Euro zone finance ministers have agreed in principle to Ireland refinancing expensive IMF rescue loans with cheap finance raised in the market. If, as expected the deal is done and dusted, the new, lower cost of borrowing is estimated to save the State €375m in interest charges.
Currently, the IMF loans carry an interest rate of nearly 5pc and when this facility was taken out during the worst days of the State’s IMF bailout negotiations, 5% was a relative bargain. However the State can now borrow for less than 2%.
The 5pc rate applies to €18bn of the €22.5bn of IMF bailout loans.
The technical formalities of putting the new deal into practise involves all of the creditors under the original bailout deal agreeing at the same time and this is the main reason why the agreement from all creditors may not be completed in time for the upcoming Budget. All signs point to a groundswell of goodwill towards Mr. Michael Noonan, the Minister for Finance as he canvasses support.
Ireland leads euro zone with higher industrial output
IRELAND has topped the list of euro zone industrial output data for July. In statistics just released by Eurostat, the increase of 1.0 % in industrial production in the euro area in July 2014, compared with June 2014, is due to production of capital goods rising by 2.6%, non-durable consumer goods by 1.2% and intermediate goods by 0.5%, while durable consumer goods fell by 1.2% and energy by 1.3%.
In the EU28, the increase of 0.7% is due to production of capital goods rising by .3%, non-durable consumer goods by 0.8% and intermediate goods by 0.4%, while energy fell by 0.6% and durable consumer goods by 0.8%.The highest increases in industrial production were registered in Ireland(+11.3%), Estonia(+2.8%), Slovenia (+2.3%) and Croatia(+2.1%), and the largest decreases in Denmark(-4.7%), Malta (-4.2%) and Greece(-1.7%).
The increase of 2.2% in industrial production in the euro area in July 2014,compared with July 2013, is due to production of capital goods rising by 4.6%, non-durable consumer goods by 4.0%and intermediate goods by 1.6%, while durable consumer goods fell by 0.2% and energy by 4.4%.In the EU28, the increase of 2.0% is due to production of capital goods rising by 4.5%, non-durable consumer goods by 2.8%, intermediate goods by 1.9%and durable consumer goods by 0.3%, while energy fell by 3.5%.The highest increases in industrial production were registered in Ireland(+17.6%), Hungary(+12.3%)and Slovenia(+9.2%), and the largest decreases in Denmark(-6.4%), Sweden(-5.0%) and Finland(-2.7%).
Jonathan Hill, the little known UK political figure has been appointed to one of the most powerful posts within the European Commission. Mr. Hill has been nominated as Commissioner for Financial Stability and Regulation.
What makes this appointment so interesting is the message it sends.
First, for months, the British Government and City of London have been bitterly opposed to a range of financial curbs and transaction taxes which are viewed by authorities and financial groups there as a major threat to the role of London as an international financial hub.
Second, while Britain is not a member of the Euro, this appointment will oversee the pillars of stability across the Euro area. Whether this ‘non-member running the club’ approach will have a significant impact will be foremost on the minds of those hawks of austerity; the Germans, Dutch and Finns.
Third, the selection of Mr. Hill is clearly political on a number of fronts, not least one of peace between Mr. Juncker and Mr. Cameron. David Cameron fought hard to derail the appointment of Mr. Juncker to Commission President. The gamble seems to have paid off. However, others may smell appeasement in advance of the UK referendum on remaining a member of the EU.
What will be particularly interesting in the years ahead is the approach Mr. Hill takes towards building the pillars of financial stability. Coming from the Conservative Party, one can expect it will be more balanced, which should auger well for the beleaguered financial services sector across Europe.
One thing is for certain though which is that Mr. Hill can retire the less than noble title of ‘Lord Who’. From today, he will become ‘Commissioner Money!
The Irish Banking Federation has today announced that it has amalgamated with the Irish Payment Services Organisation (IPSO). According to press release issued from the newly formed Banking and Payments Federation Ireland, the merger of the two organisations had been underway for a number of months.
With over 70 domestic and international member institutions, Banking and Payments Federation Ireland will be responsible for the promotion of member interests, including lobbying and laying the conditions for profitable banking.
Coinciding with the launch of the Banking and Payments Federation Ireland, the new organisation has announced the opening of a Brussels based office to promote lobbying and influence decision-making at European level.
“This surprise move will result in monthly mortgage repayments falling by about €10 on a €200,000 or €120 annually” said Mr. Frank Conway.
Standard Variable Rate mortgage holders are unlikely to benefit from the surprise rate cut as lenders can choose to not pass on ECB rate cuts to those customers.
Bad news for savers
The rate cut is bad news for savers as lenders are likely to further reduce deposit interest rates from their present lows.
“The news for savers is not so good. This is a market where many deposit institutions have already significantly reduced the level of interest they pay to, in some cases, fractions of a percent. On top of that, savers that do earn some interest income are liable for DIRT of 41%. Savers are now persona non grata” said Mr. Conway.
An announcement by Bank of Ireland that it is to launch a 10-Year fixed rate mortgage is a positive development.
“The new 10-Year fixed rate mortgage from Bank of Ireland is highly competitive on price, beating many of the 5-Year fixed rate products and even matching some 3-year fixed rate deals*” said Mr. Frank Conway, Founder of MoneyWhizz.org, the personal finance and personal budgeting service.
Irish consumers have a mixed history with fixed rate loans
“Irish mortgage borrowers typically favour variable rate loans, where the rate of interest fluctuate as a result of the European Central Bank base rate of lending and other market conditions. However, this latest product from Bank of Ireland compares favourably to many variable rate offers, costing about 50 basis points more than many SVR deals on the market currently” said Mr. Conway.
Mortgage borrowers are typically liable for prepayment penalties when they repay fixed rate loans early.
“A major factor mortgage borrowers must consider when evaluating the merits of a fixed rate loans are what prepayment penalties apply. Typically, this can amount to a multiple of several months interest repayments which will need to be added to the loan amount if borrowers repay fixed rate loans early.” said Mr. Conway.
Signs of innovation
Bank of Ireland is showing signs of product innovation. This is the second incentive announced by the bank following an earlier announcement this year that it would pay the 1% stamp duty on home purchases for first time buyers.
“Clearly, Bank of Ireland is sending a strong message that it wants to attract attention and…customers. That in itself is a welcome departure following over a half decade of consolidation in the mortgage market.” said Mr. Conway.
*Source: National Consumer Agency