Legal services 'a drag on Ireland's competitiveness'

The Government has been warned by the European Commission that the legal profession is a “drag on the economy’s competitiveness” because it remains “sheltered from competition”.

The message is contained in the Commission’s unpublished spring 2013 review of Ireland’s bailout programme, which also stresses “worryingly large” levels of long-term unemployment could endanger the State’s fiscal adjustment prospects.

Banks need to step up their efforts to address troubled loans in the SME sector, according to the review seen by The Irish Times. The Commission complains of "slower than expected" progress on reform and accumulating delays in various sectors across the economy.

“Another important reform facing obstacles on the way towards completion is that of the legal services, which remain sheltered from competition and a drag on the economy’s overall competitiveness,” the review states.

“More efforts are needed to overcome the current deadlock so as to complete the parliamentary treatment of the Legal Services Regulation Bill, which was first published by the Government under the programme in October 2011.”

Outlining a series of risks to the successful competition of the EU-IMF-ECB programme, the review cautioned that “risks remain” despite considerable progress. Close monitoring and “determined policy action” was required to address these “important challenges”.

The rejection of the Croke Park II agreement, followed by a fresh agreement with trade unions, which had yet to be put into practice, “underscores the need for continued vigilance with respect to correcting fiscal imbalances”.

The review stressed that the adjustment had to be perceived as equitable. Banks’ asset quality remained “a source of uncertainty”, the review added, while bank arrears were “large and still growing” albeit at a declining pace than previously.

The Commission said progress in Government policy to address structural issues in the labour market “could have been faster in light of the scale of the problem”.

The high unemployment rate “and its worryingly large long-term component” remained a challenge, as did the large debt overhang on both households and corporates while banks’ profitability was weak.

“Unless these challenges are vigorously addressed, they could stifle the demand and supply of credit, put a brake on the incipient recovery of domestic demand, endanger the prospects for continued successful fiscal adjustment, and further weigh on the banks’ profitability.”

While it was essential that adequate protection was offered to cooperating distressed debtors so they could work out a solution with their creditors, ongoing reforms in the mortgage market might result in “diminished debt repayment discipline”, the review stated.

The new personal insolvency framework is praised in the review as representing a key step towards facilitating “private sector balance sheet repair”. However, the Commission provided a series of recommendations to avoid adverse effects on borrowers’ payment discipline.

Legal impediments facing banks wanting to repossess their collateral should be eliminated and the code of conduct on mortgage arrears revised to better clarify mortgage borrowers’ rights and obligations.

Turning to the health sector, the report said the authorities had identified new programme milestones to guide the reform in the area. Most milestones for the first quarter of 2013 had been met in a timely fashion with the exception of a report on comparative health costs.

This had been outsourced and was expected to be delivered “in the next few weeks”. The report also warned that the deficit remained high, with only a marginal reduction expected in 2013.