Goodbody economist: Dermot O’Leary says Ireland must not be left behind as recovery plans take hold globally:" “The real test for European governments and institutions comes when faced with the most difficult of circumstances. At such times, they need to show imagination; they need to show determination; and they need to show flexibility.” So reads the opening lines of the speech delivered by European Commission President Barroso detailing the EU’s fiscal response to the recession - A European Economic Recovery Plan. While the proposals do contain a lot of unnecessary rhetoric, they do also set out concrete measures that European governments are encouraged to take on board. Stimulus efforts will differ from one country to another but the Commission’s proposals consist of an immediate budgetary impulse of 1.5% of EU GDP, with 1.2% of GDP coming from budgetary expansion in the member states themselves. Along with the prospect of significantly lower interest rates, there is potentially a huge amount of stimulus set to be heaped upon the European economy.

It turns out, though, that the country which is in the middle of one of the most severe recessions already - Ireland - is to be left behind. This should not be allowed happen. Taking the quote above, there are three main traits that should apply to any Government decision here - imagination, determination and flexibility. Flexibility can be best illustrated by a shifting of current resources to the most productive areas. This will require determination. The first part of that process was begun yesterday when the Minister set up the Task Force on the Public Service. However, its findings are not due until June 2009 and will also take some time to implement. The most important trait in our view though is imagination. Now is the time to take a leaf from US President-Elect Obama’s book, who set up a high-level committee of select individuals from the public and private sectors who will be charged with formulating some innovative ideas and approaches that may stem the economic bleeding somewhat and, more importantly, come up with an approach for recovery."

Goodbody banking analyst Eamonn Hughes says today: Irish Financials; Lets get this party started! : "Overnight, the umbrella group for domestic asset managers, the Irish Association of Investment Managers (IAIM), indicated to the Government that a number of unnamed institutions have approached it about investing €2bn in the Irish banks (the amount is not in the IAIM statement but is reported in the media). The statement says that these institutions “believe that the process of recapitalising the Irish banks offers an investment opportunity and returns which are attractive to them and their clients”. The institutions appeared interested to co-invest with the State in the raising of new Tier 1 capital for Irish listed banks and the statement elaborated that “a number of domestic and overseas institutions have indicated their support for the initiative. Other overseas institutions will be contacted over the coming days.”

The latter comment would appear to indicate that this process is at a relatively early stage, which presumably is in reaction to the revelations last Thursday and Friday that a private equity consortium was in the process of initiating talks with BOI in particular. We would interpret the reference to Tier 1 capital as more than likely hinting at a preference for hybrid capital within the mix rather than straight equity. Also, the statement mentions the listed banks, so it is unlikely they are interested in EBS or Irish Nationwide. It appears that the IAIM proposal is positioning itself as an alternative to the private equity proposal. The potential arrival of another interested player to the party is presumably welcome in the interest of generating some pricing tension, though it also signifies that we are crossing the Rubicon in relation to recapitalizations and there is surely no way back from here.

Presumably, further details will emerge in due course and press reports have indicated that the private equity consortium Mallabraca is meeting with BOI this week as well as TPG, KKR and one other firm. Also, the Minister of Finance is meeting all the banks again tomorrow. The IAIM proposal appears to be a move for existing shareholders to get in on the act earlier in the process rather than later on, which appears to have been the position under the private equity plan. However, as we have been saying for the last few days, the absence of any details around terms and conditions is making any long term investment decision a bit of a punt at the moment. We’ll keep you posted, but the Irish banks are like one of those parties where nobody turns up for ages and all of a sudden all the guests arrive at the same time when they hear there is free or cheap booze. Let’s get this party started - anyone got my Gatecrasher CD?"