Sunday 25 March 2018

Editorial: Cheap credit brings its own risks

The details are contained in audits completed by the Local Government Auditor based in the Department of the Environment.
The details are contained in audits completed by the Local Government Auditor based in the Department of the Environment.

Be careful what you wish for. Irish politicians, economists and business leaders have been begging the European Central Bank to cut rates for years. Yesterday, ECB governor Mario Draghi cut them so low that no further meaningful cuts are possible and went on to announce measures to pump another half a trillion euro into the Eurozone economy.

Mr Draghi and his colleagues took this action because they are terrified about the floundering French economy.

At home, these negligible interest rates are probably no longer relevant or even appropriate. Our economy is showing signs of life and could be one of the fastest-growing economies in Europe over the next few years.

Fast growth and cheap credit are dangerous bedfellows. We learned this to our cost in the early years of the previous decade, when the economy overheated as the ECB kept rates low to help the floundering German economy.

Back then, the Government of the day took little action to protect the country from the money flowing into our banks.

This led to rising house prices, consumer inflation and, ultimately, the personal and company debts that ensured that the global financial crisis overwhelmed us.

"Fool me once, shame on you; fool me twice, shame on me," the old saying goes.

Both the political system and individuals can, perhaps, be forgiven for not fully understanding last time round just how toxic cheap credit is. Neither could be forgiven for repeating that mistake today.

There are easy ways to prevent another credit bubble. Banks must be forced to lend sensibly.

This won't be popular with many bankers, business leaders or the public, but we cannot forget what happened last time.

The lesson seems to have been learned in the housing sector, but there are already worrying signs of credit bubbles in other areas, such as the car industry.

Other measures that could prevent a repeat of the last crisis include government-saving schemes to encourage people to put money away.

Whatever we do, it is essential we resist the lure of unnecessary spending simply because borrowing is cheap.

RTE is not immune  to future cuts

There was a certain amount of glee in RTE when the public service broadcaster reported its first annual profit since 2007.

Despite a huge subsidy, in the form of €180m from the Licence Fee, the station has reported substantial losses each year until 2013. No private media company could have sustained such losses, but RTE's semi-state status protected it from the chill winds blowing through the media landscape.

Now we learn that further "adjustments" are needed if RTE's "future development and on-going relevance in the Irish media landscape" is to be protected, according to officials in the Department of Communications.

There will be little sympathy for RTE in the mainstream media market, where "adjustments" have been commonplace for some years now.

Given the changing nature of the way people access their television it may be that RTE is facing radical changes in the not-too-distant future.

It is also evident that TV3 and UTV are intent on eating into its market share.

What is certain is that the national broadcaster will never again achieve the sort of market dominance it once had. Replacing the Licence Fee with a Broadcasting Charge won't change that.

Irish Independent

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