Ireland was in such a perilous position in 2010 that it had no choice but to seek an international aid programme, former European Central Bank head Jean-Claude Trichet said, defending his role in the Irish crisis.
At a much-anticipated event during a parliamentary inquiry into Ireland’s banking crisis, Trichet was questioned on his actions during the near collapse of the country’s banks and about the pressure Frankfurt put on Ireland before its bailout.
“The situation, which was extremely grave, was due to the underlying weakness of the Irish economy and financial system,” Trichet said in a speech before being asked by a member of the inquiry if he “put a gun to the head” of the Irish government.
“It left the government with no alternative than to ask for support,” Trichet said.
Trichet’s appearance followed the ECB’s release last year of correspondence between the then-ECB President and Ireland’s former finance minister, Brian Lenihan, when Trichet threatened to end emergency bank funding.
The level of funding at that time was without precedent anywhere in the world: 100 percent of Irish annual economic output. “We helped Ireland more than any other central bank helped any other country,” Trichet said on Thursday.
Trichet defended the ECB’s reluctance to allow losses to be forced on senior bank bondholders – another controversial subject in Ireland – saying it remained his view that various factors made that extremely difficult for Ireland in 2010.
However, he said that while the ECB gave its advice, “the decisions were taken, and that goes without saying, by the Irish authorities.”
He said the next Irish government was right to decide against forcing losses on the remaining senior bondholders at failed banks a year later when it approached the ECB about doing so.
Referring to the government’s 2008 blanket guarantee on all bank liabilities – a key focus of the banking inquiry – Trichet said he understood the decision but that the ECB was not consulted and that it came as a “thunderbolt” for many countries.
The inquiry heard evidence this week that the Irish Central Bank was aware that one lender was a day away from defaulting on the eve of the guarantee. Trichet said he did not recall being made aware of this, saying it was not the responsibility of the ECB in 2008 to supervise euro zone banks.
One member of the inquiry said it was unbelievable that the ECB president was kept in the dark.
Source: Reuters (By Padraic Halpin, Editing by Larry King)
China Manufacturing Activity Holds Steady
China’s manufacturing and services sectors showed signs of modest growth last month, though not enough to erase concerns about the downward drift of the world’s second largest economy.
Analysts said that an array of stimulus measures by the government, from interest-rate cuts to stepped-up spending, were at best stabilizing the economy, which has been weighed down by weak domestic demand, an overbuilt property market and sluggish exports. “The policy measures point to a turnaround, but we’re not really there yet,” said Tim Condon, an economist at ING in Singapore.
China’s official manufacturing Purchasing Managers’ Index came in at 50.1 in April, unchanged from March, according to data released Friday by the China Federation of Logistics and Purchasing and the National Bureau of Statistics. It was just above market expectations of 50.0–which separates expansion from contraction compared with the previous month.
Meanwhile, a measure of activity in the increasingly important nonmanufacturing sector remained above the 50 level but its expansion rate slowed to 53.4 from 53.7 in March.
The statistics bureau said in a statement accompanying the data that manufacturers were cautiously optimistic about the future, though it added “there was downward pressure on the manufacturing sector and insufficient domestic and external demand.”
The readings for April come after the economy’s largely anemic performance in the first quarter. Gross domestic product growth came in at 7% year over year, good for many economies but China’s worst quarterly result in six years.
March data was particularly weak, with exports slumping 15% year on year and industrial output growth at 5.6%, dipping below the headline economic growth level–a phenomenon almost unheard of in recent years.
Since November, China has twice cut interest rates and reduced the amount of deposits banks need to keep on reserve. In its most recent cut to the reserve requirement, last month, the central bank slashed the rate by a full percentage point in a move that could make more than 1 trillion yuan ($160 billion) available for lending.
Still, smaller businesses complain that loans are hard to come by, as banks grow warier of lending in the slowing economy, and that borrowing costs remain too high for them.
Frustrated by the lack of lending, Premier Li Keqiang has lobbied local banks to help struggling companies by cutting their cost of funds whenever possible.
The government has already used targeted spending on railways and subways to boost the economy. This week Beijing vowed to cut import duties on a range of consumer goods and reduce taxes on cosmetics and clothing to spur retail spending, while it also said it was cutting taxes on key resources, including rare earths. On Thursday, the Communist Party’s powerful Politburo vowed to step up targeted easing measures as part of efforts to address the downward pressure on the economy.
Analysts said they were expecting more help for the economy in the future but they expressed doubts about the effectiveness.
“The economy is not reacting to the policy easing,” said Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong. “I expect to see the economy will continue to weaken over the next few quarters despite more easing measures.”
The official manufacturing index was stronger than a competing measure compiled by HSBC and research house Markit Economics. The private sector group’s preliminary measure for April fell to a one-year low of 49.2.
The statistics bureau said that bigger manufacturers included in the official survey saw some improvement in their operations in April though smaller and medium-size firms were still struggling. The official subindex measuring new orders was unchanged at 50.2 in April, while the production subindex improved to 52.6 from 52.1.