Dublin and Berlin move closer as Brexit barney continues
Business Week: also in the news were changes in Europe, debt, tax and the banks
German president Frank-Walter Steinmeier and President Michael D Higgins in Berlin on Wednesday. Photograph: Getty Images
NTMA chief executive Officer Conor O’Kelly.
Incoming Central Bank governor Gabriel Makhlouf.
President Michael D Higgins couldn’t resist a little dig at the UK this week as he kicked off his three-day state visit to Germany. Higgins, during lunch at a two-star Michelin restaurant hosted by Bord Bia, said he hoped Irish food exports would not be adversely hit “as our nearest neighbour continues to throw a tantrum”.
The trip, which included Minister for Foreign Affairs Simon Coveney, was aimed at fostering closer political and economic ties between Dublin and Berlin, and the Irish delegation will have been pleased to receive assurances about support for Ireland.
German president Frank Walter Steinmeier said he hoped the next British prime minister will be motivated by Brexit realities rather than “fantasies”, and said Ireland “need not worry” about Germany’s support in this critical period.
“We know the Border issue . . . is not just a problem for your country, we have to see it as a European [problem] and we will continue to do that, so you can be assured of our ongoing solidarity,” he said.
Let’s hope Tory leadership contenders Boris Johnson and Jeremy Hunt were listening. Both men were in Northern Ireland to woo the Conservative grassroots, and both were unequivocal about ripping up the withdrawal deal.
Johnson described it as a “dead letter”, vowing not to accept the backstop “under any circumstances”, while Hunt said it “has to change or it has to go”.
Hunt also put forward the bright idea to “immediately cease all discussions with the European Union” on September 30th – a month early – if he sees no prospect of a new deal that could win a majority at Westminster.
At home, Minister for Finance Paschal Donohoe warned that a disorderly Brexit could result in a €6 billion hit to the exchequer. A crash-out could involve a headline budget deficit of between 0.5 and 1.5 per cent for 2020, rather than the 0.4 per cent surplus.
In Europe, EU leaders finally reached agreement on who to nominate for its top jobs as the new parliamentary session got underway. IMF head Christine Lagarde was a surprise choice to head up the European Central Bank, in succession to Mario Draghi.
Lagarde is a lawyer and a former politician with no central banking experience. The immediate challenges she would face include tackling stubbornly low inflation with limited policy options due to interest rates already being at record lows.
Another challenge facing the EU is proposed US tariffs on goods including meats, cheeses, olives, coffee and, most worryingly for the Republic, “Irish and Scotch whiskies”.
The bad news for our exporters didn’t end there. The EU’s deal with the Mercosur bloc of Argentina, Brazil, Paraguay and Uruguay – if ratified – will see 99,000 tonnes of cheap South American beef enter the European market. Irish beef farmers were seething.
NTMA sees a glass half empty
Let’s hope Conor O’Kelly, the head of the National Treasury Management Agency (NTMA), is a pessimistic fellow.
The chances of another recession in Ireland are “100 per cent”, as the country is a small, open economy, highly-indebted, and relying on international investors for 90 per cent of its borrowings, he said this week.
“We’re in the permanent contingency business in Ireland with the debt that we have, whether it’s Brexit or Italy or something we can’t even think of today that will end up hitting,” he added.
Earlier in the week, O’Kelly said the State had paid out more than €60 billion in interest on the €200 billion national debt pile over the past decade. That was three times the amount paid in the previous decade.
On the bright side, the public purse seems in good health for now. The latest exchequer returns this week showed the Government is on course for another record tax take this year with strong year-on-year increases in all four main tax heads.
Revenue collected €26.7 billion in taxes in the six months to the end of June, up nearly 7 per cent or €1.7 billion up on last year.
Income tax, which accounts for about 40 per cent of the Government’s tax base, generated just under €10.5 billion, up 7.7 per cent on last year. Corporation tax generated €4.2 billion for the six-month period, up 3.5 per cent on last year.
Staying with tax, it emerged that nine companies in beef baron Larry Goodman’s empire made a profit of €170 million last year with assets worth more than €3.45 billion – but they paid largely no tax as the profits were booked in Luxembourg.
The Goodman Group is one of the most successful family-owned businesses in Ireland but it does not publish accounts that show its overall profit. Its core business, ABP, headquartered in Ardee, Co Louth, is one of Europe’s largest meat processors.
“Greed, greed and more greed,” was the response from Irish Farmers’ Association Joe Healy, who called for an investigation into the prices being paid to farmers for cattle.
More worried homeowners
There were fresh fears for more than 3,000 homeowners this week after Ulster Bank confirmed its intention to sell their mortgages to a so-called vulture fund.
The bank is selling 3,200 owner-occupier mortgages, where it loaned €810 million to people to buy their own homes. In addition, the lender is offering to sell 400 buy-to-let mortgages involving borrowings of €90 million.
Ulster Bank’s figures showed the average owner-occupier involved owes arrears of €33,000 and is 58 months behind with repayments. The buy-to-let customers have fallen 41 months behind and owe €36,000 in arrears on average.
Meanwhile, it emerged that incoming Central Bank governor Gabriel Makhlouf will be paid €286,790 per year. That’s in line with his predecessor Philip Lane’s last reported remuneration, but more than Jerome Powell, chairman of the US federal reserve.
Along with his salary, Makhlouf will be paid relocation expenses. According to minutes from a meeting of the Central Bank Commission, Makhlouf’s salary will be subject to revision from January 2020 onwards.
Makhlouf has been mired in controversy after he claimed an accidental leak of sensitive budgetary material was the result of a hack while in his former role as New Zealand treasury secretary. It was confirmed this week he is to make a statement on the matter before taking up his Irish role.