MINISTER FOR Finance Brian Lenihan has called for greater European financial market regulation after a sovereign debt auction raised €1 billion to help cover the public finance shortfall.
Mr Lenihan’s meeting with international investors and journalists near the European Central Bank tower in Frankfurt, the third stop of a tour to boost confidence in Ireland, was equal parts high finance and mood music.
The day began with an auction, in which big banks and insurance houses participated; the Minister said it “went quite well”.
The National Treasury Management Agency said it had reached its €1 billion target for the auction and was well on its way to its goal of raising an extra €25 billion in 2009.
Following Mr Lenihan’s previous stops in London and Paris, investors in Frankfurt were well informed about the Government’s austerity measures and bank rescue plans, but were anxious for a chance to gauge the credibility of the Minister.
Tough questioning followed during a meeting with journalists, when the Minister tried to counter months of negative reporting in the German media that has hit Ireland’s reputation as a place to do business.
A widespread view is that Ireland’s bust was self-inflicted, the logical consequence of a boom fuelled by debt and property speculation, compounded by foreign banks lured by bargain corporate tax and running amok thanks to lax regulation.
That view has become cemented since the banking crisis claimed two prominent German banks with Dublin subsidiaries: Sachsen LB and property lender Hypo Real Estate, through Depfa.
Mr Lenihan tackled the claims head-on, saying that Ireland was not solely to blame for these banking crises that have prompted German state bailouts and much grumbling.
“If you look at the history of Depfa, and I don’t want to criticise Germany in any way, but there were clearly regulatory failings on the part of both sets of regulators and clearly that points to the need for a joined-up system of regulation at a European regulation,” said Mr Lenihan. “We agree with the position of the French and German government that there should be a greater European regulation of banking.”
The Minister brushed off suggestions from German journalists that foreign banks came to Ireland simply for a lighter regulatory touch or, long a source of discontent in Berlin, more attractive tax rates. “We are not trying to attract banks to Ireland because of lax regulation,” said Mr Lenihan, adding that there were no plans to change the corporate tax rate.
Yesterday’s auction was marked by strong demand and improved conditions, a positive sign after months when it was increasingly expensive to finance Irish debt.
The average yield for the 10-year bonds auctioned yesterday was set at 5.189 per cent.
Mr Lenihan blamed recent worsening conditions on a “lack of understanding” in British and US markets about the nature of the euro zone, in particular an investor fear of a member state defaulting.
“It must be very encouraging for them now: Ireland now has more money than it needs, so it’s not going to be taken by surprise,” said Chris Pryce, an Ireland analyst at Fitch Ratings in London.
Frankfurt analysts suggested the strong demand was down to the pragmatic nature of the market, with German investors more forgiving than the German government of Ireland’s use of a favourable corporate tax regime.
“It helped Ireland reach a critical mass in its domestic financial sector but they knew it would create a flash-in-the-pan boom,” said Stephan Lorz of Börsenzeitung stock market newspaper. “Now investors are happy to invest once they see signs of slower, sustainable growth.”
