THE FUTURE of Anglo Irish Bank must be decided very soon, Central Bank governor Patrick Honohan said yesterday. The uncertainty around it was having “a disproportionate impact on international investors”.
Speaking in Tokyo at the conclusion of a week-long tour of Asian capitals, Prof Honohan said he hoped the Government would decide on which option it wants to pursue for the future of the bank “in a matter of weeks”.
The efforts of the two big banks – AIB and, particularly, Bank of Ireland – to move quickly to a strong capital position was not recognised as much as he would have expected, he said.
Irish government debt spreads over German sovereign debt were still uncomfortably high but added that the cost of bailing out the State’s lenders would not increase debt to an unmanageable level.
“Spreads are still higher than I would like to see,” he said. “If we were facing this adjustment in a more calm international situation, we wouldn’t be seeing the scale of investor nervousness or interest rate spreads.”
“Investors remain concerned at the very high debt to GDP ratio. The points I’ve been stressing on this trip is that, so far, the Irish Government has adhered to the roadmap for fiscal correction. And correction has remained within the parameters set out in 2009.”
Prof Honohan said the question of sovereign debt and deficits would remain a dominating feature of monetary and macroeconomic policy on a global scale in the years to come. He also acknowledged the presence of 16 separate issuers of sovereign debt in the euro zone had inflamed market pressures.
“We have to acknowledge that the recovery from 2008/09 economic downturn continues to be more gradual than we would like to see,” he said. “The euro zone is still performing under potential right now.” However, “led by Ireland, all of the euro area countries that have come under pressure have begun to take vigorous corrective action on wages and on fiscal deficits generally”.
Investors, he said, were currently expecting a high return, which was hard to justify given the fundamentals of the economy. “The Irish economy is at the bottom after a very steep recession. The economy is expected to grow in 2011, stronger in 2012. Employment recovery is expected in later 2011.”
Commenting on the decision by Lloyds Banking Group to close Bank of Scotland (Ireland), he said it was not surprising, although, as a customer, the closure was a matter of regret personally.
“I think Bank of Scotland got into trouble with expansive business in the mortgage market. It was one of the very strong-going banks in Ireland into the mortgage market and it has been reported that it made very heavy losses.” – (Additional reporting, Reuters)
