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Monday Newspaper Review - Irish Business News and International Stories - - April 22, 2013
By Finfacts Team
Apr 22, 2013 - 7:53 AM

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The Irish Independent reports that tensions in Cabinet over the impact of austerity have emerged strongly after "off-message" remarks by a senior Labour figure at the weekend.

Fine Gael ministers insisted the Government must stick to plans for cuts and taxes after Labour deputy leader Joan Burton signalled people have been pushed to their limits by austerity.

The warning from the Social Protection Minster comes as President Michael D Higgins echoed criticisms of austerity from within the junior coalition partner. Labour sources pointed out that Ms Burton and others were only making similar points to those made by the President in his speech to the European Parliament last week, and again over the weekend.

But their comments come in the wake of the Meath East by-election meltdown -- when Labour came fifth.

Rank-and-file Labour TDs have demanded that their ministers assert themselves and the party's policies more in Government.

However, senior Fine Gael figures say more tough medicine is required to get the country back on track and boost investor confidence.

Ms Burton -- who said she believed "we have reached the limits of austerity" -- has been warned that any attempts to ease up on austerity will put Ireland's greater economic recovery at risk.

Meanwhile, the Irish Independent has learned detailed preparations for next year's Budget -- which takes place this October rather than December -- have been stalled until the €300m in public sector pay savings envisaged by the Croke Park deal are achieved.

It is understood the Economic Management Council (EMC) -- comprising Taoiseach Enda Kenny, Tanaiste Eamon Gilmore, Finance Minister Michael Noonan and Public Spending Minister Brendan Howlin – have agreed not to begin detailed discussions on next year's Budget until it is clear this year's targets will be met.

And one Fine Gael source told the Irish Independent that the only way recovery will come about is if budgetary targets of cuts and taxes are adhered to – not by easing up on austerity.

"It's worrying how quickly some people forget that we're still in a bailout programme borrowing a billion a month from the troika because nobody else has been willing to lend to us at affordable rates," said the senior Government source.

"The only feasible way for Ireland to finance more investment in job creation is to implement the planned savings in public sector pay and social welfare.

"Those EU countries that can afford to borrow more to support growth should do so. Unfortunately, Ireland is not one of them – we still have the biggest budget deficit of any eurozone country, including Greece."

Ms Burton has already raised the possibility of reducing the amount of cuts and taxes in this year's Budget, using the €1bn saved as a result of the promissory note deal.

Many in Fine Gael are opposed to this, and Labour sources said Ms Burton had already made similar points in the wake of the deal.

Sources close to Ms Burton also said there is no rift with Mr Gilmore, and those close to Mr Gilmore said many in Labour had been making similar points recently.

But, in an interview, Ms Burton said a move out of the Department of Foreign Affairs by Mr Gilmore would be "widely welcomed in the Labour Party".

Communications Minister Pat Rabbitte said, "we are at a tipping point" with austerity but said the Coalition must press on with its plans in order to exit the bailout at the end of the year.

Labour sources also said President Michael D Higgins made similar points in his speech to the European Parliament last week, when he criticised austerity and the approach of EU leaders to the economic crisis.

But Transport Minister Leo Varadkar said "austerity is working", pointing out that the deficit is down and there is growth in the economy.

He said one more tough budget is needed for Ireland to exit the bailout programme and regain economic sovereignty.

The uncertainty created by the rejection of the Croke Park II agreement has stalled preparations of next year's Budget, with detailed discussions on hold until the €300m in public sector pay savings envisaged by the Croke Park deal are achieved.

"We've agreed to discuss next year's Budget when we're confident this year's Budget is being fully implemented and we're meeting our deficit and growth targets," a source said, adding the "logical sequence" means this cannot be done until the Croke Park savings are found.

The Irish Independent also reports that the entire state pension would be means-tested under proposals laid out in a radical new report to be published by the Government today.

It also raises the prospect of means-testing the free travel scheme and the allowance given to pensioners to help pay energy and telephone bills.

However, the report from the Organisation for Economic Co-operation and Development (OECD) also considers increasing pension payouts in the coming years.

The Irish Independent has learnt the radical report also proposes increasing the retirement age further, in line with increased life expectancy.

But it also says an "adjustment" – or increase – of pensions after years of cuts and freezes needs to be considered.

The report proposes a number of options to reform the state pension scheme, including:

• Introducing either a universal pension regardless of contributions or a lifetime's work, or else a means-tested pension scheme.

• Means-testing the household benefits package – the ESB, gas and telephone allowances – and the free travel scheme.

• Increasing or decreasing the state pension for late or early retirement, to encourage people to stay in work longer.

• Linking retirement age, which will be 68 by 2028, to life expectancy after that date. This means payouts by the State will not extend significantly.

• Bringing more "flexibility" in allowing retirees to combine their state pension and wages from work, to encourage people to stay in employment longer.

The means-testing of the state pension is one of the more radical reforms contained in the document, and would have to be costed carefully.

Given the attachment to the state pension, it is also likely to be hugely contentious politically and any changes – if the report's proposals were adopted – could be kicked down the road. The report by the Paris-based think-tank also notes Irish pensions are generous by international standards.

But sources said that its reference to "adjustments" was likely to mean increases rather than cuts as the cost of living rose. The hikes would be in line with any wage increases and inflation – and while this is unlikely to happen in the short term due to the economic crisis, it could be adopted if the economy improves.

The Irish Independent last week revealed that the report, commissioned by Social Protection Minister Joan Burton, suggested that up to a million workers without a pension would be forced to take one out for the first time. It notes than the changes to the state pension would be best done alongside these measures.

Salary

Workers, employers and the State should contribute 15pc of salary to the scheme, it said.

But when dealing with the State pension, it says Ireland should look at significant structural reform.

It says that at a "minimum", all contributions made by workers should be honoured.

However, it goes on to recommend two of the best options from three in the report – a universal basic pension or a means-tested basic pension.

The universal proposal would be financed by taxes, contributions or a combination of both.

However, it would be available to the entire population and would give everyone the same flat-rate payment.

This could be "complemented" with either mandatory private pensions or automatic enrolment into private pension scheme.

As part of this, the household benefits package and free travel scheme could be changed into a cash payment and merged with the pension or else means-tested and given to people who need it.

The other option is a single means-tested pension financed from "general revenue", but the details would have to be hammered out. This would also be complemented by mandatory participation in private pension schemes.

The Irish Times reports that new EU rules on mortgage lending designed to give better protection to consumers and tighten up lending standards are expected to come into force by 2015, as negotiation on a key piece of legislation enters its final stage in Brussels.

The Irish presidency of the European Council is hoping to secure final sign-off on the mortgage credit directive at a meeting today with representatives from the European Parliament. The directive, which will be applicable to all member states, sets out a new set of rules for all new mortgages taken out after the directive comes into force. This includes rules on advertising and improving pre-contractual information for consumers. A key strand of the regulation is a new European Standardised Information Sheet (ESIS) . This will require lenders to provide standardised information about the terms and conditions of the mortgage, thereby allowing consumers to more easily compare mortgage offers across different lenders both within member states and across the European Union.

Additional rules on advertising, including clearer information on the annual percentage rate, will also be obligatory.

While the new directive will ensure that consumers have a right to repay their mortgage early, it will not prohibit the imposition of penalties by lenders in this situation. Historically, lenders have argued that banks need to be compensated for the loss of the security behind the mortgage.

The new mortgage directive, which was initially proposed by Internal Markets Commissioner Michel Barnier in 2011, was formulated as a response to the financial crisis. Despite the fact that the EU mortgage market equated to about 50 per cent of GDP in 2008, there is no EU legislative framework in place concerning mortgage lending, and the market remains highly fragmented.

While most mortgages are issued by lenders in countries where the applicant resides, the new directive aims to strengthen the cross-border market for mortgages. While levels of cross-border lending generally remain low, Ireland experienced a particularly high level of cross-border mortgage lending during the boom, with a number of British lenders entering the Irish mortgage market.

All EU member states will be required to transpose the directive into national law within two years. While some of the regulations in the directive are already in place in different countries, many of the measures will be additional to those already in place. This will be the case for example in Ireland, where the new directive will contain additional measures to those contained in the Central Bank's Consumer Protection code and Mortgage arrears code.

The new directive will also introduce tougher rules for credit assessment of people applying for mortgages, setting out principles by which a consumer's ability to repay the loans should be assessed.

It will also tackle the issue of remuneration structure for credit-assessment staff to discourage the practice of advisors recommending or sanctioning a mortgage in order to secure remuneration benefits.

In addition, the directive clamps down on mortgage intermediaries or brokers, amid concern that the commission-based model of payments to mortgage intermediaries could incentivise brokers to recommend a mortgage policy on the basis of commission generated, rather than its suitability for the consumer. Under the new legislation, mortgage brokers will be required to have professional indemnity insurance or a similar guarantee of liability, he or she must be included on a register , and credit intermediaries will be subject to supervision by authorities in each member state.

Irish negotiators have been leading discussions with the European Parliament on the issue since January, and are confident of reaching final agreement today.

The Irish Times also reports that Minister for Finance Michael Noonan has said he doesn’t expect any hard, quick decisions on a new plan to cut €300 million from the public sector pay bill after unions voted down the Government’s Croke Park II proposals last week.

Speaking for the first time since the proposals were rejected, Mr Noonan said there would be discussions again with the unions. While it was still policy to seek pay cuts as part of €1 billion in reductions over three years, it had not yet been decided to use legislation to impose these.

“We’ll see – if I make that kind of statement out of America, by the time it gets home it could sound threatening,” said Mr Noonan, speaking yesterday in Washington DC as the World Bank and IMF spring meetings ended.

Mr Noonan’s Cabinet colleague Minister for Health James Reilly said last week that in the absence of the Croke Park deal on the planned pay cuts there would have to be legislation.

The Government had to secure €300 million in pay cuts this year because they were built into this year’s budget figures, said Mr Noonan: “We have to get those savings. We are going to talk about it on Tuesday at Cabinet.”

July deadline

The Minister said there was no urgency to agree an alternative plan as the cuts did not have to be implemented until July. “I would have much preferred obviously if it had went through on the vote because it is much easier to deal with on that basis. The fortunate thing is that the decision was taken in April – it is a good distance to July,” he said.

Asked if across-the-board pay cuts would be imposed, Mr Noonan said Brendan Howlin, the Minister for Public Expenditure and Reform who is overseeing the public sector pay reductions, was “a very prudent minister”.

“He has very good relations with the trade union movement,” he said. “He will lead the discussion in Cabinet on Tuesday.”

Mr Noonan said relations between the Government and trade unions were good. “The general position is one of ongoing dialogue hoping to resolve this,” he said.

The IMF, European Commissioner Olli Rehn and European Central Bank president Mario Draghi had not raised the rejection of the Croke Park deal in their discussions over recent days, the Minister said.

“They trust us to deliver because we have been going well,” said Mr Noonan.

Water charges

The Minister said the Government would ask the troika for permission to delay the introduction of water charges from January 2014 until the following October during its review of Ireland bailout programme. The troika’s tenth review begins today, with officials arriving in Dublin.

“They are normally fairly easy going about those kinds of things,” he said. The delay was due to the technical challenge of rolling out water meters, he said.

Mr Noonan was speaking ahead of figures to be published today showing the 2012 deficit was 7.6 per cent, better than the 8.2 per cent estimate on Budget day and the 8.6 per cent target set by the troika.

He said that even though the cost of Government borrowing continued to fall, he was planning to talk to the ECB about its government-bond buying programme providing an “ultimate backstop” to help Ireland exit the bailout at the end of the year.

The Irish Examiner reports that oil exploration drilling programmes off the Irish coast are expected to increase materially in the coming years, according to Davy Stockbrokers, who view the entry of Kosmos Energy as a potential game changer in Irish oil exploration.

Dallas-based Kosmos — already a partner with Tullow Oil in Ghana and with Fastnet Oil & Gas in Morocco — has taken 85% majority positions in two Europa Oil & Gas licensing prospects in the Porcupine Basin off the Kerry coast in return for funding a 3D seismic study and initial drilling costs.

Davy analyst Job Langbroek said the farm-in by Kosmos is a significant moment for the Irish offshore exploration industry. He said it also reflects well on Providence Resources who have been a leading advocates of the merits of the Porcupine Basin.

“This is important because of Kosmos’s acknowledged expertise in Atlantic margin plays and the pathfinder role it has played in the past in other jurisdictions. It could potentially signal a bout of material interest in the Irish offshore by the global industry.

“Kosmos has farmed into three separate licence options. Two of these licence options (11/7 and 11/8) are held by Europa Oil and Gas, and a third licence option (11/5) is held by Antrim Energy.

“The Europa farm-in includes a fully carried 3D seismic programme and, if election is made to convert to a full exploration licence, a carry value of up to $200m (€152m) spread between two wells. For this, Kosmos will earn an 85% interest,” he said.

Mr Langbroek acknowledges Kosmos is a leading explorer for Cretaceous-aged fan systems in the Atlantic margin.

“It was one of the first companies to spot the opportunity offshore Ghana, which subsequently led to the 500m-barrel-plus Jubilee discovery,” he added.

Mr Langbroek said the outcome of the Kosmos farm-in will, hopefully, ultimately be more wells along the western seaboard.

“With a strong likelihood of a multi-well programme in the Celtic Sea in the coming years, activity levels in the Irish offshore look set to increase materially,” he said.

The massive Eirik Raude drilling rig is currently engaged in a €125m drilling programme at the Dunquin prospect, 150km off the coast of Kerry, for operator ExxonMobil who have 27.5% in the prospect as does Eni, Repsolholds a 25% stake, Providence 16% and Sosina has a 4% interest.

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