Inside the world of business
Hopes of recovery hinge on rate cut
A REDUCTION in the rate of interest applied to Ireland’s bailout loans would be a welcome fillip for the exchequer and the nascent Irish recovery story.
Perception is important – all-important some argue – and the chance of an upward revision of Irish growth prospects by the market following the reduction in the interest rate would go some way to convincing the market that Ireland’s recovery plan is viable.
Much will depend on what sort of reduction is being contemplated and it is encouraging in that regard to see reports to the effect that a reduction of the margin of up to 250 basis points is being considered in preliminary discussions by EU officials. This could reduce the the rate charged by the European Financial Stability Fund (EFSF), the European Financial Stability Mechanism (EFSM) and the various European governments from 5.8 per cent to something in the region of 3.3 per cent. In cash terms, this could mean savings of around €1 billion a year if the full amount of the €45 billion available under this element of the €67.5 billion facility is drawn down.
For the reduction to have a truly dramatic impact, the International Monetary Fund and the bilateral members making up the remaining € 22.5 billion would have to follow suit. It is too early to be counting any chickens, but there are grounds for optimism.
Apple needs to outline its succession plan
THE NEWS that Apple chief executive Steve Jobs is taking another extended medical leave of absence is personally sad for a maverick businessman whose success is built on defying conventional wisdom.
Jobs, regularly cited as one of the most successful chief executives of the last decade, had a liver transplant in early 2009 when he took a six-month break from the company. He is also a pancreatic cancer survivor.
A short statement released by the iPhone maker yesterday concluded with a request from Jobs and his family to have their privacy respected.
The problem is that since his return in 1997 to the company he co-founded in 1976, Jobs has been central to every major decision at Apple. From product design to marketing, everything at the company bears his fingerprints. If Jobs has serious health problems, investors have a right to know what Apple’s contingency plan is.
Apple is asking shareholders to vote against a proposal from a US pension fund that would force Apple’s board to put in place and reveal its succession plan. The consumer electronics giant is due to release quarterly results tonight, which are expected to show a 50 per cent rise in revenues.
The US markets were closed yesterday but in Frankfurt, Apple stock traded down 6.4 per cent after the news of Jobs’s illness was released. With the stock price up over 65 per cent in the last 12 months, investors will not be panicking yet. But on this evening’s earnings call, Apple executives will face tough questioning from analysts about what a post- Jobs Apple might look like.
Merrill Lynch defends State from have-not fate
EUROPE “CANNOT descend into a series of haves and have nots”, said Bill O’Neill, Merrill Lynch’s chief investment officer for Europe, the Middle East and Africa, at a briefing in Dublin yesterday.
There are some pointers to the fact that it already has: while “peripheral” countries like Greece, Ireland and Portugal languished in 2010, the German economy raced ahead, generating fresh policy headaches for a European Central Bank (ECB) unable to find a common cure.
This year, the gap in fortunes is not likely to be as extreme. Merrill Lynch’s wealth management division forecasts 1.6 per cent growth in the euro zone, compared to 2.1 per cent in Germany. It is rather bullish on Ireland, predicting a 1.6 per cent growth rate this year.
Crucial to Ireland’s general rehabilitation and the stabilisation of its debt-to-GDP ratio will be an extension of the term under which the State is repaying the billions it is drawing down as a result of the agreement with the EU-IMF-ECB troika. According to O’Neill, it is this likely extension of the loans, which have an average maturity of 7½ years, which is “overlooked”.
His views on the need to renegotiate the terms of the finance facility complement those of Willem Buiter, the Citigroup chief economist who was in Dublin last week. Both agree that longer maturities and lower average interest rates are necessary for the Irish economy to avoid a long-term future as a “have not” of Europe.
But whereas O’Neill believes a full and immediate restructuring of the debt would prove “difficult” in the year ahead, Buiter assumes Opposition parties will follow through on murmurings in this area and would be wise to do so. Indeed, Buiter describes the question of making senior unsecured creditors take a hit as a moral as well as a practical economic one.
While Merrill Lynch yesterday presented optimistic forecasts for the global economy and Irish exports, until the credibility of the freshly signed €67.5 billion debt facility is addressed by the next government and the troika, it’s hard to get too excited.
