The Irish Independent reports that the IMF has
launched a blistering attack on EU leaders for failing to deliver on their
promise of a bank debt deal for Ireland.
The latest IMF review of Ireland's progress under the bailout set out a stark
vision of a lost decade before families get back to pre-crash living standards.
Ireland is doing enough to get out of the bailout by the end of the year, but
risks falling back into a new bailout unless Europe helps ease the bank debt
burden, the International Monetary Fund warns.
Many experts saw the report as a warning to the EU and European Central Bank
that both need to do a lot more to help Ireland out of its excruciatingly heavy
The Government is already meeting the IMF's call for extra judges to speed up
home repossessions and to deal with the unfolding mortgage crisis.
But the international lender also wants tougher laws, which would see quick
repossessions where borrowers have not paid any substantial part of their
mortgage or agreed to a plan of repayment.
And what will really cause alarm is the IMF's stark warning about the risks
faced by the country if it does not get further help from Europe.
It said that the recent deal to stretch out the repayment of Anglo debt had
provided a significant reduction in borrowing needs over the next 10 years --
but our national debt of €192bn had been "little affected". It said that
European leaders needed to deliver on their commitment to break the link between
the State and its banking debts to "assure the durability of Ireland's exit"
from the bailout programme.
"Even with continued strong policy implementation, a durable exit
(from the bailout) cannot be assured without timely and forceful delivery of
European pledges," it said.
The IMF called for the new eurozone bailout fund to be used to be
used to deal with the €32bn of taxpayers' money that went into AIB, Bank of
Ireland and Permanent TSB.
It said this would pump much-needed cash back into state coffers
and make it easier for the banks to access cheap money to support lending.
But this is being strongly resisted by Germany, the Netherlands, Finland and
other eurozone states.
The IMF staff report said Irish households had suffered the largest
fall in wealth in the EU due to the 50pc drop in house prices. And it went
on to paint a grim picture of the current situation.
"Household debt remains high, curtailing consumption, and financial
distress affects many households," it said.
It warned that on current growth rates, it would take a further 10
years for living standards to recover to the levels last seen in the boom in
The IMF pointed out the predicted recovery date of 2024 for Ireland
was slower than other European countries which had gone through similar
"boom bust" cycles. Sweden recovered after five years and Finland was back
after seven, following economic crashes in the late 1980s.
Although there was little disagreement on the call for an EU bank
debt deal, government sources played down the report, saying it was not the
same as a formal bailout review.
A spokesman said Finance Minister Michael Noonan had repeatedly
referred to making a "sustainable" exit from the bailout. "It is fair to say
we are focused on making a sustainable exit from the programme. We are
working with the troika to see what supports are there," the spokesman said.
Coalition sources said there were a number of concessions required
from all three of the bailout partners – the EU, ECB and IMF itself –
including: breaking the link between bank and sovereign debt; maturity and
repayment of bailout loans from the lenders; and access to the new EU
But the IMF also sounded warnings about unemployment and the
process of re-training.
It said the biggest danger in the country's "acute unemployment
crisis" was the fact that over 60pc of people on the live register had now
been out of work for a year and 30pc for over two years.
When the unemployed were added to those working fewer hours than
they wanted, the total was a "staggering" 23pc of the workforce, it said.
The IMF has also complained abut the "slow progress" in dealing
with the 123,000 people with mortgage arrears of more than 90 days.
The IMF also ruled out any general mortgage debt writedowns as
"unaffordable and ill-targeted", saying that 84pc were still paying their
The Irish Independent also reports that the Central
Bank here holds €115.4bn of Irish government bonds, after its holdings of the
debt surged by 28pc in February, following the liquidation of the former Anglo
The amount of long-term bonds being held by the bank on Dame Street increased
from €90.3bn in January. The increase will be closely watched by European
Central Bank officials, who will monitor the debt pile to make sure the Central
Bank isn't being used to bankroll government spending.
The Dail passed legislation to liquidate the Irish Bank Resolution
Corporation (IBRC) during a hasty late-night session in early February under a
plan to deal with the massive annual repayments due under the controversial
With IBRC in liquidation, the Central Bank became the economic owner of the
They were replaced by the Government with a series of longer-term,
floating-rate bonds to the value of €25bn and with maturities of up to 40 years.
The holdings will be closely watched by ECB president Mario Draghi, who has
never given overt approval for the promissory-note swap.
At an ECB press conference after the IBRC was liquidated, Mr Draghi
cryptically said that the governing council had taken note of it – ECB speak to
confirm its awareness of the deal.
The role of the ECB in the deal was to ensure that any agreement would not
constitute monetary financing.
The ECB president told MEPs that the deal would be examined later in the year
in order to ensure that it was in conformity with article 123 of the ECB's
treaty, which blocks the bank from engaging in monetary financing.
And he said the Central Bank's disposal policy for the bonds was crucial.
Under the Frankfurt bank's rules, monetary financing is strictly prohibited
for any member state. The ECB will therefore be keeping a close watch to ensure
that the Central Bank disposes of the bonds as planned.
The Government has said that €500m worth will be sold by the end of next
year, with another €500m sold between 2015 and 2018, a further €1bn between 2019
and 2023 and €2bn per year after 2024.
Just days after the promissory note deal, Jens Weidmann, the head of
the German Bundesbank and a member of the ECB's Governing Council, warned that
it was dangerously close to breaking EU monetary rules.
He appeared to cast doubt over the agreement, stating the ECB had to
make sure the transaction conforms with the Euro bloc's rules
The Department of Finance stressed that the deal is solid.
The Irish Times reports that Ireland’s banks by the
European Stability Mechanism (ESM), Europe’s permanent bank bailout fund, “could
play an invaluable role” in the recovery of the economy, according to a new
report from the International Monetary Fund.
The ninth IMF review of Ireland’s bailout programme
highlights the risks facing Ireland’s economic recovery, despite acknowledging
solid progress achieved to date.
The report warned that the prospects for Irish economic
recovery remain highly uncertain over the medium term. Because of this, Ireland
cannot be assured of staying free of dependence on the EU-IMF loans, it said.
The Government has achieved strong policy implementation of
the bailout programme so far, the report stated, and the fund acknowledged the
State’s success in raising money from private investors in the bond market.
But the report also noted high public and private debt and
problems in the banking sector, which include low levels of bank lending as
significant obstacles to recovery.
“Continued weak growth would likely erode confidence and
potentially undermine market access as a recovery is critical to putting
Ireland’s debt on a downward path.”
The high level of risk was also reflected in the European Commission
’s parallel quarterly report, leaked details of which were
published by the Irish Times yesterday.
The IMF report echoes the EU Commission’s which criticised
overspending on health expenditure and warned of problems associated with high
levels of unemployment and rising numbers of non-performing loans.
Referring to inadequate progress by banks in tackling problem
mortgages, the IMF argued that a sharp improvement is needed in dealing with
It says if the economy were to grow by half a per cent in
coming years, “Ireland’s debt ratio would continue to rise, reaching some 134
per cent of gross domestic product by 2018. Debt levels above 120 per cent of
GDP are viewed by economists as putting a government at risk of default.
Moreover, higher loan losses associated with rising unemployment and weaker
asset prices would generate new capital needs once banks’ buffers are exhausted,
which could further raise debt ratios in the medium term.
“Were such a scenario to arise, Ireland’s ability to rely
fully on the market to cover its large-post programme financing needs could
easily become strained.”
The report suggested those risks could be mitigated if
support was received from the ESM to recapitalise Irish banks retrospectively.
The report rules out general debt relief for distressed
mortgages on the basis it would be “unaffordable and ill-targeted as 84 per cent
of mortgages [of principal homes] are not in arrears even though many of these
are in negative equity”.
When the numbers of unemployed people are added to
involuntary part-time workers and those in marginal jobs, the rate of
unemployment and underemployment rises to a “staggering 23 per cent”.
Separate figures published by the Department of Finance show
tax receipts and public spending in the first three months of the year were in
line with targets in last December’s budget. A continued narrowing of the
deficit ensured the quarterly EU-IMF budgetary target was also met.
The Irish Times also reports that
the Irish services sector expanded in march, but the rate of growth slowed for
the second month in a row.
The NCB Services Purchasing Managers' Index recorded a
reading of 52.3 last month, with growth in new exports fuelling an overall rise
in the index measuring new business. That was the eighth consecutive increase
for new business, and the 20th for new exports.
Some 26 per cent of firms reported a rise in overall business
activity over the month; only 18 per cent said it fell.
The growth in new business also had a knock on effect for
employment, which registered a reading of 53.4 for the month.
But higher fuel costs continued to put pressure on service
providers,pushing up input prices despite competition keeping average prices
charged lower. This had a negative impact on profitability.
"In all, the key positive from this morning's report is the
continued strength in New Export Business," said NCB chief economist Philip
O'Sullivan. "Services exports were an important contributor to Irish economic
growth last year, with total export growth of 2.9 per cent driven entirely by
strength in the services sector. Indeed, in 2012, Ireland's services exports
exceeded goods exports for the first time on record."
He noted that the forward looking index measuring
expectations and business sentiment reflected "solid optimism", with new export
business to remain a key source of growth over the coming year.
The Irish Examiner reports that
the probe — of nearly 2,300 companies in the motor trade — undertaken by
business intelligence provider, Vision-net, found that 33% were showing signs of
business failure, with another 18% at medium risk of collapse. Almost half (49%)
however were deemed to be at a low risk of failure.
However, Alan Nolan, the director general of the Society of the Irish Motor
Industry (SIMI) accused Vision-net of engaging in a cynical marketing exercise
that could damage car retailers during an important sales period.
“We are very concerned that this is a cynical marketing ploy to sell their
company look-up service. This is a crucial sales period for the car industry,
70% of all car sales are in the first half of the year,” he said.
Vision-net felt that its findings warranted a warning to motorists planning on
buying a new car to check how the dealership is performing before purchasing.
“This is important, because most dealerships give warranties, so the buyer
should check whether the business is likely to still be there should they need
to bring the car back for repairs. Equally, someone considering setting up a
business in the motor trade should first research demand across the industry and
check how others are performing,” according to Christine Cullen, managing
director of Vision-net.
However, Mr Nolan said: “This is just scare mongering to encourage people to use
their service. The warranty is given by the manufacturer and if a dealership
closes the warranty will be valid in any other dealer within the manufacturers
network,” he said.
Vision-net’s survey was published just a day after data from the SIMI showed a
14% year-on-year fall in new car sales during the first quarter of this year —
with the Volkswagen Golf the best-selling model during the period but other
popular marques like Renault, Toyota and Ford suffering the biggest losses.
It also follows some recent high-profile closures across the industry, including
the Bill Cullen Motor Group, Merlin Motor City, Appleyard Motors in Dublin and
the EP Mooney Car Group.
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