British prime minister Theresa May’s gambit to increase her majority in the House of Commons backfired spectacularly this week as she lost her majority, dragged the beleaguered pound down, and heaped more uncertainty on the Brexit talks.
Sterling fell sharply as the news filtered in, and the prospect of a hung parliament and an unsteady government means that situation is unlikely to get much better any time soon. That means more woe for Irish exporters.
Of course, May’s whole reason for calling the election was supposedly to strengthen her hand in negotiations with Brussels as she goes about seeking a “good deal” for Britain.
However, during the course of the campaign, many of the UK’s financial institutions decided they couldn’t hang around to find out how that works out, and announced plans to up sticks.
For all the talk of Dublin reaping the fruits of what the British electorate sowed in the referendum last year, the city missed out on several more insurers that announced plans to find a new home.
QBE is to set up an EU base in Brussels. That came just a day after UK-based RSA said it would set up a subsidiary in Luxembourg, from which it will run its businesses in Spain, Germany, France and the Netherlands.
"It was important to us that we are in the centre of Europe," said Richard Pryce, chief executive of QBE's European operation. Pryce referred to the regulator as "practical" in his dealings with him. "In the end it wasn't a particularly difficult decision," he added.
It got worse for Dublin just hours later as CNA Hardy, another insurer, said it would be heading to Luxembourg. It cited its “geographic location” between three of the firm’s European offices, as well as the “stable economic and political environment” there.
Perhaps tellingly, it also mentioned “the professional approach” of the Luxembourg regulator.
Russ Shaw, a venture investor and former vice-president of Skype, had some words of comfort for Dublin, however, remarking that the city makes “a logical home” for financial technology businesses.
“Dublin has great fintech talent – even though it might seem expensive – it has a lot of built-in advantages,” he said.
Minister for Finance Michael Noonan is likely to have cleaned out his desk on Merrion Street this week as he prepares to leave office and there was a farewell dinner in Farmleigh for him and outgoing Taoiseach Enda Kenny.
But one major issue that will be left to Noonan’s successor is the ongoing fears surrounding the housing crisis.
It would be just mortifying for the State to allow another housing bubble to form just as the economy has gotten back on the straight and narrow, but two major institutions were out to warn of just such an eventuality.
The Organisation for Economic Co-operation and Development (OECD) said the sharp rise in house prices and property-related lending on the back of strong economic growth and a shortage of housing supply was setting the State down a dangerous path.
“The sharp rise in prices and lending raises concerns that another bubble may be forming, and the authorities should stand ready to tighten prudential regulations if needed,” it said.
The Fiscal Advisory Council, which is the statutory body charged with assessing the Government's budgetary decisions, said the sharp increase in the number of new homes being built risks overheating the economy.
It said more supply was needed to keep prices and rents down, but that output and employment in the construction sector might increase too rapidly. This could drive up wages and erode competitiveness, similar to what occurred in the mid-2000s.
Michael Noonan played down the warnings, and continued to bang the “lack of supply” drum. “We need to build a lot more houses for all the young people who are founding families, and for the economic activity which is generating so many jobs,” he said.
There were more indicators of the extent of the problem, too, as the Central Statistics Office (CSO) reported a more than 10 per cent increase in house prices in the past year. That was the first time in two years we've seen double-digit growth.
Separately, the CSO reported that the demand for homes appears to have driven a spike in the building and construction index. The volume of residential buildings increased by 29.9 per cent in the first quarter of this year compared to the same period last year.
Meanwhile, Tim MacMahon, director of development and residential capital markets at CBRE in Ireland, said there was between €2 billion and €3 billion in institutional capital looking at the “build to rent” sector in the Republic.
One area with which Noonan is likely to be satisfied as he departs the stage is the extent of foreign direct investment – and consequently jobs – the State has attracted over the past year.
A new report from the United Nations showed greenfield investments in the Republic from foreign multinationals were at their highest level in more than a decade last year.
A “greenfield” investment is a form of foreign direct investment (FDI) where a parent company builds its operations in a foreign country from the ground up, as opposed to so-called “brass plate” investments that yield no jobs or benefit.
The report showed greenfield investments were valued at $6.4 billion (€5.7bn) last year, which was up from $6 billion in 2015 and $5 .9 billion in 2014.
How much longer we can expect to see figures like those remains a bone of contention in Brussels, Washington, and on Kildare Street. For one thing, Noonan was in Paris this week for a landmark OECD convention on tax avoidance.
He signed the State up to the Beps treaty, which aims to address the way multinational companies shift profits to low- or no-tax locations. “It means there is full transparency of transactions so the ability to transfer profits is removed from the system,” Noonan said.
Finally, the drive to woo investors to buy shares in AIB in the next month is well under way, although the Government is likely to delay the pricing of the sale by a couple of days to assess the impact of the UK general election result on investor appetite.
That being said, some would-be backers have already voiced concerns. One issue was around paying up front for the bank’s ability to save €3 billion in taxes in the coming decades.
Another issue lies with the lack of an incentive plan to tie AIB executives’ interests to those of shareholders.
Separately, AIB delayed a massive restructuring aimed at meeting new European rules on minimising future government bailouts. The complex plan had involved setting up a holding company to give depositors maximum protection in the event of another crisis.
However, the process apparently involves reams of documentation as well as shareholder and court approval – so the bank has decided it has enough on its plate for now.
