RATE HIKES WILL SEE MORTGAGE INTEREST PAYMENTS RISING BY €1 BILLION NEXT YEAR - A number of banks have increased their interest rates already this year. As favourable new mortgage rates and deals are more difficult to come by, and in a shrinking market, people find they can not fix rates and so they are faced with higher costs. This will result in reduced disposable income, reduced consumer spending and reduced economic growth.
John Finn, Managing Director at Treasury Solutions, says the euro zone is currently seeing a two-tier economic performance in Europe, with exceptional economic growth from the likes of Germany. He says that the European Central Bank will raise rates due to the strength of the economies like Germany, which will hit countries which are not performing as economically well. He says the effect of rate rises will be to increase interest paid on mortgages by Irish borrowers by €75m in 2011, over €1 billion in 2012 and almost €2.5 billion in 2013. The extra mortgage payments will see people with lower disposal income, which will lead to lower consumer spending and will eventually result in reduced capabilities of the Government to pay back the country's debts.
Mr Finn says there is a real case for the ECB to provided hedging lines to Ireland. He says this would give the banks access to market rates on borrowings and so would benefit Irish borrowers. He says that Irish Life and Permanent's inability to borrow at market rates resulted in that lender upping its rates earlier this month.
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MORNING BRIEFS - The German economy, Europe's biggest, grew by 0.4% in the fourth quarter of 2010, figures released today by the national statistics office showed. For all of 2010, the Destatis office confirmed the economic expansion of 3.6% initially estimated in January, marking the strongest growth since east and west Germany were reunited in 1990.
*** As its former chief executive spent time yesterday in a Boston Courtroom, Anglo Irish Bank was the subject of another case in New York, where US hedge fund Fir Tree Capital has asked a judge to intervene in the Irish Government's attempts to reconstruct the banking system. In a complaint filed in federal court, Fir Tree says it wants to force Anglo Irish Bank to honour covenants attached to around $200m of debt held by the hedge fund. This follows the decision last week to force Anglo to auction assets and prepare to merge with Irish Nationwide Building Society. The hedge fund is asking the court to fence off enough assets to protect payments due under the notes and to appoint a receiver to take charge of the bank's assets in order to satisfy any judgement. The complaint argues that US courts have jurisdiction over bank debt issued in the US, governed by New York law and payable in the state. Last week the nationalised bank says it expects to report a loss of €17.6 billion for last year.
*** Euro zone finance ministers have agreed that a permanent rescue mechanism to be set up from 2013 will total €500 billion, but they are waiting for EU leaders' guidance to agree changes to the existing bail-out fund. The new fund, the European Stability Mechanism (ESM), will be part of a 'comprehensive package' of measures European leaders are hoping to agree in late March to resolve the year-long debt crisis.
*** Andrea Enria, the chairman of the new European Banking Authority, has warned that he will use the 'true power' of a single set of rules to impose more uniform oversight on banks. The EBA, he said, would need to use its new powers - enshrined in a single rule book - to take a stronger line. His priority will be to restore the market's faith in stress-testing Europe's banks, destroyed last year when Ireland's banks collapsed just months after passing CEBS tests. Unlike CEBS, the new EBA board - made up of representatives from the EU's 27 member countries - can make decisions by majority vote. In emergencies the board can overrule national regulators, but there are limits to its power when taxpayer funds are involved.
*** On the currency markets the euro is trading at $1.315 cents and 84.26 pence sterling.
