Was away over Easter in a far flung part of this island. But, was able to get the Sunday Business Post in its print edition and what did I read? Nothing but good news there… no, excuse me, not so good news. For the headline read:
Austerity to end by 2016 but ten years of tight budgets to come.
And reading further it was hard to see how one could differentiate between the pre-2016 and post-2016 era. Actually it’s interesting how it was phrased. Some will recall that the narrative has been shaped by a ‘spending beyond our means’ line and how cuts and austerity were not merely necessary but actually good. But the report notes that 2016 will ‘show the end of huge cuts to public spending and tax increases in 2016’. Which is interesting in that at least the scale of said cuts is unvarnished.
In effect his this will mean that the government finances will remain extremely tight for another decade, during which time they will be overseen by European authorities.
This being the case it does make something of a mockery of all the talk of ‘regaining our sovereignty’ does it not? For if sovereignty meant anything it fundamentally means the capability to make our own decisions and allow for those being both good and bad. Though it’s hard to argue that the actual situation will be good, in the context of said European supervision.
And there’s more.
There will be little or no scope for spending increases beyond the rate of economic growth nor will there be resources for tax cuts.
Let’s put the latter to one side, that being the SBP’s trope of the day, every day, but let’s note that once austerity has done its magic nothing changes. Literally nothing. We will be locked into a permanent 2016, or near enough permanent. It’s hardly worth dragging out the growth and stimulus argument, we’re all well aware of it at this stage, but this has effects beyond the economic.
For a start it suggests a complete shutting down of alternative economic policy options. What is political contest in a state which has in itself decided that there can be no change, and worse again is constrained by the EU and others in this. This provides both challenge and opportunity for those who would argue otherwise, for almost every argument in that context is an oppositional one, and if not revolutionary – after all, let’s not get ahead of ourselves, it is one that provides a direct push back against the orthodoxy and the status quo.
That’s, in a sense, the broader context, but more narrowly this has significant ramifications.
One obvious follow on from this is that this must spell ruin to Labour’s ambitions of a recovery, and not very good news at all for Fine Gael, for despite all their right of centre tilting they are as aware as any Fianna Fáil member of the necessity to disburse something to the citizenry, and how, at the end of the near enough decade of austerity that need will be greater again.
Indeed it suggests that the messages both FG and LP can craft are minimal in terms of their attractiveness for the post-2016 period.
Now granted none of this is new, we’ve known broadly the parameters that the state will operate under for quite some time, but now it is beginning to come into sharper focus. Particularly as a sense that economic growth is quite some way off.
But if one thinks that’s it, what of this last weekend’s news, again from the SBP that:
The fund states that this could happen in a “downside scenario” when slow growth would hit the property market. It believes this would increase bank mortgage loses and hamper Nama’s ability to dispose of its mammoth loan book.
The IMF has also called for more EU help for Ireland, warning that, if economic growth does not recover as expected, the national debt will quickly rise to unsustainable levels. The warning places further pressure on the European Union to ease the terms of the €40 billion it has advanced to Ireland through as part of the bailout.
Thing is we’re living in precisely that ‘downside scenario’. Only this weekend the Central Bank revised growth forecasts downwards yet again.
Now the IMF is an unreliable operation, in so far as it often appears to be speaking out of both sides of its mouth simultaneously. Nor is it’s ‘good cop’ to the ECB/EU ‘bad cop’ routine entirely convincing. Yet there is a consistency now to its refrain that growth must be supported. But contextualise its thoughts with those already outline above and far from things looking as if they’re getting better it would appear that stagnation, is at best, the light at the end of the tunnel.
Bitcoin is a fantasy. The Internet’s currency—a secure, private, decentralized type of money that makes possible anonymous and virtually costless transactions across borders—contains the seeds of its own destruction. More than anything else, it resembles a Ponzi scheme—and the wild claims made on its behalf reveal a great deal about a libertarian strain of thinking with deep roots in the American psyche.
As Farhad Manjoo relates in his entertaining (but dubious) foray into the market, bitcoin is the brainchild of a person (or persons) called Satoshi Nakamoto. Computer users can “mine” bitcoins by instructing their computers to solve complex problems generated by the bitcoin network. As more bitcoins are produced, the problems become more complex, requiring more computer power to solve them, and this limits the total number of bitcoins that can be created over time. Bitcoins are themselves simply strings of numbers. Once you own a bitcoin, you can transfer it to someone else (as a gift or to purchase goods) over the Internet. You can also convert it into dollars or other currencies on various exchanges. A central registry keeps track of where the bitcoins are located, so you cannot spend a single bitcoin over again by trying to transmit the identical code.
The currency was launched in 2009. It has traded for less than 1 cent. As recently as a year ago, a bitcoin was worth less than $5; this week the price of a bitcoin reached $266, an increase of more than 1,000 percent over the last three months, but then yesterday plunged to $105 before finishing off at $165 last I looked. More than 11 million bitcoins circulate, and so their aggregate value is fluctuating between $1 and $2 billion—a tiny fraction of the trillions of dollars in currency but not bad for the infant brainchild of an anonymous brain.
Bitcoin may be useful for certain types of transactions, especially illegal ones. But bitcoin’s defenders argue that the experiment has proved that a currency can come into existence and function without any government role, so designed as to make inflation impossible and bank transfer fees unnecessary. These features are supposed to make bitcoins irresistible for consumers. Meanwhile, stripped of the power to manipulate currencies to advance nefarious ends, governments will collapse, and we will live in an anarcho-utopia.
This is wrong, both theory and experience tell us. Bitcoin is not the first unregulated or private currency. Until central banks were invented in the 17th century, the money supply was unregulated even if governments did stamp coins. Other unregulated or private currencies have emerged from time to time—think of cigarettes in prison camps. Gold, silver, bank notes, and all kinds of other things have played similar roles. Paul Krugman wrote a famous Slate piece about a private currency that was invented to facilitate the exchange of services in a baby-sitting co-op.
Felix Salmon and many others have pointed out that a currency cannot succeed with a supply that is fixed, or if it grows too slowly. A currency is used to enter transactions; the more transactions there are, the more of the money you need. As the economy grows, a fixed-supply currency becomes worth more in terms of goods and services, and people begin to hoard it—expecting that if they wait a little longer, they will be able to buy more. Once hoarding takes over, circulation ends, and with it the function of the currency. Hoarding accounts for the large increase in the value of bitcoins; hoarding also sank Krugman’s baby-sitting scrip.
An even more fundamental problem with bitcoins, and indeed any private currency, is that there is no way to limit its supply. True, bitcoins cannot be manufactured beyond the limits set by Nakamoto. But there is no way to prevent future Nakamotos from creating bitcoin substitutes—say, bytecoin, or botcoin. If merchants are willing to accept bitcoins, they will be willing to accept the substitutes, especially as bitcoins become scarce and consumers scramble for substitutes. Nakamoto must have realized this because there are not enough bitcoins to substitute for the currencies around the world. The currency can only succeed if it is expanded or supplemented. But if there are no constraints on substitute digital currencies—and there aren’t—then the value of bitcoins will plummet as the subs begin to circulate. And once it becomes clear that there is no limit, people will realize that their holdings could become worthless at any moment, and demand for bitcoins and the other currencies will collapse, ending the experiment.
Unless a bitcoin has value as a currency, it has no value at all, and its price in dollars will fall to zero. A regular Ponzi scheme collapses when people realize that earlier investors are being paid out of the investments of later investors rather than from the returns on an underlying asset. Bitcoin will collapse when people realize that it can’t survive as a currency because of its built-in deflationary features, or because of the emergence of bytecoins, or both. A real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion.
Given this, why all the enthusiasm for bitcoin? Partly, the technological ingenuity of the scheme, of course. And people have misinterpreted the run-up in price as a sign of success rather than failure. But more fundamentally, bitcoin unites futuristic left-wing Internet anarchism—the fantasy that the Web can provide the conditions for a governmentless society—with the cave-dwelling right-wing libertarianism of goldbugs who think a stable money supply can be established without government involvement. It is proof for both that government is not needed for much, or at all.
Yet history shows that private currencies always end in tears; if central banks sometimes abuse the trust we place in them, the alternatives are worse. The strangest feature of the bitcoin saga is that people who are so suspicious of government put their trust in Satoshi Nakamoto, who could be anyone, or anyones—eccentric academic researchers, mischievous Fed economists, DARPA, U.N. globalizers in black helicopters, a criminal syndicate, a bored 11-year-old Ukrainian genius. If Nakamoto is as amoral as he is ingenious, then he pocketed the early bitcoins and laughed himself to the bank.
Mark Carney has been the Governor of the Bank of Canada since 2007. During his time as Governor, the main chartered banks were injected with “liquidity” totaling about $114 billion because of the financial crisis of 2008. The Prime Minister denied that this injection was a “bailout.” The Canadian banks also borrowed from the US Federal Reserve discount window–one bank alone borrowed $10 billion.
Canadian banks have gradually been deregulated and now are getting bigger than ever before. They can sell insurance, make investments and take deposits where previously they had been just boring depository banks. They are also getting bigger through acquisitions of other banking institutions.
Mark Carney gets credit for keeping Canadian banks from failing during the crisis but it was mostly luck (“horsehoes”) or previous regulation that actually kept the financial system stable. Carney and Finance Minister Flaherty frequently warn Canadians to get out of debt even though savings earn very little interest with our low interest rate policy and wages are stagnant or decreasing while prices continue to increase. Debt levels in Canada reflect the conditions of our economy. At the same time, the government has decided to impose austerity on the population by reducing expenditures across the board by 10% including loss of government jobs.
Here’s a little song for Mark Carney as he leaves Canada to become Governor of the Bank of England:
“When I was a Lad” (Carney Style)
By Polemic – Macro Man
After prompting from a reader and getting bored of guessing Italian election outcomes, we have adapted Messrs Gilbert and Sullivan’s “When I was a Lad” from “HMS Pinafore“. Instead of the Queen’s Navy, we think the B.o.E is more topical.
“When I was a Lad” (Carney Style)
When I was a lad I served a term
As a junior trader at the Goldman firm.
I cleaned the books and soon wasn’t poor,
As I traded debt and made the profits soar.
He traded debt and made the profits soar.
I traded debt so carefully
That now I am the Governor of the B.o.E
He traded debt so carefully
That now he is the Governor of the B.o.E
As trading boy I made such a fee
That they gave me a post in the ministry
As Canadian minister with no recourse
I introduced a tax on income trusts at source.
He introduced a tax on income trusts at source
I introduced the tax when at the ministry
So now I am the Governor of the B.o.E
He introduced the tax when at the ministry
So now he is the Governor of the B.o.E
In raising tax I made such a name
That a central bank governor I soon became
I saw a crash, chose policies to suit
To prevent Canada becoming destitute.
To prevent Canada becoming destitute.
I passed so well through the G.F.C
That now I am the Governor of the B.o.E
He passed so well through the G.F.C.
That now he is the Governor of the B.o.E
Of central bank skills I acquired such a grip
That they took me into the partnership.
Bernanke, Merve and then Draghi
All showed me the way to play the great Q.E.
All showed him the way to play the great Q.E.
Balance Sheet Constraint won’t apply to me
Now that I am the Governor of the B.o.E
Balance Sheet Constraint won’t apply to he
Now that he is the Governor of the B.o.E.
I grew so known that I was sent
By a select committee into Parliament.
I always voted for the strong growth call,
I never thought of thinking of inflation at all.
He never thought of thinking of inflation at all.
I thought so little, they rewarded me
By making me the Governor of the B.o.E
He thought so little, they rewarded he
By making him the Governor of the B.o.E
Now bankers all, (don’t look at me Moody)
If you want to rise to the top of the tree,
If your soul isn’t bothered by a ratings fall
Be careful to be guided by this golden rule.
Be careful to be guided by this golden rule.
Preach growth, restraint yet huge Q.E.
And you all may be Governors of the B.o.E
Preach growth, restraint yet huge Q.E.
And you all may be Governors of the B.o.E
Need a foolproof guide to figuring out the Government’s actions? Read on
How the promissory note works (sort of)
Step 1 The Government pays €3.1 billion interest payments on an IOU for loads of money it gave to Anglo/IBRC (a branch of Government), who then pay the interest back to the Central Bank (a branch of Government), who stare at it for a while.
Step 2 Some sums.
Step 3 Terrifying omens abound. A two-headed lamb is born. An eagle drops a wolf cub. It lands on Phil Hogan’s head (he wears it as a hat). An apparition of Seán Lemass is seen pacing Leinster House. The Spice Girls make a musical. The ghost of Bertie Ahern is seen in a petrol station forecourt eating a Big Time (to the surprise of the still living Bertie Ahern). The pope tweets his first tweet (“I’m infallible LOL!”). A long-faced man from Europe appears and gazes mournfully at us.
Step 4 Coffee break.
Step 5 Some more sums. Maybe some physics. Possibly a bit of string theory.
Step 6 The money vanishes.
Step 7 Cut respite grants for carers and reduce child allowance.
How the Labour Party works
This is when members of the Labour Party usually intervene and say they are a bit sad. They feel really desperate about the whole thing. In fact, they feel just awful. Words cannot express how terrible they feel and neither can devising redistributive policies. “Jaysus, it’s terrible,” they add, before crooning a few bars of a song about Jim Larkin and submitting an expenses claim.
“If only we were in opposition,” they say. “Then we might have some real power.”
At this point they sing a sad Irish air about missing being in opposition.
Because Labour are goodies. If they weren’t in Government things would certainly, definitely, probably, possibly be worse. We’d be working as footmen in Fine Gael’s stately homes and the Cabinet would be paying off loads of extra interest on promissory notes and raiding the pension fund all the time, just for the laugh. Enda Kenny would be wearing leather gloves, jodhpurs and possibly an eye patch. There would be far more nefarious guffawing.
Labour are, they imagine, classic heroes like the rebels in Star Wars. It just so happens they’re on the Death Star wearing stormtrooper suits at the moment (alternatively, you can imagine them as the carefree Smurfs hanging around Gargamel’s cave dressed as cats).
How Fine Gael works
Fine Gael, on the other hand, is more comfortable with governmental villainy (see Derek Keating’s attack on the “welfare economy lifestyle”). Its Ministers are modelled on classic baddies from fiction.
Kenny’s whole shtick is based on Gort, the glossy robot in The Day the Earth Stood Still (not the Galway town).
James Reilly, with his tax-relieved stately home and history of lobbying for the medical profession, is of course the Lovecraftian old god Cthulhu locating health centres in his home dimension.
Michael Noonan has based his persona on a character from the obscure 1950s Hammer exploitation film – Dracula meets Michael Noonan – in which the hero, an ageless whispering plutocrat, battles the otherworldly Michael Noonan.
Not everyone in Fine Gael seems bad at first. The Li’l Blueshirts, Leo Varadkar, Lucinda Creighton and Simon Harris, once seemed like roguish scamps engaged in neoliberal hijinks with a social-conservative twist.
But eventually their unearthly powers manifested themselves, like the children in Village of the Damned, and they terrified us all with their Toryism, sighing monotone deliveries, and by causing unexplained fires with their minds. They don’t mind being baddies.
But Labour are goodies. They don’t mean to target the poor. They LIKE the poor . . . and not just as a source of cheap labour. So they’ll sigh and cry and feel everyone’s pain and some brave souls will defect and some of them will do sad-face. Because they’re not baddies. They’re NOT. STOP IT. DON’T LOOK AT ME. DON’T LOOK AT ME!
The latest agreement between the Troika and the Government requires Irish authorities to remove a legal impediment which has stopped banks repossessing properties.
However, Ministers will not introduce the measure until borrowers homes are protected with the enactment of new personal insolvency legislation.
There has been a gap in legislation arising from a court judgment which has slowed the number of repossessions to a trickle.
Last year the High Court found banks cannot apply for a repossession if the mortgage was created before 2009 but demand for repayment was later than 2009.
The judgment exposed a loophole which will now have to be fixed, under the agreement with the Troika.
While an owner occupier‘s home will be protected under the new insolvency legislation, the change is likely to affect buy-to-let properties.
Almost one in three of these mortgages are now in arrears.
The Central Bank wants the banks to speed up their management of the problem.
The document also says that the Government will take steps to deal with the health spending overruns and keep health expenditure below €13.6bn next year.
It says the Commission for Energy Regulation will have responsibility for overseeing the price setting powers of Irish Water.
The Government will also have to set out its methodology for the next round of stress tests for Irish banks.
The agreement with the Troika also says the Irish Government will conduct a study to compare the cost of drugs, prescription practices and the usage of generics in Ireland comparable with EU jurisdictions.
MAYBE THE LOW turnout in the children’s referendum is not that surprising. There comes a time when people – having been respectful, patient and tolerant – have to say enough. We as citizens are taking a significant amount of pain for the wrongdoing of banks, bankers and regulators. When a government cannot mobilise its people to vote for child protection , maybe – just maybe – the biggest alarm should go off.
ranslate what the bank is offering you – no advice, just translation. MABS provides an excellent service but that’s because their staff are dedicated and trusted by the public, not because of the leadership shown by the minister or the Citizens Information Board. Only creditors including banks have benefited from this inaction.
Now we are given the Insolvency Bill, which is being promoted as our saviour. Vested interests both politically and professionally will welcome the Bill, but its extremely difficult for debtors to achieve any real protection within the Bill. The banks have a veto and there is no independent oversight of the decisions a bank might make. As a senior figure in the Central Bank has suggested, banks are like teenagers. I say it might not be advisable to leave teenagers in a free house unsupervised.
This Bill will also promote the tiering of debtors, where professional insolvency practitioners will naturally select those who can pay for insolvency services and leave those who cannot to fend for themselves. As currently presented, in order to apply for bankruptcy you will have to jump over more hurdles than there are in an Olympic race track.
There is a need for expert assistance to be available to mortgage holders to ensure their interests are protected in relation to dealing with banks and other creditors. The failure of Government and banks to deal with this crisis has made a difficult situation becoming close to unmanageable. With figures for the third quarter due out soon showing those in arrears the time has come for action.
I with others who feel equally strongly are working through a new organisation the Irish Mortgage Holders Organisation to advocate on behalf of debtors, to work to bring long term solutions and systems to over indebtedness and to allow this great country move forward.
David Hall was one of the co-founders of New Beginning in 2010. In July 2012, David and other concerned citizens established the Irish Mortgage Holders Organisation (IMHO) to help consumers tackle the increasing burden of personal debt. In addition to IMHO, David owns and runs Lifeline Ambulance Service. David also founded the Make-A-Wish Foundation in 1992.
Remember the €1.1bn that AIB shoveled into its pension scheme to plug a deficit that prompted all those headlines two weeks ago? A simple question – when the banks were stress-tested in 2011, was this €1.1bn deficit identified in an exercise that cost us about €30m in consultancy fees? The short answer is no, this €1.1bn deficit wasn’t specifically identified in the final report for the stress testing but it remains unclear if a deficit of this magnitude was considered or included in either the base or adverse scenario.
But when asked* in the Dail yesterday, this is Minister Noonan’s response (I’ve read this carefully several times, and it’s still hilarious how it manages to avoid answering the question*):
Minister for Finance, Michael Noonan : The Central Bank has informed me that the Capital Requirements Directive and the Central Bank set the rules around the calculation of the applicable capital base for credit institutions. These rules include reference to defined benefit pension deficits as these can affect the capital base of regulated entities.
In a letter from the Financial Regulator to industry in 2005, banks were informed that those applying IAS 19/FRS 17 are allowed to add back to Tier 1 Capital the amount of the defined benefit pension liability that has accrued in relation to Irish pension schemes in their financial statements and to deduct an amount equal to the sum of (i) the Deficit under the Minimum Funding Requirement plus (ii) three years Supplementary Contributions. A subsequent letter issued by the Financial Regulator in 2009 amended the treatment of the Deficit under the Minimum Funding Requirement element such that credit institutions were required to include at least the Minimum Funding Requirement in its calculation of pension risk under Pillar 2 capital calculations.
The draft Capital Requirements Regulation (CRR) requires the removal of most prudential filters, including the Irish DB scheme pension filter detailed above. Article 461 of the draft CRR, relating to transitional provisions, provides for regulated entities to apply a phased approach to filters and deductions “required under national transposition measures for Articles 57, 61, 63, 63a and 66 of Directive 2006/48/EC” with a five year implementation period. The transitional provisions are the subject of on-going negotiation between the European Parliament (EP) and Council.
The capital base and capital requirements of the PCAR banks were assessed under PCAR and included in this assessment was forecast deductions for defined benefit pension deficits and subsequent capital filters under base and stress scenarios. The FMP report did not disclose details of the assumed levels of deduction for pension deficits. The focus on the PCAR was the forecast income, capital requirements and losses (particularly loan losses) in the three-year period.
The Central Bank included in the PCAR the forecast deduction for defined benefit pension deficits and subsequent capital filters under base and stress scenarios. In addition the Central Bank considered the implications of Basel III (namely CRD IV/ CRR). The PCAR tolerance levels and capital basis were set in accordance with the Central Bank’s definition of Core Tier 1 under the prevailing Capital Requirements Directive rules as at end-March 2011.
It is important to note, that the quality of capital in the Irish banking system has increased significantly as a result of lower tier capital buy backs and Government equity contributions. Whilst it is clear that the Basel III rules impose more conservative deductions than is currently the case, following a recapitalisation to levels determined by the 2011 PCAR, the FMP report stated that all four banks should comfortably meet Basel III Common Equity Tier 1 ratio on a phase-in basis under both the base case and stress case scenarios. The combined surplus to the minimum phase-in Common Equity Tier 1 under the PCAR base case under PCAR was estimated at the time as circa 13.3bn and 3.7bn under the stress case. Three of the banks would also meet the full 2019 minimum standard in the 2013 base case scenario.
*Deputy Pearse Doherty: To ask the Minister for Finance in respect of the €1.1billion top-up made by Allied Irish Banks to the group pension scheme in August 2012, if he will identify in the stress testing undertaken by the Central Bank of Ireland with Barclays Capital, BlackRock and the Boston Consulting Group in early 2011 which resulted in the publication of the Financial Measures Programme on 31st March 2011, where, in this work was the €1.1billion shortfall in the AIB pension fund examined or identified.
via NAMA Wine Lake.
via NAMA Wine Lake.
Eircom to shed 2,000 jobs in effort to cut €100m per year
IRELAND’S BIGGEST telecoms company, Eircom, plans to shed 2,000 jobs over the next 18 months in an effort to save €100 million a year.
This is twice the level of redundancies previously indicated by the company, and represents 35 per cent of its 5,700-strong workforce. The company will initially ask staff to opt for voluntary redundancy.
It represents further bad news for the Government on the employment front and comes just a day after it was reported that State-owned An Post is seeking to cut up to 1,500 full-time positions by 2016.
Minister for Communications Pat Rabbitte said it was “regrettable that further restructuring seems inevitable” at Eircom. “But the commitment to invest €1.5 billion to upgrade the network is welcome.”
Eircom has been in an almost permanent state of restructuring in recent years as it has sought to modernise and address legacy costs from its days as a State-owned entity.
It has also struggled under the burden of massive debts put on the business by a succession of private-sector owners.
Eircom’s workforce has been reduced by 1,500 over the past three years. The company only emerged from an examinership process earlier this year after its lenders agreed to cut their gross debts from €4 billion to €2.35 billion while taking control of the group.
Alan Dukes: Cost of Anglo wind-down may be closer to €25bn, lower than expected
IRISH Bank Resolution Corporation (IBRC) chairman Alan Dukes said today he is hopeful that the cost of the wind-down of the former Anglo Irish Bank will be closer to €25bn and lower than previously estimated.
However, he added that the lower cost was predicated the Irish and British property markets not worsening any further.
He told an Oireachtas committee: “We remain reasonably hopeful that the cost of the operation will be closer to €25bn rather than the range of €29-€34bn estimated in September of 2010.
“This of course highly contingent on what happens to property markets here and in the United Kingdom.”
He said it may be possible to wind-down the lender faster than expected but he also said the bank is “extremely vulnerable” to what happens in the eurozone and deterioration in property markets.
Mr Dukes added that he is not involved in current discussions between Ireland and European authorities over a restructuring of the Anglo promissory notes or IOUs.
He also said he did not agree with recent comments from Central Bank executive Fiona Muldoon that the banks are not moving fast enough to deal with mortgage problems.
His comments came as new figures from the Central Bank showed that loans to Irish households fell 3.7pc in the year ending September 2012.
The figures were relatively unchanged on the previous month and fell €88m in September.
Lending for new houses was 2pc lower on an annual basis in September while loans for other purposes declined by 8.4pc.
AIB to write off some mortgage debts but no blanket amnesty
THE REPUBLIC’S largest mortgage lender, AIB, will write off the debts of distressed mortgage holders where it finds they cannot afford to repay them, but has again ruled out blanket debt forgiveness.
The bank indicated that about 10,000 of the most distressed mortgage customers will be considered for long-term fixes, including the potential write-off of debts.
Similar relief measures are being considered by the other banks as the Central Bank has publicly criticised the banks for failing to tackle the mortgage crisis.
In his first appearance at an Oireachtas committee, AIB chief executive David Duffy warned against widespread debt forgiveness when most customers were repaying their mortgages and did not get into financial trouble by investing heavily in property. AIB would be in “very dangerous territory” where people who made “mad decisions” should get part of their debt “magically” waived, he told the Committee on Finance, Public Expenditure and Reform.
The State-controlled bank, which received a €21 billion public bailout, was instead looking at distressed borrowers case by case to assess what they could afford over their lifetimes and would then write off any debt they could not afford.
Mr Duffy said many struggling borrowers had a home loan, debt on a small business and invested in buy-to-let properties or other real estate through partnerships, family or other relationships. The bank was “disentangling” these debts while trying to keep people in their homes.
BANKS had been given a life-saving blood transfusion by taxpayers but returned the favour by charging customers more, the financial regulator has said.
The country’s top regulator, Matthew Elderfield, also accused the banks of not properly contributing to society.
His comments came on the day it emerged that Bank of Ireland is to push up the interest on credit cards by as much as 4 percentage points, in a move that will hit thousands of householders. Many struggling consumers are so short of cash they are using credit cards to juggle their finances.
The new rates, which will be between 0.7pc and 4pc higher, take effect from December 18 next. They apply to purchases on cards. The bank, which got €4.7bn from the taxpayer, said it had not raised rates since August 2011.
Mr Elderfield, who is also the deputy governor of the Central Bank, said banks faced the uncomfortable task of “telling the neighbours who donated blood to them that they need to charge them more as customers”.
Mr Elderfield said returning to profitability was one of the key challenges the banks faced.
“Progress on profitability will only be possible in the interim due to gradual repricing of assets to reflect the cost of funds,” he said.
That implied further interest rate hikes, he said.
AIB has announced two hikes in its variable rates in quick succession. Bank of Ireland has hiked its variable rate by 0.5pc, while Permanent TSB has signalled a rise in fixed rates.
Speaking at an event in UCC, Mr Elderfield said the banks were out of the “critical ward following radical surgery and an extensive transfusion of blood from the Irish taxpayer”.
But, he said, they were still not contributing properly to society as they should and remained weak.
However, the central bank deputy governor confirmed that Ireland may be close to removing the banking guarantee that makes the State responsible for deposits kept in the bailed-out banks, confirming earlier reports in the Irish Independent.
“My view, we are getting close to the position where the changing circumstances arising from successful implementation of the IMF/EU programme and the introduction of the banking union should permit the full removal of the government guarantee,” he said.
In a clear reference to speeches earlier this week calling on the banks to face up to their mortgage problems, Mr Elderfield said the banks should be able to cope with losses even if they fully faced up to the problem.
Lenders had set aside “prudent provisions” for bad loans and retained a “healthy buffer” of additional capital, he said.
Banks wouldn’t know whether they had enough capital to withstand ”extreme loss developments” until they worked out what they could recover or needed to restructure among troubled loans, he said.
Lenders may be encouraged to hoard reserves and restrict lending until a “case-by-case re-underwriting” of soured loans was complete, he said.
It also called on the Government to do more to front-load its budgetary adjustment in order to lessen the uncertainty that has plagued the economy. There should be no “procrastination”, the bank’s economists said yesterday.
In its latest economic forecast, contained in the bulletin, the bank’s economists predicted that gross domestic product would grow by 0.5 per cent, lower than the 0.7 per cent forecast three months ago.
The bank also said that gross national product, which excludes the impact of multinationals on the economy, will shrink by 0.4 per cent, slightly less than the 0.3 per cent contraction predicted in the last quarterly bulletin.
The Central Bank attributed the revision to a “less favourable outlook” for external demand.
“This reflects a more protracted than expected slowdown in virtually all of Ireland’s main trading partners, which seems likely to extend into the first half of 2013,” the report said.
A similar revision was applied to forecasts for next year, with the pick-up in GDP growth expected to reach 1.7 per cent and GNP to expand by a modest 0.7 per cent. That compares with growth of 1.9 per cent and 0.9 per cent respectively in the last bulletin.
The bank said the growth was dependent on some recovery in external demand and stabilisation of the domestic economy.
Although domestic demand is set to shrink further this year, the pace of decline is expected to slow and next year is expected to see a stabilisation. “Consumer demand remains weak, weighed down by declining disposable incomes and a high level of precautionary saving,” the report said.
“However, there are signs of incipient recovery in consumer sentiment which should contribute to a gradual stabilisation in consumption expenditure over the next year, although a further modest decline is projected for 2013 as a whole.”
The decline in investment is also likely to moderate “significantly” in 2012, and may grow next year. The bank said it would be next year before any employment growth starts to emerge.
Repeating a call made previously, the report on the state of the economy said that “without increasing the overall scale of fiscal correction, there is a case for getting the adjustment over more quickly”. “This would shorten the already lengthy period of uncertainty which has been bad in itself and has doubtless slowed investment and other spending plans,” it concluded.
At a briefing yesterday the bank’s economists would not be drawn on how much of the adjustment scheduled for subsequent years should be brought forward to Budget 2013.
The bank also repeated its earlier warnings that the economy had not regained the competitiveness lost during the bubble era. It said pay remained high, adding to costs and prices in the economy, “and no doubt discouraging expansion and investment projects by exporting firms”.
“While the difficulties of addressing some of these issues are acknowledged, a lowering of the cost base, both public and private, would make a significant contribution to improving competitiveness and productivity in a fundamental way,” the report stated.
Siptu reacted angrily to the bank’s call for a further cut in labour costs. “The problem with our economy is not that wages or spending is too high, said union president Jack O’Connor. “It is that consumer demand continues to fall through the floorboards precisely as a result of the pursuit of this nonsensical approach which reflects an ongoing attempt to resolve the problems created by those at the top of society through crucifying people on middle and low incomes.”
A paper published by the bank today sets out the steps which will have to be taken by the present and future Governments in order to comply with the EU fiscal treaty.
It said that while fiscal targets remain on track to 2015, many uncertainties prevail, and budget adjustments will have to be made up to 2020 in order to meet EU targets.
“They project that we will have tough budgets until 2020, what the report doesn’t do is to actually give a figure as to what the level of that adjustment or cutback would mean”, she said
“But it leads us back to the thing we debated very vigorously in the course of the austerity treaty debate and that was to meet the requirements of this treaty you are looking art further cutbacks.”