THE WORLD OF banking and finance continues to occupy the majority of the column inches of the international media.
These worlds are in turmoil. The lawsuit against the former head of the IMF faces collapse and he is immediately installed as a front runner for the upcoming French election. Last week was a watershed for Greece. Amid chaotic protests outside parliament, Greek lawmakers stared down the barrel of the most difficult game of Russian roulette. Vote for the austerity measures and risk the backlash of the entire Greek nation; vote against, and not receive the next stage of the bailout from the EU/IMF troika and face immediate default.
Pretty much no choice and you can’t help but feel that it is only delaying the inevitable. The outcome, although passed by a close vote is even more surprising when you think that the austerity measures were passed by a socialist party elected on a social welfare platform. The political landscape here, as in Greece and Portugal at the moment, is littered with broken promises. It is only right that you deal with the problems that present themselves but it seems that there is scant regard for the primary ethos for many of these political parties.
It’s difficult to find positive news
Closer to home we are told that the second quarter of 2011 has seen the sharpest decline in house prices since they started to decline in 2007. Two reports today suggest that property prices have declined by over 40 per cent since the peak of the market. We have also been warned this morning that the recent drop in energy prices may only be a brief respite. It’s difficult to find positive news.
But the real problem lies elsewhere and unfortunately still remains under the auspices of the banking community. Banks continue to starve small businesses of the lending lifeline that is required to kick start this faltering economy.
When banks contract, as they have been forced to do over the last number of years, they revert to gilt-edged lending. This closes the door to the vast majority of small and medium enterprises and there is a sparse lack of any alternative. Larger businesses encounter very few of the same problems. This environment is not easy for small businesses to operate and is a clear cause for concern for the long-run health of the small and medium size sector.
Something needs to be done and done soon. The Government has to take action and make the banks lend. The government has large, if not majority, stakes in all of the banks here and it is not acceptable that lending is at a standstill for the most important sector of society for turning this situation around.
Who will pick up the slack and create jobs?
Tanaiste Eamon Gilmore has recently said that Ireland will win back economic sovereignty from its European Union and the International Monetary Fund aid donors only if it applies more government spending cuts. Spending cuts will result in more job losses, the two go hand in hand. Who will pick up the slack and create jobs?
In the normal course of business, it would be the private sector. You would expect businesses in the private sector to hire enough workers to more than offset job losses in the public sector. Recent research in the UK suggests that job growth in the private sector should outstrip losses in the public sector ‘by a ratio of three to one’.
Nobody can understate its importance. Job losses in the public sector through to March 2016 are forecast to be 370,000 in the United Kingdom. Unemployment is falling and official figures showed that more than 1100 workers were hired every day by the private sector during the first three months of 2011.
The difference between the UK and Ireland is that the banks in the UK are still lending. The difference between Ireland and any country turning itself around is that the banks are lending in the latter. Russia was a country that was decimated by its over-reliance on consumer lending during the last financial crises. It suffers from significant unemployment and poverty issues. The Russian economy had enjoyed ten years of accelerated growth till 2008.
There is a need for a reasonable amount of lending
The Russian banks were seriously impacted by the global financial crises but were sanitised by the Russian government and the systematically important banks came back to normal operations in 2010. Many other banks have followed suit and the picture in 2011 is very different. Property development has started again and the banks are lending. Russia is moving on.
Nobody is looking for a return to the ridiculous, largely unchecked risky lending that has been the norm for the last ten years in Ireland but there is a need for a reasonable amount of lending based on its individual merits. I worry that many of those businesses are still fearful of increasing their indebtedness at this time but everyone has to be encouraged back to the market, lenders and borrowers alike.
To embed this post, copy the code below on your site
have your say