Last May, the Irish Central Bank launched what amounted to little more than a “can’t we all just get along” strategy in getting banks and credit unions to work together in dealing with personal debt.
It was a form of bankruptcy-lite proposal championed by the Central Bank that would have resulted in banks and credit unions coming together and working out how to split the spoils of a shared customer in financial difficulty.
The concept has just been shelved and about time, it was never going to work!
In pushing the proposal, the Central Bank demonstrated a fundamental lack of understanding of how the credit union movement and the banking sector view the financial collapse.
Each side blames the other (or someone else) and neither see any reason why their sector should take an unfair financial hit.
What is inconceivable is how the Central Bank could have even given so much time to the pilot. Instead of pursuing their “aw, come on lads!” strategy, it would have been far more productive putting the public first and working more closely with the newly established Insolvency Service of Ireland (ISI) – which is struggling to make an impact.
The only realistic solution to the personal debt fiasco across Ireland is for robust legislation that places the interests of families first. Families are not connecting with the ISI because it is expensive and cumbersome – it does not put families first. The Central Bank has a duty to do more for the people of Ireland, after all, it was the one asleep at the wheel when the wheels came off!
Bank of Ireland wants to lend. And as proof of its committment to the mortgage market, especially the first time buyer market, the bank has announced a little incentive to help buyers along the decision process. For first time buyers that take out a mortgage with the bank, it will refund their stamp duty bill following completion of the mortgage. At 1% of the property price, this is a generous offer and no doubt, a welcome one by a market segment that will be looking to conserve every penny following their new home purchase.
Over the course of the last 7 years, the narrative across Ireland has been for more mortgages. Mortgage lending fell 92% since peaking in 2006 when 111,000 mortgages were drawn down (this excludes top-up and switchers). Mortgage brokers, estate agents, even the Taoiseach were critical of the banking sector for the lack of lending across the country.
Last summer, a report detailing the entry of Investec into the Irish mortgage market was widely welcomed as a potential market disruptor. The entry of the lender never materialized. At the time, a range of broker services were highly supportive of the move as it would have resulted in a high proportion of mortgage transactions being processed through their services, the lender would have been heavily reliant on the broker network to reach customers.
Today, some brokers have come out against the Bank of Ireland incentive. Without any obvious or clear banking strategy, the mortgage broker sector appears confused. It calls for increased levels of mortgage lending yet criticizes Bank of Ireland for designing a mortgage programme that encourages just that. The only difference between Investec and Bank of Ireland is the level of reliance each would have on the mortgage broker network. Supportive when there is more, critical when there is less.
Damned when they don’t and damned when they do, it seems banks simply can’t win, which is why they may as well get on with what they do best, which is just be themselves!
Mario Draghi, President of the European Central Bank is a professional worrier. He worries about banks, the economy and the people that make the economy happen. Right now, Mr. Draghi is very worried indeed.
Today, the European Central Bank says that it is worried about low inflation because it means low economic activity and a slow rate of economic recovery across Europe.
And worried it should be.
This past weekend, across France, the Front National political party did exceptionally well in regional polls. In the end it was not the triumph that some had trumpeted last week but in the second round of the municipal contest it secured the election of more than 1,400 local councillors (up from 60), and by winning 13 municipalities across France (up from 0). It’s been interesting to read reaction to the figures with some saying that this was not a triumph for the party led by Marine le Pen but a reflection of broad disillusionment with French President, Francois Hollande.
Across Europe, a growing sense of disillusionment with the slow pace of economic recovery is feeding a demand for results, the absence of which is feeding a different narrative and debate that is winning among the most severely affected.
Whether the Front National is really viewed as a credible alternative to mainstream politics is secondary. What is primary is the sense of disillusionment that is beginning to take hold. A sense that a grand, continent-wide economic philosophy is not generating the results people expect to secure a standard of living they aspire to.
Across Europe, the growth of right-wing ideology is resurgent. In Switzerland, voters there reversed their open borders agreement with the EU in a referendum earlier this year. In Hungary, Sweden, Italy, Belgium and the Netherlands, right-wing parties are successfully appealing to the public.
Ultimately, the success of Europe will rest on how inclusive it is. When Bill Clinton made his campaign-defining statement “it’s the economy stupid“, he uttered a universal truth that resonates in all societies and across all ages. Or perhaps we consider the advice of Tip O’Neill, a past speaker in the US House of Representatives when he said “all politics is local“. All economics is local too, right down to what one has in their wallet!
Mario Draghi is right to be concerned. He feels the pulse of a continent and understands its power. The grand European vision that reads so well on paper is beginning to clash with the street interpretation of its results. Unless policymakers take a Darwinian approach, the grand EU vision could well end in tatters!
George Osborne, the UK Chancellor today published his latest budget where he placed savers at the top of his priority list and announced a range of incentives, the Irish ministry for finance should take note and perhaps even replicate some of Mr. Osborne’s announcements.
For example, savers and pensioners across the UK will benefit from a sweeping overhaul of tax rules that will let them keep much more of their own money.
From July, there will be a new £15,000 limit on Isa’s, which can be used to deliver tax-free returns on either cash or shares and a 10p starting rate of tax on savings income will be abolished. In Ireland, savers are severely punished where they pay a whopping 41% on interest earnings.
Mr. Osborne also revealed new rules making it easier and cheaper for savers to withdraw cash directly from their pension funds instead of buying an annuity. New “Pensioner Bonds” will pay enhanced interest rates to savers aged over 65.
Mr Osborne also confirmed that the personal allowance for income tax will rise to £10,500 from April 2015.
Here in Ireland, there has been steady stream of confusing and mixed messages coming from Government on the issue of personal savings and retirement planning.
While some Government Ministers warn of possible mandatory pension deductions from employee pay packets, the ongoing Government-led raid on private pension accounts (it takes a massive three-quarters of one percent annually from private pension accounts) has led to public mistrust of future Government actions in respect to personal retirement savings.
Additionally, a 41% tax on savings income was designed to punish personal financial discipline.
Ireland now needs a coherent and consistent Government-led strategy on personal financial well-being, including long-term tax policies that will guarantee protection and predictability. To date, the approach to personal financial planning appears to be little more that one managed through a prism of short-term election cycles and vested interest lobbying. This must stop and the interests of all citizens must be put first. Those who plan carefully must be rewarded, not punished!