I am on the RER train from the centre of Paris to Charles de Gaulle Airport after having what could only be described as a very French adventure. Over an hour before, I had arrived at the airport a few hours early to write this article in peace. But as is unfortunately typical for me, I realised I had left my passport in the hotel. So I had to jump back into a cab and get it.
The taxi driver was an immigrant from China. We got chatting and he told me he worked the airports and was hoping to get a fare back, but fares back are hard to come by. Having heard his game plan, I asked him to cut me a deal and I would pay him a small discount for the round trip. Now I don’t know about you, but I have never met a Chinese person who doesn’t do deals. In fact, I have never met a taxi driver anywhere who doesn’t do deals for good fares. But this guy was affronted and with a certain dismissive Gallic shrug, he claimed that he would take me for what was on the meter. So I told him, politely, where to go.
Consider this. I had asked him to do the €110 round trip for €100. He blanked. So rather than get a €100 round trip, this dude got €55 and was left to find a full fare back to the airport from the centre of Paris. He gave up a certain €50 for a possible €55 which would have got him back to the airport, the very place he’d suggested he was based. Now I am on the train, observing the casual comings and goings of cosmopolitan Paris, paying only €10 for the pleasure and my Chinese friend is playing the taxi destination lottery on the streets.
This episode summed up a lot of what my French friends claim is so frustrating about living in this quite wonderful country: the bureaucratic mindset. If Chinese immigrant taxi drivers can be converted from ‘free-wheeling opportunists’ into ‘by-the-book, short-sighted, uncommercial jobsworths’ then the ailing French economy is in serious trouble. The pigheadedness of Parisian taxi drivers and their inability to see the big picture was in evidence recently over their opposition to Uber, the new taxi app that is taking the world by storm. Parisian taxi drivers, on hearing that Uber was about to stage a low-key launch in Paris, embarked on a two-day strike.
Quite apart from annoying their customers and de-barring themselves from their own wages, what do you think happened?
Interest in Uber, a service that nobody in Paris had heard of before the strike, went through the roof. The taxi drivers had given Uber the best marketing boost the company could hope for – and it didn’t cost Uber a penny. Now, Uber is transforming the Parisian taxi landscape and the taxi drivers themselves are in part responsible.
Such an outcome is called the law of unintended consequences: when you do something to achieve one outcome, it ends up causing a totally different one.
This brings me to two Central Bank announcements over the next few days. The first is by the ECB, expected tomorrow, when it unveils a fresh round of QE – money printing. The European economy, including France, has stalled and only by coaxing the banks to lend free money can the ECB hope to get activity going again.
As well as making money available to the banks to lend, the ECB is also making sure that interest rates are zero.
The second announcement is expected from Dame Street, when our Central Bank will unveil its 20pc deposit scheme, which will demand that first-time buyers have 20pc of the price of a house set aside in savings before they can bid. The aim here is to stop house price inflation by reducing the amount of credit that can be extended to any house via increasing the accepted loan-to-value ratio. In the boom, some of the froth that built up in the housing market was undeniably inflated by 100pc mortgages. Let’s take both in turn and see whether there may be some idiosyncrasies present in Ireland which could lead to unintended consequences, undermining both objectives.
By cutting rates, the ECB hopes to get banks to lend. Banks make money by charging more on the money they lend out than the rate they offer on deposits. However, in Ireland, due to the €400bn tracker mortgage market, every time the ECB cuts rates, the banks have to cut rates on trackers – which is money lent out. This means the banks have to recoup the losses on trackers by charging more interest – not less – for loans, even if the rate of interest is falling. So tomorrow, we will arrive in the rather paradoxical situation in Ireland where lower ECB rates might mean higher market rates for Irish borrowers. Now that would be an unintended consequence. What about the central bank’s deposit hike for first time buyers?
Undoubtedly, limiting credit to the market will keep house prices down because it is credit, not demand, that drives prices up. So limiting credit will reduce upward pressure on house prices. This has to be good for all first-time buyers because it is higher prices that afflict first-time buyers. In the medium term, all buyers will benefit. However, in the short term, rich kids will benefit most. This is because prices won’t fall so quickly. First-time buyers with rich parents who will give them the deposits will gain enormously. So too will middle-aged cash buyers.
So here the unintended consequence of the Central Bank’s move to make the housing market cheaper and thereby more fair will have the effect of rewarding people who have rich parents. Hardly the fairest outcome.
As I fly through the city on public transport to the airport, it strikes me that public housing, like public transport, has to be the fairest way to house most of our people and in so doing, provide a proper, long-term solution to Irish housing. Tinkering around with deposit amounts and interest rates can never achieve this.