Entangled geographies of “Irish” finance

Abstract

This paper dissects the financial crisis through an analysis of financial development in Ireland. Although a single system, Irish finance is split in two. Illustrative of national financial developments, this paper details how public officials aimed to create a financial center in Cork. Exemplifying transnational developments, the role of Dublin’s financial center is detailed, focusing on the risky activities of German banks. The analysis of “Irish” finance reveals the convergence of European finance along Anglo-American lines and highlights the problems underlying Europe’s debt crisis. Literatures on comparative institutionalism and global/world cities are recombined to come to terms with “actually existing” finance.

Keywords:

• comparative institutionalism
• financial crisis
• finance
• financial centers
• global cities
• Ireland
• tax havens

Acknowledgements

I am thankful to the National University of Ireland, Maynooth (NUIM) for their hospitality and assistance. In particular, I thank Chris van Egeraat, Cian O’Callaghan, Jan Rigby, and Mark Boyle. Furthermore, I thank all interviewees for their contributions to this paper.

Notes

1. Two periods of fieldwork conducted in Cork and Dublin—specifically, three weeks in May 2011 and five weeks in October/November 2012—inform this paper. Although all informants have contributed to the argument, five interviewees are directly cited in the text: Barker, Tommy. Interview by author. Irish Examiner, Cork. 19 May 2011. Cohalan, Maurice. Interview by author. Cohalan Dowling, Cork. 23 May 2011. Ledwidge, Pat. Interview by author. Docklands Directorate, Cork. 11 May 2011. Ryan, Frank. Interview by author. DTZ Sherry FitzGerald, Cork. 30 October 2012. Stewart, Jim. Interview by author. Trinity College, Dublin. 19 November 2012.

2. For example, Taylor’s world city network details a hierarchy of cities housing the world’s top accountants, bankers, financiers, insurers, lawyers, and management consultants (Taylor 2004, 215–217). For recent world city scorecards, see Globalization and World Cities Research Network (http://www.lboro.ac.uk/gawc/). Likewise, Sassen’s (2012) global cities thesis is based on scorecards comprised of similar metrics.

3. Although the exact origins of Cork’s nickname remain somewhat of a mystery, it finds its origins in its long entanglement with British rule. Some trace the nickname back to Cork’s support for two pretenders to the English throne, Lambert Simnel and Perkin Warbeck. In the late fifteenth century, both men led failed invasions of England seeking to dethrone Henry VII (O’Maidin 1978, 8). In another account, however, the nickname is traced back to the eighteenth century Whiteboy movement, a rebellion against the “enclosure of common pasture land” (O’Brien 2004, 192). The nickname Rebel City gained further currency following the rise of republican sentiments in the nineteenth and twentieth centuries.

4. It should be noted that loans on development sites constitute lending of the most speculative kind, seeing the largest haircuts or write-downs in order to adjust inflated book values to plummeted market values. According to Ryan, in Cork, “for what we call investment properties, properties with an income, prices are down about 50%. Properties that are empty are down about 60%. And development property, which is basically development land, is probably down seventy-five percent” (interview with Frank, 30 October 2012). Developments at Dublin’s Irish Glass Bottle site revealed the intimate relationships between the planning body—the Dublin Docklands Development Authority and Anglo Irish Bank—as Anglo’s chairman sat on both boards (see Carswell 2011).

5. Today, this fiscal regime applies to the whole of Ireland. For an overview of the (evolution of the) IFSC fiscal regime and legal environment, see http://www.financedublin.com/the_ifsc_story.php.

6. As noted by Jim Stewart, “Ireland is very attractive because we have a similar corporate law system as the US. So for US companies to use Ireland … they have to comply with Irish tax law, Irish corporate law, US tax law and US corporate law … It would be more difficult … for Germany or other countries, partly because of our common law system” (Interview with Stewart, 19 November 2012). As noted by Richard Murphy (2012) of Tax Research UK, Google and other US multinationals “float around freely” above Ireland, which he describes as “an aircraft carrier” between the US and Europe.

7. See http://www.irishstatutebook.i.e./2002/en/si/0470.html.

8. The setup of the various public rescue mechanisms reflect the intricate involvement of bankers and lawyers (Sherwood 2009), resulting in intriguing replications of shady off-balance-sheet-structures, SPV entities, and structured products that brought finance to its knees (see Gurdgiev 2011 on Ireland; Mehr 2011 on Germany, or Bowman 2011 on the creation of the European (Financial) Stability Facility/Mechanism).

9. For the profile and scale of Irish public debt, see Killian et al. 2012 and Whelan 2012. On Ireland’s overall (public and private) debt sustainability, see Lucey et al. 2012. Early 2013, the public debt profile again changed, taking ECB monetary gymnastics to a whole new level, with the controversial promissory notes transformed into sovereign bonds (Münchau 2012b).

10. As explained by Jim Stewart, “The Netherlands often features in the tax strategies of multinational companies in Ireland … A widely-used feature of multinational corporations in Ireland is that they are a branch plant of a Dutch parent company. They are incorporated in the Netherlands but operate here … They do that for tax reasons because Ireland and the Netherlands are like Siamese twins. We tax trading profits at 12.5%. That is the nominal rate. The effective rate is about 4% … But we tax profits from financial investments at 25%. The reverse is in the Netherlands … So if you can marry or incorporate a Dutch trading or holding company into an Irish corporate structure your tax quite a bit. This is what Google does. This is the so-called Dutch sandwich” (Interview with Stewart, 19 November 2012).