By Fergus Black
State guarantee may be extended
THE Government’s guarantee scheme covering the liabilities of Irish banks may need to be extended further, depending on market conditions, according to the IMF.
Under the scheme, which was introduced in September 2008, the State has guaranteed all deposits as well as senior debt and covered bonds at six Irish financial institutions — Bank of Ireland, AIB, Anglo Irish Bank, Permanent TSB, EBS and Irish Nationwide.
Last year, the European Commission approved a revised government guarantee scheme to extend cover on banking liabilities from two to five years.
But in addition to the billions of euro already pumped into ailing banks by the State, the international monetary watchdog IMF said that the guarantee programme may now need to be extended even further.
It warns liquidity pressures in the banking sector “remain serious” and estimates that more than €70bn of banks’ obligations would mature by September this year.
This included long-term debt, “commercial paper”, certificates of deposit and interbank deposits. The maturity of the long-term debt was tied to the expiration of the original two-year guarantee provided in September 2008 covering all banks’ liabilities.
By Fergus Black
Workers already hit by 13pc pay fall told new cuts on way
IRELAND will have to endure further wage cuts and falling prices over the next couple of years if it wants to climb out of recession and regain its competitiveness, the IMF is warning.
It claims Ireland is among the “most vulnerable” nations to continued deflation and warns of knock-on effects for households and businesses as prices continue to tumble.
The IMF calls for further wage cuts on top of those already endured by thousands of hard-pressed workers.
On top of thousands of jobs losses throughout the economy, private sector workers have already seen their wages cut by an average of 13pc. Public sector workers have also suffered with their salaries hit by an average 7.5pc cut in the last Budget.
Even before the crisis hit, the rapid rise of wage levels and increasing global competition had diminished traditional Irish advantages, the IMF says.
“The departure of Dell, a large manufacturing employer, to Poland in early 2009 was symbolic of a loss of edge in low-end manufacturing,” it said.
However, recent declines in unit labour costs from their high levels would need to be sustained to close the competitiveness gap and make a material difference to growth prospects.
“High” Irish price and wage levels would require a period of “internal devaluation” over the next few years to support export growth.
Nominal private sector wages rose to new heights through the end of 2008 before hourly wages started falling early last year.
“For now, however, unit labour costs had fallen primarily because of improvements in labour productivity. In turn, the productivity increase reflects mainly compositional shifts in the labour force as the relatively unproductive construction industry has contracted.”
However, the IMF said it was concerned that productivity increases may not continue — hence the decline in unit labour costs to competitive levels was not yet assured.
By Fergus Black
Watchdog wants levy on bank profits to cover cost of ‘future crises’
THE Government should consider hitting the banks with a special levy on their profits to meet the costs of “future crises”, the world’s global financial watchdog has urged.
The International Monetary Fund (IMF) suggests a two-pronged levy should be contemplated for banks. This would see the introduction of a “financial stability charge” on the banks and a charge on the pay of top executives.
Under its plan, a risk-adjusted levy would provide resources for a “resolution fund” to be used for future crises.
“A financial activities tax, levied on the profits (of senior executives), would represent a fair contribution from the sector to general revenues but also serve the purpose of reducing the sector’s size and its systemic risk.”
While such measures were controversial, they were being contemplated in a number of other countries, said the IMF. “The authorities noted that Ireland would be guided by the evolving international practice,” it added.