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News : Irish Last Updated: Mar 21, 2013 - 1:39 PM

Thursday Newspaper Review - Irish Business News and International Stories - - March 21, 2013
By Finfacts Team
Mar 21, 2013 - 10:16 AM

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The Irish Independent reports that anyone seeking deals with their bank over debt will have to make drastic lifestyle changes under proposals to be announced next week.

Homeowners looking to write off mortgage debt will be told, for example, to drop their health insurance and sell off their second car.

Up to 100,000 families are currently in arrears of at least three months on their mortgages, while the average borrower in trouble has four other debts.

The new minimum income guidelines will be issued by the head of the Personal Insolvency Service, Lorcan O'Connor, and Justice Minister Alan Shatter next Wednesday.

New criteria setting out the living standards for people having debt written off will also force people to:

* Take their children out of private schools.

* Give up foreign holidays.

* Get rid of Sky Sports.

The official guidelines will set out what people can live on before being accepted for debt writedown deals to be overseen by the new insolvency service.

But it is understood the guidelines will also be used by banks for those being offered a long-term mortgage deal outside the new personal insolvency process.

Although the guidelines are not legally binding, banks will only do a deal with homeowners who cut their living standards in line with these rules.

Courts are expected to use them as a benchmark in any legal dispute where people cannot reach a deal with their banks.

This means that a family seeking a split mortgage -- where part of the home loan is set to one side for a period to reduce the monthly repayments -- will have to operate to the guidelines.

And although there will be an allowance for a basic TV package, such as Sky TV, the guidelines are likely to mean no Sky Sports.

But the fact that the guidelines make no allowance for a second family car and ban health insurance is set to be the most controversial aspect.

Experts said people in this country hold dearly to private health cover, with just 8.6pc of people dropping their health insurance since the financial crash in 2008. Some 2.099 million people have private insurance, 46pc of the population.

And battles are set to be fought with banks by parents making sacrifices to send children to private schools, particularly in parts of south Dublin where there are few non-fee paying alternatives, financial advisers said.

A senior official familiar with the new guidelines said if people wanted €100,000 to €200,000 written off a mortgage they could not expect to have a foreign holiday every year and private health insurance.

"Lots of people would like to have health insurance but for fear that they will become insolvent they choose not to take it out," the source said.

The guidelines set out how much different family units will be allowed to live on each month.

According to the new guidelines, a family in an urban area with two adults, but one income, would be allowed €896 a week.

This family has a €1,500 monthly mortgage repayment, one teenager and one pre-teen.

The new guidelines draw heavily on intensive research carried out by the Vincentian Partnership for Social Justice.

This is a religious body set up in 1996 to work for social and economic change. It is made up of St Vincent de Paul, the Vincentian Congregation, the Daughters of Charity and the Sisters of the Holy Faith.

Work on this minimum income standard was augmented by researchers from Trinity College and the Economic and Social Research Institute.

The new insolvency service is required under the new Personal Insolvency Act to produce guidelines on minimum living standards.


The service has consulted a number of bodies on what it thinks is an appropriate minimum living income for those in debt deals.

The new insolvency service will oversee a range of deals.

These include a debt relief notice, for those with debts under €20,000, a debt settlement arrangement for larger debts apart from mortgages, and a personal insolvency arrangement for mortgage and other debts up to €3m.

Those who do not reach a deal with their creditors have the option of bankruptcy, where an official assignee will dictate what they have to live on.

One finance expert, who has seen the new guidelines, described them as financial prison.

But it is understood that Mr O'Connor of the insolvency service is conscious that people will be in a personal insolvency arrangement, involving mortgage debt for up to seven years. This is why he may be willing to allow for relaxation of the guidelines over time for those who keep to their agreements.

There will also be scope for personal insolvency practitioners (Pips) to negotiate on the detail of what a family will get to live on under a personal insolvency arrangement.

"There will be an allowance for social inclusion, in other words socialising.

"So someone could decide to spend that amount of money on Sky Sports. But they then won't be able to go out for a few pints on a Friday night," the source said.

The Irish Independent also reports that it will be "game over" for many company pension schemes unless strict rules are relaxed, a leading expert in the area said.

Conor Daly, a partner at LCP, said there was a need for a radical rewriting of the funding standard for pensions. All funded defined benefit (DB) schemes are obliged to meet a statutory minimum funding standard.

The test notionally assumes that the scheme winds up and buys annuities for pensioners. But eight out of 10 DB schemes do not meet the minimum funding standard. The schemes promise a set level of pension in retirement, irrespective of fund investment performance.

Mr Daly said the reinstated minimum funding standard was "clearly" not in the best interest of DB members, as it would lead to benefit reductions "more severe" than otherwise required. Jerry Moriarty, head of the Irish Association of Pension Funds (IAPF), which represents trustees of DB schemes, backed Mr Daly at an IAPF conference.

Mr Moriarty said the DB system in Ireland was akin to a house with a leaking roof, only for somebody to insist that the house's windows needed replacing. "Maybe you should concentrate on fixing the hole first and then worry about the double glazing later," he said.

"I don't think anybody is against the concept of having adequate pensions that are going to be provided."

But he added that, if the regulatory bar was set too high, the benefits would not be paid out due to scheme closures.

Schemes that are in deficit have to present proposals to the Pensions Board by June 30, setting out how they will restructure their plans over a 10-year period. Most schemes in deficit will be forced to cut benefits for workers yet to retire.

The Irish Times reports that the European Central Bank has set Cyprus a Monday deadline to agree a bailout plan, threatening to cut off funding to the island’s cash-strapped banks if a programme is not agreed by then with the EU and the IMF.

The decision by the ECB's Governing Council, announced this morning, gives Cyprus a last chance to agree a bailout that bears the EU/IMF stamp, or else succumb to financial meltdown.

In a statement, the Frankfurt-based bank said the governing council had decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, March 25th, effectively setting Monday as a cut-off point for a deal to be reached.

"Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU-IMF programme is in place that would ensure the solvency of the concerned banks," it added.

Cyprus' banks, which was badly impacted by a writedown in Greek debt, are being supported by emergency funding from the ECB.

The decision by the ECB gives Cyprus a last chance to agree a bailout that bears the EU-IMF stamp, or else succumb to financial meltdown.

Cyprus has faced the prospect of bankruptcy since Tuesday when its tiny parliament voted unanimously against a levy on bank deposits to raise €5.8 billion demanded by the EU under a €10 billion rescue.

Cyprus’s president is meeting party leaders to secure their support for a revised plan to raise €5.8 billion that international creditors have demanded in exchange for a larger rescue package that would prevent the country’s bankruptcy.

Nicos Anastasiades and the Cypriot authorities are rushing to come up with a new plan after politicians soundly defeated an earlier proposal to seize up to 10 per cent of all domestic deposits to finance the rescue.

With the economy potentially days from ruin, banks have stayed shut to prevent a run. Cypriot government officials said the new plan includes a smaller deposit grab to ease the pain on small savers, restructuring the country’s troubled banks and raising money from domestic sources including pension funds and subsidiaries of foreign banks active in Cyprus.

Banks, shut since the weekend, were to stay closed for the rest of the week and so not reopen till Tuesday after a holiday weekend, extending the misery of Cypriot businesses already feeling the pinch. The Cypriot stock exchange also extended a trading suspension to today and tomorrow.

Cypriots still have access to cash for now as bank machines which were emptied at the weekend have been restocked.

Cyprus was also looking to Russia, whose citizens have billions of euros to lose in the island's outsized and now-teetering banking sector. In Moscow since Tuesday, Cypriot finance minister Michael Sarris said the two countries were discussing cooperation in the banking and energy sectors in addition to a new loan of €5 billion.

"We've asked for help clearly, but something that would make also economic sense for Russia," he told reporters during a second day of talks with his counterpart, Anton Siluanov.

The ECB's role is crucial because it controls the provision of central bank funds to Cypriot banks - lifeblood without which the island's bloated financial sector cannot function properly.

Cypriot banks are greatly reliant on ELA for funding. At the end of January, they had taken around €9.1 billion from the country's central bank through the programme, the Central Bank of Cyprus balance sheet showed. At the same time, the country's banks had taken only €376 million from regular ECB liquidity operations. The ECB stopped accepting Cyprus government bonds as collateral in June, which made it more difficult for the country's banks to participate in regular ECB operations.

The Irish Times also reports that the amount of money deposited by Irish savers in overseas banks doubled in 2010 as the euro zone sovereign debt crisis took hold, new statistics from the Revenue Commissioners show.

In 2010, some € 235 million was placed on deposit in overseas banks by some 901 individuals or couples, up from €117 million in 2009, as savers and investors looked to diversify their holdings away from Irish banks and the euro currency. In 2008, just €89 million was held in foreign bank accounts, according to information compiled by the Revenue from income tax filings.

Tax payers filing on a self-assessed basis must disclose information on foreign bank accounts, as interest earned is subject to income tax, rather than deposit interest retention tax, as is the case with domestic deposits. The aforementioned figures do not include PAYE taxpayers, who may have declared their foreign bank holdings through their local tax office.

Since 2005, the amount of disclosed foreign bank deposits has jumped 261 per cent from € 65 million to € 235 million. However, the number of individuals or couples investing their money abroad has stayed largely stable, at 769 in 2005, and 901 in 2010.

Deposits held overseas grew as those kept in Irish resident banks decreased. According to the Central Bank, deposits from the private sector, including households, businesses and financial institutions, in Irish resident banks fell by 7.6 per cent or € 15 billion in 2010, followed by a further 7.3 per cent decline in 2011. The trend was reversed in 2012 when deposits grew by 2.5 per cent.

The Irish Examiner reports that there was muted support across Europe from the various interest groups to the deal hammered out by Agriculture Minister Simon Coveney on a common stance by EU member states on a reform of the CAP.

Farming bodies, including the IFA and its EU counterpart Copa-Cogeca, welcomed the additional flexibility built into the council’s position and encouraged Mr Coveney to ensure that this survives the negotiations with the European Parliament and the commission over the coming weeks.

Environmental groups and those looking for a radical change to the bloc’s common agriculture policy were equally anxious to pressurise the minister towards more green policies and tying them in more tightly to qualifying for funds.

While the agriculture ministers took a step closer to the original European Commission proposals in some areas, they took a step back in others.

Agriculture commissioner Dacian Ciolos set out the areas of divergence and convergence after two long days of meetings and three years of planning. The aim was to make the CAP a fair, greener policy more in line with reality and able to cater for the variety of different farmers in the EU, he said.

The complex matter of getting members states to agree a common position was made more difficult because many people did not understand that there was a new decision-making process involved now, with the European Parliament having a say for the first time.

Mr Ciolos gave high praise to the Irish presidency, saying he was confident “thanks to the sterling job” they had done over the past three months and particularly what he had seen over the past few days that the tight deadline of having a final agreement by the end of June was possible.

The council was closer to the commission’s position in ending the sugar quota; on environmental concerns and in penalties for breaching them. But the commission would continue to argue against the council and for more internal convergence and on greening.

“I am very happy that the parliament and council have integrated the fact that greening will be part of the package and covers 30% of direct aid and is moving towards being obligatory as penalties will be above 30% and cover the whole agricultural area of Europe, or by equivalent measures that need to be discussed in greater detail.

“We are moving towards solutions that enable us to take account of what farmers are doing in different regions. It will not stop farmers from becoming competitive. There is a risk of greenwashing on certain elements, but I remain optimistic,” he said.

Mr Coveney said the flexibility on direct payments would reduce the transfers between farmers and allow the Irish model of partial convergence to be one of the options countries could use for distributing direct payments.

Instead of the commission’s aim to have a flat-rate payment per hectare mandatory in all member states from 2019, Mr Coveney said they opted for partial convergence by then.

There would also be more flexibility on greening payments under the council’s plan while the schemes that would qualify would be decided at national level also.

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