Friday 19 January 2018

Maeve Dineen: Noonan wisely playing IMF card with trip to the US

In July 2000, then Enterprise Minister Mary Harney famously observed that Ireland was a lot closer to Boston than to Berlin. She told a meeting of the American Bar Association: "Geographically, we are closer to Berlin than Boston. Spiritually, we are probably a lot closer to Boston than Berlin."

If the events of the past few months are anything to go by, she was right. Germany's and France's unyielding stance on lowering our bailout interest rate has soured Ireland's relations with the EU and this has forced us to look again at our relationship with the US.

It appears that Finance Minister Michael Noonan has all but given up on getting the much-hyped interest rate reduction. Last week, he told the Dail that estimates the interest rate reduction could save some €450m a year were "exaggerated" and it would be worth just €148m to €200m a year.

He said the amount of money was so small it simply wasn't worth fighting over, especially as it puts the country under political pressure to increase our controversially low 12.5pc corporate tax rate.

This is perhaps the reason that the week before a major EU summit, where we will find out once and for all if we will receive any interest rate reduction, Mr Noonan and members of the National Treasury Management Agency (NTMA) are travelling to New York and Washington for talks with potential investors and IMF officials.

One would think their time would be better spent charming the capitals of Europe, but perhaps they feel they can do no more to bring our EU friends onside and have opted to cross the Atlantic instead.

If they can't convince Europe that an interest rate reduction is crucial to Ireland's recovery, then perhaps the IMF can.

Mr Noonan and his team are expected to attend no fewer than 15 engagements over the week and crucially they will be meeting the acting head of the IMF, John Lipsky, and US Treasury Secretary Timothy Geithner.

The IMF has already said the Irish programme needs more support from Europe if it is to succeed and it has gone as far as to say that an interest rate reduction would be "helpful".

It its last report, the IMF criticised the ECB and other European institutions for a lack of adequate support for the recovery effort. The unusual rebuke was a clear reference to the Government's request for medium-term bank financing from the ECB to replace the existing short-term funding that needs to be continually rolled over.

The request was made in mid-March, but was reportedly vetoed by a small number of council members.

The IMF also said the success of the Irish plan clearly depended on a government return to market financing next year. But with Greece staring down the barrel of a default, investors are getting increasingly worried about the impact this will have on Ireland's ability to get back into the markets. Last week, a senior RBS banker said Ireland would have to be a "fantastic" bet for the markets to lend at any reasonable interest rate, which he said would take seven years to achieve.

No doubt analysis like this will be weighing heavily on the minds of Mr Noonan and the NTMA officials as they attempt to sell Ireland to investors.

Mr Noonan has indicated that Ireland will attempt to return to the bond markets in the second half of next year.

It would be a heavy irony if Ireland, a member of the euro club, was temporarily reprieved by loans in dollars. But the fear is investors will stick to buying the bonds of genuine emerging markets, which have much more solid growth prospects.

The Finance Minister is playing what few cards he still has left. One of the best cards is the IMF's support for the Government's policies. It is a long shot, but our relations with Europe are so poor these days that Mr Noonan is probably using his time stateside wisely.

Irish Independent

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