancelled due to lack of finance. Recent studies have shown that REITs may prove to be a natural home for the excessive levels of distressed property assets (as held by NAMA) and could satisfy the country’s needs for a more efficient, modern, liquid and flexible property market.

International experience has shown that REITs can also be a useful tool to recapitalize lingering property markets. The South Korean experience is particularly relevant to the Irish situation, given that listed REITs were established in response to the difficulties experienced by the financial sector (and property market) following the Asian financial crisis in the late 1990’s, while the introduction of Japanese REITs provided a successful alternative source of funding (other than bank loans) for developers. Many REIT companies have been keen to acquire distressed loans from banks (or perhaps NAMA) – as by using their extensive property expertise they could maximise returns (and possibly achieve better returns than the bank would otherwise), while at the same time helping to recapitalise the credit-short banks.

 There are few downsides associated with the provision of REIT legislation, but one of the key characteristics of REIT’s is the fact that they can trade at a discount (or premium) to their net asset value (NAV). This discount will reflect the markets’ view that additional duties and costs may be associated with the disposal of properties and this can present difficulties when expanding a REIT or buying new properties. The benefits far outweigh the costs.

 The Irish Government must press ahead with the FG REIT proposal. This can be quickly achieved by including provisions for Irish REITs in the 2012 Budget as per Part 4 of the United Kingdom Finance Act 2006, which provided the provisions for the establishment of the highly successful and economically valuable UK REIT Industry. The similar legal and taxation structures between Ireland and the UK would allow for simple adoption of the UK legislation with only minor revisions.  

Colm Lauder is a Research & Performance Analyst with the Investment Property Databank (IPD) in London. He holds a BSc. (Hons) in Property Economics from DIT and an MPhil in Real Estate Finance from the University of Cambridge.

http://www.businesspost.ie/#!cat/Property

Posted by: Colm Lauder | February 16, 2011

Excellent analysis of rent review reform policies by FG/Labour

Excellent Article by Bill Nowlan in today’s Irish Time Commercial Property Supplement – follows much of the lines as my argument. It is certainly a pity that there is no strong anti-rent review reform lobby to oppose these ludicrous proposal.

OPINION: Ireland’s reputation will suffer if all commercial tenants can have their rents reviewed this year, writes BILL NOWLAN

FINE GAEL MANIFESTO

5.6 Reducing Business Costs

We will pass legislation to give all tenants the right to have their commercial rents reviewed in 2011 irrespective of any upward-only or other review clauses.

Office rental costs have fallen by 42% since 2008 but many people have not got a reduction at all due to resistance from some institutional landlords.

Office space in Singapore remains cheaper than in Ireland. We realise that there are legal pitfalls to this policy and that constitutional issues may arise.

We are prepared to take that risk and take the challenge to the Supreme Court.

WHAT A spectacular own goal. If the proposal in Fine Gael’s election manifesto outlined above is enacted in law, it will destroy the investment property market right when government ownership of property has never been greater. Now is the time that good news for property is badly needed, rather than more bad news.

Do Fine Gael and Labour understand property economics? It was the failure of former Taoiseach Bertie Ahern and his advisers to understand property economics that brought Ireland to its current sorry state. Bricks and mortar don’t make wealth but they can and have destroyed the credit system of the country.

Now the opposition parties are about to do it again when they get into government. Pledging to change the terms of existing business contracts in favour of one side is woeful economics. Let me give you a genuine example: A 10,000 sq ft (929 sq m) office building now let to an insurance company in central Dublin at €40 per sq ft with 11 years to run will fall in value from €5 million to €3 million as fast as you can say Enda Kenny.

As I write, investors who are willing and able to take out Nama’s debt to the European Central Bank by buying leased Irish properties will be abandoning the country. They can invest anywhere from Mexico to Moscow. So they won’t invest in a banana republic that doesn’t respect long-term contracts.

What this country needs from its politicians is clear, logical thinking rather than knee-jerk actions intended to catch votes. It reminds me of what Éamon de Valera did in 1932. In the run-up to the election he promised the farmers that land annuities, which were paid to the British government, would be abolished. This policy was easy to propose but disastrous to implement. The economic war with the UK that destroyed Ireland for many years following that election was the consequence. (Adding insult to injury, the farmers ended up paying the annuities despite the promises of abatement).

Once again, this country can expect to be at the mercy of a government that does not understand the wider consequences of its economic actions at home. So what are the underlying issues of the current proposals?

1 The value of investment property depends on the investors having confidence that the tenants will pay their contracted rents and that the legal system will enforce the landlords’ rights to receive those rents. Undermining the legal structure undermines confidence and, thereby, values. Investment property values will show significant falls as a result of this proposal, probably by 20-30 per cent (I have asked the Investment Property Databank to calculate the precise fall and, when it has done so, I am sure The Irish Times will publish the figure).

2 The fall in values will push even more loans into default and make the banks more insolvent. This probably does not worry too many people until they remember that the taxpayer will have to fork out more money to recapitalise the same banks.

3 The value of Nama’s assets depends on rental income being received in accordance with lease contracts.

Nama has bought about €10 billion of its Irish loan book based on projected contracted rental income.

If that income is not receivable in full,values will fall and Nama will not be able to get back the prices it has paid for those loans. Once again, taxpayers will have to make up the difference by capitalising Nama – probably by another €2-4 billion.

4 Ireland’s indigenous investors have little or no capital left. This country is relying on overseas investors for support. We need them to buy our investments and to lend us money. My overseas clients and other similar investors are currently prepared to buy Irish rental income in the expectation that tenants will pay their rent in accordance with their contract terms.

If this proposed legislation causes them to doubt that payment will be made in future, their interest in Irish property will evaporate instantly.

5 The proposal probably is unconstitutional, though this would take several years to go through the courts. The damage is already being done because investors won’t hang around in the hope that the courts will force the legislature to see sense.

6 Should the new government move to change the terms of existing leases, they will leave themselves (or, in other words, taxpayers) open to big claims for compensation from existing investors of the amount of the fall in values.

7 Ireland will become the laughing stock of the world. No other advanced country has ever introduced retrospective legislation to reduce contracted rents. This is Zimbabwean stuff. It undermines the very basis of equity and people will legitimately say, “If they can do this to property, what next?”.

This is not to deny that some tenants are suffering greatly and it would be a very foolish landlord who would let a tenant go under in the current climate. It can be argued that if a tenant can demonstrate a genuine predicament then the law should allow some leeway without having to rely on the whim of a landlord. A broad-brush approach, such as that outlined by the politicians, is not the way to deal with the problem. An elderly widow whose sole income comes from a single property let to a multinational won’t thank anybody for it. Perhaps the issue should be dealt with under proposed revisions to our insolvency laws.

The change to upward and downward reviews in new leases has brought us in line with European though not UK laws, but changes have been overshadowed by the general economic malaise. Current rental values are artificially low due to oversupply and the recession. Investors know they will strengthen when economic conditions improve as they are now below replacement cost.

The core problem in Ireland is that the sales culture took over at management and boardroom level in the Irish banks in 2003. The banks then handed out mad loans based on mad property projects. Good banking practices and basic economic principles were forgotten in the dash for short-term profit and bonuses. Are we now seeing the populist sales approach of two major political parties vandalising our economic infrastructure for votes?

Significant world investors will draw a pencil line through Ireland as a place to buy assets. This is like changing the 12.5 per cent corporation tax retrospectively.

I would like to say to Enda Kenny and Eamon Gilmore, please exert your authority and revoke this De Valera-type vote-catching destructive economic policy – even though taking such steps could make you popular in the short term. Can you please understand property economics, even if your handlers don’t? What expert advice have you got? Will you share it with the industry before any promises are made or action is taken? The investment world is watching and expecting leadership. This is where the rubber meets the road.

PS: Please EU/ECB/IMF take note and add a codicil to your memorandum of understanding to halt this economic vandalism. If you don’t, you will be waiting even longer for your loans to be repaid.


Bill Nowlan is a chartered surveyor and town planner. He is managing partner of property asset management company WK Nowlan Associates

Next week: Businesses in trouble – striking a balance

© 2011 The Irish Times

Posted by: Colm Lauder | February 7, 2011

Property Database would boost Market

As published in The Irish Independent, 2nd September 2010

 

THE recent decision by the Justice Minister Dermot Ahern to push for a national property-price database should be welcomed by homeowners, prospective buyers and property professionals.

While the database’s exact structure is yet to be decided there is a clear value to the market of collecting pricing information.

The database will demand a new honesty and transparency about expectations of prices that a property can fetch.

It will also drastically improve the efficiency of valuation, largely removing the considerable amount of time comparing evidence with other agents.

Provided that this database is easily accessible, this information will add increased certainty for buyers/sellers in place of often variable estimates between individual valuers.

At a market-wide level, the benefits of an accurate property database provide a major opportunity.

By harnessing and evaluating pricing data, it will eventually become possible to overcome (by early identification) some of the peaks and troughs typical of all property.

These, classically, are what has led to the oversupply we witnessed over the past few years, as a consequence of rapidly rising prices.

For public and governmental policy, a property database would finally allow for a fairer, more efficient and progressive taxation policy.

This information deficit was the main stumbling block to the introduction of a land value tax. However, it is crucial that the database’s designers include sufficient variables (building area, plot size, services, construction type etc), to ensure it is not limited in its usefulness.

It should be noted that much of this information would be available by the correlation of existing sources (Local Authorities, Land Registry, Registry of Deeds, Revenue etc).

The development of a property database should be built on two basic principles: transparency and efficiency.

It needs to be broad enough to consider its future uses and applications, yet clear enough so the public — and thus, the market — gain confidence from it.

Colm Lauder
Clontarf,
Dublin 3

Irish Independent

http://www.independent.ie/opinion/letters/database-would-boost-property-market-2321341.html

Posted by: Colm Lauder | February 7, 2011

Rent Review reform policies by FG & Labour foolhardy

Cambridge, 7th February 2011

There has been much discussion in recent months of the ‘plight’ of the retail sector in Ireland, with much of the populist blame being placed on the inclusion of upward-only-rent review (UORR) clauses in lease contracts. Both Fine Gael and the Labour Party have proposed a retrospective ban on UORRs in extant leases. This  policy has already gained popular support from the Retail sector in Ireland, and with the general public who seem to blame all their failings on the ‘evil fat-cat’ property developers and investors. However, such policies may damage the commercial property more, and more worryingly may damage the future of institutional investment in Irish property.

The concern is clear, the introduction of a retrospective ban would have serious consequences on the future on property as a secure investment, and would massively dent the attractiveness of property as an asset. Commercial property currently displays many of the characteristics of a bond/gilt in terms of a secure, guaranteed cash flow (rent). The volatility and risk of this cashflow is low and hence why property is attractive to pension funds and other low-yielding funds –  the traditional secure assets. The removal of a guarantee of cashflow from that asset would seriously dent the attractiveness of the asset, and would see further exodus of funds investing in it, thus severely hitting prices and subsequently pension funds, summit funds, construction and development sector etc.. The result is that pensions of thousands of people may be worthless  (or significantly reduced) – placing a further burden on the taxpayer.

The Irish commercial property sector is in desperate need of new international investors, Irish banks and funds need cash, but the asset will only be attractive if the risk of the cashflow is low. FG need positive policies to stimulate the commercial investment sector and in particular the need to attract German and Chinese money. The abolishment of retrospective UORR’s would further drag the market downwards and will have negative effects for all areas of the industry – including occupiers (due to less willing investors, resulting in poorer quality stock). Dundrum Town Centre would be a prime example, if UORRs were removed from leases the project could collapse – which the exchequer picking up the bill (through NAMA).

It is not in anyones interest to retrospectively ban UORR’s as it will end up costing the state. But there is no debate about it in the media because it’s very populist and anti “big bad fat cat” investor developer etc.. While much of the calling for such a ban has come from the retailers, much of their argument is flawed. They willingly signed these contracts, willingly accept these terms – they must shoulder the blame.

FG and Labour need to realise that a ban on UORR’s is not the wise option, it is the populist option. For the sake of encouraging foreign investment and moving these assets of Irish balance sheets to inject cashflow in the domestic market, it is crucial that such a retrospective ban is not enforced. If a ban is brought it (despite legal difficulties – but possible) yields will skyrocket and recovery will be almost impossible. Do the incoming government really intend on reducing property values that much?

The effects of increasing risk in the commercial property sector caused by such a UORR ban could have terrifying consequences. NAMA would likely fail – and the destruction that would bring to the wider economy is unthinkable.

Posted by: Colm Lauder | July 11, 2010

The role of market speculators and bond markets

Dublin, July 2010 – Article as published in Young Irelander magazine.

In Ireland, we always like to blame someone else for our troubles and woes. In football we blamed Henry, yet we did not consider that we still had to score a second goal to go through, with state finances we blame the banks for the devastating burden they have placed on the exchequer by their lending practices, yet we fail to place any portion of blame on “reckless” borrowers (be they mortgage holders or developers). In economics, Europe is moving to blame speculators for the damage done to nations like the Greece debt crisis and its affect on the euro currency. But is this correct, or even moral?

Throughout the Eurozone single currency area governments are moving to regulate market speculators, whom they incessantly blame for targeting the Euro currency and sovereign debts of the so-called PIGS (Portugal, Ireland, Greece, Spain) nations, thus exacerbating with the crisis we currently see in Greece (and possibly others absit omen).

Although it is historically and internationally common in tough financial times to blame speculators, this escalating hostility towards them is starting to worry those with a real understanding of how markets work. Because without speculators, they say, these markets do not work at all.

To me, as an outside commentator, I see the moves against speculators in the EU as purely desperate populist reactions by unpopular and teetering governments, as by blaming speculators it gives the impression that capitalism and the free market are to blame for the economic woes that currently blight Europe, and not themselves. This gives the view that speculators are the root and cause, while governments and their currencies are the victims of speculator activity.

These governments (Ireland included) are ignoring the fact that speculators play a key and fundamental role in the smooth running of economies and the market by spotting and exploiting its weaknesses and vulnerabilities. Those willing to risk their capital in search of profit are central to healthy markets, and to place blanket restrictions on them could damage markets that are already under pressure from rising global demand for food and fuel.

The politicians and policy makers need to realise that the Euro currency is not under pressure because it has been unfairly targeted by speculators, but that it is falling because of the continued poor management by these governments. The EU has tolerated too much corruption, fiscal irresponsibility and an extreme lack of accountability by it’s member states. Speculators are merely filling a void, which politicians and “regulators” have left vacant. This is a healthy sign. The market needs to remain strong and efficient in order to keep politicians to task – Eurozone nations cannot continue to carry the burden of unsustainable entitlement schemes, bloated and excessive public sectors and of course massive deficits.

The actions of speculators are forcing a sense of long-overdue economic reality to the EU. It may hurt the Eurozone in the short-term, but the solution is not to pervert the course of the market by excessive regulation, but to allow the market to force economic adjustment of poorly run states – which, unfortunately,  is likely to include Ireland!

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