Monday, September 10 08:19:03
Public debt and unemployment are likely to remain very high, and problems in the financial sector will persist for some years to come, making for the most hostile environment for monetary policy since the 1970s, a conference in Dublin was told at the weekend. Stefan Gerlach, deputy governor of the Central Bank, said central banks would in the future attach much greater significance to the state of the financial system than they did prior to the financial crisis. He told the 44th annual Money, Macro and Finance Conference in Trinity College that the experiences of the past decade suggest that the ability of financial regulators and supervisors to prevent excessive risk-taking in the financial sector was limited.
"A particular worry is that it can be overwhelmed by a virtual explosion of financial activity if interest rates are reduced to very low levels, as central banks will be required to do from time to time for price stability reasons." He said that in the future monetary policymakers would be concerned that macro-prudential policies may be inadequate, in particular if interest rates have to be reduced to low levels for macro-economic reasons.
"But they will not lean against the wind except in rate circumstances. Instead they will press for macro-prudential policy action." Mr Gerlach also said that central banks would have to think in innovative ways about how to interact with money markets. But much would also remain the same, he said. "Central banks will continue to focus on stabilising inflation rates at the same low levels as before the crisis, although perhaps some central banks with explicit inflation targeting may adopt a longer time horizon for policy, effectively targeting an average inflation rate. And movements in short-term interest rates will once again be the main tool of monetary policy."
Spencer Dale, chief economist with the Bank of England and a member of its monetary policy committee, said a key limit to the use of monetary policy as a stabilisation tool was uncertainty and ignorance as to how it works. "Beware of confident economists," he told the conference. The Irish Times
The events of last Thursday do give some grounds for optimism. If the belief that the European Central Bank has made a decisive move prove grounded, the way is open for some sort of restructuring of the debt Ireland has taken on to support its banks. Discussions of what might or might not be possible tend to see this process - and will judge it - in terms of what it will mean for national debt dynamics. But it is also an opportunity to try and free up credit, particularly for business.
If you accept - as was proposed last week - that the banks are not lending because the terms of Ireland's bailout incentivise them to reduce lending, the obvious solution is to change the bailout. In order to figure out what needs to be done, it's worth looking a bit more closely as to how the bailout disincentives the banks from lending. In theory the bailout was supposed to do the opposite. A massive amount of money, E64 billion, has been set aside for the banks to allow them fix their balance sheets. This cash is supposed to allow the banks face up to the losses lurking on their balance sheets and meet losses on future lending, with the emphasis on the future - ie they can make fresh loans.
With hindsight this was never going to work because banks don't lend capital. What they actually lend is other people's deposits and one thing the Irish banks still don't have is deposits. The main source of deposits are retail customer and corporate deposits. Corporate deposits left the country in the run-up to the bail out and have not returned, despite recapitalisation. The Irish Times
Few issues are more urgent than the ticking timebomb of personal insolvency. Without a workable solution to the problem, we could soon see the banks overwhelmed by mortgage arrears and yet another collapse in the banking sector. Every outside observer looking at Ireland can see this clearly and urges the Government to create a system that will do the least damage. Even Bill Clinton used his speech to the Global Economic Forum in the grand setting of St Patrick's Hall at Dublin Castle almost 11 months ago to urge the Government to get some sort of system in place to help those in arrears. That elicited a promise from Enda Kenny to do something within weeks; one of many promises that he went on to break again and again in the following months.
The latest attempt, announced last week, to create some sort of lasting solution to this problem is as cack-handed as most of the previous attempts because it makes no effort to sort out tangled and confused conflicts of interest. Social Protection Minister Joan Burton appears to be seriously asking people to make what will be, in most cases, the most important financial decision of their lives based on a single hour of advice from an accountant -- The Irish Independent
The IMF will today heap further pressure on the Government to tackle spending on social welfare -- including bringing in a means test for child benefit. But the IMF will also give strong backing to a new bank debt deal -- which is currently threatening to stall. The coalition parties' annual think-ins will be overshadowed by the publication of the latest report by the IMF on Ireland's progress under the bailout. The IMF is continuing to demand progress on changes to universal social welfare payments and reforms in the health service.
The organisation is also keen to ensure there is no let-up in the introduction of the property tax next year. The automatic entitlement to child benefit, regardless of household income, has long been a bugbear of the IMF. Once again, it is expected to call for a curbing of benefits that are universally available to parents -- questioning whether it is sustainable to keep up the payments.
The IMF also wants faster delivery on the renegotiation of consultants' contracts and reducing the health sector drugs bill. However, the Government will at least get the backing of the IMF for a deal on bank debt. The Irish Independent
BRITAIN'S Competition Commission will stamp on Ryanair's bid to take a 24.9pc stake in any consortium that buys London's Stansted airport. Ryanair wants to take a stake in Stansted after a consortium buys the airport from current operator BAA, which also owns Heathrow and has been forced to sell Stansted by the commission as part of a break-up of what was deemed a monopoly in the southeast of England.
Ryanair operates 41 planes out of the Essex site and wants the airport redesigned in its own no-frills image, including speedy turnaround times and less of what airline boss Michael O'Leary claims is wasted space, such as the train service from the terminal to departures. The Irish Independent