Ireland: The big uncertainties
This morning's interview with the Governor of the Central Bank of Ireland, Patrick Honohan, is a gem and Mr Honohan has instantly become a hero of mine.
The reason is that Mr Honohan is refreshingly frank. He is the antithesis of the buttoned up, central bankers that are typical of his secretive and rarefied trade.
My favourite moment was when he was asked whether the Irish central bank has given super-special emergency loans to Irish banks that have been unable to obtain funding from the markets and from the European Central Bank's emergency liquidity facility.
This is what he said:
"All I'll say is there has been such a need, but I don't really want you to press me on that, because I'm not allowed to talk about these things on a current basis. Of course I'd have to make sure...just in case it would sound as if I'm exceeding my powers, I would have to make sure that the other members of the ECB, the governing council, don't object to making these loans".
So that would be a yes then. Which means that however much it has been obvious that Irish banks are finding it almost impossible to raise finance from commercial sources, the reality is probably worse
But I suppose what is more striking is that with all Mr Honohan's openness, there remain big uncertainties about the nature of the financial rescue being put together.
This is what we know.
What's being discussed with the European Union and the International Monetary Fund are loans and facilities with an aggregate value of tens of billions of euros, probably around 80bn euros or so, according to an official source.
The interest rate on that would be around 5%, according to Mr Honohan.
Which for Ireland is cheap money, since the government's 10 years bonds are currently trading on a yield of well over 8% - so if the Irish government were to borrow in the market (which it neither wants or needs to do till well into next year) it would have to pay interest greater than 8%.
But what we don't know is whether the bulk of that 80bn euros odd will be an actual loan or a promise of a loan, a borrowing facility.
It would be far cheaper for the Irish government if markets were to be reassured by the existence of a substantial borrowing facility - because Ireland would only pay the full 5% interest rate on drawn down loans.
However, the biggest uncertainties of all are even more basic. First, what is the fundamental problem that needs to be fixed? And second, how can that problem be fixed?
To state the obvious, and as I've been banging on about for days, it is the perceived weakness of Ireland's bloated, lossmaking banks that is the fundamental problem.
That said, is it the case that these hobbled banks would be able to borrow from commercial lenders again, and would become less dependent on the European Central Bank for funds, if all that happened was that a few more tens of billions of euros was injected into them as new capital, as additional protection against losses?
Or would investors and banks still be wary of lending to these banks, if they felt that the entity standing behind the banks - the Irish state - remained a credit of dubious worth?
If that were the case, the European Union and IMF would also have to make substantial funds available for use by the Irish government in funding its own direct deficit.
Finally, the other huge unknown is over the other strings and conditions that would be attached to the loans or borrowing facilities.
In particular, will Germany get its way and force the Irish government to raise its 12.5% corporate tax rate, which the German government has long seen as unfair tax competition, as a de facto bribe to big international companies to settle in Dublin?
Irish sources tell me they are confident they will not have to surrender this central plank of their industrial policy. Their main argument is that if they were to raise the rate, they could actually end up with less tax revenue, because a load of mobile multinationals - such as Google or WPP - would relocate elsewhere, perhaps Switzerland.
Curiously the Irish government's preferred tax-raising measure, I am told by officials, is to increase the number of citizens paying income tax, by lowering the income threshold at which income tax is payable.
I'm not sure whether the economics of keeping corporation tax low while raising more from low-income families quite works. But the politics is certainly very intriguing.
PS A further uncertainty is whether the banks need an injection of plain vanilla capital, or access to what Ireland's finance minister, Brian Lenihan, today called "a contingency capital fund that can stand behind the banks". Again this is a distinction between cash for the ailing banks now and the promise that cash will be delivered in certain (bad) circumstances.
Update, 17:11: If the problem to be solved is that Ireland's banks have borrowed too much from the European Central Bank, some £110bn, what possible benefit would there be of lending another £70bn to the Irish government and banks?
Isn't this just a mind-boggling example of a gigantic fiscal transfer between Peter and Paul? And what on Earth would be the point of that?
In other words, it's not just the size of the loan from the EU and IMF to Ireland that matters, but the use to which the money will be put.
Or to put it another way, there's absolutely no sense in propping up Ireland's big ailing banks by injecting new capital into them if they're still regarded by commercial lenders and investors as crocks.
What's required is to establish the losses that Anglo Irish, Allied Irish and Bank of Ireland are yet to incur from their reckless lending to property developers and homeowners.
And there’s also a need to reconstruct and shrink Ireland's banks so that they are substantial enough to meet the credit needs of legitimate borrowers and not so big that when they run into difficulties they risk bankrupting the Irish state (the Irish government has already set in train the dismantling of Anglo Irish).
Without such a reorganisation, the new finance provided by EU and IMF would arguably be throwing a ton of good money after an ocean of bad.
UPDATE 18:18 Actually I'm told by M Sorrell (the chief exec of WPP) that any rise in Ireland's corporation tax rate would not make him relocate WPP to another low-tax centre, for the simple reason that he only pays that low rate on WPP's Irish profits - which are a fraction of this international media group's total profits.
For WPP to want to quit Dublin, the Irish government would have to threaten to tax profits earned outside Ireland by the likes of WPP - which, M Sorrell says, was threatened by the UK's HMRC (and was why WPP went to Dublin in the first place). There's no suggestion right now of the Irish government wishing to do that.
If the same fiscal logic applies to other multinationals that have relocated to Dublin, a rise in Irish corporation tax would be most painful for what you might call proper Irish companies, or those businesses that earn a significant proportion of their profits in Ireland.