Business World

Tuesday 24 October 2017

What if Jay C and his posse were thick in real life?

THERE have been some really dumb moves ever since the euro crisis erupted nearly two years ago.

It took a ludicrously long time for the supposedly smart Jean-Claude Trichet and his fellow well-paid Eurocrats in the gilded halls of the ECB to twig that the problem might just be about debt and the inability to repay it, rather than a liquidity issue. And they still don't really grasp the problem. The pfennig still hasn't fully dropped. What would we do if it turned out that Jay C and his posse were actually a bit thick in real life?

In April, Jay C and the ECB whacked up interest rates by 20 per cent to 1.25 per cent. Mortgage holders stopped spending and diverted spare cash from the high-street cash registers into the coffers of our zombie banks. Last month, the ECB did it again. Another quarter point rise to 1.5 per cent.

Rates are 50 per cent higher than four months ago. With money tighter, consumer confidence simply evaporated. Economic growth has crunched to a halt across Europe and a global "double dip" recession may be the fast-moving blur coming up in the rear-view mirror.

Let's take a step back.

We have a debt crisis engulfing Europe. Greece, Portugal and Ireland can't pay back their borrowings. Things are looking wobbly for Italy and Spain, while the markets smell blood in France and Belgium. It's all about the debt. On what planet do you have to be to believe that increasing interest rates on loans is going to help solve the problem? Planet doofis, maybe.

Mind you, Richie Boucher at Bank of Ireland seems to be preparing to follow this crazy thinking. With 90,000 mortgages in arrears and hundreds of thousands struggling to repay home, car, credit card and other loans, Bank of Ireland is looking to pass on the rate hikes to compensate for not being able to tap up funding elsewhere. He doesn't see too many problems ahead after that call. Personally, I'm watching through my fingers at the slow-motion consumer car crash that will unfold at Bank of Ireland.

Last week, Ben Bernanke, the big enchilada at the US Federal Reserve, announced that for the next two years interest rates would not rise. Although Bernanke has made a bit of a bollicks out of the US economy since landing the job, it was the right thing to do. The ECB and the banks need to do the same. Uncertainty is like giving a financial market trader six cans of Red bull and spinning him round. Forget last week's rebound, things are going to get ugly.

Shane Ross is on holiday

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