Honohan positive on job creation
Growth in private sector employment could reach a rate this year which would see overall employment growing again on a sustainable basis, the governor of the Central Bank has said.
Prof Patrick Honohan told an Oireachtas committee that employment and incomes would have fallen further since the downturn were it not for the performance of exporters.
“A reversal of some of the loss of competitiveness that was incurred in earlier years has contributed here, though more is needed if the return to growth in private sector employment is to be accelerated to the point where overall employment is growing again on a sustainable basis – which our forecasters believe could happen during the course of this year.”
Addressing the Joint Committee on Finance, Public Expenditure and Reform, Prof Honohan said the reduction in the gap between taxation and spending over recent years had been needed to restore confidence and was a prerequisite for sustained recovery in employment and economic prosperity.
He said that while the cost of Government borrowing had come down a lot in the past half year, he believed spreads would have fallen even lower were it not for the wider uncertainties in sovereign debt markets.
He said it was no secret that the Central Bank was concerned at the rate at which the banks are overhauling their loan recovery operations and developing effective methods of loan underwriting in a new environment. Progress on problem loans was far from adequate so far, he said. His colleague at the Central Bank, Fiona Muldoon, had been “spot on” in her criticism of the banks’ performance to date.
There were approximately 100,000 cases across the system of people in difficulty with their level of debt, and what was needed was a “machine” within the banking system for dealing with these cases. He said he regarded a resolution of the issue as being very important for the Irish economy.
A number of deputies said they shared his critical view of the performance of the banks in dealing with problem loans, but said they also believed the Central Bank had not done enough to force the banks to improve their performance.
On the issue of the Irish Bank Resolution Corporation’s promissory notes, over which a payment of more than €3 billion is due to be paid at the end of March, Prof Honohan said there was “considerable goodwill from all interlocutors in this process” but that it had not been easy to find a generally acceptable solution.
“Taking into account both the statutory position and wider policy stance of the ECB, an initiative of this type will be novel and, as such, challenging. Using our knowledge of central banking law and practice, we have been working carefully to build understanding and confidence around a set of proposed transactions designed to deliver for Ireland, while not taking other decision-makers too far out of their comfort zone.”
He said the ECB seeks to proceed as far as possible by consensus, and it was not surprising that this work had been taking quite a while. “In fact, what we have designed is, I believe, largely in the interests of the euro system as a whole.” He said he did not want to comment on the prospects and timing of the conclusion of the discussions.
Deputy Pearse Doherty of Sinn Féin said it was clear from Prof Honohan’s comments that the solution was “done and dusted”, but the governor said he was “over interpreting” his comments.
The solution being aimed at would allow a slower and better path for the debt going forward, the governor said. Any transaction that allowed a lengthening of maturity could increase the level of interest to be paid, but if the interest rate was low enough that issue could be addressed.