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News : Irish Last Updated: Mar 20, 2013 - 9:34 AM

Wednesday Newspaper Review - Irish Business News and International Stories - - March 20, 2013
By Finfacts Team
Mar 20, 2013 - 9:30 AM

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The Irish Independent reports that Cyprus plunged Europe into fresh crisis as it became the first country to turn down a bailout since the economic crash began.

Its parliament forcefully rejected a critical draft bill that would have seized part of people's bank deposits in order to qualify for a vital international bailout.

It forced the European Central Bank to back away from earlier threats to withhold aid -- but brought the small Mediterranean island closer to banking meltdown.

The vote was also a setback for the eurozone after several other countries, including Ireland, accepted unpopular austerity measures.

Upping the ante last night, Cypriot government MP Marios Mavrides raised the prospect of leaving the euro and printing the Cyprus pound again. "That will be the end of Cyprus in the eurozone," he said on BBC 'Newsnight'.

Germany's finance minister warned that it was unclear whether the banks in Cyprus would ever be able to open again.

Wolfgang Schaeuble claimed two of Cyprus's big banks are currently being propped up solely by emergency liquidity from the European Central Bank.

"Someone needs to explain this to the Cypriots," he said.

The new crisis highlights political disagreements and piles pressure on Europe's leaders over their ability to take control of the financial crisis.

Stocks dropped and the euro fell to a three-month low against the dollar as the markets digested the prospect of impasse in Cyprus and new, bitter divisions in Europe.

The latest flare-up erupted when the island state's parliament voted overwhelmingly to reject the proposed levy on bank deposits.

With hundreds of demonstrators facing riot police outside parliament and chanting, "They're drinking our blood", the ruling party abstained from the vote.

Amid fears about what will happen next, the ECB quickly issued a statement in Frankfurt promising to provide liquidity to banks in Cyprus, within the central bank's rules.

But European leaders will be forced into feverish action today to hammer out some sort of deal.

The EU and IMF are demanding that Cyprus raise €5.8bn from depositors to add to the €10bn bailout and rescue its financial sector.

Last night's vote now puts Cyprus on a direct collision course with the rest of the EU.

Although Cyprus is the smallest eurozone country to be bailed out, the details of the proposed plan had already sent shockwaves through the single-currency area.

It was to be the first time savers' banks accounts have been directly targeted. Other bailed-out countries including Ireland, as well as Greece and Portugal, have raised funds by imposing new taxes.

Finance ministers had urged the Cypriot government to avoid hitting accounts below €100,000, and instead increase the levy on big accounts, which are unprotected by the state-deposit guarantee.

Newly-elected President Nicos Anastasiades earlier said he expected parliament to reject the tax on bank deposits "because they feel and they think that it is unjust and it's against the interests of Cyprus at large."

But EU countries said before the vote that they would withhold bailout loans unless depositors in Cyprus shared the cost of the rescue, and the ECB had threatened to end emergency-lending assistance for teetering Cypriot banks.

"There is no precedent for what would happen if Cyprus rejected the conditions," Holger Schmieding, an economist at Berenberg Bank in London, said before the vote.

"Our best guess is that Europe would give Cyprus a brief and final chance to rethink and vote again."

Banks were due to remain closed today to avoid a bank run where deposits flood out of the system. The island's stock exchange also suspended trading.

But both banks and the stock exchange were due to re-open tomorrow, creating a looming deadline for talks – but this now seems unlikely.

For worried Cypriots – who emptied the island's cash machines over the weekend in panic – the vote was seen as a victory, at least in the short term.

Jubilant crowds outside parliament broke into applause following the vote, chanting, "Cyprus belongs to its people."

"The voice of the people was heard," said Andreas Miltiadou, a 65-year-old pensioner among the demonstrators.


Cypriot Finance Minister Michael Sarris flew to Moscow yesterday to seek Russian financial assistance. He was forced to deny by text message reports that he had resigned, which rattled nerves as lawmakers were poised to vote.

Government spokesman Christos Stylianides said Prime Minister Anastasiades might also speak to Russian President Vladimir Putin, who had described the deposit levy as "unfair, unprofessional and dangerous."

But Russian authorities have denied rumours that the Kremlin might offer more money – possibly in return for a future stake in Cyprus's large but as yet undeveloped offshore gas reserves which have raised the island's strategic importance.

An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain, privately, that Cyprus acts as a "Trojan donkey" for Moscow inside the EU.

The Irish Independent also reports that the Central Bank is relying on a secret arrangement with other euro area central banks in order to avoid breaking European finance rules, according to news service Bloomberg.

The deals are to ensure that the Central Bank is not seen to be "lending" €25bn to the Government under the deal that wiped out the notorious Anglo Irish Bank promissory notes.

That could fall foul of a ban on so-called "monetary financing" or direct lending to the Government, three people familiar with the matter told the news service.

Under the Anglo deal, the State gave the Central Bank €25bn of bonds, that taxpayers must ultimately repay, to replace a promise to honour Anglo's debts.

It pushes against euro area limits on how much of its own Government's bonds a central bank can hold, the sources told Bloomberg.

Now, in order to stay inside the limits, the Central Bank has been given the go-ahead to "borrow" unused lending capacity from central banks elsewhere in the 17-nation currency bloc, the people said.

It was not clear whether the euro area as a whole or individual central banks were sharing their excess capacity, the report said. Such sharing means the euro area does not go over its notional limits. It is allowed under the confidential Agreement on Net Financial Assets.

A spokesman for the European Central Bank declined to comment on the Irish case.

A spokeswoman for the Central Bank also declined to comment.

The Irish Times reports that Irish farming groups gave a cautious welcome to an agreement on the single farm payment reached last night in Brussels, as part of a radical reform of the Common Agricultural Policy (Cap).

Following two days of tense negotiations, agriculture ministers from the EU member states reached a common position on reform of Cap in a deal brokered by the Irish presidency of the European Council. Negotiations will now commence with the European Parliament next month, with a final agreement expected in June.

The key issue for Irish farmers was the Single Farm Payment. With the European Commission proposing a flat-rate payment per acre, Irish farmers were concerned about how payments would be distributed.

The proposal agreed last night grants flexibility to member states making the transition to a flat-rate system, which is already used by some countries.

Crucially, the council proposed that the introduction of a minimum payment for farmers would be voluntary. Farming groups such as the IFA have argued the introduction of a minimum payment would result in a cut to payments of some of the country’s more productive farmers, and redistribute funds to inactive farmers.

Speaking in Brussels last night, IFA president John Bryan said the decisions by member states provided “important flexibilities for Ireland, which include approximation, variable greening and coupled payments” though he stressed that tens of thousands of farmers would still lose significant amounts from their Single Farm Payment.

The Irish Times also reports that growing trade ties with Germany will be a key component in Ireland’s economic recovery, Minister for Jobs, Enterprise and Innovation Richard Bruton has said.

After a three-day trip to Germany, Mr Bruton said it was essential for Ireland to go beyond traditional strengths, such as attracting foreign direct investment from the US, to encourage companies to explore opportunities in Europe’s largest economies.

“Germany and France have been two of the most successful markets in the last years and these markets are instrumental in driving our recovery of Irish-owned business,” he said. “It is not an either/or. America has been important but . . . the message is getting through that Enterprise Ireland’s strategy of supporting high-potential start-ups is seeing major breakthroughs.”

Trading partner

Germany is Ireland’s second-largest trading partner for services and fourth-largest trading partner for goods. Last year total Irish exports to Germany rose 16 per cent to €7.5 billion

The Düsseldorf office of Enterprise Ireland has worked closely with Irish client companies, seeing their exports rise by 22 per cent and 17 per cent respectively in 2010 and 2011. These companies support 1,300 jobs in Ireland and created 180 new positions last year.

“I think that the message is getting through that what Ireland needs is a strong multinational core with successful clusters, but we need to build out from that, too,” said Mr Bruton.

After years of UK dominance, he said, Irish companies were undergoing a “huge switch” to European markets, creating a more diversified base for the Irish economy.

Among the companies Mr Bruton visited on his four-city tour was the family-run Wirtgen Group, an engineering company typical of the Mittelstand small- and medium-sized companies that form the backbone of the German economy.

For over a decade, Wirtgen has purchased hydraulic cylinders from Carlow’s Burnside Eurocyl.

“Burnside started out in the 1980s as a road contractor but has now developed a niche into a worldwide competence,” said Mr Bruton. "To see an Irish business providing a core piece of hydraulic shafts into [Wirtgen] equipment is an exciting development.”

Green technologies

Other German-Irish collaborations include a green technologies partnership between Bavaria’s EnOcean and Solarprint of Dublin. Irish photovoltaic company Nines is developing products with Germany’s Fraunhofer Institute.

Concluding his four-day visit, Mr Bruton hosted a dinner in Munich last night for these and other Irish companies with similar German partnerships.

The Irish Examiner reports that

Bank of Ireland chief executive Richie Boucher’s total remuneration increased by 1.44% to €843,000 last year, according to the company’s latest annualreport.

However, before taking the €67,000 that he waived into account, Mr Boucher’s total pay package last year increased from €898,000 to €910,000.

As with the previous year, Mr Boucher received a gross salary of €690,000 last year and waived €67,000.

After amounts waived, his total package increased from €831,000 to €843,000 — boosted by a €12,000 increase in his pension contribution to €186,000.

He also received other remuneration of €34,000.

Executive pay levels at Bank of Ireland have been frozen in recent years along with no bonusesbeing paid.

Mr Boucher’s basic salary contract was formally approved by former finance minister, the late Brian Lenihan, in 2009, before the €500,000 salary cap was established by Government.

However, the bank has claimed that his core salary comes within that cap.

Overall, however, Bank of Ireland’s board of directors shared a combined €2.56m in remuneration last year.

Mr Boucher’s total package was double that of the next highest — and only other executive member of the bank’s board — chief financial officer, Andrew Keating, who was paid €418,000, but who was only appointed to his post in February of last year.

Mr Keating’s basic salary amounts to €390,000, before the addition of pension contributions and other remunerations.

New chairman/governor, Archie Kane — who joined last summer — was paid a total of €262,000 last year; a package which included a €37,000 accommodation, utilities and car allowance.

Bank of Ireland’s annual report comes two weeks after the publication of a stark set of financial results for the institution; which saw pre-tax losses rise from €190m to just under €2.2bn for 2012.

The results also showed a rise in the number of mortgage arrears cases, amongst its customer base, but a €7m decline (to €462m) in the impairment charge taken on residential mortgages.

Bank of Ireland is also, reportedly, not planning to cut staff pay, as part of the Government’s directive for the banks to cut remuneration costs by between 6% and 10%.

It is, instead, planning to tackle its €1.2bn pension deficit, which could see staff members’ benefits reduced, or their contributions to the pension scheme increased.

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