One month after the terrorist attacks in the USA, psychological and economic effects of the tragedy are still reverberating around the world. However, in spite of the uncertain political and economic environment, the world is picking itself up and getting back to work. IPOs have returned to Wall Street, and the NASDAQ and S&P are both approaching their pre-terrorist attacks level. In Ireland, the ISEQ index is climbing once more and is now approximately 450 points below its September 10 level. Admist the doom and gloom generated by job losses at companies such as Aer Lingus, the economy is still growing, albeit at a slower pace than previously.
Interest rate risk
In the ‘Long View’, leading Irish economists discuss long term interest rates, and the majority advise borrowers to switch from variable to fixed rate loans. The next 3-6 months were described as a ‘window of opportunity’ by James Jordan of Bank of America as borrowers can lock into lower long term rates. Not all economists share this view however, and Alan McQuaid of Bloxham Stockbrokers, would stick to variable rates at this point as he expects both the Fed and the ECB to reduce rates by a further 100 and 50bp respectively. The prudent move would be to lock-in to fixed rates now, but for those with tolerance for higher risk, there may be gains to be made by sticking with a variable rate in the hope of further rate cuts. All this of course, is bad news for savers. The interest rates offered on deposit accounts offer increasing diminishing returns, and only the brave are willing to invest in the stock market in the current climate.
Euro changeover
As the Irish Bankers Federation targets customers with their Euro Information Campaign, Ireland’s top banking treasurers fear that Irish companies are too complacent on euro changeover issues. While banks and corporates may be prepared, smaller companies may not be. According to the European Commission’s Quarterly Review of the Use of the Euro published in July 2001 8.4 per cent of both volume and value of national payments are conducted in euros. While this figure may appear small, it actually puts Ireland in the top four in Europe. In an interview with Finance, Gerry Rosengrave, newly appointed country head of ABN AMRO is positive on the future of the IFSC. He points to the fact that the underlying strengths of the centre remain, despite the international downturn.
The ‘Irish Pfandbrief’
Cutting edge Irish participation in the vast new euro money market is ensured with the imminent Irish covered bond legisation. This new financial instrument will offer banks and mortgage institutions domiciled in Ireland the facility to avail of an extremely attractive new method of funding, and will lead to a new innovation in Irish financial services. The Bill is due to go before the Dail on October 23, 2001, and with the backing of the Minister for Finance, and the financial services community, it is hoped that the Bill will become law in 6 weeks.
Another area in which Irish financial services are at the forefront is fund management. Irish fund managers are performing extremely well in the tendering process for the National Pension Fund, and a higher proportion of Irish fund managers relative to the average, have made it through to the next stage of the tendering process. This is especially impressive, considering that the world’s leading asset managers applied for this lucrative position.
While the Irish government and several interested parties meet with international Governments at the 2nd Annual Public Private Partnership / Private Finance Initiative Global Summit, Dr. Eoin Reeves, a leading PPP academic is calling into question the capacity of PPPs to deliver important public services. That conference ran into trouble with ‘anti privatisation’ protestors, protesting against the notion of public-private partnership - as extreme a view as that which would hold that ‘globalisation’ is a bad thing. Paul Tansey’s economic analysis of the topic is a sensible antidote to the sloganeering. |
