HARD-PRESSED homeowners are in line for another three interest-rate cuts on top of the one delivered this month, it has emerged.

From Charlie Weston  Personal Finance Editor The Irish Independent.

However, a billionaire investor in Bank of Ireland appeared to rule out variable-rate customers of that bank benefiting from a series of ECB rate cuts.

Analysts said they were expecting a eurozone rate cut in December, another in January and that a third in February or March was now highly likely.

This would take the ECB rate from 1.25pc at present to 0.5pc, economists at Danske Bank, which owns National Irish Bank, said yesterday.

Four cuts, including this month’s one, would reduce repayments on a €200,000 tracker mortgage by €120 a month.

Over a year, a family with this size of mortgage would be €1,440 better off.

Danske Bank said the ECB was likely to keep cutting rates in a bid to counteract disappointing growth in the eurozone and in an attempt to contain the sovereign-debt crisis.

A string of cuts in ECB rates is set to reignite the controversy over banks failing to cut variable rates.

A billionaire investor in Bank of Ireland, Wilbur Ross, has defended the bank’s decision to resist government attempts to persuade it to cut its variable mortgage rate.

Rebuffed

The vulture capitalist said a more “normalised” funding environment was needed for Bank of Ireland to pass on ECB interest rate cuts to customers on variable-rate mortgages.

Mr Ross, who owns 9pc of Bank of Ireland, told Reuters news agency that the lender’s high funding costs made it difficult to pass on the ECB rate cut.

Bank of Ireland boss Richie Boucher stormed out of a meeting with Taoiseach Enda Kenny and Tanaiste Eamon Gilmore last week after being asked to pass on this month’s European Central Bank rate cut to variable-rate customers.

Mr Ross said: “I can assure you that Richie Boucher is well aware of the need for responsible pricing of loans and also is aware that lower rates make it easier for borrowers to remain current in their payments.

“High funding costs are hopefully a temporary phenomenon. In a more normalised environment, it would become easier to synchronise interest rate spreads with changes in rates charged by ECB.”

Ulster Bank has also rebuffed efforts by the Government to get it to pass on last week’s ECB cut to its variable rate customers. Its variable rate is 4.95pc, compared with Bank of Ireland’s 3.99pc.

The State owns 15pc of Bank of Ireland. It has no stake in Ulster Bank.

Meanwhile, Finance Minister Michael Noonan said yesterday that he had been told by Financial Regulator Matthew Elderfield that he does not need additional powers to force banks to pass on ECB interest rate reductions to customers.

Mr Noonan last night ruled out introducing emergency legislation to force two banks to pass on interest rate cuts to struggling help the mortgage holders.

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http://www.independent.ie/business/personal-finance/property-mortgages/more-cuts-on-way-in-mortgage-rates-say-analysts-2935699.html?service=Print

- Charlie Weston Personal Finance Editor

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The Article looks at how various Greek Financial Scenarios would impact on Ireland.

Click on the link below for the full Article

On the likelihood of Greece defaulting on its debts, EU political leaders seem to believe that it’s more a case of when rather than if, write Cliff Taylor and Jon Ihle.

If someone has a masterplan to sort out the euro crisis, they are keeping it well hidden.

On Friday, the US treasury secretary, Timothy Geithner, made an unprecedented visit to a meeting of eurozone finance ministers, and warned that the EU need to act to combat the ‘‘catastrophic risk’’ that was stalking the financial markets.

The ministers appeared to respond by shrugging their shoulders, agreeing to delay the release of funds to Greece and pushing back the timescale for the signing off by national parliaments on the expansion of the mandate of the European Financial Stability Fund, which was agreed at the emergency EU meeting last July.

It wasn’t quite a ‘‘crisis, what crisis?” response to the man from Washington DC – but it wasn’t far off it.

One key thing has changed over the past few weeks. The financial markets have thought for some time that a default on Greek debt would happen.

Now, there seems to be a tacit acceptance at political level that this is the case, even if political leaders are still trying to workout how it will all be managed, So how might it work out, and what would it all mean for Ireland? Here are three alternative scenarios.

1. Europe continues to muddle through

The EU leaders have managed to get this far without fundamentally changing the way the eurozone operates.

And they may get away with it for a while longer, though the extent of the pressures they face is making it more and more difficult.

Initially, the idea appeared to be to cordon off Greece, Ireland and Portugal as three bailout countries and hope that ‘‘contagion’’ did not spread. This worked for a while, but a crisis was sparked over the summer when the Italian and Spanish bond markets started to come under pressure, leading to an emergency summit and extensive bond-buying by the ECB.

For the EU to continue to muddle through, the ECB will most likely have to continue this buying, a move that is clearly controversial, as shown by the recent resignation of its German chief economist, Jurgen Stark. It will also have to stand ready to continue to support the liquidity of the EU banking system, which has been hit by fears over which banks would lose out in the event of a Greek default.

In particular, this has led US banks to be nervous of lending to their EU counterparts, necessitating a coordinated drive by international central banks to provide US dollars to the eurozone banking system last week. More of this will be needed if a lid is to be kept on the pressure cooker.

‘‘If markets begin to believe that the ECB will continue to act as a backstop, their attention may focus elsewhere, but in the background will be the unfinished business,” according to Kevin Gardiner, head of investment strategy at Barclays Wealth, speaking after addressing a conference for the firm’s Irish clients last week.

‘‘A comprehensive resolution is going to be way down the road, but I don’t think this (Greece and the euro crisis) will be flavour of the month all the time.”

A muddling-through strategy would allow the EU leaders to gradually prepare the way for a Greek restructuring, and also for the kind of economic and fiscal union that might underpin a more stable euro.

‘‘This is all leading to a United States of Europe,” said Gardiner. ‘‘The markets and the leaders know this. It’s just a question of bringing the electorates along.”

He said Merkel and Sarkozy were playing a game of ‘‘granny’s footsteps’’ – advancing while voters’ backs were turned.

The key question is whether the markets will give the EU leaders space to pursue this longer drawn-out strategy.

What would it mean for Ireland?

A muddle-through scenario would leave open the likelihood of bouts of volatility. This would not be good for Ireland, and if the underlying problems were still not being fixed, Ireland would be likely to find it difficult to return to borrow from the markets on schedule in 2013.

We have had some positive news with the improvement in the terms of the bailout that was announced last week. This improves the outlook for our national debt.

However, Minister for Finance Michael Noonan has said he has still to decide whether to seek longer-term financing from the EU and IMF, and is also pressing for financial assistance for Ireland in funding the Anglo Irish Bank bailout.

The best hope of achieving this would be if the rest of the EU believes Ireland has a chance of becoming a successful bailout country and that it is to their advantage to encourage this.

2. Greece Defaults

Sooner or later, Greece’s debts are likely to be restructured, involving a significant write-off for its creditors who include the private sector, the EU and probably the ECB.

A game of chicken is now going on between Greece and the EU/IMF.

At Friday’s summit, eurozone finance ministers agreed not to realise the next €8 billion in funding due under the current rescue programme just yet, while the terms of an extended bailout beyond the end of this year have still to be signed off.

The troika – the EU, IMF and ECB – return to Athens this week to try to get agreement, and it is likely that the EU is trying to push the Greek government to start getting its budget in order. However, growth in Greece is collapsing – the economy will shrink by 5 per cent this year, well above previous estimates of a 3.8 per cent contraction, and the Greek public are suffering from ‘‘austerity fatigue’’.

The likely eventual writedown of Greek debt will be substantial, and this is what could bring the issue to a head sooner rather than later. Europe’s leaders will be asking why they should be pouring in money that they may never get back.

A research note by economist Willem Buiter for Citigroup Global Markets last week estimated that creditors could be facing losses of 65 to 80 per cent, not in one fell swoop but over a series of restructurings in the years ahead.

He pointed out that one way of achieving this is to greatly extend the maturing of the debt without writing down its principal.

This can save political face, while still having a major impact on Greece’s debt dynamics.

Lengthening the average maturity of Greek bonds from the current seven years to 28 years, for example, would reduce debt levels by close to 65 per cent.

Under the current EU programme, countries could restructure debts if they were assisted by the new European Stability Mechanism, due to come into place in mid-2013.

However, the Greek situation may well be dealt with sooner.

A lot depends on whether Greece can do enough to keep the EU and IMF on board and whether its government can be seen to deliver.

A Greek default, if it happened suddenly, would cause a new bout of nervousness in markets, who would ask: who will be hit next?

Asking if he thought a Greek default was already priced in, John Looby of Setanta Asset Management said: ‘‘You would expect it to be, but we thought Lehman was well-flagged and look what happened.”

He added that a Greek default could lead to a new drying up in liquidity in interbank markets.

There would be an immediate focus on the holders of Greek debt and how much they would lose. French banks are big holders, for example.

‘‘There will be a run on French banks and the government will have to recapitalise them,” said Justin Doyle of Investec Ireland.

He added that the worry would be also that other sovereign debt markets would be hit, including our own.

What would it mean for Ireland?

A Greek default, particularly a sudden one, would lead to investors asking who would default next. Interest rates on Irish government bonds, which have fallen significantly recently, could rise sharply once again.

Much would then depend on what was said and done to help other states to avoid the same fate as Greece.

Funding could dry up in the EU interbank market, leading to situation similar to that which followed the Lehmans collapse. Irish banks, with small Greek exposures, would not be in the firing line and are, in any case, largely reliant on official funding.

http://www.thepost.ie/story/text/ojidgbmhql/
However, a messy Greek default and a new credit crunch could hit growth and confidence across the EU – and here.

The advantage would be that, if handled in amore organised manner, a Greek default could be seen as a real step to addressing the underlying crisis and perhaps also provide some negotiating leverage for Ireland.

3. Greece leaves the euro

Most analysts, even those who have taken a sceptical view of the euro, continue to believe that, on balance, this will not happen.

However, as Buiter’s research note for Citigroup said last week, it has become more likely in recent months. The events that could lead to this are not hard to imagine. The E U and IMF demand new spending cuts or tax hikes from Greece. The Greek government refuses and new bailout money is not extended.

More crucially – the vital factor, according to Buiter would be if the ECB cut off liquidity to Greece’s banks. The mechanism by which a country would leave the eurozone remains unclear, but clearly it is not impossible that this could happen.

An unplanned Greek exit of this kind would create chaos, both within Greece itself and across Europe. The Greek banking system would almost certainly collapse and, as reported here last week, a UBS analysis estimated that a country leaving the eurozone could face costs of up to 50 per cent of GDP.

The shockwaves would spread across the EU Greek’s sovereign debt holders would face immediate losses as their holdings were redenominated in a currency which would crash. Big holes would appear in the balance sheets of many EU banks as a result.

If Greece left, questions would immediately be asked about who would be next. Funds would leave the banking systems of Ireland, Portugal, Italy and Spain; and US funds would move out of Europe. New funds would not be provided by investors to these countries.

‘‘The funding strike (the lack of new funds from investors) and deposit run-out of the periphery euro-area member states would create financial havoc and most likely cause a financial crisis followed by a deep recession in the euro-area broad periphery,” according to the Citigroup paper..

The advantage for a country like Greece leaving the eurozone is that a rapidly depreciating currency would effectively cut its debt burden and give it a competitiveness boost (how sustained the competitiveness advantage would be is a point of debate among analysts). However, the risks are the costs sustained in getting there and particularly the almost certain collapse of the Greek banking system.

What would it mean for Ireland?

A sudden Greek exit from the euro still looks unlikely, given the risks for all sides.

If it happened, Ireland could not avoid being caught up in the financial whirlwind that followed, as speculation grows that more countries would leave.

There are other scenarios being touted: for example, that Germany would lead a group of stronger countries out of the eurozone. For the moment, however, the risks of a euro break up look like something that Europe will continue to try to avoid.

How the rate reduction will affect Ireland’s finances

The original terms of the bail out signed off last November were penal, in that the average interest rate on the loans offered was to be around 5.8 per cent, or possibly slightly higher depending on how market rates moved.

Successive agreements to cut the rates – including a surprise additional reduction agreed last week – will make a significant difference to Ireland and bring the total benefit over the term of the EU/IMF loan to around €10 billion, the figure forecast in an article in this paper by John FitzGerland, ESRI professor, a few weeks ago. The precise terms on which Ireland will borrow remain to be fully tied down.

However the annual benefit in terms of interest savings now looks set to be in the €1.1 billion to €1.2 billion per annum region – the full annual benefit is only felt in a couple of years time after all the money is drawn down.

It will not transform Ireland’s budget arithmetic, but it helps. To put the numbers in context, Ireland’s debt interest payments had been expected to rise to over €8 billion by 2013, but we can now subtract upwards of €1 billion from this.

It will make our financial targets a bit easier to hit, though in the next few years the EU and IMF will keep us under pressure to close the deficit between what we spend on running the country (before taking account of debt repayments) and what we raise in taxes – so the budget adjustment targets will remain. Closing this gap is a vital step to stabilising our finance.

The lowering of the interest rate also makes the job of the NTMA in funding our cash requirements a bit easier.

However they still face a big financing need of over €20 billion in 2014 – the year after the bail out cash is due to run out – with a big €12 billion bond redemption in January of that year.

Minister Noonan has said he will continue to consider seeking extended loan maturities on EU/IMF loans, which could lower the pressure to raise cash in the 2015 -2017 period when much of this money currently falls due to be repaid. He is also to talk to the ECB about a refinancing of the €30 billion Anglo bill, due to cost us €3.1 billion a year in principal repayments – and more in interest from next year.

If this could be refinanced it could be a major boost to the exchequer particularly if, as Noonan appears to be suggesting, it could be spread out over 25 to 30 years rather than the current ten.

Cliff Taylor

http://www.thepost.ie/story/text/ojidgbmhql/

German Chancellor Angela Merkel and French President Nicolas Sarkozy have both said that Greece will not leave the euro, but the “unthinkable” is now being seriously considered at all levels. Just who gets to make that call, and whether sticking or twisting would be the more painful option, is being hotly debated.

Aris Messinis | AFP | Getty Images A man walks outside the Bank of Greece headquarters during a demonstation against government’s austerity measures in central Athens.

A Greek exit from the euro would be unprecedented, and some analysts have seen it as an irreversible step towards a breakup of the single currency in its current form. Others say that the country is a “diseased limb” that needs to be excised to protect the remaining countries and save the euro zone.

Saving Greece introduces issues of moral hazard, but letting it fail and fall away seems to run counter to the European vision of mutual support and solidarity.

Letting Greece stay in shows the solidity of the euro zone, and the commitment of the whole to its member states, political analysts say. But it could also tell markets that Brussels is incapable of taking the tough decisions needed to make the union viable economically.

A report, released on Tuesday by Citigroup economist Willem Buiter, said that while Greece leaving the single currency looks more likely than ever, it would have very limited benefits for the country or the euro area as a whole, and that it would have large direct and indirect negative effects on both.

Citi believes that Greek government debt will reach 167 percent of gross domestic product (GDP) by the end of 2011. Slippage in the reform and privatization program as well as worse-than-expected growth figures have blown the country’s attempts to rein in its unsustainable debt.

“Structural reforms are going nowhere and the lack of realism in the forecast of the proceeds from privatization is becoming clear,” Buiter wrote. “Austerity fatigue in Greece is visible and audible, and so is bailout fatigue in the core euro area member states.”

‘Reform Fatigue’

Speaking on Thursday evening, Christine Lagarde, the new head of the IMF, said that Greece was suffering from “reform fatigue”.

Practically, what does that mean?

First, Greece will probably default at some stage. The timing and nature of that default depend on a number of factors, not least the appetite among the more developed member states to keep throwing money at the problem while other vulnerable economies make good their own structural reforms.

The ability of the Greek government to continue with its cutbacks despite opposition from its own population is also critical. Should the “Troika” of the International Monetary Fund (IMF), European Union and European Central Bank (ECB) determine that the country is “willfully non-compliant” with its conditional structural reforms, financing could be withheld and the country would almost inevitably default.

The ECB would no longer accept Greek government debt as collateral when lending to the country’s banks, and the emergency liquidity assistance (ELA) offered by the ECB would not be forthcoming. This, Buiter said, could push Greece to leave the euro of its own volition.

 http://www.cnbc.com/id/44536212

“Faced with the disappearance (as far as Greek banks and sovereign are concerned) of the euro area lender of last resort, Greece could blunder into exiting from the euro area. It is the denial of access for banks to ECB/Eurosystem funding and to the ELA facility that would be the defining moment for Greece in our view,” Buiter wrote.

In this scenario, Greece would be unlikely to pay back most of its international creditors, except for the IMF, Buiter said.

So why not leave? After all, competitive devaluation of currencies against the deutschmark was key to the performance of Southern European economies pre-euro. As Buiter explained, a reincarnated drachma would instantly lose value – he estimates as much as 40 percent. As soon as a euro exit appeared inevitable, there would be a run on the banks.

“The Greek banking system would be destroyed even before Greece had left the euro area,” Buiter said.

Institutions holding drachma instruments, and those still denominated in euros would see huge imbalances develop in their portfolio. Corporates exposed in this way, and any remaining banks, would have a high chance of following the sovereign and defaulting.

The competitive benefits of devaluation, Buiter noted, would be short-lived without the same structural reforms to the economy and labor market that the Troika has prescribed. Leaving the euro, he concluded, would lead to a financial collapse and a deeper recession than it is currently suffering from.

 Article Continues Click here for full Text

http://www.cnbc.com/id/44536212

By Charlie Weston, Personal Finance Editor
Thursday September 15 2011

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Dutch have stepped up pressure over EU move for EU budget tsar

By Laura Noonan and Siobhan Creaton
Friday September 09 2011

From the Irish Independent click below for full article