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News : Irish Last Updated: Apr 12, 2013 - 11:43 AM


Friday Newspaper Review - - Irish Business News - - April 12, 2013
By Finfacts Team
Apr 12, 2013 - 9:33 AM

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The Irish Independent reports that Michael Noonan, finance minister, still believes he can secure a deal to pump billions in European money into 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 negotiation.

Borrowing

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 said.

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 restraint.

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.

European Union

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 period.

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 weakening.

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 the year.

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.

Construct wrong

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 addressed.

“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 flagship publications.

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 government bonds.

“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 losses.

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 accessing credit.

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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