Cantillon

 

Inside the world of business

Kenny rules out rate deal but bailout II is firmly on agenda

THE GOVERNMENT would appear finally to have thrown in the towel on getting a reduction the interest rate on the EU-IMF deal. The rhetoric has been steadily toned down over the last few weeks in the face of French intransigence and despite an apparent softening by the Germans of their stance.

Yesterday, the Minster for Finance said that both France and Germany have said “no dice” without a reduction in corporation tax and the Taoiseach once again ruled this out.

Clearly, the Government has reached the conclusion that the cost-benefit analysis leans towards keeping the corporation tax rate low.

The new target now seems to be the shape of the European Stability Mechanism (ESM), which is due to replace the current bailout mechanism from 2013 onwards.

“It is time for Europe to focus on what it needs to do to help countries who are making a real committed and genuine effort to get out of economic difficulties,” Kenny told the Dáil.

Kenny made the point that countries will be reluctant to enter a mechanism they couldn’t exit and which would hinder their economic prospects. This presumably is a reference for the need for the ESM to charge a lower rate of interest because penal rates currently being charged are self-defeating, in that they have a negative impact on the debt dynamics of countries that are complying with the terms of the bailouts.

He is correct, but the interesting point here is that only weeks after rapping Minister for Transport Leo Varadkar on the wrist for suggesting that we may have to have a second bailout, the Taoiseach is now openly talking about the structure of the next bailout.

Chips with everything after Dell boost 

DELL’S ANNOUNCEMENT of new jobs and investment this week wasn’t just a remarkable turnaround for the computer maker’s Irish operations but also suggested a change in stance at a corporate level on the importance of Ireland to its new strategy.

When Dell finally closed its manufacturing in Limerick in January 2009, the loss of 1,900 jobs and hundreds more at supplier companies was a brutal blow for the midwest.

Little did anyone expect that just over two years later the Taoiseach and Minister for Finance would be joined on the steps of Government Buildings by a senior Dell executive to announce new jobs and investment by the Texan PC maker.

Michael Noonan brought up the elephant in the room when he remembered his “disappointment” at Dell moving manufacturing overseas.

But, as he pointed out, a “quiet transformation” has taken place at Dell’s Irish operations with the Limerick facility now an operational HQ for Dell’s international business with key roles in logistics and finance.

It is not just a turnaround for Dell’s Irish operations but also signals that Ireland will play an important role in the computer maker’s $1 billion global investment in cloud computing services.

When that strategy was announced last April, a senior Dell executive told this newspaper that just a “small fraction” of the investment would find its way to Limerick.

Underlining the importance of Dell to the local economy – it was once our biggest exporter – Mary Coughlan and Willie O’Dea famously made a last-minute dash to Texas to try and prevent the closure of the manufacturing.

But this week’s announcement suggests that while Dell remains a significant local employer, the importance of Ireland to Dell at a corporate level may be a lot less than the importance of Dell to Ireland.

TODAY:

Indicators: ECB interest rate announcement, press conference and forecasts; Irish Consumer Price Index (May); US International Trade Balance (Apr), Initial Jobless Claims (w/e June 4th) and Wholesale Inventories (Apr); UK Trade Balance (Apr) and BoE interest rate announcement.


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