LEADING ECONOMIST PROFESSOR Morgan Kelly has warned that the Irish recovery is masking underlying problems with the SME sector.
The Professor of Economics at UCD gave a lecture this week stating that when the European Central Bank inspects Irish banks they will find that a significant amount of small and medium businesses have debt issues and they will effectively be wiped out in one go when the European Central Bank “cleans up” Irish banks.
Kelly is widely regarded in the economic fields for forecasting the scale of the housing market crisis.
He said that ECB stress tests on the Irish banks could see “SMEs go under”.
Kelly added that there are two peculiarities of the Irish economy; that we have a lot of multinationals and that there are very few large Irish firms.
He said few small firms go onto become big firms, but said the point is that in terms of employment, there is going to be a lot of SMEs cleared out, meaning that a “big chunk” of the Irish economy will go “in one go, he said.
“The ECB has basically kept pumping that sweet, sweet credit into our veins and we haven’t had the real crisis yet,” he said.
He said that Ireland has had a remarkable recovery in the last few years, but said that it was down to Mario Draghi, President of the European Central Bank, becoming head of the “Eurozone”.
He said that when Draghi took over there was danger “Euro land was going to implode” adding that it was coming apart, he said.
“He [Draghi] said he would do whatever it takes to save the Eurozone,” said Kelly, adding that Draghi cutting interest rates “right down and lending unlimited amounts to sovereigns and banks” is what saved Ireland.
Morgan Kelly lecture in full. (YouTube/UCD – University College Dublin)
Speaking about Professor Kelly’s economic projections on RTÉ’s The Week in Politics, Minister for Social Protection Joan Burton said that while banks will be examined in detail, many of the concerns in Europe are about the banks in larger countries such as Spain, France, Portugal and Italy.
She added that the issue of SME debt has been discussed a number of times at length she said, dismissing the idea that the issue was being swept under the carpet.
Burton said that one of the biggest issues facing the banks is that of mortgages which she said is being dealt with, though she admitted there had been “slow progress”.
The minister said we now have lending rates which were last seen in middle of 2000s, adding that when Mario Draghi decided to support Government bond sales he did a “Ben Bernanke” on it.
She added that there does need to be “a flow of credit for the SME sector either in a new institution or from existing institutions,” she said.
Fianna Fáil’s Michael McGrath said he had asked the Minister for Finance Michael Noonan about the debt of SMEs only a number of weeks ago, stating that he was told that the Central Bank has set targets for the banks.
However, he said that he was concerned that the targets had not been independently verified and that they had not been published.
He said the debt in the SME sector and the possibility of significant employment losses should there be a crisis is only “getting a fraction of the attention that mortgage debt is getting” despite three quarters of the people working in private sector working in SMEs.
He there was a need to deal with the issue stating that last year, credit to the SME sector fell by 6 per cent, which he is said is not conducive to those trying to sustain business.
He said everything had to be looked at it supporting small and medium Irish businesses from local authority rents, to the red tape they have to go through, stating that these business “will bring about the recovery that is needed”.
First published 14.33pm