The Irish Independent reports that our generous social welfare system is encouraging more people to stay on the dole, a major new report warns.
And our current system risks prolonging high levels of unemployment after economic recovery, a major conference organised by the Government's economic think-tank will hear today.
The small gap between social welfare payments and declining wage levels is cited as the key reason for more people staying longer on the dole.
The warning, which stops short of calling for cuts in welfare benefits, comes as new figures confirmed dole queues have risen to 386,000 -- almost doubling in a year.
It will be outlined to the Economic and Social Research Institute (ESRI) today in a special OECD report on labour policy in Ireland.
Its researcher David Grubb warns that a relatively high proportion of the working-age population is claiming social welfare. Welfare benefits rose rapidly during the boom. Mr Grubb says OECD research shows that, unless other measures are taken, higher benefits increase the rise in unemployment during a downturn.
"As the economy recovers, unemployment falls only slowly and long-term unemployment is more persistent," the research finds.
If benefits are not to be cut, the OECD argues that more needs to be done to assist benefit recipients to secure employment. This could be a version of the Danish model where benefits are cut or removed unless recipients take part in training or accept a job offer.
In its quarterly report this week, the ESRI said that the Live Register numbers could reach 500,000 and that, even when economic recovery begins, unemployment will remain high for years.
Yesterday's figures from the Central Statistics Office showed a continued sharp rise in the Live Register this month, with another 13,000 people losing their jobs and unemployment rising to 11.4pc, up from 11pc in March. Economists said one bright note was that the rate of increase seems to be slowing.
The opposition yesterday accused Taoiseach Brian Cowen of having no plan to protect jobs. Fine Gael finance spokesman Richard Bruton said this month's crisis Budget showed a Government turning to ordinary people to pay for mistakes in policy.
"The central drive of the recent Budget was to heap extra taxes on ordinary workers," he said. "This coming Friday, May 1, which is International Workers Day, will see a single person on the average industrial wage in Ireland pay tax at 51pc. How can the Government think this is a strategy for recovery?"
Labour Party leader Eamon Gilmore said the ESRI report suggested that, by the end of next year, almost one out of five people in the workforce will be out of work.
But Mr Cowen said "stabilisation of the public finances through cuts in spending and higher taxes," was the "prerequisite for economic recovery".
Alan Barrett of the ESRI will present evidence to today's conference showing that about half the immigrants who lost their jobs have stayed in Ireland.
Dr Barrett speculates that many will continue to live in Ireland because of the lack of opportunities elsewhere.
"The international experience suggests that immigration is viewed most positively when immigrants are seen as meeting the needs of the labour market. A rising stock of unemployed immigrants might lead to a less favourable attitude," Dr Barrett says.
The Irish Independent also reports that the European Union's proposed laws on hedge funds and buyout firms have sparked criticism from the industry and the UK.
Hedge-fund managers and private-equity firms who oversee at least €500m, including leveraged funds with just €100m capital, would report to regulators under the proposal, which also calls for caps on executives' 'golden parachutes'.
EU financial services commissioner Charlie McCreevy said money managers would be required to report regularly and meet "exacting requirements" on minimum capital, risk management and auditing, under the European Commission proposals.
The rules on hedge funds and buyout firms add to pressure on Europe's €2 trillion alternative-investment industry after a 47pc slump in global stock market value last year.
Jonathan Russell, head of buyouts at 3i Group, in a statement issued by the European Private Equity and Venture Capital Association, said: "These proposals merely heap unwarranted costs on value-creating parts of the economy at a time when these businesses are dealing with the effects of a severe economic downturn."
The Alternative Investment Management Association in London criticised the proposal as a "punitive" response to a crisis not caused by its member hedge funds.
The measure needs approval from a majority of the 27 EU countries, plus the European Parliament, to become law.
Mr McCreevy said: "Other jurisdictions around the world are going to look at what comes out of Europe and take some of the best ideas from there."
But Britain's City Minister Paul Myners said: "I fear we are going to see something coming from Europe which leaps on hedge funds and private equity as a source of instability, that is not necessarily as well-informed as it should be."
The Irish Times reports that the Government may end up owning 78 per cent of Allied Irish Banks (AIB) and 69 per cent of Bank of Ireland when the State’s “bad bank” buys property loans of €50 billion from the two banks, according to Davy stockbrokers.
Davy bases its estimates on a 20 per cent “haircut”, or discount, on loans with a book value of €30 billion on AIB’s books and a 15 per cent discount on loans valued at €20 billion on Bank of Ireland’s books. Davy estimated the banks’ combined write-downs on the loans at €9 billion, based on “economic” rather than market values.
The firm says in a report that AIB and Bank of Ireland would need additional capital of €2.7 billion and €1.5 billion respectively to reach a target 6 per cent core tier one capital ratio, a measure of a bank’s ability to absorb losses.
The estimates are also based on the two banks making a profit of €700 million buying back debt from investors, which would bolster their capital reserves, and AIB boosting its pure equity levels by €500 billion from selling assets.
The State’s National Asset Management Agency will buy loans worth €80 billion to €90 billion across the guaranteed banks and it may take majority stakes if the banks make losses due to the purchase and need more capital.
The Irish Times also reports that a single person on the average industrial wage in Ireland will pay tax at 51 per cent from tomorrow, says Fine Gael finance spokesman Richard Bruton, in reference to the impact of the Budget taxes and levies.
In sharp criticism of Government policy he said the “economic decline forecast for Ireland is twice as bad as in any of our competitor countries and the rise in unemployment is also twice as bad as any of our competitor countries”.
He said in the Dáil that it was “a damning indictment of policy in this country, showing policy failure by policy makers, by regulators and by the property sector”.
Rejecting the criticism, Taoiseach Brian Cowen accused Fine Gael of trying to offer some “painless way forward” which was “dishonest”.
The party offered “the prospect of addressing a redesign of the tax system without increasing income tax, which has no credibility whatsoever”.
He insisted that “as a prerequisite to economic recovery, we must get our public finances in order”.
During Leaders’ Questions, Mr Bruton said Ireland’s current economic position internationally “underlines once again that the vast majority of the difficulties faced in this country are the result of the policies which you Taoiseach as minister for finance presided over”.
Referring to the single worker on an average industrial wage paying tax at 51 per cent, he asked “how can the Government think this is a strategy for recovery”.
The unemployment figures for the first four months of the year had risen by 94,000 “on top of an increase of 120,000 in 2008”, he said.
“Behind those statistics dwell some grim facts – business people seeing their lives’ work destroyed as they have had to close their doors and families terrified that their jobs will be the next to go as the ESRI tells us that another 300,000 are to be added to the total.”
He said that would put unemployment levels above 600,000 and these were “appalling figures”.Every country had a strategy based on protecting jobs and defending employment, said Mr Bruton.
“Where is the Government’s strategy?” What the Budget offered was “a blinkered view of the world”.
The Taoiseach and Government were “smarting from criticism” by their backbenches that they were paralysed and out of touch, that they were unaware of what businesses needed, not responding to that need and “that a cosy circle is dictating policy”.
“This is nothing to the fury the Government will encounter from ordinary people who are seeing their life prospects and those of their children going up in smoke,” he warned.
Mr Cowen said Fine Gael was offering to redesign the tax system without increasing taxes “which has no credibility whatsoever”.
The Government had a jobs strategy and the first requirement was to get the public finances in order.
“Second we have increased the number of placement schemes available for people who are out of work. Third, we are trying to ensure reduction in costs.
“We are already seeing such reductions, as well as improvements in competitiveness in terms of a reduction in wage costs.”
Hitting out at Fine Gael, Mr Cowen said the party was suggesting “there is a way of moving on without the necessity to provide for an increase in taxation”, and it was “simply dishonest”.
The Irish Examiner reports that staff in the Department of Social and Family Affairs have clocked up almost 20,000 uncertified sick days since 2006.
As the numbers out of work hit a record high, documents released under Freedom of Information show staff from Mary Hanafin’s department have already taken 1,705 so- called ‘duvet days’ this year — and are one of the worst offenders across all Government departments.
More than a quarter of the sick days were on a Monday.
Social and Family Affairs Minister Mary Hanafin has been severely criticised because of the lengthy delays in processing unemployment claims.
However, despite repeated pledges from the minister to redeploy staff from other areas, some people are forced to wait up to three months for benefits.
The figures released to the Irish Examiner show in 2006, 5,998 days in the department were lost. In 2007 the figure was 5,933 and again last year it was 5,970, proving the problem is ongoing. These figures added to the tally so far this year amount to 19,606 uncertified sick days since 2006.
The department employs just under 5,000 staff, and is one of the biggest in Government.
Clerical officers, of which there are about 2,400, were by far the worst offenders, and between them racked up almost 4,000 uncertified days annually from 2006.
Last year, 383 staff in the department were referred to the chief medical officer for examination. This is understood to be undertaken only if someone has a particularly bad sick leave record.
However, absenteeism problem is not confined to Ms Hanafin’s department.
Department of Agriculture staff clocked up 3,095 uncertified sick days last year — 653 of these on a Monday. Department of Education staff took more than 3,000 sick days over the past two years, and almost 400 so far this year.
Under official civil service rules, staff can take two days of sick leave without having to provide a medical certificate, and up to seven days uncertified sick leave in total per year.
Civil servants who took more than 56 days of sick leave in four years were ruled out for promotion
According to the Department of Social and Family Affairs, all sick leave is monitored closely and particular attention is paid to the number, and pattern if any, of uncertified sick days.
Officers who take between five and seven uncertified sick days in any 12-month period are contacted formally by the department and the matter is then dealt with on an individual case basis, a spokesperson said.
An investigation into absenteeism in the civil service is being prepared by the Comptroller and Auditor General’s Office and it is expected it will be presented to the Minister for Finance mid-summer.
The Financial Times reports that migration from eastern to western Europe is boosting the economy of the European Union by nearly €50bn ($65bn, £45bn) a year, or about 0.8 per cent of gross domestic product, according to a report sponsored by the European Commission published on Wednesday.
While the economic crisis is currently slowing migration, a recovery should lead to further east-west movements of workers, which could increase the region’s GDP by another €50bn or so by 2020, the study says.
“According to our estimates, about 50 per cent of the migration potential from the European Union’s new member states is realised at present. If this holds true, then the overall GDP gains from migration from the NMS into the EU-15 [the “old” EU] can increase by a factor of two by 2020,” says the report, published on the eve of the fifth anniversary of the Union’s 2004 eastward enlargement.
The report estimates that around 1m people moved in the period from 2004 to 2007 to western Europe from Poland and the other states that joined the EU in 2004, and that another 1.2m left Romania and Bulgaria in the same period, even though these two countries did not become EU members until 2007. These waves of migration have taken the estimated total of migrants from all the new member states to about 3.8m. If all remaining restrictions on east European workers in western Europe are lifted, the total could reach 8.4m by 2020.
But the report adds that with the economic crisis hitting labour markets, growing unemployment is reducing the westward flow of workers and could, in the short term, even lead to a net migration of workers going back to eastern Europe.
The authors argue that the total numbers of migrants are in line with pre-2004 forecasts but their distribution is not. Because of restrictions imposed in Germany, the country with the largest pre-2004 east European immigrant population, and other west European member states, the migrants focused on countries that opened their doors. The UK and Ireland have absorbed 70 per cent of migrants from Poland and other 2004 enlargement states. Spain and Italy account for 80 per cent of Romanian and Bulgarian migrants.
The report estimates that, contrary to the fears of native workers, the impact on labour markets in western Europe has been limited, putting “slight” downward pressure on wages and upward pressure on unemployment. The main impact has been in low-paid jobs, where the principal burden has fallen not on west European natives but on other foreign workers. East Europeans’ recourse to welfare benefits has also been very modest, says the report.
By the end of 2007, some 2.6 per cent of the population of the member states that joined in 2004 was living in western Europe and 6.4 per cent of the populations of Bulgaria and Romania. By country, the biggest exodus was from Romania, with 7.2 per cent of the population in western Europe, followed by Bulgaria (4.1 per cent), Lithuania (3.8 per cent) and Poland (3.4 per cent). About 80 per cent of migrants are Poles or Romanians. So future flows depend on the impact of the economic crisis and its aftermath on these two states.
The FT also reports that Congress on Wednesday passed a $3,400bn budget resolution that laid the foundation for healthcare reform and a series of other Democratic policy goals, handing President Barack Obama a key victory on his 100th day in office.
The plan sailed through the House and Senate with overwhelming Democratic support but not a single Republican backed the measure, highlighting deep partisan division over a budget that would sharply increase government spending and expand the national debt.
The budget resolution is a nonbinding blueprint and more tough debate remains ahead before the plan is fleshed out in final appropriations and taxation legislation over the summer.
But Wednesday’s votes demonstrated strong Democratic backing for most of Mr Obama’s budget proposals, including healthcare reform and investments in education and green energy.
”This budget was hugely important to the president. This is the starting point for everything he wants to do,” said Kent Conrad, chairman of the Senate Budget Committee.
”For every one of his key priorities, reducing dependence on foreign energy, making possible healthcare reform, a focus on excellence in education, none of those things could have been pursued effectively without this budget.”
The House approved the resolution on a vote of 233-193, while the Senate voted 53-43.
In addition to every Republican, 17 House Democrats and four Senate Democrats voted against the budget plan, highlighting anxiety among party moderates over the ballooning budget deficit.
Arlen Specter, the Pennsylvania senator who defected from the Republican party to the Democrats on Tuesday, was among those who voted against the resolution – providing an early warning that he will not always side with his new party.
The plan included an option for Congress to pass healthcare reform – one of Mr Obama’s top legislative priorities – as part of the fast-track budget reconciliation process. Such a move would allow Democrats to pass healthcare reform with 50 Senate votes rather than the 60 normally required to overcome Republican opposition.
Some of Mr Obama’s proposals were abandoned or scaled back by congressional Democrats, including his signature middle class tax cuts, which will expire next year under the Senate plan, and his call to include climate change legislation in the budget, which was ignored by both chambers.
But Nancy Pelosi, Democratic House speaker, said most of the president’s priorities had survived. ”It’s a budget that reduces taxes, lowers the deficit and creates jobs. It honours the three pillars of the Obama initiatives: energy, health care and education.”
Republicans blasted the resolution as a big government juggernaut that would undermine economic recovery. ”It spends money we don’t have, piles unprecedented debt on our children and grandchildren, and raises taxes on families and small businesses, while taking away the middle-class tax cut the president promised during the campaign,” said John Boehner, the House Republican leader.
The New York Times reports that last-minute efforts by the Treasury Department to win over recalcitrant Chrysler debtholders failed Wednesday night, setting up a near-certain bankruptcy filing by the American automaker, according to people briefed on the talks.
Barring an agreement, which looked increasingly difficult, Chrysler was expected to seek Chapter 11 protection on Thursday, most likely in New York, these people said.
The automaker, which is in talks with the Italian automaker Fiat, would file for bankruptcy first. It subsequently would present an agreement with Fiat to the court for approval, possibly on Monday, these people said. They requested anonymity because they were not authorized to speak for the government.
A bankruptcy filing by Chrysler would be the first by one of Detroit’s three auto companies amid a devastating slump, and could serve as a preview of what a filing by General Motors might look like. G.M., which like Chrysler received federal assistance last year, faces a June 1 deadline for its own restructuring.
To win over several hedge funds, which have been holding out for better terms, the Treasury increased its cash offer to holders of Chrysler’s secured debt by $250 million, to $2.25 billion, these people said. If all of the secured holders would agree to the new deal, which would give them the cash in exchange for retiring about $6.9 billion of debt, Chrysler would still have a chance of restructuring out of bankruptcy court.
Several investment funds, however, continued to reject the Treasury’s sweetened offer at a vote of the lenders on Wednesday evening, people familiar with the talks said.
During a prime-time press briefing at the White House on Wednesday, President Obama appeared to lay groundwork for a Chrysler bankruptcy filing, although he said it was “not yet clear” Chrysler would have to move forward with one. “I am actually very hopeful, more hopeful than I was 30 days ago, that we can see a resolution that maintains a viable Chrysler automobile company out there.”
He added: “The fact that the major debtholders appear ready to make concessions means that even if they ended up having to go through some sort of bankruptcy, it would be a very quick type of bankruptcy.”
The four big banks that own 70 percent of Chrysler’s secured debt have already signed on to the Treasury’s plan and are trying to line up the other lenders in favor of the new terms.
If all 46 lenders do not agree to the new offer, and a bankruptcy filing occurs, the lenders will be forced to accept the $2 billion they were originally offered or fight in court for a higher amount.
The Obama administration is adamant that every lender participate in the debt swap, according to people close to the talks. One reason is that the deal would face legal challenges.
People briefed on the negotiations said that while it seemed certain Chrysler would survive and avoid liquidation, it was not yet clear whether it would have to be placed into bankruptcy to sort through any unresolved issues with creditors.
Administration officials said late Wednesday that while bankruptcy remained a possibility, talks with all of the stakeholders in Chrysler still could continue right up to an administration-imposed deadline at 11:59 p.m. Thursday.
The administration gave Chrysler until Thursday to complete an agreement with Fiat, and avoid court protection. But it became clear in the last week that bankruptcy might be needed to allow Chrysler to shed debt, close dealerships and rid itself of other liabilities, in order to make itself a more attractive partner for the Italian auto company.
A bankruptcy filing could lead to a prolonged battle in court with the company’s lenders, dealers and parts suppliers across the country. In bankruptcy, the government would also have to provide financing for the company to operate.
Two people close to Michigan’s Congressional delegation said Wednesday that Mr. Obama would probably opt for a bankruptcy filing, which would be intended to be executed in as little as 60 days.
Publicly, Chrysler officials remained hopeful Wednesday that the company could avoid bankruptcy. In a letter to employees, Chrysler’s chairman, Robert L. Nardelli, said the company was making progress with Fiat and hoped to have a deal in hand by Thursday.
“I’m encouraged by this progress and I want you to know I deeply appreciate the sacrifices made by so many constituents to help us reach the restructuring targets established by the government,” Mr. Nardelli said.
There was no immediate comment from Fiat.
Any deal with Fiat would involve management changes, including the departure of Mr. Nardelli, who joined the company in August 2007. Mr. Nardelli told employees this month that he was likely to leave Chrysler.
The new management is likely to take charge of Chrysler as soon as agreements with the Treasury Department are completed, people briefed on the situation said.
If there is a bankruptcy filing, the new management team will lead the company until it has finished restructuring. It was not clear whether one of Chrysler’s executives or a Fiat executive would head the company.
Chrysler, subsisting on $4 billion in federal loans, has asked for another $7 billion in government aid to carry it through the worst automotive market in the United States in 25 years.
But members of the president’s special auto task force are unsure the company can be viable for the long term without the use of what has been called a “surgical bankruptcy.”
As the talks with Fiat and the lenders entered the final hours, members of the United Automobile Workers union approved a historic deal in which the union would take a 55 percent stake in Chrysler. The stake would finance half of a new trust to administer retiree health care costs.
The NYT also reports that the applause thundered inside the Belk Theater on Wednesday for a fading star of American finance: Kenneth D. Lewis, the beleaguered head of Bank of America.
But all those huzzahs, offered up by loyal employees and steadfast believers, did not sway Mr. Lewis’s shareholders.
Mr. Lewis, who helped build Bank of America into the nation’s largest bank, was stripped of his chairman’s title — a stinging blow that leaves his stewardship and legacy in doubt. At a contentious annual general meeting, angry investors held him accountable for what they view as a series of missteps that forced the once-mighty bank to accept not one but two government bailouts.
For Mr. Lewis, the bad news arrived shortly before 6 p.m., after a gathering that seemed to captivate much of Charlotte, where Bank of America’s soaring headquarters punctuates the skyline.
While Mr. Lewis remains chief executive — the board expressed its unanimous support for him — many inside and outside the bank wonder if he can hang on. Mr. Lewis confronts daunting challenges, and many of his investors are losing patience. Even after receiving billions of taxpayer dollars, some analysts say, the bank may still need to raise more to shore up its weakened finances.
“Ken Lewis has now become the lightning rod of controversy, and that is highly distracting,” said Jeffrey A. Sonnenfeld, a professor at the Yale School of Management, who believes Mr. Lewis should resign. “Even if everything he did was appropriate, it has hampered his legitimacy to lead.”
It was not long ago that Mr. Lewis was celebrated for his vision. His daring takeover of Merrill Lynch was the latest in a series of high-profile acquisitions that helped transform Bank of America into a national powerhouse. His conquests included the Countrywide Financial Group, the giant mortgage lender which, for many, came to symbolize the excesses of the subprime era. In December, the American Banker, the daily chronicle of the banking industry, named him 2008 Banker of the Year.
But that was then. Now Mr. Lewis is drawing fire for overpaying for Merrill, whose gaping losses prompted Bank of America to seek a second rescue from Washington. The attorney general of New York is examining whether Mr. Lewis adequately disclosed the risks of the takeover to his shareholders, drawing headlines — and more ire. The timing could hardly be worse. Bank of America is bracing for another wave of loans to go bad as the recession drags on.
Walter E. Massey, the president emeritus of Morehouse College in Atlanta, will replace Mr. Lewis as chairman.
On Tuesday night, before the shareholder gathering, Mr. Lewis seemed chipper as he chatted with colleagues over drinks at Sonoma, a swanky restaurant at the base of the bank’s headquarters. As usual, he and his executives wore red, white and blue Bank of America pins on their lapels.
But by 7 a.m. Wednesday, news crews were setting up outside the bank, expecting a showdown. Employees made their way through the growing crowd.
Jonathan Finger, a prominent bank shareholder and a vocal critic of Mr. Lewis, strode from camera to camera. A few protestors turned up with signs. One of them, Judy Koenick, wore a T-shirt emblazoned with a phrase that summed up the view of Mr. Lewis’s most ardent detractors: “Fire!!! Kenneth Lewis Fire!!!”
Soon the Belk Theater was packed. The throng overflowed into the lobby, where a crowd watched on video monitors. Some 2,200 people turned up, a bank spokeswoman said.
Many of them welcomed Mr. Lewis, a man who helped put Charlotte on the world’s financial map. The applause rang out for more than half a minute. Shareholders took turns at the microphone to offer testimonials.
“If we don’t have Ken, who do we have?” one asked. Even Evelyn Davis, the corporate gadfly who calls herself “Queen of the Corporate Jungle,” defended Mr. Lewis. At one point, she ran up and kissed him on the cheek.
The president of the city’s Chamber of Commerce spoke in support of Mr. Lewis, as did representatives from Habitat for Humanity and several environmental groups. One shareholder suggested Mr. Lewis donate his $1.5 million salary to charity. Someone in the audience yelled: “Oh, stop!”
Mr. Lewis, who has worked for the bank for 40 years, replied: “Unfortunately, because of my pledges, I actually did give away more than I make." Again, applause.
Mr. Lewis shed little light on the Merrill transaction, though he did say in his prepared remarks that both Merrill and Countrywide helped the bank’s first-quarter results.
“These acquisitions are not mistakes to be regretted. Both are looking more like successes to be celebrated,” Mr. Lewis said. “We are building this company for the long run.”
Gradually, the crowd thinned and, after four hours, the meeting broke up, with Mr. Lewis’s fate still unknown. So many shareholders cast votes that it took the bank longer than expected to count them all.
Robert Stickler, a bank spokesman, said some large shareholders had told the bank they voted to remove the chairman title from Mr. Lewis because of corporate governance concerns, not because they did not support him.
In the end, it was close: 50.34 percent of shareholders — 25 million votes — opted to remove Mr. Lewis as chairman. A third voted to remove him from the board altogether. Even before the vote count was final, the bank’s directors were considering replacing Mr. Lewis as chairman because it was clear he had lost the support of so many shareholders.
Carl Wagle, a retired machinist from nearby Greensboro who said he had lost most of his $65,000 life savings on Bank of America stock, left the meeting shaking his head. He said he had come to suggest that Bank of America pay higher interest rates on savings accounts.
“They need to understand what the average American person thinks of banks,” Mr. Wagle said. “They see banks as a place where fat cats live. Americans are not going to start having confidence in their banks until they see the bankers changing.”
Mr. Lewis, hewing to his routine, stopped in at Sonoma. Several executives hugged him. Then he emerged, waved and smiled at people gathered in the courtyard, and disappeared into Bank of America’s headquarters.
