SPOOKED LENIHAN TO LOOK FOR MORE BUDGET CUTS - Severe, savage and brutal - these are some of the adjectives used to describe next December's Budget in this morning's newspapers. This comes after the Finance Minister, Brian Lenihan, said in Galway yesterday that more savings than the €3 billion we had already heard about could be sought in a few month's time. The Minister said the original €3 billion figure was only indicative, and a minimum that would have to be hit to address the State's struggling finances.
Bloxham Stockbrokers economist Alan McQuaid says that a lot of this has much to do with the uncertainty surrounding the final bill for Anglo Irish Bank. He says that markets remain very nervous and points out that the spread on yields between Irish Government bonds and German bonds hit a 20-year high last week. He says this spooked Mr Lenihan and the Government and prompted them to make sure that all is being done to shore up the country's economy. Mr McQuaid says that Mr Lenihan wants to show international investors that we are good Europeans and can make the cuts when we need to.
But the economist says the Minister is playing a 'dangerous game'. He says that he has to leave enough money in the economy to generate economic growth while at the same time calming international investors. He says that Mr Lenihan has already said that there will be no more pay cuts in the public service and so his options are limited. He says it is hard to see where the Minister will make any more cuts apart from reductions in the social welfare bill. He will also try to seek greater efficiencies in the public service.
Mr McQuaid says that more than the €1 billion of cuts in the capital spending already indicated may take place, while the possible selling off of semi-state companies will not be addressed in this Budget. He also says the Minister may broaden the tax base so as to bring in more people on lower pay. He says this will have to balanced by higher tax rates for those on bigger incomes. But he warns that overtaking the consumer at this stage of the economic cycle will only pull the economy back and not boost it.
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MORNING BRIEFS - The Polish financial regulator is to look into Spanish group Banco Santander's deal to buy AIB's Polish operations to see if confidential information was exchanged. AIB said suggestions of any irregularity were unfounded, while Finance Minister, Brian Lenihan, a minority shareholder in the Irish lender after its bailout last year, defended the transparency of the sale process. On Friday last week Santander said it would buy AIB's 70% holding in Zachodni for €2.9 billion, beating Poland's top lender PKO and French bank BNP Paribas. AIB says the sale was conducted in an appropriate manner.
** The Ryanair cost cutting saga runs on. A senior Ryanair pilot, who trains other pilots at the airline's Marseilles base, has suggested that rather than replace co-pilots with flight attendants, a probationary flight attendant could do Michael O'Leary's job. Captain Morgan Fischer said in a letter to the Financial Times, that Ryanair would benefit by saving millions of euros in salary, benefits and stock options. Michael O'Leary agreed with some of Captain Fischer's points, and said that, at least, cabin crew would make a far more attractive CEO.
*** Results for the first six months of the year from AIM-listed oil and gas firm Circle Oil show that it made revenues of $21.3m on oil and gas sales. This compared to $3.5m for the same period last year. Profit after tax of $2.1m were reported and compared to a loss of $15.9m last year.
*** Shares in major banks rose across the world yesterday after new rules were agreed at the weekend on how much capital banks should hold in reserve. The Basel III regulations were designed to prevent another financial crisis. At the markets close in Dublin, AIB was up 4.8% at 78 cent. Bank of Ireland shares were just over 5% higher at 72 cent.
*** On the currency markets, the euro is trading at $1.2865 cents and 83.71 pence sterling.
