The Irish Independent reports that Michael Noonan, finance
minister, still believes he can secure a deal to pump billions in European money
Irish banks -- as well as an agreement to push back some of our bailout
repayments by seven years.
In an exclusive interview with the newspaper, Mr Noonan said he
expected a deal on EU bank regulation this weekend -- which would be a positive
step towards a multi-billion euro package to ease the burden on the taxpayer.
He also said he had pushed to be given longer to repay as much as €40bn in
Irish bailout debt, but is "quite happy" with the seven-year extension that is
on the table.
The influential Eurogroup head Jeroen Dijsselbloem also said "the intention
is very positive" when it comes to such a deal.
They were speaking ahead of a crunch meeting of European finance ministers,
which begins in Dublin today. Getting more time to repay the bailout loans and
securing a separate deal on bank rescues are the two key issues facing Irish
negotiators as we prepare to exit the bailout programme.
Mr Dijsselbloem was cautious about the prospects for agreeing a deal on
whether the new European bailout fund can be used to pump money into banks here,
which have already been rescued using taxpayers' money. A deal would see some of
the almost ¿30bn pumped into AIB, Bank of Ireland and Permanent TSB coming back
to taxpayers, and being replaced by European funds.
Mr Dijsselbloem heads the Eurogroup of finance ministers, making him among
the most powerful figures in European politics.
"The deadline is in June, so we definitely hope to complete our discussion
and have a decision about the instrument by then," he said.
But he added that he "really couldn't say" if the ESM will be available to
cover the cost of banks like AIB that have already been bailed out.
Mr Noonan is confident that this weekend's meeting will help pave the way, as
it should see a breakthrough agreement on the creation of a single supervisor
for eurozone banks.
The deal would be the first step in creating an overall banking union, which
would also keep government hopes alive for some EU assistance with the cost of
rescuing the surviving Irish banks.
EU governments led by Germany appear to have ruled out any capital
to cover 'legacy' losses but Mr Noonan said there was still room for
While he said there was now no chance of direct cash to cover the
cost of liquidated Anglo, money could be put into the remaining Irish banks.
"I don't see any handbrake being slammed on that one. There are
areas of disagreement but they don't seem to me to be insurmountable," he
Mr Noonan also said he was happy with the idea of extending the
repayment dates of troika loans for seven years in order to help Ireland
return to borrowing in the markets.
Although no formal agreement can be struck this weekend, he was
confident that agreement in principle would be reached, because it would be
seen as essential for a successful return to the markets.
Ahead of this weekend's meeting, Ireland has also tabled proposals
to make an element of the ECB more accountable to politicians.
Under the proposals, the bank would have to respond to calls from
governments or the European Parliament to have the vice-chairman of its bank
supervisor board removed.
Turning to domestic issues, Mr Noonan said agreement on a new Croke
Park deal would clear the way for an easier Budget in October.
He said: "It would make a sizeable contribution on the spending
side and I would be in quite a strong position for 2014, because much of the
tax revenue due next year is already decided, with the property tax and
changes to pension relief," he said.
The Irish Independent also reports that the
cost of an hour's work is arguably the key determining factor for multinationals
mulling where to base their foreign operations.
Tax rates matter hugely, but you cannot credibly discuss a country's
competitiveness without discussing labour costs.
Ireland's costs became infamously out of line with our peers during the boom
– when the flow of apparently cheap money did for any semblance of wage
In economic, if not in human terms, one positive impact of the bust has been
a sudden gain in competitiveness – dubbed internal devaluation.
The hourly wage paid to workers here has increased by just 0.8pc since 2008,
not even matching inflation.
Crucially much of the rest of Europe is following a different trend.
Statistics from Eurostat show that the average hourly wage rose by 8.6pc among
EU countries over the last four years, to €23.40. In the 17-member eurozone the
average stands at €28 per hour. European labour costs vary massively. An hour's
work in Bulgaria costs an employer €3.70 on average. In Sweden its €39.
Across the European Union as a whole wages fell slightly between 2011 and
2012, but for the most part pay has increased right throughout the euro crisis
Wages have risen even as unemployment rates hit a record high of 12pc, with
an estimated 26.3 million people out of a job.
The averages are deceptive. In Greece labour costs have decreased by more
than 10pc in the last four years. The country still has some of the highest
unemployment levels in the EU.
In Ireland the average hourly wage of €29.10 remains at the higher end of the
European scale, just below Germany but well below rates in Scandinavia where
workers in Sweden earn €39 on average and Danes are paid €38.10 an hour.
In contrast Austria, Slovakia and Finland all recorded double digit growth in
wage costs between 2008 and 2012.
Worryingly, though, rates in Ireland's nearest competitor the UK are well
below the European average at €20.10 per hour. Just like here wages in the UK
have been flat as wages elsewhere increased, in part because sterling has been
Labour costs are made up of wages plus some costs of employing
staff, including employers' social welfare contributions.
Non-wage costs make up a below average share of the labour bill in
Ireland, at 14.1pc. It means more of the cost of employing staff is directly
a result of wages.
On average across the European Union such non-wage costs amount to
23.7pc of the labour bill.
In France and Spain around a third of the hourly cost of employing
someone is non-wage costs.
The Irish Times reports that European finance ministers and central bank governors
are gathering in Dublin Castle this morning for the start of two days of
informal meetings of the Ecofin group.
Amongst the issues that will dominate discussions are
increasing the repayment period on the bailout loans for Ireland and Portugal,
the creation of a European banking union, and strengthening financial stability
in the euro zone.
The meeting will also provide finance ministers with the
first opportunity to discuss the fallout from the Cyprus bailout debacle which
has seen bank depositors targeted for the first time.
Speaking in advance of the meeting yesterday, Dutch finance
minister Jeroen Dijsselbloem, said he did not believe Ireland will need a
further bailout in order to return to financing from the markets by the end of
Mr Dijsselbloem said a deal to lengthen the terms of the
current loans should suffice - placing the Ecofin chief at odds with the
Government position. Ireland, with support from the IMF, has been looking for
retrospective funding from the European Stability Mechanism, to cover the costs
of rescuing AIB and Bank of Ireland.
While the outline of a deal will be discussed in Dublin a
final decision on Ireland and Portugal's bailout loans will not be taken until
the May meeting of European finance ministers, Minister for Finance Michael
Noonan confirmed earlier this week.
A number of groups are planning protests to coincide with the
meeting. Representatives of the Garda Representative Association (GRA) have been
outside protesting with placards since 7.30am, while the Campaign Against Home &
Water Taxes say thousands will march on Dublin Castle tomorrow in a show of
opposition to property tax and austerity.
The Irish Times also reports that the International Monetary Fund has distanced itself from comments by the fund’s
former mission chief to Ireland, Ashoka Mody, who said complete reliance on
austerity was not “a reasonable” way to go.
“Choice one was to bring in the bondholders and they would bear some of the cost
of the sovereign distress. A second choice was to offer extremely concessional
official financing. Third choice was to impose austerity,” he had said.
The IMF pointed out that Mr Mody had retired from the IMF “and his views do not
represent the fund’s position”.
Ireland's bailout programme, it said “has tackled major challenges in the
banking sector and has steadily reduced the fiscal deficit from unsustainably
high levels through a consolidation effort that is phased over time”.
The fund said it was “disappointing that growth in 2012 was not as high as
originally projected, but this partly reflects the notably worse external
environment, and Ireland is on track for positive growth in 2013 at a time when
the euro area as a whole is in recession”.
It said strong policy implementation by the Irish authorities, “together with
announcements by European leaders and the ECB”, had enabled Irish bond yields to
fall to more manageable levels and for market access to be regained.
Speaking on RTÉ’s Morning Ireland yesterday morning, Mr Mody said the construct
for Ireland’s rescue was wrong. “We are seeing a belated recognition of the fact
that the constraint imposed only by austerity was untenable.
"Clearly the experience, if experience was needed, has demonstrated that
reliance on austerity is counterproductive."
Earlier this year, Mr Mody said the legacy burdens of the crisis must be
“The alternative is unending human pain, a culture of national dependency and a
fraying European economic and social fabric.”
He said the debilitating consequence of delays in debt restructuring has been
unrelenting fiscal austerity – a silent tragedy that has no champions.
In May 2011, upon completion of its second review, the ECB-EC-IMF troika
projected that Irish GDP would grow by 1.9 per cent in 2012. Instead GDP grew by
an estimated 0.9 per cent. Growth expectations for 2013 have fallen from 2.2 per
cent to just over 1 per cent.
Separately, the IMF yesterday warned about the risks associated with the
sustained unconventional measures central banks in the industialised world have
been taking in order to boost economic growth and maintain financial stability.
The warning comes in the IMF’s Global Financial Stability Report, one of its
The unconventional measures referred to in the report include keeping interest
rates at historic lows for prolonged periods,providing long-term liquidity
provision to banks and buying large quantities of financial assets, including
“Policymakers should be alert to the possibility, however, that fi nancial
stability risks may be shifting to other parts of the fi nancial system, such as
shadow banks, pension funds, and insurance companies. Th e central bank policy
actions also carry the risk that their eff ects will spill over to other
economies” the report states.
The Irish Examiner reports that the Central Bank has given Irish banks until the end of June to put in place
potential solutions for these SMEs to deal with their non-performing loans.
Ms Muldoon said that it is not clear yet whether the banks have enough capital
to cover the losses across their mortgage arrears and SME loanbooks. Stress
tests will be conducted this year on the banks to gauge the overall level of
Transmitting credit to the SME sector is essential for an economic recovery.
However, an Irish Central Bank report released last July found that SMEs in this
country faced some of the most challenging conditions across the eurozone in
The banks rejected this report and blamed the low level of lending on lack of
demand because of high debt levels. Many Irish SMEs borrowed heavily against
property assets during the boom years.
In a speech made in Dublin yesterday, executive board member of the ECB Benoit
Coeure acknowledged the importance of SMEs to the eurozone economy. Moreover,
there remained huge constraints on banks lending to SMEs across the region
because of losses lurking in the sector combined with capital shortfalls in the
banking system, he added.
He said that the ECB is looking at a number of new initiatives that would boost
lending to SMEs. These included Government guarantees for bank lending and
putting in place guarantees for venture capital funds.
Mr Coeure said institutions such as the European Investment Bank (EIB) could
also be used to channel funding to the SME.
The Irish Examiner has learned that one of the proposals the ECB is looking at
is extending credit lines to the EIB to facilitate lending to SMEs. However,
senior EIB executives are understood to be opposed to this proposal on the basis
that SME lending is more high risk, which would threaten its AAA credit rating.
In his speech Mr Coeure said that because of new capital requirements for banks,
SME lending would become more expensive. However, “EU co-legislators have agreed
on a specific discount factor for exposure to SMEs, for loans up to €1.5m. This
measure is expected to reduce capital requirements for SMEs by about 25%.”
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