Richard Curran: Central Bank is like a nervous driver with its foot over the brake
The recent good weather wasn't the only thing raising the temperature around Ireland last week. The OECD has warned of a possible property bubble and suggested there may be signs of overheating in the economy.
As if that wasn't enough, Central Bank deputy governor Sharon Donnery suggested that it may be time to impose a Countercyclical Capital Buffer (CCB) on banks.
Currently set at 0pc, this can go up to 2.5pc of bank's credit exposures. It would mean the banks would have to set aside sizeable chunks of money to help strengthen their balance sheets in the event of a rainy day.
It isn't expected to be enough to seriously curtail their lending, but it could reduce the amount they have available to pay out in dividends to shareholders. In the case of 71pc of AIB and 14pc of Bank of Ireland, that would see the exchequer losing out.
There are a few things worth noting about all of this overheating. The OECD is looking at the rate of house price growth. Where there is a shortage of supply, house price inflation is enormous, running at around 13pc per year.
It has warned that if it were to continue at that rate it could lead to a bubble - ie bubbles burst and prices could fall back. This is kind of stating the obvious and simply getting its warning in early.
There is no real evidence of reckless or turbo-charged lending from the banks. New mortgage lending is growing steadily but from a very low base. Our price inflation doesn't appear to be credit-fuelled. This doesn't mean prices couldn't fall back. It just means that if they levelled and then dropped in value it wouldn't be as calamitous as the last time.
As for the countercyclical CCB, it is a drawback for the State as a major bank shareholder. It really does appear that regulators will not let another banking crisis happen - unless it is in Italy of course, where all of the foundation work has already been laid.
The Central Bank is watching two key criteria in deciding whether there needs to be a CCB put in place. Its main indicator is the "credit gap" - the deviation of the credit-to-GDP ratio from its long run trend.
If available in the past, the maximum CCB would have been applied on the Irish banks in the late 1990s and the peak boom years of the noughties. The fact that our banks qualify again doesn't mean we are in for a repeat of a banking collapse.
In fact, we may only be meeting the criteria now because lending is coming off such a recession period low that it is skewing the numbers.
I could live with a heavy CCB being applied especially given that I am not a direct shareholder in any of the banks. Equally, I would be prepared to live with lower dividends paid on those shares to the exchequer if it meant we would not have bank collapses again.
But there is a deeper issue at play here. If these very tough capital restrictions do reduce the amount banks have available to lend to consumers and businesses, it could seriously dent economic growth. For example, the OECD has warned about the sharp increase in lending to SMEs in Ireland. For several years SMEs couldn't get a loan and now any kind of increase sets off alarm bells.
Irish banks are still carrying relatively high levels of boom era legacy debts. They are trying to deal with those now. But the overall lending and capital restrictions in place mean banks will be highly bullet proofed in the event of a downturn.
Perhaps Central Bankers are not looking at a downturn but a crisis which would arise if Italy became the next Greece. That is a different story and one that would challenge everybody's buffers.
Its too early to say we've left the Club Med countries behind
It was a case of all eyes on Italy during the week as its latest political crisis swung over and back like a pendulum. There is no doubt that Italy is in a precarious position. It can only get out of that tough spot by austerity (not popular) or something more radical like pulling out of the euro (growing in popularity).
Its banks have sowed all the seeds of a right good crisis over many years and all that remains is for politicians to take the wrong decisions and trigger such a negative series of events.
Back home the NTMA was quick to differentiate Ireland from the former so-called PIIGS countries (Portugal, Italy, Ireland, Greece and Spain).
As the cost of sovereign borrowing shot up in Italy and also in Spain, Ireland's bonds remained rock solid, with 10-year bond yields remaining below 1pc.
Was this the moment we ceased to be seen as somewhat unreliable, unstable, boom-bust economy?
Or had that happened before now? During the debt crisis we were quick to point out that we weren't Greece. Now during the Italian crisis we are quick to say we aren't Italy.
So what are we then? We have hardly become Scandinavians overnight.
In fact we may be seen as neither. The fact that we paid out €25bn to bondholders in a dead bank (Anglo Irish Bank), a dead building society (close to €5.4bn on Irish Nationwide) and took over the debts or our entire busted banking sector, suggests that no matter what, we will never welch on our debts.
That should command a premium when it comes to lending us money.
NTMA chief executive Conor O'Kelly has no illusions about the fickleness of the bond markets, which is why he has built up a €20bn cash war chest at very low rates. Nobody knows how long we will be able to borrow money at such low levels.
We have climbed from 'junk' back to an 'A' rating but not a 'triple A' rating. And yet we can still borrow 10-year money at under 1pc. It won't always be this good.
A crunch time is approaching because next year we have to re-finance €14.8bn of our national borrowings and the following year, another €19.4bn.
If we are still borrowing at under 1pc in 2020, we really will have moved on from the Mediterranean.
Cosgrave reaches the summit of smart marketing
Dublin Web Summit founder Paddy Cosgrave was making a series of pronouncements during the week. Corruption and housing were both on his mind. When it comes to housing, Cosgrave was lamenting the fact that renting or buying a house in parts of Dublin had become so expensive.
And he is right about that.
He said he had to pay €2,000 per year in the form of a rent supplement to staff to help them with their housing expenses. But isn't that the same as giving them a €2,000 per year pay increase?
Isn't this something he might have to do anyway, in the current environment of wage inflation?
CSO figures show that by the end of next year 99,000 more people will be in work, and average pay is set to rise at a rate equal to around €50 per week. That is €2,500 per year.
In 2016, average employees earnings in the group behind the Dublin Web Summit were €45,742, up from €42,441 the previous year. These figures include directors pay, which is not stripped out, so the real employee average was most likely lower.
So Cosgrave is probably having to award pay increases anyway. He is right to highlight the rising cost of housing and its economic impact. IDA Ireland and others have also done so.
But one can't help feeling that if he has to pay staff more, like lots of employers right now, he might as well get some publicity out of it.
Sunday Indo Business