Head over to our T
Hello, I must be going
Read more about: Dublin South, Fine Gael, NAMA 
A day after George Lee’s departure, we can see a situation that would have warranted another George politician to say “Heckuva job”. Lee’s departure obscured the implosion of the year-long government talking point that NAMA would increase bank lending: the IMF had told them, quite sensibly, that it wouldn’t. According to Enda’s statement yesterday, Lee was due to attend a FG meeting with the OECD this week. The OECD does one of those polite but potentially cutting economic reviews of Ireland (as for all member countries) — wouldn’t it have been nice for someone with economic policy pretensions to meet with those counterparts? It’s not clear what he thinks opposition economic experts get to do otherwise. Maybe Enda didn’t send him to Davos. Anyway, another day, another set of NAMA issues.
The Central Bank governor says what everyone knows, that new state shareholdings in B of I and AIB are coming. And the closure of Halifax/Bank of Scotland (Ireland) retail is going to leave the government with some explaining to do. NAMA still does not have its state aid clearance from the EU. A small competitor choosing to exit the market while the big ones get ready to feed at the NAMA trough is bad for the case that NAMA is not hurting competition.
These are things that an economically literate opposition TD might want to comment on. But perhaps Charlie Bird’s perch in Washington is more appealing. George will be better at the socializing than Charlie was — and unlike the 27,000 voters of Dublin South, any friends he makes in America will know ahead of time that he’ll eventually be leaving.
P.
All very colourful stuff; but for the record, this is what Dr Patrick Honohan, Governor of the Central Bank, had to say yesterday, which may make for some interesting comments:
“…in my view, the overall thrust of macroeconomic policy and the pace and scale of budgetary adjustment seems about right to me as a basis for building a sustained recovery.
Few are now tempted here to suggest a Keynesian demand expansion fuelled by a larger budget deficit. Of course it would be nice to have the additional demand injected into the economy, but this cannot come from the budget in our present circumstances.
If we needed any reminder of how impossible such an approach would be, we need look no further than the recent movements in interest yields on the government debt of some other euro-area countries. Whether we like it or not, governments need to keep convincing the markets that their budgetary and borrowing plans are viable and will be delivered.
Interest rates on Irish government bonds, much lower than they were only a few months ago, have remained relatively unscathed during these past weeks of heightened tensions in the international markets for sovereign debt. This is clearly because of the degree to which foreign confidence has been building in Ireland’s ability and determination to restore the public finances along a clearly defined strategy, as exemplified by the relatively tough measures already taken. Continued adherence to this disciplined path will result in lower borrowing rates for the government – and will help accelerate the budgetary correction and reduce the long-term drag of debt servicing as we come out of the recession. The broad consensus on this need is one of Ireland’s great strengths in tackling the recovery.
One of the factors keeping borrowing rates higher than they might be is the financial market’s concern about the future costs to the Government of recapitalising the banking system. This cost will become clearer over the coming weeks, as the NAMA purchases clear the way for capital-raising exercises by the banks. It will of course be a sizable sum, though some of what is needed may be raised by the banks themselves through such steps as asset sales, new issues of equity, and discounted debt buybacks.
Still, it is pretty clear that the government will be acquiring additional equity stakes. While I’m not yet in a position to put a number on it, I can say that the overall net cost to the State of recapitalisation will be manageable.
Indeed, the recapitalisation will ensure that the banks are clearly seen as strong, financially self-reliant entities able to fund themselves in the market into the future. By the same token, the overhang of the banking situation on the state’s finances will be removed. These transactions are thus a key ingredient in moving both the banking and the budgetary situation forward. As the market digests and acknowledges these new realities, we can expect a further tightening of borrowing spreads.”
Sorry to quote this extract from his speech at such length, but it should be of interest to us, at least as much as his later comments about the banks developing a new model for small businesses since chasing property transactions is no longer an option for them.
In these earlier and mainly unreported remarks, Honohan is effectively saying that we have, as a country, adopted the right strategy. He also puts the redemption of the banks and the overall recovery of the Exchequer finances under the one umbrella – something the government has not been particuarly happy to do. But most intriguing of all is his belief that the post-NAMA recapitalisation of the banks is a ‘manageable’ proposition.
Considering his personal expertise in the dismal international science of banking crises worldwide, this is a brave statement and certainly at odds with most of the doom-mongering commentary in the mainstream media and from political commentators elsewhere. Is it possible that he may be right?
Meanwhile, isn’t it a relief that we at last have a Central Bank Governor who can speak in plain language that most of us can understand?
I found it interesting that with all the qualifications that one would expect him to make, he had one specific prediction: that when NAMA takes the loans and the banks are recapitalized, interest rates facing Ireland will come down. Let’s hope so.
P,
Agreed. Similar point made in the Minister for Finance’s speech on the second stage of the Finance Bill in the Dail today. But these guys don’t seem able to ‘join the dots’ for the general public; or else the media don’t appreciate the overall strategy or find it too boring or over the head to be bothered reporting. They prefer to go for discreet issues like a new model for banks lending to small businesses, which, let’s face it, is in never-never land territory. Banks are not going to lend moeny willy nilly to businesses that don’t have a solid proposition, nor should they do so anyway. We had enough of that with profligate lending to property developers and speculators in recent years.
I wonder, though, as well, to what extent the Governor’s speech is tailored to an international audience who are watching every word said here at official level?
I think CB governors know their words are watched carefully. I also see subtle messages to the unions on continued wage restraint and to the government on where the banking inquiry might be going
In short, we did not manage our engagement with the global economy in a manner consistent with stable growth.
Polite phrasing, but it has the makings of a damaging thesis, especially for the 2002-2007 era of economic management.