Good Morning and firstly thanks for the opportunity to address you. ( I hope you won't regret it!)

The International Energy Agency, which had been telling us there wasn't a problem with global oil capacity has u-turned. The IEA  now tells us that we need to harvest six new Saudi Arabia's over the next 20 years to meet energy demand especially from Non OECD countries, 80 percent of the worlds population.

We already had a sniff of what's to come when oil raced towards $150 a barrel before prices collapsed in 2008 during the great economic contraction. But the most recent report, the UK Industry Taskforce headed by Richard Branson foresees a doubling of oil prices again as early as 2014. The price is already back over 80 dollars a barrell.

So what? All modern global recessions bar one was preceded by a spike in energy costs. At the peak of the credit bubble just about everyone was borrowing like a baron on a crusade to free Jerusalem for the Pope. Money was dirt cheap until rising oil prices, the final straw caused US inflation and borrowing rates to rise in 2006 triggering the collapse of the most sensitive part of the bubble,  subprime, thereafter.

I don't know if we'll avoid a second leg down, (over $1 trillion of deeply discounted interest only US mortgages reset upwards over the next 30 months to include capital repayments) but I do know with absolute certainty, that thereafter the biggest question facing us is how to build competitive advantage in a world characterised by  very high energy costs.

That's why NewEra so important (and why I'm not a Croke Park with my kids). Ireland is still one of the most oil and gas import-dependent countries on the planet.  Ask yourself how we could keep FDI like Intel with brown outs and black outs common? More fundamentally in the event of an extreme emergency how do we feed a population with just four days food supply in the shops?

On the other hand if Ireland formulates a credible  strategy that secures our energy supply, guarantees far less volatility in prices compared to our competitors and maximises our capacity to bring on alternatives, consider the impact as Ireland becomes an FDI lighthouse during a global energy crunch likely to last 10 to 20 years?

But strip away the rhetoric and ideology and how prepared are we really?

1. We've decided to push 40% wind on to the grid. But you can't do so without lashing up prices as gas burners come on at short notice. On the coldest days this winter, wind produced little or no electricity.
2. We're keen to export excess capacity, but just one overseas interconnector being built. We need several including to France to import nuclear energy and complete a North West European grid.
3. The ESB facilitates homeowners adding electricity to the grid but the numbers don't add up because they've been engineered not to.
4. But the biggest farce is; we have no grid. What we have is a distribution network made up mostly of 110 KV lines that lose huge amounts of power. We've just two electricity motorways, 400 KV lines running from Moneypoint in Clare to Dublin. That's it. Visualise trying to run a transport economy with just two pieces of motorway and the rest, bicycle tracks, for the next 8 years, because that's where we are with the electricity grid. There's fat chance of exporting or importing electricity until then.
5. We were supposed to have made the grid independent. But EIRGRID, set up four years ago, can't raise a bean in capital. Guess why? The poxy grid is still on the balance sheet of the ESB because the ESB unions, management and its ESOP are still running the gaffe.
6. Every painful step runs through An Bord Pleannala and local planners but there is no workable national strategic guidelines. The reference point is overwhelmingly local planning issues. We're simply not moving fast enough.

What's needed?

• Firstly a replacement of apathy with a clear-headed understanding of what's to come. That this isn't just a green issue but a centrepiece in all our lives.
• Secondly new planning templates and timelines that fast track the use of the Strategic Infrastructure Act and builds a grid that matches our ambition.
• Thirdly an envelope of proper incentives, reliefs and banking finance that encourages rapid semi-state and private capital penetration into Ireland's energy markets.

So you can see why the shape and strength of the next Government is so crucial since it is upon its doorstep the energy crunch will arrive. Sure you're on track to form the next Government but is that enough? Has Fine Gael really connected or is it just a case of lousy play by the opposition with the ball? My guess is that you haven't connected,  you're not convincing the most important audience, those who've continuously voted against you.

Fine Gael can't change Ireland, only the Irish people can do that. Still people are hungry for a leadership in which they can believe, for transparency, accountability and high standards of governance but feel nothing they can do will change things.

Similarly we know intuitively that requires a lot of us to take responsibility for voting in successive administrations despite evidence of corruption, bribery, tax evasion, dishonesty, clientelism, cronyism, and perjury.

Then why offer people who feel this way a tweedle dum tweedle dee coalition that will limp along before the next Fianna Fail cycle? Why not ask for a commitment to support you for fifteen years of transformation for three administrations?. Give people a long term credible contract in which we can believe.

That means asking for as close to single party Government as you can get and promise to deal with leadership succession naturally and in due course. Be clear ,put up posters of Haughey, Burke, Lawlor, Pee Flynn, Ahern and you know the rest. Do you want more of the same tribe? Or transform Ireland in just five seconds?

That's all it takes, five seconds..................................................................

Five seconds of epiphany when you stand alone in the voting booth facing  a list of photographs. In those five seconds with a drop of ink, a pen and a promise we can leave the broken model behind and with it the tribe that took over Fianna Fail and led us to the doorstep of the international debtors prison.

I'm convinced that this is a time of remaking, of taking down and rebuilding. I'm convinced that if you can capture that essence of those five seconds, you can lead the transformation of Ireland over several governments and that a stronger, wiser and finally grown up Ireland will emerge long before the centenary of the Civil War.

Thank you.

Eddie Hobbs Fine Gael Ard Fheis Killarney March 20th 2010

The Government plans to enlarge the pension’s ghetto. Outside are the public sector pension rights valued at between 15 and 20 times final pay at retirement and amounting to over €100,000,000,000 in locked-in future income guarantees - and inside the rest of us poor mugs who, despite the pensions levy, are paying for vast majority of it. In the latest attempt at reform, this one by Mary Hanafin, the outcome will be further farce, complexity and inequality;

• Self Employed workers are to be shafted, paying income tax and levies well over 50% but getting relief on pension investment at just 33% and then paying over 50% on pensions at the other end.
• Tax free cash lump sums are to be capped at €200,000 in a move that will hammer any self employed worker who has the audacity to have a pension fund worth a little less than a teacher’s. Meanwhile this rule cannot hit lump sums for any retiring public sector worker earning less than €133,000- that’s over double a teacher’s pay. Guess who made up the rules!
• Workers who can’t afford pensions are to be forced to save with the enticement of tax relief robbed from higher rate taxpayers but allowing them to opt out.
• Nothing is being done to equalise the amount of money being spent across both private and public pensions – the rules are being written outside the ghetto.

Just like the introduction of PRSAs some years ago, the fanfare cannot hide the truth. This initiative is doomed from the start. Self employed workers can easily defeat the Government’s theft of their pension power by mimicking employer pensions through incorporation - having the limited company make the contributions rather than themselves.

This is typical stupidity from pension planners and adds more complicated trickery to a labyrinthine market bulging with unnecessarily high charges because successive Governments have abysmally failed to simply and reform. If any Irish government has the bottle to radically address this most unequal feature of modern working life then the route to take is the introduction of a universal pension benefit to which all workers contribute evenly. That means;

• Setting a big bang date that scraps public and private sector pensions, capping existing benefits at what’s already been earned to that point.
• Introducing a decent flat pension benefit in the range €35,000 to €50,000 financed by worker and state contributions and boosted by transfers in from existing private schemes.
• Guaranteeing pensions for all but allowing some flexibility for extreme events like a collapse in asset values
• Centralised administration and fund management that stresses lower costs and simplicity

Course that means telling high rollers both in the public and private sector that, once the universal benefit has been reached, they are on their own. But it would go a long way to address the unfairness where lower paid and risk taking private sector workers are subsidising higher paid public sector workers to the grave.

PS   Public sector workers mis-sold AVC’s that have hardly held with inflation for ten years should use their stash to buy higher benefits directly from their main schemes before these loopholes are closed off.

PPS   With over a trillion dollars in US deeply discounted mortgages (known as ARMs) about to reset over the next two years a further wave in the banking crisis can’t be ruled out. That’s why I still favour demand over fixed deposit accounts. The Irish subsidiary of the UK Nationwide Building Society and where you’re protected up to the first £50k or c.€55k is quoting best rate at 3.3%. The minimum is two grand.

Predictably, the banking crisis is morphing into a sovereign debt crisis.  Greece is for openers.  If the history of banking crises is anything to go by, inflation will be the final hotspot. Why should we be surprised? Modern history is littered with bones of Government's defaulting or rescheduling debt.  Ireland doesn't feature in the list but that would change if the burn-the-bondholders brigade got their way with Anglo Irish bank. For good or ill the Government chose to guarantee corporate bondholders. Strike it down and we enter uncomfortable company with some high profile default risks;

• Greece has defaulted or rescheduled five times since its independence in 1829 and has been in default for a quarter of its history.
• Spain's record is 13 times having spent 23 years in default or rescheduling.
• Portugal's record is 6 times.

Look around the world and few economies were spared defaulting especially if you consider ramping up inflation to cut the real cost of how much you owe lenders, as a de facto default. By 1947, due to WW2 and The Great Depression, countries responsible for 40% of global GDP were in default or rescheduling. Even the USA doesn't have a clean history having let inflation hit 200% in one of its early years and having reneged on repaying debt in gold - backed dollars in 1933. Neither is Iceland's desperate EU membership bid a new story. Newfoundland, with a similar population to Icelands, was forced by the British Government to relinquish 78 years of direct democracy over its debts and join a federation with Canada in the 1930's.

Each time, at the top of the debt bubble, the conceit that this time it's different blinds economists, governments and central bankers to the truth.
Before the latest crisis leading players like Alan Greenspan and Wall Street wizards of high finance reckoned that the massive debts growing in the US economy could be dissipated and controlled by spreading the risks wider through the global financial system, much like reinsurance does. But all the fancy derivative alchemy did was to blow the bubble higher and spread the muck wider when subprime debt burst. So what can we learn from past banking bursts;

• Property on average falls 35% and stays down for 6 years. But there are exceptions; Finland and Hong Kong experienced 50% to 60% falls. Japan's property stayed down for 17 years!
• Unemployment rises for 5 years and typically by 7%. But spare a thought for The Great Depression when unemployment rose nearly 17% across 15 countries
• Real per capita GDP, a key measure of wealth, contracts -9.3% and takes nearly five years to recover lost ground.
• Government borrowings rise a staggering 86% of GDP, not from banking bailouts but from the massive losses in tax revenues.

So what about now? In the past shares have fallen 56% and taken 3.5 years to recover. But this time while shares fell a little bit more they've recovered two thirds of their losses in just nine months. Markets read a sustained, though weak recovery. But is it really to be different this time?
Hell I wish I knew. Tell you what though, if we avoid a second leg down we'll definitely hit high inflation. The alternative is a perfect landing.
I don't do perfect landings, particularly when they're touted by the same crowd that misread the great credit bubble of the noughties.

PS   All bets are off with Northern Rock Bank on May 24th when the 100% UK government guarantee is removed. The safest bridge to retreat over in the unlikely event of a second bank run will be AAA rated Rabobank.

The natural instinct of business is to conspire against consumers to raise prices. When that happens the most vulnerable in society get hammered by paying more of their low incomes for essential goods and services. Whether it is a conspiracy between creameries to fix milk prices and undermine competition from Northern Ireland as happened in the 90's or a conspiracy between car dealers to fix prices and prevent discount wars, the result is the same; damage to the consumer and a less efficient economy - which always translates into job losses.

But the great game of interference in the forces of competition is far more subtle, canny and elevated than pure price fixing agreements in the trenches. It involves restricting entry, curtailing planning, lobbying Government for special privileges by exercising soft power between the deep carpets of Leinster House and high priced restaurants of St Stephens Green. Most TD's and Senators, anxious to bend to the will of professional, business and farming groups and terrified of being accused of threatening Irish jobs will just about do anything, say anything and promise anything to keep these powerful forces satisfied. After all with consumers generally disorganised, the NCA hog-tied by reliance on Government resources and with little common understanding of the great game, what's to be gained by standing up for consumer rights?

That explains the ambivalence and confusion among political parties including Fine Gael when Minister Michael Martin banished The Groceries Order. But not everyone was happy including the Minister now responsible for competition, Tanaiste and Minister for Enterprise Trade and Employment Mary Coughlan TD who is now determined to thwart competition within the grocery market through the back door by imposing a one-sided code of conduct that erects a cocoon around Irish food suppliers and by bypasses her own Competition Authority. Such a move will prove hugely damaging not just to consumers finally benefitting from falling prices and tighter margins, but also to Irish food itself as retailers switch to cheaper imports and jobs are lost. But it isn't the only way Coughlan is reversing the gains made by the competition agenda over the past ten years.

You'd think that in all the guff about making Ireland more competitive, the Tanaiste would be backing up her rhetoric with a simple process like renewing the Competition Authority, following the resignation of three key members including its Chairman Bill Prasifka - but she hasn't. In an extraordinary failure that smacks of incompetence or a deliberate attempt to put manners on The Competition Authority, The Tanaiste has not addressed the legal position of The Competition Authority to function after May this year. Under the 1991 Competition Act it must have five members and a quorum of at least three to continue its criminal investigations, examinations of mergers and takeovers and crucial studies of industry and the professions. Under its founding legislation and to avoid political interference, The Competition Authority permanent members must be appointed by open competition by an arm's length appointment body. That due process takes time but The Tanaiste has done nothing despite the May deadline.

Her Department will, no doubt, concoct a press statement that provides cover for their gaffe-ridden master with excuses about a merger with the NCA and an emergency clause that allows the Minster to make temporary appointments but the whole episode, including her unilateral interference in the groceries market against the express wishes of The Competition Authority stinks of narrow minded border politics being given preference over the national interest by the only member of the Dail whose home county twice rejected The Lisbon Treaty. How can Ireland ever hope to become more competitive with such double standards at the top?

When you're in the poop, strapped for dosh and living off credit, just about the last thing you do is to pick a fight with your lenders. That's why it's the end game for the Greeks as EU Finance Ministers get tough. Greece faces an ultimatum, either get your own house in order or face the consequences. It's hard to know how much of the rhetoric from the EU is designed to bolster Greek's Socialist Government in its attempts to introduce economic austerity and how much of it is real steel. But one thing is certain, international investors in sovereign debt aren't convinced by the Greek's plan to deal with its runaway deficit.

Brian Cowen knows full well that there, but for a backlash from the private sector, goes Ireland. Make no mistake, Ireland came within a hairs breath of Greece's fate when the Government dallied with a reckless compromise that involved substituting public sector pay cuts with unpaid holidays in a system already corrupted by sick leave and hog-tied by increments for all. Brian Cowen could so easily have been be in the dock with George Papandreou facing into an emergency budget right now. Greece is a harsh reminder of what happens when you attempt to cod markets with bull about spending cuts that avoid sacred cows like public sector pay.

There will be those in the Irish extreme left gaping enviously at their Greek counterparts enjoying the drumbeats of rebellion, flag waving, marching and social unrest – it's what they crave most. They look to the past to contextualise Ireland's plight as an Edwardian conflict between the unchecked forces of capitalism and the ordinary, decent and vulnerable worker. Thank heaven most Irish people don't buy a word of it and see plenty of evidence of rights and processes for resolving disputes. It also helps that the can-do part of our economy is free from the self destructive grip of old fashioned union demagogues that would, if they had the power today, join their fellow Greek comrades in glorious folly and shut down the country.

Ireland avoided the hammer blow this time because the Government has committed to a series of tough budgets. But it was a close call. Next up is the waste. If we're not getting value for money we simply must cut regardless of the counter pressure from vested interests. That means quangoes, sickies, grade-linked increases in pensions, age-related increments, fattened expenses, social welfare fraud and disincentives to go back to work are next up on the chopping block. Scarce money must go to the neediest and most deserving only, that means old age pensions, disability income and families swamped in mortgage debt due to unemployment.

There can be no room for complacency. The sooner Brian Lenihan lays down the marker for next December's budget the better. Ireland has to continue to put clear blue water between its economy and Greece by following a series of steps that are credible and not just politically digestible. Don't think for a minute that a Cowen-led Government has a universal spine for this job or that a replacement coalition with a strong Labour element would be any better. Last year's budget was touch and go, carried over the line by the stubbornness and unassailable arguments presented by the Minster for Finance in the face of jellies in the Cabinet. Next December we mightn't be as fortunate.

Sovereign debt is the new pressure point of the banking crisis. Right now the focus is on Greek bonds but Greece is really just a proxy for the Euro which is being tested by speculators betting that Euro members will fail to find a convincing solution to the common problem of unstable economies. Expect the old guard, led by Germany and France, to figure out a new financial architecture to save Greek, Spanish, Portuguese, Italian and Irish bonds from speculators.

The attention then will switch to sterling and finally to the biggest debtor in the world the reserve currency the Dollar. While I expect the Dollar to strengthen in the short term against the Euro this has more to do with the perceived weakness of Europe's main currency and less to do with Dollar strength. When the extra US Government spending is stripped out of its GDP which, for the calendar year 2009 was just 0.1%, the US economy contracted by 7%.

But as regular readers will know I still expect that the strength of the US recovery will surprise. Its economy grew 5% in the last quarter but its Government debt is unlikely to be cleared by raising taxes on economic resurgence. You simply can't massively increase money supply without debasing your currency despite what central banking alchemists tell you about reversing the effect in time to avoid inflation. That's why prices remain strong for precious metals, especially gold, trading yesterday at $1080 per ounce (that's about €788) and silver trading at $15.30 (a little over €11) per ounce. Of the two popular metals, silver appears best positioned in the short term. So why have gold and silver have done better than shares over the past three to ten years?

• Each acts as a store of value, a reserve currency that is bought on fears of inflation, uncertainty and international tensions
• Silver mining is under pressure to keep up with demand including for industrial uses in photography, solar panels etc.
• Both should act as a partial hedge against high inflation on the one hand and a depression on the other. In the last high inflation decade silver rose 25 times from a floor of $1.50 in 1970 to fifty bucks an ounce ten years later.
• The world endowment of silver estimated at 12 billion ounces in 1900 is thought to have declined to less than two billion ounces today.
• Since the collapse from silver's previous high in 1980 as the world entered a prolonged low inflation phase, silver has traded on average at 40 to 1 compared to gold –that's a price of $27 based on yesterday's gold price. Instead, at $15.30 per ounce it looks undervalued since it takes 70 ounces of silver to equal to one ounce of gold.

But be warned taking a position in gold or silver is not for the faint-hearted or for money you can't afford to see plummet in value. Both are well positioned to respond to either another depression or very high inflation, but the price of gold and silver could fall sharply if we experience the perfect economic landing – steady growth, a strengthening dollar ,a reducing US deficit, little price inflation and affordable commodity costs.

You can get into either gold or silver by purchasing a minimum of $10,000 (that's about €7,300) Perth Mint Certificates from Dublin-based GoldCorp or you can simply invest in gold and silver funds that trade on the London Stock Exchange through any stockbroker like on-line, TD Waterhouse, who charge just €20 per trade.

This is not a green light to dash to your jewelers – that's called shopping!

Grocery shoppers beware. Tanaiste Mary Coughlan TD, it seems, has embarked on a solo run at the behest of food suppliers and farmers that will reverse the gains made by consumers in the Irish grocery market. This means higher prices for you. Despite a custom-built section for the grocery sector in the Competition Act 2006 that deals head-on with abuse of dominance, hello money, price fixing and coercion, Mary Coughlan wants to reward her agri-pals with a special code of conduct that is heavily skewed in favour of suppliers and comes with its very own police force.

In a brazen move, the former Minister for Agriculture, whose own border constituency twice rejected the Lisbon Treaty, launched her plans without any consultation with The Competition Authority despite its clear expertise in the area. Neither is it believed she consulted the NCA. Both agencies report to her and are responsible for consumer welfare. Tellingly the surprise news of the Tanaiste's plans was broken by The Minister for Agriculture.

The Irish Competition Authority is thought to be deeply unhappy. Anecdotal media reports that powerfully positioned retailers are breaking Irish law has not been supported by evidence to the Competition Authority which has, diplomatically, suggested her proposals are anti-competitive and recommended instead that punitive damages should be used as a deterrent and awarded to any Irish food supplier who takes a successful civil action against retailers under Competition Law.

Lobbyists claim that suppliers won't come forward because of fears of being delisted by retailers. Perhaps so, but a much bigger fear is these unsubstantiated claims of breaches of competition law is being used as a smoke screen for good old fashioned protectionism to artificially cocoon suppliers from the competitive threat posed by Sterling's devaluation. The only sustainable response is more efficiency, more competition, less protectionism and robust Government action on the sources of Ireland's high business costs – rates, waste, utilities, energy and now a credit drought. But The Competition Authority isn't the only agency to believe the Minister's move is protectionist. The ESRI, which is not hampered by relying on the Minister's largesse for its annual budget, has been scathing in its criticism, stating bluntly that Coughlan will increase prices and damage the economy. After all if Irish suppliers increase costs, retailers will simply respond by increasing food imports to meet consumer demand for low prices.

Despite the galling consumer rhetoric contained in the Tanaiste's code, it contains no consumer welfare test or competition test and in further evidence of the food lobby's reach, the main opposition party, Fine Gael, has a broadly similar bill in its pre-election armoury. Consumers, finally benefitting from the removal of the Groceries Order, increased competition, falling prices and competition from Northern Ireland are to be punished for exercising freedom of choice. Irish food prices are to go up not down in the shops if Mary gets her way.

This won't do at all. Both the Competition Authority and the NCA must be as freely outspoken as the ESRI and not hid behind coded language in alternative proposals because they fear open confrontation with their paymaster. Minister Coughlan must be told bluntly that nobody is fooled - her proposals for the grocery market is protectionist, self-defeating and short-sighted.

The sooner this ill conceived gambit is defeated, the better, ideally, by removing Minister Mary Coughlan from Enterprise, Trade and Employment and replacing her with a minister prepared to first consult with its competition and consumer agencies before bending to lobbyists. In the meantime, listen out for food lobbyists and their political lackeys as they argue that their snazzy new code of conduct is really for your benefit. Don't believe a word of it.

Mary's Mad Manifesto

Shops to be banned from;

• Varying terms without supplier agreement
• Seeking contribution to marketing costs
• Getting paid for shrinkage, wastage or better positioning
• Must pay compensation for forecasting errors

The phoney holiday, when Irish banks pulled in their claws during the great rescue, is nearly over. As predicted the big bank squeeze on ordinary customers is about to begin as banks turn on the taxpayers that bailed them out to fatten margins in an effort to repair their ruined balance sheets - and make their NAMA repayments.

It is the worst result for ordinary Irish depositors and borrowers that, having driven the ambulance to the scene of the accident and saved the banks from certain death, their response now is to charge us for it. Of course the butcher's bill has been delayed while banks engaged with Government and, cut off from capital markets, desperately sought new deposits, but don't let that fool you.

Last year that meant offering gravity defying deposit rates despite historic lows in the ECB base rate but as soon as the first tranche of NAMA loan capital is in place in a few weeks, all bets are off, as banks ruthlessly pursue every trick in the book to grow their profits. So get ready to be mugged by;

• Variable deposit rates that quickly drift closer to 1%, more than halving the interest currently paid.
• Fixed rates that will similarly decline and settle closer to 1.5% over one year, 2.75% over two and 4% over five years
• Non-NAMA banks, detecting less competition, that drop their offers, further squeezing depositors, especially retired people reliant on interest income to pay the bills.
• Inevitably capital will be eroded to pay for lifestyle costs hitting the most vulnerable hardest
• A flight of money will commence with Life Offices and Intermediaries puffing up arcane product constructions like tracker bonds that lock in your capital for at least two years.
• Smart money will drift to European Government Bonds especially inflation-linked bonds but ensure that the mix is carefully managed to avoid losing heavily on distressed sovereign debt, like the Greece's.
• Mortgage rates will continue to go up as margins are widened to whatever the market can bear without toppling over.
• Tracker mortgage customers will be eyed with particular greed hoping to entice them into fatter fixed rate deals at the earliest warning of ECB rate rises.
• Rolling credit agreements like overdrafts and certain term loans will be culled to get rid of perceived higher risk customers.
• Loan renewal dates will be particularly targeted to demand higher interest rates despite clean service histories from small businesses
• A new breed of predator will prowl the bank customer base looking for any excuse to charge more. Negotiation won't be tolerated whenever they can get away with it.
• Despite bank spin to the contrary and the NAMA capital, the credit ghetto will expand, populated by former customers the banks now see as too high risk in the economic depression they helped create.
• Fork-tongued Government Ministers will publicly condemn the banks but implicitly support them and do nothing.
• Opposition spokespeople will harvest the anger for more market share but come up with no explicit policies on how they'd fix it.
• Bertie, desperate to repair his brand will continue to blame Lehmann Brothers a bit like the plumber blaming Climate Change for not burying his burst water pipes deep enough.

Well we're off, into the first of a series of crises in 2010. This time the Euro is the casualty as markets focus on the weakest member, Greece, downgrading its borrowings to BBB+. That might mean little to you on first reading but its below the normally acceptable quality of collateral for borrowing money from the European Central Bank, a pretty significant development you might say for a country badly in need of funds to pay for public services. The Hellenic Socialists that is the Greek Left was elected in October on the platform of taxing the rich to help the poor. Sound familiar? It should because that's precisely the mantra we heard in the run up to the Budget from public sector union chiefs now threatening to disrupt public services in Ireland. 

Forgetting the lessons learned from their ancestor's successful siege of Troy, the Greeks public took the bait and elected a Socialist Government which has run headlong into an economic maelstrom. Their deficit is much like our own at 12.7% of GDP but could be as high as 14.5% due to collapsing tax receipts at end of last year. The key difference is that their plan to address the crisis is based on gimmicks. The Socialists lacked the courage to significantly cut public sector pay and take on Greek unions despite growing public support for harsh medicine. Instead the Government is relying on softer steps like hitting the black market, selling assets and a populist 90% levy on bank bonuses. 

It simply isn't going to work and while Greece totters on the brink, squeezed on the one hand by potential EU sanctions and on the other by bond investors demanding an extra 2.35% per year above German debt, left-wing die hards within the ruling party have resorted to blaming local and international right-wing forces for their dilemma. Now where have we heard that mood music before? 

Lacking a strong hand at the tiller prepared to take on those whipping up chaos and paralysed by the fear of dealing with unrest, the Greek Socialist Government is in danger of succumbing to vested interest groups, weakening the Euro and potentially damaging EU cohesion. While its crisis worsens Greek farmers have grabbed the opportunity and blockaded roads throughout the country and border crossings from fellow EU member, Bulgaria resulting in a daily loss of €3 million to one of Europe's poorest countries. The Greek Prime Minister George Papandreou, responding by promising Greek farmers state aid over coming weeks may be opening the floodgates to others prepared to put on the squeeze despite its hugely damaging effect on Greek national interests. 

So what lessons for Ireland? The only thing separating us from Greece has been the resilient manner with which the Irish public has greeted the harsh medicine dished out by the Irish Minister for Finance. But everything depends on Ireland continuing to hold it together and the public refusing to let the country be torn apart by public strikes, vested interests and political cowardice. We may not have far to look to see how it could have all gone horribly wrong.

Let's be honest, at midnight December 31st most of us were singing “Happy End Year” and looking forward to better things this year but is that justified when you look at the economics? Last summer it seemed that financial markets had simply ran too far ahead of economic indicators. Roll forward to 2010 and while it's still too early to call absolutely, as each month goes by and indicators continue to improve, the risk of a second recession diminishes. That explains why last year saw a huge rally in equities, commodities (and gold) from the lows of March as we'd suggested.

This year expect continued economic recovery but much less growth from equities. Don't be surprised if another run up in markets the first half is followed by a claw back to modest gains for the year as a whole. Still the 2009 rallies have been remarkable as markets, being forward looking, re-priced PLCs throughout the world and especially those of fast growing economies like China.

Even nearby property markets are showing signs of rallying, especially prime commercial in top locations like central London. Confidence is returning, but not yet the enormous wall of cash built up on the sidelines that dwarfs that built up in the run up to WWII. Provided interest rates remain at historical lows throughout this year and into 2011 as Governments and Central Banks remain nervous of removing stimulus too early, equities, commodities and gold are likely to move ahead again this year, but what happens then?

Understandably after the fright from this economic crisis, views are sharply divided. Sceptics believe that gravity will catch up with the great bailout (NAMA-like projects worldwide) that socialised toxic bank loans by passing them on to taxpayers and that a great deleveraging takes place over several years accompanied by further leaps in unemployment, deflation and economic contraction. They don't buy that growth in GDP, followed by spending cuts and increased taxes, will finance the extra national borrowing. The opposing view is that a second leg down will be avoided, that deleveraging is already taking place, that the damage inflicted on the US economy is overstated and that growth in developing economies is picking up the slack.

Whichever way you slice and dice it, you keep coming back to the strength or fragility of the USA to understand what will happen to the rest of us. It's pretty important because, bearing in mind that stock markets globally are now remarkably synchronised, there had been 16 ten-year periods where US stock markets underperformed inflation since 1871, so what happened next? Over the subsequent decade the average real return was 11% yearly (a range from 6.2% above inflation to 17%). My own conclusion as we move into 2010 is that, while it's only commonsense for Irish investors to hedge against a declining dollar over the long term, (though it may rally this year) and limit US asset exposure, it is very premature to predict the economic demise of the world's superpower. That doesn't mean that the US faces very serious challenges and risks including runaway inflation but betting against its continuance as the world's predominant economic power in the first quarter of this century ignores some key facts.

Remember armageddonists forecasting an imminent US decline have been around before, first during the rise of The Soviet Union in the Fifties and then during the rise of Japan in the Eighties. These views strike an easy cord with investors still rattled by the aftershocks of the crisis and with the financial media still, overwhelmingly, concentrating on the outcomes of the crisis, like unemployment, collapsed developers and court skirmishes, so it's easy to get distracted by the noise and lose valuable opportunities to make money. But when you distil it all down, the key question is whether or not the US is strong enough to prevent a double dip recession?

The facts below, some of them distilled from Goldman Sachs, might help you decide to continue to put faith in growth assets for the next decade if you're worried about Uncle Sam. 

• There is a great deal of attention on the scale of US public debt. It jumped from 40% in 2008 to 53% last year. That's an increase of 13% created by a 3% fall in the economy and a 10% budgetary deficit. However with modest economic growth, the annual deficit is expected to decline over the next few years to 3%, closer to the US long term experience (and equivalent to Ireland's target for 2014). That would put US public debt at 70% of GDP for the next ten years but what's often forgotten is the room to increase taxes which are at their lowest level since the Korean War. Federal tax increases, likely to begin in 2011, coupled with economic growth and despite increased spending on health care, should help reduce the deficit. So just how strong is the US economy relative to the competition?

• The US economy accounts for a quarter of global GDP. It is nearly three times larger than the next two, Japan and China and nearly five times that of Germany. Per capita GDP at €32.2k is well ahead of all large economies like France €29.4k Germany €27.5k and is 13 times greater than China's at €2.5k

• The US spends more on R&D maintaining its economic edge, than any other country at €265 billion compared to Japan at €103bn, Germany at €59bn, France at €38bn and China at €34bn. A new technology device may have its manufacturing outsourced to a low cost Asian factory but most of the wealth created by it will go elsewhere to patents, designers, retailers etc.

• Since its foundation the US has proven to be a flexible and resilient economy, ranking number one amongst major economies across key characteristics like entrepreneurship, innovation, democratic institutions, education etc.

• In terms of military power the US spends just over 4% of GDP, that's over €431 billion annually, that's equal to the combined spend of the next 14 countries, including China which spends about 1.4% of GDP or €47 billion and is poised to build an aircraft carrier, 88 years after the US built its first.

• The US economic decline during the crisis is not out of synch with previous reversals and the 4% bounce in the last quarter may yet signal that US economic growth this year will positively surprise sceptics who remain focused on muted consumption, expecting a collapse after the stimulus wears off. But US growth could yet be above consensus forecasts of 2% and perhaps closer to 3%.

• Unemployment may soon peak, house prices are stabilising and set to rebound 10% to 15% with sales activity up 60% from the bottom in the four key States that represent most of the national decline, California, Arizona, Nevada and Florida. Most importantly for the top third of consumers whose debts represents just 6% of their assets but who represent 60% of spending, the US stock market rally has repaired much of their wealth heralding a quicker return to spending than most sceptics think as the feel good factor returns.

• As ever everything depends on consumer confidence that the recovery is real but, culturally, if there is one thing Americans do best its confidence in their country and in their favourite leisure activity - visiting the mall!

Conclusion

So what can we expect from the US economy this year? Based on the above perspective, US economic growth will be 3%, consumption will improve, house prices will begin to recover and the Dollar, which looks over- sold, will rally against the Euro. So what would this mean for you and how do you balance the risk of a second leg down against the increasing probability that this is, indeed, a real recovery, one that will help boost Irish exports and surprise cynics by beginning to reverse Ireland's economic contraction much earlier than generally expected?

• Think about fixing mortgages now. Long term rates will rise as fears of inflation grows
• Invest at least 10% of your liquid assets in Gold and Silver if you haven't done so already
• Maintain strong exposure to natural resource stocks
• Continue to build a diversified mix of uncorrelated assets across Europe and Asia in particular
• Start building up holdings in Inflation-Linked European Bonds as you near retirement.
• Be ready to get back into property as the market turns and lending slowly normalises
• Continue to pay down lifestyle debt, credit cards, terms loans ideally to zero.
• Haggle to get best prices and discounts wherever you can.
• Expect more shocks but on a diminishing scale. Most of the toxic debt has been revealed and Governments now operate to a common template in dealing with it.