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News : International Last Updated: Dec 19, 2011 - 6:28 AM


Monday Newspaper Review - Irish Business News and International Stories - - December 19, 2011
By Finfacts Team
Dec 19, 2011 - 6:23 AM

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The Irish Independent reports that  the Government's promise to cap public sector pay is being seriously undermined as it is increasingly forced to provide for "exceptional" salaries to attract top talent.

In the latest breach of the much-vaunted pay ceiling, Finance Minister Michael Noonan has had to sanction a salary, technically €50,000 above the limit, for the new deputy governor of the Central Bank. The approval of the €250,000 pay packet for Swedish economist Professor Stefan Gerlach came just weeks after the Government introduced lower pay ceilings for senior public servants.

A special request was made to the minister by Central Bank Governor Patrick Honohan, according to correspondence obtained by the Irish Independent.

Mr Honohan sought approval for the salary just a week after Public Expenditure Minister Brendan Howlin capped maximum pay levels for higher positions across the public service at €200,000.

And the correspondence shows how Mr Noonan rubber-stamped Prof Gerlach's appointment two weeks later.

The latest revelation will refocus attention on:

  • The viability of maintaining government-imposed salary caps while still attracting talent to top jobs.
  • The lack of transparent guidelines which would reveal exactly why exceptions are made for certain candidates.

The Government has already breached its own guidelines several times -- most notably in approving higher salaries for ministers' advisers.

Advisers

In approving €127,000 for two ministerial special advisers, the Government risked the public's anger.

The pay is €35,000 more than the standard €92,000 rate for the position and was approved for Ciaran Conlon, a friend and former PR adviser to Taoiseach Enda Kenny, and Edward Brophy who is now an adviser to Minister Joan Burton.

Prof Gerlach is undoubtedly well qualified for the Central Bank role. Most recently he was managing director of the Institute for Monetary and Financial Stability at Goethe University Frankfurt.

But approving his new salary was a rigmarole for Prof Honohan who felt he needed to make a case to the Finance Minster.

He stressed the "scarce and exceptional skills" that Prof Gerlach could offer. The aim was to match Prof Gerlach's earnings as managing director of the Institute of Monetary and Financial Stability in Frankfurt.

Mr Honohan says it is "seen as the minimum required to secure his services" in correspondence sent earlier this year.

But pay in the public sector was politically sensitive at the time as Mr Howlin had just announced "a general pay ceiling of €200,000 for future appointments to higher positions across the public service".

There is a grey area when it comes to pay ceilings at the Central Bank, National Treasury Management Agency (NTMA) and the National Asset Management Agency (NAMA). Technically these were not included in the bodies subject to the pay cap.

But after announcing the €200,000 pay cap in June, Mr Howlin said he would like to see leadership and transparency within the financial bodies.

Records seen by the Irish Independent show how Prof Honohan wrote to Mr Noonan eight days afterwards.

"Minister Howlin's statement allows for a small number of exceptional cases and the (Central Bank) Commission are of the view that this appointment would fall into this category," he wrote.

Prof Gerlach took up his post as deputy governor on September 1.

A spokeswoman for the Finance Department said that Mr Noonan does not set the levels of pay for deputy governors.

The Central Bank has confirmed that Prof Gerlach's salary is €250,000, and added that "the appointment was made with the consent of the Minister for Finance".

A spokeswoman said: "The Minister for Public Expenditure and Reform was also consulted and it was confirmed that the appointment was not contrary to government decisions on higher level pay in the public service."

The Irish Independent also reports that the British government will give its full backing today to a shake-up of the banking sector proposed by the country's Independent Commission on Banking (ICB).

"Our financial services sector needs reform," British business secretary Vince Cable said yesterday. "Our big banks were at the very centre of the financial crisis, what the Europeans call Anglo-Saxon financial capitalism. It needs reform."

"That's why the government is going to launch this initiative on the banks accepting in full the Vickers commission.

"We're going to proceed with the separation of the banks, the casinos and the retail business lending parts of the bank," the Liberal Democrat minister told the BBC.

In September, the ICB -- headed by Oxford University academic Sir John Vickers -- said top British banks should "ring-fence" or protect their retail banking operations from their riskier investment banking arms, in order to give better protection to taxpayers in case of future financial crises.

It said banks should hold core capital of 10pc, plus a further seven to 10pc of capital that could take the form of "bail-in" bonds -- debt that can take a loss or convert into equity to recapitalise a bank if it hits trouble.

There would also be limits to the extent to which a bank could use money in its retail arm for its investment bank -- a move that will increase funding costs for British lenders.

The ICB stopped short of seeking a full split of a retail and investment bank into two, separate companies. Instead, it said banks could keep their parent holding company but should set a "ring-fence" between the retail and investment arms. Britain's top banks have lobbied against much of the reforms.

They have argued they could be put at a competitive disadvantage to rivals in Europe, Asia and the United States, who do not face the same sort of shake-up.

The Irish Times reports that the Government is engaged in talks with EU institutions and the International Monetary Fund to try to find a way of reducing the debt burden on the country for the bank bailout, Minister for Finance Michael Noonan has confirmed.

Mr Noonan told The Irish Times yesterday that the best approach to the problem was to negotiate with the relevant international institutions before looking for a political solution to the problem.

The Minister added that the isolation of Britain after David Cameron vetoed an EU treaty on fiscal disciplines for the euro zone showed the importance of choosing an opportune time to pursue national interests.

On the question of whether a referendum on the treaty would represent an opportunity to press for a deal on the debt, Mr Noonan said it was far too early to say if a referendum would be required.

Meanwhile, the new head of the European Central Bank, Mario Draghi, has warned of the high costs of a euro zone break-up, breaching a taboo for a president of the ECB, even as he sought to play down market expectations about its role in combating the sovereign debt crisis.

In his first interview since becoming ECB president on November 1st, Mr Draghi told the Financial Times that struggling euro zone countries that quit the currency bloc would face still greater economic pain. For remaining members, European Union law would have been broken, and “you never know how it ends”, he said.

Mr Draghi stressed the importance of measures taken by the ECB to shore- up euro-zone banks, which include its first-ever offer of unlimited three-year loans this week. But he emphasised that the region’s politicians had to take the lead in rebuilding investor confidence in euro zone public finances.

Mr Draghi also appeared to rule out US or UK-style “quantitative easing” – embarking on large-scale government bond purchases to boost economic growth.

At home, Minister of State at the Department of Finance Brian Hayes said yesterday that if a referendum was needed in Ireland to approve the EU treaty it might strengthen the country’s hands in negotiations on the debt.

“It is difficult to see a referendum being successful unless we can strike a deal on the debt,” said Mr Hayes.

He added, however, that it was not clear if a referendum would be needed and the cabinet would await the advice of the Attorney General.

“It would be crazy to have a referendum unless we need to have one. A referendum would be about whether we want to stay in the euro and the consequences of the instability that could be created during the campaign could have devastating consequences for the economy and prompt a flight of capital from the country,” said Mr Hayes.

Mr Hayes said that Ireland had already won major concessions from the EU. One was the reduction in the interest rate on the overall debt and the other was the terms of the liquidity being provided to the Irish banks by the ECB. The final element that needed to be put in place was a mechanism to stretch out the repayments on bank debt over a longer period of time.

According to Government sources the key negotiations on the bank debt involve the EU Commission and the ECB.

The sources added that linking further concessions on the debt to a referendum campaign could be very dangerous, given that there was nothing to prevent the rest of the euro zone from moving on without Ireland.

A leading German member of the European Parliament, Elmar Broc, also dismissed the possibility of linking a restructuring of the Irish debt to a referendum on a treaty designed to strengthen the euro.

Speaking on RTÉ Radio’s This Week programme he said that the two issues should be kept separate.

Mr Broc said that if everyone put forward conditions for approving the treaty then nothing would happen. He added that everyone had to give something to arrive at a point of common interest.

The Irish Times also reports that even before its DVD release, this year’s highest-grossing Irish movie, The Guard, could be downloaded from the internet for free.

Higher bandwidths and more capacity mean films and games are being increasingly downloaded for free.

Andrew Lowe, head of Element Pictures, which produced and distributed The Guard, says he was recently complimented on the film by two people who had unintentionally watched a pirated version.

He says the problem is potentially “disastrous” for the industry here, which the Government funds directly through its support of the Irish Film Board, and indirectly through section 481 tax reliefs.

“The film industry sustains a lot of livelihoods, and illegal downloads will make it harder to retain that,” he says. “They are cannibalising sales, which also means that there is no VAT being collected, so the State is also losing out.”

The Government plans to tackle the problem of illegal downloading by enacting a statutory instrument that will plug a gap in the existing Copyright Act identified by Mr Justice Peter Charleton in a High Court case in October 2010.

The loophole means copyright holders cannot ask the courts to order internet service providers (ISPs) to block access to sites that allow illegal downloading.

EMI Ireland sought an injunction ordering internet service provider UPC to prevent illegal downloading from websites accessed via its service. UPC was not directly involved; it only provided the internet access.

Justice Charleton agreed that EMI’s intellectual property rights were being infringed, but said that he could not make the order, as the Copyright Act did not allow it. However, he pointed out that the legislation should include such a provision in order to bring it into line with EU law, which the Republic is obliged to follow.

The remedy was the statutory instrument, or ministerial order, adding to the act in order to update it. The original order, put forward by the last government, got lost in the pre-election chaos.

The Coalition published its own draft in July, and then, unusually for a ministerial order, sought submissions from interested parties. It received almost 60, some of whom had got their own legal advice, and so the order made a number of return trips to the Attorney General’s office.

Seán Sherlock, Minister of State for Enterprise, Innovation and Jobs, has responsibility for this area and last week told the Dáil that he hoped to make progress in January. The department has written to Willie Kavanagh, chief executive of EMI Ireland, telling him that the order would be enacted in January and it should meet his industry’s requirements.

Mr Kavanagh says his company recently wrote to the Government threatening legal action against the State if action was not taken. He has not ruled this out if the statutory instrument does not give companies such as his the right to get injunctions against ISPs.

EMI has lost €60 million in revenues over the last six years, and its boss says illegal downloading is to blame for a significant chunk of this. Industry figures show that the value of music sales has shrunk from €145 million in 2006 to €56 million last year.

Not everybody agrees that the approach sought by EMI is going to work, or is right in the first place. Lawyer TJ McIntyre, chairman of the Digital Rights organisation, says that what the music and film industries are seeking is completely disproportionate.

He argues that they already have a remedy against the websites that are providing the pirated material, and they simply want carte blanche to control all online operators. He also points out that EU law requires internet users’ privacy to be protected. “Is the statutory instrument going to address that?” he asks.

However, Peter O’Grady Walshe of Birchall Investments, the main shareholder in home-entertainment chain Xtravision, whose business is also suffering, says that what rights holders want is a solution that is proportionate and reasonable.

Xtravision has no direct rights over the films it rents, as it is a distributor, and so it has been watching developments from the sidelines. He points out that if a high-street retailer were told that they were inadvertently distributing material that breached copyright, they would simply stop stocking it. The same rules, he says, should apply to the internet.

The Irish Examiner reports that the annual pay of Irish tax specialists has soared by 15.6% this year compared to a 3% fall across the professional services industry, according torecruitment firm Marks Sattin.

Research by accountancy and finance recruiter Marks Sattin found the pay of tax specialists increased by an average 15.6% this year, with salaries for tax partners exceeding €150,000 and tax directors throughout the country now able to access salaries above €100,000.

The manager of professional services and taxation at Marks Sattin in Dublin, Clinton Donkin, said this compares to a 3% fall across the professional services industry in Ireland, with salaries falling to an average of €38,500 from €40,500 in the third quarter of 2010.

He said: "The adoption in January of the OECD Transfer Pricing Guidelines has put TP specialists under the spotlight and employers are fighting for those with expertise in the new regime.

"This has boosted salaries and job creation at every level of seniority, especially among the Big 4 firms, who are taking the lead in developing their transfer pricing expertise."

The managing director of Marks Sattin, Dave Way, said: "Tax has been one of the biggest areas for expansion in accountancy firms over the last year as well as among in-house employers as regulatory changes have put professionals with tax expertise front and centre.

"Taxation requirements on companies trading in the EU have become increasingly complex as the array of obligations, deductions and rates, as well as the requirements for completing intrasat returns and EC sales lists have grown."

Mr Way continued: "On top of this, the passing of FATCA has put the focus squarely on hiring prof-essionals with a comprehensive knowledge of compliance and risk.

"Major financial institutions have started pushing hard to ensure they are as tax efficient as possible. For many employers, the value of the cost savings which can be generated by accountants with these skills has become clear.

"The rise of salaries in industry since the second quarter of 2011 has caused practice — especially the Big 4 — to improve their packages too.

"So successful has this policy been, many tax specialists have reversed the normal trend to move out of industry to take advantage of the excellent offers being made,"
Mr Way said.

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© Copyright 2011 by Finfacts.com

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