ECB TO OUTLINE CRASH PREVENTION PROPOSALS - The president of the European Central Bank, Jean-Claude Trichet, is expected to set out proposals for preventing future financial crises in the 16-country region to the euro zone's political leaders today. His comments in the European parliament will highlight the extent of the central bank's involvement in steps to restore confidence in Europe's 11-year-old monetary union. The ECB wants to rule out any expulsion from the euro zone. In future, Euro zone finance ministers would become 'the guardians of fiscal sustainability', with governments' tax and spending decisions policed by an independent agency.
IIB Bank's chief economist Austin Hughes says that Jean-Claude Trichet is trying to find out what went wrong in the euro zone and how to prevent a similar crisis from ever happening again. He says that Mr Trichet is keen to get the point across that there is no soft landing for euro zone countries who break fiscal rules and that euro zone states have no option but to take 'tough medicine'. He says there will be greater surveillance of budget situations in euro zone states and tougher sanctions.
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ISME NOT HAPPY WITH LENDING TO SMEs - ISME, a group representing small business, has called on the Central Bank to investigate claims that banks are illegally asking for family homes to be put up as collateral for loans. A survey carried out by ISME reveals that banks are continuing to refuse lending to a majority of business applicants and it says Government calls for an increase in lending have fallen on deaf ears.
But the Irish Banking Federation said it seriously questions the representativeness and accuracy of the ISME research. The IBF says the only authoritative, independent study commissioned by the Government was that undertaken by Mazars, which shows that eight out of ten credit applications are approved. It also showed that one-third of existing SME loans are impaired.
ISME's chief executive Mark Fielding says that the Mazars report failed to adequately record all credit inquiries and also failed to see the difference between new and existing lines of credit. He says the results of the ISME survey are exact. On the paper from the Central Bank on banking supervision due out today, Mr Fielding says he hopes it will make the case for viable but vulnerable small firms.
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MORNING BRIEFS - China is set to allow a gradual appreciation of its currency against the US dollar after its weekend move to abandon its currency peg. The Chinese central bank announced an end to the peg, a week ahead the G20 summit in Toronto, and amid mounting international pressure over the level of the renminbi. Yesterday the Chinese bank said that a substantial appreciation in the currency was not in China's interests and that the exchange rate would remain basically stable. China has been under increasing international pressure to change its currency policy. The US in particular complained that China artificially kept the value of the yuan low to help its exporters at the expense of foreign competitors. US President Barack Obama welcomed the move.
*** The proposed publication of bank stress tests in Europe are fuelling fears over French and German banks' exposure to weaker euro zone economies such as Greece, Portugal and Spain. Investors warn the tests could expose the European banking system's interdependence and spread contagion, which began with Greece, to the euro zone's two biggest economies. Figures from the Bank for International Settlements last week showed that French and German banks were particularly exposed to Greece, Ireland, Portugal and Spain. Most investors expect Greece to default, while the chances of the others following are increasing.
*** On the currency markets the euro is trading at $1.2458 cents and 83.44 pence sterling.
