Merkel reminds May of warmth in the EU tent as Brexit is delayed
Business Week: also in the news were US tax and trade, the economy, AIB and bad loans
UK prime minister Theresa May and German chancellor Angela Merkel during a lighter moment at the start of this week’s emergency summit in Brussels. Photograph: Kenzo Tribouillard/Reuters
German chancellor Angela Merkel went out of her way to include UK prime minister Theresa May in a lighter moment at the start of this week’s emergency summit in Brussels.
Sidling up beside May, she pointed to something on her iPad, prompting May to burst into laughter. The pair then invited European Council president Donald Tusk and Luxembourg prime minister Xavier Bettel to share the joke.
It turned out to be a montage of May and Merkel in their respective parliaments earlier that day, both wearing jackets in the same vivid shade of blue.
Hardly side-splitting stuff, but former Irish diplomat Bobby McDonagh later praised Merkel’s “emotional intelligence” in including May in the friendship, laughter and collegiality.
Anyone who has ever been involved in brokering major agreements will tell you how small gestures are often more important that they might appear. In any event, the EU and May agreed to a six-month extension of article 50 to October 31st.
The agreement ended fears of a crash-out Brexit this week, but, as the Taoiseach Leo Varadkar pointed out afterwards, little has fundamentally changed in terms of the options facing Westminster.
“We’re giving them a very long period of time now to make a decision,” he said. “Really, three options for them – to revoke and stay in the European Union, to accept the deal that’s on the table or to leave with no deal.”
In stark contrast to her exchange with Merkel, May was forced to reject calls for her resignation on her return to London. May instead said she would continue to seek a compromise with Labour that could command a majority in the House of Commons.
Industry groups on this side of the Irish Sea, including Ibec and the hauliers, expressed relief at the extension, but the Economic and Social Research Institute (ESRI) once again outlined the likely consequences facing us when the UK eventually does leave the bloc.
Brexit could hit house prices in most of the Republic but drive up demand for homes in Dublin, Dr Kieran McQuinn told an Oireachtas committee. He also predicted that places such as south Munster could suffer almost as much as the Border region.
That is chiefly because of beef and dairy exports. Indeed, Dairygold, the State’s largest farmer-owned processor, warned that its sizeable UK cheese business would effectively be wiped out in the event of a hard Brexit and the onset of World Trade Organisation tariffs.
Good and bad news for the economy
It was claimed by the Central Bank last week that US firms have pulled about €50 billion out of Ireland since Donald Trump’s US tax changes came into force last year, but a new report this week suggested the landscape might not be quite so stark.
The research, commissioned by the Institute of International and European Affairs, suggested the outflow of funds was merely the repatriation of US profits previously held offshore, which would have little or no impact on domestic activity here.
The report also claimed the US shift to a more territorial tax system – where companies are taxed based on the location of profits rather than their corporate residence – further incentivises overseas investment, of which the Republic is the main beneficiary.
Overall the positive effects for Ireland are likely to outweigh the negatives, the report concluded.
That’s good news in light of the latest forecast from the International Monetary Fund (IMF) which said economic growth in the Republic is expected to decline this year and next.
It said GDP would grow at 4.1 per cent here this year as against a predicted 6.8 per cent in 2018. It also forecast that economic growth would decline even further next year to 3.4 per cent.
Then there are the various trade wars Trump is waging. The EU is said to be preparing retaliatory tariffs against the US over subsidies to Boeing, significantly escalating tensions after Washington vowed to hit the EU with duties over its support for Airbus.
Back home there were calls from the Committee on Budgetary Oversight for greater parliamentary scrutiny of so-called “tax expenditures” amid suggestions the State may be losing anything between €5 billion and €15 billion a year in revenue.
Meanwhile, the search for our new Central Bank governor is under way. Among the interested candidates are the most senior Irish member of staff at the European Central Bank John Fell and Department of Health deputy secretary general Colm O’Reardon.
AIB continuing along road to recovery
It’s almost two years since the Government floated a portion of State-owned AIB on the stock market. This week the bank said it expected to reduce its bad loan exposure by between €2 billion and €3 billion by the end of this year.
The bank’s recently installed chief executive Colin Hunt told an Oireachtas committee that its “overriding ambition” was to get its non-performing loan exposures down to a “sustainable and appropriate level”.
By the end of 2019 he expects it to drop to about 5 per cent. Such a fall, from the bank’s current rate of more than 8 per cent, would correspond to a decline “in the order of” up to €3 billion, he said.
Separately, AIB reduced its fixed mortgage interest rates and introduced a new 10-year fixed rate. It has cut its rates on one-, two-, three-, four-, five- and seven-year mortgage products, and introduced a 3.3 per cent rate for 10-year fixes.
The bank is also said to be close to agreeing a deal to buy Payzone for about €100 million with New York-listed financial services group First Data. It’s more than two months since it first emerged the duo were circling the Irish payments company.
Finally in banking, Permanent TSB, which sold €3.4 billion of problem loans last year, is planning to put another portfolio of mortgages on the market in the future as it seeks to lower its level of non-performing loans further, according to the bank’s chief executive.