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Ireland in Recession as Bailout Exit Approaches

June 27, 2013 by Leave a Comment

Gross domestic product shrank 0.6 percent in the first quarter of this year from the previous three months, confounding analysts’ expectations of 0.3 percent growth – a shock reading that shows the euro zone member is recovering from financial crisis much more slowly than previously thought.

Revised data also showed a quarterly contraction of 0.2 percent in the fourth quarter of 2012, meaning Ireland’s economy has shrunk for three successive quarters and is in its first recession since 2009.

The Irish government is targeting growth of 1.3 percent this year and while Finance Minister Michael Noonan said he would not tie himself to any particular number when asked if that forecast would have to be revised, he said that other parts of the public finances were holding up better.

“They’re certainly disappointing but it’s one set of statistics,” he said.

“We built the budget on 1.3 (percent growth) and the tax flows for the first half of the year are consistent with our budgetary targeting. We’ll be slightly ahead of target, we think, for June.”

Ireland has been one of the few euro zone countries to have eked out mild growth as the currency bloc’s debt crisis has unfolded, despite harsh spending cuts and tax hikes imposed to help bring down one of Europe’s highest budget deficits.

Though Irish people have not protested against austerity as angrily as those in other indebted states such as Greece and Spain, many have endured salary cuts of up to a fifth and big tax rises. Unemployment has more than tripled, to 14 percent.

The second euro zone country to be rescued, in November 2010, it is due to complete its bailout later this year and has made a limited return to bond markets, although yields on its debt have recently started to rise again.

Analysts say the country has enough cash to cover most of its funding needs through next year, however, and should exit the aid deal on schedule, providing the European Union with a badly-needed success story for austerity.

BAD WEEK FOR IRELAND

The poor economic data rounds off a bad week for Ireland, where public anger is growing over leaked tapes of bankers laughing about a government rescue of the financial system that led to the bailout and years of austerity.

Three years on, a split in society is becoming clearer – property is selling fast in upmarket areas of Dublin, while shells of unfinished houses litter ghost estates and suburbs around the country. Overall, house prices have fallen by half.

“Dublin is booming, but I go to my home town and most of the shops are closed down,” said human resources worker Lynn, who did not want to give her second name. “It’s heartbreaking. Here it’s completely different. I can’t find properties to rent for people who are relocating.”

Thursday’s data showed the economy grew by just 0.2 percent last year, rather than the 0.9 percent initially thought, and an export-led recovery stalled in the second half of 2012, largely because of the slowdown in the rest of the euro zone.

Economic growth for 2011 was, however, revised up to 2.2 percent from 1.4 percent previously.

But returning to that level of growth this year now looks unrealistic after personal consumption fell 3.0 percent in the first quarter, its sharpest drop in four years. Exports of goods and services had an even steeper decline of 3.2 percent, the most since Ireland’s economic crisis began.

The prospect of easing up a little on austerity, which the government has been considering given leeway offered by a deal which eased the terms of debt repayment, now looks trickier.

Noonan, who has said he would rather use the slack to invest in capital projects, said on Thursday that it was still too soon to say how the leeway would be used and that he would make a call in September, a month before he presents his next budget.

“It’s very fragile and it probably means we have to be very careful about the scale of adjustment in budget 2014,” said KBC Ireland economist Austin Hughes, who revised down his growth for GDP this year to 0.7 percent from 1 percent previously.

(Additional reporting by Padraic Halpin and Sam Cage; Editing by Pravin Char)

Article source: http://www.nytimes.com/reuters/2013/06/27/business/27reuters-ireland-gdp.html?partner=rss&emc=rss

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Euro Zone Deal Optimism Lifts Stocks

December 5, 2011 by Leave a Comment

The positive mood looked set to add to the glow from last week’s American jobs data. The Standard Poor’s 500-stock index rose more than 1 percent at the opening of trading on Wall Street, and increases in European market indexes ranged from 0.8 percent to almost 3 percent.

“The U.S. economy has been resilient to market turmoil of recent months but remains vulnerable to a deterioration in Europe,” Julia Coronado, BNP Paribas North America chief economist, said in a note.

Market sentiment was given an early boost after Italy unveiled a 30-billion-euro package of austerity steps, and the Irish government too said it would do something similar in a new budget to be announced later in the day.

The positive mood drove Italian bond yields further below the worrying 7 percent level at which they are seen as unsustainable and the cost of insuring Italian debt against default also fell.

The poor state of the euro zone’s economy, however, was underlined by business surveys suggesting there will be a steep economic contraction in the current quarter.

Despite this, retail sales data for October were better than expected.

Shares in financial institutions led the gains in Europe with the main euro zone banking index now up 23 percent from its lows in late November.

CRUCIAL WEEK LOOMS

The week ahead features a series of high profile meeting among European leaders seen as crucial to the future of the 17-nation euro zone.

French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Paris ahead of a key European Union summit later in the week to iron out their differences on how to centralise control of euro zone budgets to resolve the region’s debt crisis.

The two leaders are expected to outline joint proposals for more coercive budget discipline in the euro zone, which they want all 27 EU leaders to approve at Friday’s summit.

An agreement could pave the way for an accelerated implementation of the euro zone’s rescue scheme to help ensure debt-ridden countries have a vehicle to tap for funds while encouraging bondholders to buy euro zone bonds.

On Tuesday, U.S. Treasury Secretary Timothy Geithner kicks off a visit to the region in Germany, where he will meet European Central Bank President Mario Draghi and government officials.

In a further sign Europe is making progress, four sources told Reuters that Germany is prepared to soften language in the euro zone’s permanent bailout mechanism compelling bondholders to accept losses in exchange for much stricter budget rules.

VOLATILITY EASES

World stocks as measured by MSCI were up about 1.2 percent. Earlier Japan‘s Nikkei closed up 0.6 percent.

The euro, which gained 0.8 percent last week, was up slightly at $1.344. The currency stood about 1.4 percent above its seven-week low of $1.3213 hit late last month.

“The market wants to see some kind of concrete agreement before investors are prepared to liquidate short positions,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

“I see the euro trading sideways for now. We may need to see negative news that there won’t be any fresh agreement for it to test last week’s lows.”

On fixed income markets, Italian government bond yields fell across the curve on Monday, and the price of insuring against a default was also lower after the country’s austerity measures.

Short-dated Italian bond yields were down more than 80 basis points and 10-year yields were 49 basis points lower at 6.25 percent, well below the 7 percent level that triggered such concern in November.

(Additional reporting by Jessica Mortimer and Hideyuki Sano. Editing by Jeremy Gaunt.)

Article source: http://feeds.nytimes.com/click.phdo?i=fd21f5c7040dc0784905e294b3aac379

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Aer Lingus on Firmer Footing for New Challenges

May 27, 2011 by Leave a Comment

DUBLIN — Christoph Mueller, the chief executive of Aer Lingus, accompanied the Irish prime minister, Enda Kenny, and other officials Friday on a flight aboard a restored 1936 De Havilland Dragon to mark the 75th anniversary of the airline’s first scheduled service.

The six-seat, twin-engined propeller plane was restored for the occasion by a volunteer team of Aer Lingus pilots and engineers — a “labor of love,” as Mr. Mueller put it, as well as a source of comfort at a moment of wrenching austerity and economic uncertainty across Ireland.

“I believe it has served a little bit as a campfire,” Mr. Mueller said during an interview in his office overlooking Terminal 2 at Dublin Airport. “I mean, 1936 were difficult times, too.”

Yet for Mr. Mueller, a German who took the helm of the struggling Irish flag carrier less than two years ago, Friday represents more than just a sentimental milestone.

“Out of 800 airlines in the world today, only about 13 are 75 years or older,” he said. “This proves that the airline business has always been very, very tough. Only a few make it.”

It also represents a turning point. After three-quarters of a century of state ownership — Aer Lingus was privatized in 2006, but the Irish government still owns a 25 percent stake — he said it was time for Dublin to let go.

“Maybe we are a bit of a late developer,” Mr. Mueller said, choosing his words carefully. “But after 75 years, I believe we are ready to finally leave the parents behind.”

Many industry executives and analysts have long argued that full Irish divestment from Aer Lingus is inevitable and that the company’s share price would also benefit if the stock were more widely held.

But there is less agreement about what an end to the state’s role may portend for the future ownership of Aer Lingus. The airline is seeking to reinvent its business model in the face of bare-knuckled competition from its low-cost rival, Ryanair, and pushing ahead with an aggressive turnaround program that aims to lower its employee head count by 20 percent and cut at least €100 million, or $141 million, in costs by the end of this year.

For one thing, the government is not the only big shareholder in Aer Lingus. Ryanair, whose headquarters are just across a parking lot from Mr. Mueller’s office at the airport, holds a nearly 30 percent stake in Aer Lingus, the legacy of two hostile takeover attempts — in 2006 and 2008 — that were flatly rejected by the Irish government and E.U. regulators as anti-competitive. Aer Lingus and Ryanair together control 70 percent of the Irish air travel market.

“If the Irish state were to try and place its shares into the market, there is the risk that Ryanair would try and snap them up unless there were some arrangement worked out with Ryanair beforehand,” said Stephen Furlong, an analyst at Davy Stockbrokers in Dublin.

The alternative, he and other analysts said, would be to sell to another investor, most likely one of Europe’s three major airlines: Air France-KLM, Lufthansa or the recently merged British Airways-Iberia, now known as the International Airline Group.

And therein lies the rub. “Any industrial buyer of Aer Lingus would probably be reluctant to have Ryanair as a large minority shareholder,” said Gerard Moore, an analyst at Merrion Capital in Dublin.

Representatives for all three groups said it was their policy not to comment on speculation about possible acquisitions.

Ryanair’s chief executive, Michael O’Leary, said he had long ago gotten the message from regulators and Aer Lingus employees, who own 14 percent of the airline, that a third offer for the carrier would be unwelcome. “We are still too emotive a subject here in Ireland,” Mr. O’Leary said.

After the €85 billion bailout Ireland received from the European Union and the International Monetary Fund last year, however, Mr. O’Leary said the government was under pressure to put its financial house in order.

Article source: http://www.nytimes.com/2011/05/28/business/global/28air.html?partner=rss&emc=rss

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Merkel Resists Pressure on New Aid for Greece

May 10, 2011 by Leave a Comment

Debt-ridden Greece wants international lenders to further ease terms of the €110 billion, or roughly $160 billion, bailout granted a year ago by the International Monetary Fund and the European Union, and is likely to need additional financing to plug a €27 billion funding hole next year.

On Tuesday, a day after Standard Poor’s cut Greece’s credit rating again, the country paid almost 4.9 percent to raise €1.62 billion of six-month treasury bills, up from 4.8 percent in April. Local investors bought up the bulk of the auction, Reuters reported from Athens.

The Irish government, in the meantime, is watching to see what concessions Greece might win in order to soften its own €85 billion rescue package.

But Mrs. Merkel, as leader of Europe’s strongest economy and the biggest contributor to the rescue package, gave no indication that Germany would be willing to grant more aid — and certainly not at next week’s meeting of E.U. finance ministers.

She said she would wait until officials from the E.U., the European Central Bank and the International Monetary Fund complete their assessment of Greece’s progress, particularly about how it was implementing its “bold reforms.” That report is due in June.

“First we need to hear what the status is,” Mrs. Merkel told the foreign press corps in Berlin. “Only then can I decide what, if anything, needs to be done. We don’t do Greece any favors by speculating about more aid.”

She added that Greece had made progress over the past year, and that it was always known that “it would be a difficult path.” But she said efforts to improve competitiveness and reduce deficits must continue. “Every country should continue with them,” she said.

Mrs. Merkel faced enormous pressure at home last year not to grant a single euro in aid to Greece until Athens had agreed to implement a tough austerity package and a radical savings program across the public sector.

While such public opposition has subsided, Mrs. Merkel now faces opposition within her own coalition. The Free Democrats, her junior partners, want to push through a motion at its party congress this weekend in Rostock to prevent any more rescue packages for indebted euro states.

Mrs. Merkel brushed aside this opposition, saying she was convinced the Free Democrats would support the overall package.

Indeed, with Philipp Rösler expected this weekend to be elected the new leader of the Free Democrats — replacing the foreign minister, Guido Westerwelle — and also taking over the Economics Ministry, Mrs. Merkel can expect more unity inside the coalition, government officials said Tuesday.

In Athens, there has been fury over reports published last weekend by the German news outlet Spiegel Online that said Greece was threatening to leave the euro as a bargaining chip to gain more leeway in paying back the debt.

“These scenarios are borderline criminal,” Prime Minister George Papandreou of Greece told a conference on the Ionian island of Meganisi on Saturday, Reuters reported. “I call on everyone, especially in the E.U., to leave Greece in peace to do its job.”

The German government denied there were discussions on Greece’s return to the drachma.

“There is no such question and such an issue was never raised for discussion at European level,” a government spokesman said .

Still, a new plan may include pushing back Greece’s budget targets, giving it additional aid and a mild restructuring of its sovereign debt, officials and analysts have said.

Irish officials insist that their country’s debt burden, expected by the I.M.F. to peak at 125 percent of gross domestic product in 2013, is manageable — for now.

A leading Irish economist wrote in The Irish Times newspaper on Saturday that the country’s debt would hit €250 billion by 2014, bringing Ireland’s debt-to-G.D.P. dynamics closer to those of Greece. The academic, Morgan Kelly, who has been dubbed Ireland’s “Doctor Doom” for his gloomy predictions, said the country faced bankruptcy because of the E.U. and I.M.F. bailout.

Mr. Kelly accused Patrick Honohan, Ireland’s central bank governor, of putting the European Central Bank’s interests over those of Ireland, which Mr. Honohan denied.

“The fact of the heavy debt and the growth of that debt is a serious problem and needs to be managed in discussion and in negotiation with our European partners,” Mr. Honohan said in an interview with the state broadcaster RTE.

Pat Rabbitte, the Irish minister for energy, told RTE that the interest rate of 5.8 percent that Ireland is paying on its European loans “must be reduced and in my own view the debt must also be rescheduled.”

Prime Minister Enda Kenny said in Dublin on Tuesday that talks on reducing that rate were under way with Ireland’s European partners.

E.U. finance ministers will take the issue up Monday and Tuesday in Brussels, and Irish officials are hoping for a reduction of one percentage point.

“After the meeting next week we will know whether a conclusion can be reached,” Mr. Kenny said, according to Reuters.

German officials, however, backed by the French, have been seeking some concession from the Irish in return for a reduction like the one given earlier to Greece, particularly regarding Ireland’s relatively low corporate tax rate. The Germans want the Irish to come up with some initiative, like agreeing to work on harmonizing the corporate tax base.

Article source: http://www.nytimes.com/2011/05/11/business/global/11euro.html?partner=rss&emc=rss

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Setbacks in Portugal and Ireland Renew Worry on Debt Crisis

April 1, 2011 by Leave a Comment

Officials in Lisbon said Thursday that the country’s budget deficit last year was 8.6 percent of its gross domestic product, well above the goal of 7.3 percent. Although officials said the revision would not affect the government’s goal of reaching a deficit of 4.6 percent of domestic product in 2011, the news was a reminder that, even after the problems from Greece’s fraudulent deficit statistics, some numbers from the euro zone remain unreliable.

Also Thursday, Ireland’s central bank announced that four of the country’s most prominent financial institutions would need an additional 24 billion euros to cover sour real estate loans, a move that pushes the country’s banking system closer to being nationalized.

The new figure, which includes 10 billion euros that the International Monetary Fund has already committed, was included in the results of a rigorous stress test of the nation’s banks. While largely expected, the announcement brings the total banking bill for the Irish government to 70 billion euros.

The cost of insuring the debt of Portugal and Ireland, as well as that of Spain and Greece, rose on Thursday, as did the yields on all their 10-year benchmark bonds. Late Wednesday, a plan to merge four troubled savings banks in Spain collapsed, and that news appeared to add to investor fears on Thursday.

It seems just a matter of time before Portugal, like Greece and Ireland, is forced to seek assistance from Europe and the I.M.F.; it lacks a government plan, and its 10-year debt has a yield of 8.5 percent, above the level that Greece and Ireland had when they were bailed out.

But with Europe having increased its rescue fund to 440 billion euros, it is now in a position to cover Portugal’s financing requirement.

And for that reason, Portugal’s slow-motion collapse has not set off a broader market panic, especially since neighboring Spain appears to be able to address its problems without outside financial help.

Still, any sign that Spain may be wobbling again is likely to renew concern that Europe has yet to definitively address its problems.

“The problems in the periphery are getting worse, not better,” said Jonathan Tepper, an analyst at Variant Perception, a research firm based in London. “Ireland and Greece are undergoing major contractions with no end in sight. It is a matter of time before Portugal is bailed out and Spain is very much like Ireland with extremely large exposure by the banks to property developers and to overvalued land.”

In Ireland, the announcement by the central bank about the needs of the country’s top financial institutions vividly illustrates the extent of the country’s financial troubles.

“This has been one of the costliest banking crises in history,” said Patrick Honohan, the governor of the Central Bank of Ireland, which oversaw the stress tests. “There was a need for the banks to have ample capital to meet the markets’ gloomy prognostications.”

In a step that could ease some of the pressure on Ireland, the European Central Bank said Thursday that banks could use government bonds as collateral for borrowing from the central bank, regardless of how the bonds are rated. Because of that, banks would have more flexibility to borrow from the European bank at its benchmark rate.

Also on Thursday, a fallen Irish bank not included in the stress test, Anglo Irish, disclosed a loss of $25 billion, the largest loss in the country’s corporate history. Anglo Irish, which is expected to receive 34 billion euros in funds from the state, was not included in the test because it is being gradually wound down.

The 24 billion euros needed to shore up the four Irish banks includes 18.8 billion euros for Allied Irish Bank, 5.2 billion for the Bank of Ireland, 4.2 billion for two smaller institutions and an additional 5.3 billion to serve as an extra layer of equity.

Officials said the process of reducing the Irish financing gap, or the difference between bank deposits and loans, will take years and will require the write-off and disposal of 72 billion euros in problem loans by 2013.

The gap, otherwise known as the loan-to-deposit ratio, now stands at 171 percent against a government goal of 122 percent and it is currently being financed by the European Central Bank and the Irish Central Bank at a cost of about 150 billion euros, an amount that is about equal to the country’s gross domestic product.

Article source: http://www.nytimes.com/2011/04/01/business/global/01banks.html?partner=rss&emc=rss

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