Inside the world of business
Keeping the liquidity wheel of European banking turning
THE RECENT €3.5 billion bond swap by the National Treasury Management Agency isn’t much of a vote of international confidence in the Irish recovery given most of the swappers were Irish banks.
It’s worth stressing no new loans came into the State; this was simply a change on the terms of existing loans due to investors.
The Government managed to reduce the €11.8 billion bond due on January 2014 by asking almost a third of the bond investors to push out repayment by 13 months.
In fact, the reason for the deal had more to do with the European Central Bank injecting hundreds of billions of euro of cheap loans into the euro banking system.
Offered at a rate of just 1 per cent, banks have been snapping up the three-year money and, just as the ECB had intended, it is being used to ease the crisis in the European sovereign debt market.
It’s a no-brainer for the domestic banks to lend to the Irish Government on new three-year bonds for just over 5 per cent when it can lodge these instruments as collateral in Frankfurt to fund their own operations at a cost of 1 per cent.
The latest statistics from the Central Bank released on Tuesday showed an increase in ECB borrowings by banks in Ireland but this was down largely to IFSC banks which seem to be responsible for longer-term loans rising by almost €5 billion in December.
The Irish banks may already have much of their ECB loans drawn from the long-term counter and so any switching to three-year money would not show up in the latest Central Bank’s statistics.
More generally across Europe, the sharp rise in three-year borrowing shows the strategy of ECB president Mario Draghi is working – keep the liquidity wheel of European banking turning and ease the borrowing rates for euro states.
It has certainly helped to reduce Irish sovereign debt borrowing costs. It will be interesting to see the figures for the end of this month when the next ECB auction of three-year money is held.
Not so sweet in sugar beet
It seems the campaign to revive the Irish sugar beet industry has hit a stumbling block, with discussions between two separate groups involved in the campaign breaking down.
The push to re-establish a sugar industry in Ireland has been led by two bodies – Beet Ireland, led by Michael Hoey of Country Crest and representing many sugar beet growers, and the Irish Sugar Biorefinery Group, led by former Greencore executives and other former executives in the Irish sugar industry.
Having both produced separate lengthy economic feasibility studies into the industry, they decided to join forces late last year – a logical move. However, it appears that union has run aground with Beet Ireland announcing it is withdrawing from the process.
The reason?
They believe the Irish Sugar Biorefinery Group is not sufficiently committed to the point of view of the grower/producers.
The dangers posed by the split are obvious – Ireland needs a united front if it is serious about considering a revival of the sugar beet industry.
As EU agriculture commissioner Dacian Ciolos indicated when he visited Ireland earlier this month, EU sugar quotas are likely to be abolished in 2015.
Ironically, the reports produced by the two groups had more similarities than differences. Both proposed the building of a plant in the southeast at a cost of about €350-€400 million, funded by some combination of banking, private equity and private finance, which would produce sugar and ethanol.
In contrast to the sophisticated economic analysis contained in both reports, it seems the larger project may be undermined by the kind of parochialism and vested interest-approach that characterised the development of Irish agriculture in the past.
It’s in all parties’ interests that a more mature, and co-operative, approach can be found.
Counter-intuitive
The notion of the Irish State buying a stake in a hedge fund manager seems a little counter- intuitive. Few countries have suffered at the hands of hedge funds to the extent Ireland has.
Not only did they hasten Ireland’s exit from the global debt market, they have also made millions from trading on Anglo Irish debt.
It is generally assumed hedge funds make up the vast bulk of the holders of the Anglo Irish bonds currently being redeemed at face value, having picked them up for significantly less at the height of Ireland’s woes.
Strange indeed then that the Enterprise Ireland High Potential Start-Up Programme should have invested €200,000 into Gandon Alternative Fund Management (GAFM) Limited which yesterday announced that it had been approved and regulated by the Central Bank of Ireland.
GAFM has two funds, neither of which, thankfully, appears to list the trading of the debt of distressed European sovereigns and their banks as core activities.
This no doubt this will save Enterprise Ireland’s blushes should some lazy moralising left wing politician choose to try and make political capital out of its decision to invest in an Irish company that can potentially create significant employment in Ireland at a time when unemployment stands at 14.2 per cent.
TODAY
The Central Bank publishes its quarterly report on the state of the economy on a day when the Oireachtas Committee on European Affairs discusses the move to a reinforced economic union
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