Inside the world of business
Bond sale not necessarily good news for Ireland
THE DECISION of the European Financial Stability Facility to revive the €3 billion bond sale pulled last week is not necessarily good news.
It is clearly wrong to see the move as any sort of direct commentary on Ireland’s creditworthiness even though the money is earmarked to cover the next instalment of money due to Ireland under the terms of our bailout.
Ireland is out of the market and the price of the EFSF bond is a function of the store the market sets by the German and French guarantees that underpin it.
It was a measure of the nervousness that gripped markets last week that even the promise of these two AAA-rated countries was not sufficient to stop markets seeking a real premium.
The EFSF’s decision to proceed yesterday could be construed as a signal that it does not see any real improvement in market sentiment in the foreseeable future – not unreasonable given the slow progress being made in fixing the multiplicity of problems confronting Europe.
Another factor that no doubt was taken into account by the EFSF was that Ireland will need more money sooner rather than later.
Although the NTMA – the National Treasury Management Agency – has enough cash to tide it over in the short term, it would not be prudent to run down reserves if you had reason to believe there was a real chance market conditions could deteriorate further.
Paying 104 basis points more than the benchmark swap rate, compared to 17 basis points last time, may be judged a reasonable deal under the circumstances. At a minimum it was caution that convinced the EFSF to pay up yesterday.
Hopefully it was not real fear.
Cardiff blues
WITH THE Government sticking to its guns on the appointment of Department of Finance secretary general Kevin Cardiff to the European Court of Auditors, last night’s RTÉ documentary on the last days of the Cowen government was a timely reminder of the failings of his department.
In a self-serving interpretation of history, several Fianna Fáil ministers said they felt they had little choice but to approve the bank guarantee when they were called in the middle of the night for an incorporeal cabinet meeting.
Ministers were assured the banks’ problems were ones of short-term liquidity rather than long-term solvency. That was the line the banks were selling and it was up to the Department of Finance to advise otherwise.
This reminder of the department’s failings comes hot on the heels of last week’s discovery of the €3.6 billion accounting error. Cardiff appeared at the Public Accounts Committee last week over the issue and faced down calls for his resignation.
The Government still intends to nominate Cardiff to the European Court of Auditors early next year. Some have attempted to make political mileage out of this. UK Independence Party MEP and former European Commission chief accountant Marta Andreasen yesterday said there were “doubts” about Cardiff’s role in the accounting error and “he shouldn’t be considered for the post at all”.
More importantly, sending Cardiff off to Brussels sends all the wrong signals for a Government elected on promises of breaking with the culture of the past.
If appointed, Cardiff will receive annual remuneration of about €276,000 (his current role carries a salary cap of €200,000). That’s quite a reward for overseeing a department that has been found to have fallen short in several key areas since the economic crisis hit.
Advising Club Med
THE ITALIANS and Portuguese must be preparing for big moves on their banks if recent phone calls from the media are anything to go by.
Word comes to us that the National Asset Management Agency has been receiving a notable number of calls from Italian and Portuguese journalists in recent days about how the State’s toxic loans agency works.
If calls by journalists are a proxy for official interest in the operation of the agency, it is likely that the so-called Club Med countries are considering ways of purging their financial institutions of the most toxic loans. But is Nama the way to go given the heavy losses it crystallised across the Irish banking sector?
This isn’t the first time that other members of “PIIGS” nations have approached Ireland to know more about how we have done things over here.
A delegation from the Central Bank travelled to Greece twice to advise their counterparts on how plans were laid for bank stress tests and the deleveraging of the Irish banking system.
Blackrock, the world’s largest asset management company, was hired by the Central Bank to independently verify the Irish tests and subsequently was retained by the central bank in Athens to stress-test the Greek banks for losses.
One wonders whether Silvio Berlusconi or his counterpart in Lisbon, Pedro Passos Coelho, might even consider going as far as hiring Peter Bacon, the architect of Nama, to design a similar “bad bank” in their countries.
Then, of course, they could hire Michael Somers, the former chief executive of the National Treasury Management Agency and long-time critic of Nama, to poke holes in their plans.
Former HSBC chief Mike Geoghegan could cast his eyes over their “asset management agencies” after a year or two and present unwritten reports that can never be released to the public.
And what is the Italian and Portuguese for transparency again?
TODAY
European Union finance ministers continue efforts to defuse the escalating euro zone crisis as Greece and Italy consider the future shape of their governments.
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