Business World

Tuesday 12 November 2019

Honohan will place Europe's interests first at rate summit

Central Bank governor admits the financial woes of Irish homeowners won't be his priority at Frankfurt meeting

Central Bank Governor Patrick Honohan. Photo: Tom Burke
Central Bank Governor Patrick Honohan. Photo: Tom Burke

Thomas Molloy

CENTRAL Bank governor Patrick Honohan said yesterday that he won't be thinking about the faltering Irish economy and struggling home owners when he meets in Frankfurt next week for the European Central Bank's monthly rate-setting meeting.

Mr Honohan said he was obliged to think of the European economy when he votes on whether the ECB should raise interest rates to cool the booming economies in the centre of Europe.

Most economists believe higher rates are appropriate for Germany and France but not suitable for countries such as Ireland.

"I have to wear a European hat. It is the only area of policy where Ireland is not my first priority," he told a press conference at the launch of the Central Bank's annual report.

"I'll not be paying much attention to Irish economic conditions."

Mr Honohan admitted that many mortgage holders here were struggling, although he claimed that any change in interest rate would only hit those on tracker mortgages as banks were already raising rates for other borrowers regardless of what happened in Frankfurt.

"We have to be concerned about the developments in mortgage arrears," he said.

Turning to the prospects for economy growth, Honohan dashed any lingering hopes of a quick recovery, admitting that economic growth was "modest" at best and there was no guarantee that Ireland would recover this year.

"Nobody can be absolutely sure that there will be growth this year -- our forecast is that there will be some growth in GDP this year but the margin of error is sufficiently small that nobody can be sure that it will actually be positive," he added.

"It's only in 2012 that we can forecast the return to what we would like to see as solid growth."

The Organisation for Economic Co-operation and Development said last week that it believed GDP would show no growth this year, implying GNP would contract further. Ernst & Young said that GDP would shrink. Honohan declined to comment on the various forecasts.

"Nothing will work" unless the economy returns to growth, he added.

He admitted that the bailout, which he had helped to orchestrate, has not calmed the markets that are now worse than when Ireland sought a bailout last year.


The biggest challenge facing the Central Bank remains the banking system, Mr Honohan said.

"Major challenges on several fronts engaged the Central Bank during 2010, and continue to do so," he added. "Our key priority remains the resolution of the banking crisis and helping to put the banking system on a sound footing."

While declining to speculate on whether Transport Minister Leo Varadkar or Finance Minister Michael Noonan was correct in their assessment of when Ireland would be in a position to return to the bond markets, he emphasised that the Government remained "firmly on track" as it implemented the IMF and EU programme for structural reform.

In an embarrassing climbdown, the bank was forced to admit that it only became aware that there were problems with the collateral offered to the ECB in return for funding when contacted by a German news magazine. The influential and widely read 'Speigel' magazine alerted the bank in February to problems with valuations of certain assets. The bank's own officials found problems with a further 12 assets.

While blaming an unidentified third party for the mistake, the governor admitted he wasn't happy about the errors, which have further renewed fears among Germans that they are getting trash for cash.

Turning to the outgoing ECB president, Jean-Claude Trichet, Mr Honohan said Mr Trichet had been a "great friend of Ireland and very concerned that the Irish economy is returned to health". He also paid tribute to Mr Trichet's likely successor, Mario Draghi, as a "very able fellow" who was "full of ideas".

Irish Independent

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