Mr Honohan will “gift” a total of €63,324 to the Minister for Finance after agreeing to take a further pay cut for 2012, leaving him with a salary for the year of €213,000.

A Central Bank spokesman said the governor had voluntarily decided to take a pay cut.

Mr Honohan’s deputy, Matthew Elderfield, who is in charge of financial regulation at the bank, was paid a salary of €340,000 last year.

Stefan Gerlach, the deputy governor in charge of central banking, was paid €83,333 for the final three months of the year after being appointed on September 1st last.

The Central Bank took a provision of €300 million to cover potential losses on “securities held for monetary policy purposes”.

Mr Honohan said the sizeable provision was “pretty sensible” given the current risky environment facing central banks.

“The estimation of the impairment charge is subject to considerable uncertainty, which has increased in the current economic environment.

“It is sensitive to factors such as the market perception of debt sustainability,” said the bank in the annual report.

The Central Bank made a profit of more than €1.2 billion compared with €840 million in 2010, and is paying surplus income of €958 million to the exchequer, up from €671 million in 2010.

The value of assets at the bank fell in 2011, to €173 billion from €204.5 billion a year earlier.

Staff levels increased by 12 per cent to 1,372 employees in 2010. The bank has approval to increase employee numbers to 1,559.

Salaries, benefits and pensions paid amounted to €103 million in 2011, an increase of 19 per cent.

Mr Honohan declined to disclose the level of Greek bonds held by the Central Bank or to answer questions on the potential effect of Greece exiting the euro zone.

In response to a question about problems at the Spanish banks, Mr Honohan said it was a possibility that bailing out European banks directly from the EU bailout funds as he has proposed for euro zone banks could be adopted “to meet the evolving circumstances”.

The governor said a deal on the Anglo Irish Bank promissory notes would be “valuable to have a longer-term solution” and could help financial stability overall.

Mr Elderfield said the failure of investment company Custom House Capital was a “frustrating experience” given how the bank, auditors and investors who carried out due diligence on the firm were “unable to spot the problems”.

Mr Honohan said no deal had been finalised for the Central Bank to buy the Dublin docklands skeletal building that was to be Anglo’s new head office.

He described the building as “a monument for things that we are still recovering from”.

SIMON CARSWELL, Finance Correspondent

 

Global recovery could be derailed by the euro crisis, the Organisation for Economic Co-operation and Development (OECD) warned today.

According to the OECD's latest economic outlook, the global economy is gradually gaining momentum but the recovery is fragile.

The Paris-based group called on EU leaders to ease the pace of austerity, saying aggressive budget cuts to curtail the euro zone's debts threaten to suck the currency area into a downward spiral that could spill over into the global economy.

“The crisis in the euro zone remains the single biggest downside risk facing the global outlook,” said OECD chief economist Pier Carlo Padoan. "The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth."

GDP growth across the OECD is projected to slow from an annual rate of 1.8 per cent in 2011 to 1.6 per cent in 2012, before recovering to 2.2 per cent in 2013, according to the outlook.

While euro area GDP is forecast to contract by 0.1 per cent this year, it is expected to pick up to 0.9 per cent in 2013. 

Unemployment in Ireland will it 14.5 per cent this year according to the outlook, but will ease slightly to 14.4 per cent in 2012. It also predicts the Irish economy will grow by 2.1 per cent in 2013, which is lower than previous forecasts of 2.4 per cent.

"With slow growth, high unemployment and limited room for manoeuvre regarding macroeconomic policy space, structural reforms are the short-run remedy to spur growth and boost confidence," OECD secretary-general Angel Gurría said.

The OECD said business and household confidence remained weak in Europe, while financial markets were tight and the adverse impacts of fiscal consolidation on near-term growth may be significant, particularly in countries hardest hit by the euro crisis.

The  warned that failure to act could lead to a worsening of the European crisis and spillovers beyond the euro area, with serious consequences for the global economy. Avoiding such a scenario requires action to be taken both at country and supranational level, it said. It said fiscal consolidation and structural measures must proceed hand in hand, to make the adjustment process as growth-friendly as possible.

German-led fiscal austerity policies have so far dominated the European Union's approach to solving Europe's devastating public debt crisis as leaders try to win back investors' confidence. But efforts to reduce deficits have caused the euro zone's economy to stagnate, making it harder to reach EU-mandated targets.

PAMELA NEWENHAM

Additional reporting: Reuters

The ECB said yesterday that it would push the responsibility for lending to some Greek financial institutions on to the Greek central bank until they have sufficiently boosted their capital.

The move comes after Mr Draghi acknowledged for the first time that Greece could leave the monetary union.

While the bank’s strong preference” is that Greece stays in the 17-nation euro area, the ECB would continue to preserve “the integrity of our balance sheet”, he said in a speech in Frankfurt yesterday.

“I think the ECB is playing hardball,” said Mark McCormick, currency strategist at Brown Brothers Harriman in New York.

“I doubt they want to get too involved in EU politics, but I think they’re trying to show Greek policy-makers what their banking sector would look like without support from the ECB.”

The move comes as the man who represented private creditors in negotiations leading to the Greek debt restructuring earlier this year said a Greek exit from the euro posed “more ominous potential” to the global economy than the collapse of US bank Lehman Brothers more than three years ago.

The effect of Greece leaving the single currency would be “somewhere between catastrophic and Armageddon”, the managing director of the Institute of International Finance Charles Dallara said.

“The cost to Greece, the cost to Europe, and the cost to the global economy of Greece exiting the euro are all three sufficiently large that they will cause Greek leaders and European leaders to reflect long and hard before taking Greece down this road,” he told The Irish Times.

The European economy could not cope with the strain of such a move and it could also undermine “shaky” global economic recovery.

Mr Dallara represented private creditors in negotiations leading to the restructuring of Greek debt that resulted in more than €100 billion of Greek debt being written off – the biggest writedown of sovereign debt in history.

He warned Ireland against seeking a similar restructuring, saying that Ireland’s debts were “much, much more manageable” than those of Greece.

“It is important to realise that the depth of the debt and economic problems in Greece are beyond any scale of unsustainability than Ireland or any other country in the eurozone faces,” he said.

The ECB said in its statement that the Greek banks now cut off from its lending programmes would regain access to “standard euro-system refinancing” once the recapitalisation process was finalised, “and we expect this to be finalised soon”.

The ECB could only lend to sound banks, and therefore would not allow undercapitalised institutions to access its refinancing operations, a euro area official said on condition of anonymity.

Greek banks locked out of those operations will have to tap the so-called emergency liquidity assistance programme via the Greek central bank, the ECB said.

Greece faces a fresh election on June 17th that may boost parties opposed to the conditions of its international bailouts, raising the prospect of its exit.

European stocks dropped for a third day, to their lowest level this year, amid growing concern Greece will be forced to quit the euro.

The Stoxx Europe 600 Index slipped 0.6 per cent to 244.4 at the close of trading.

The gauge has tumbled 10 per cent from this year’s peak on March 16th amid continued political uncertainty in Greece.

SIMON CARSWELL, Finance Correspondent (Irish times)

Michael Noonan said the International Monetary Fund would have to assess the sustainability of Ireland’s fiscal position when it is emerging from the bailout programme.

The IMF conducts ongoing debt-sustainability analyses for countries in its programmes. By the end of this year, it will begin to examine Ireland’s ability to emerge from its funding programme at the end of 2013, as envisaged.

Mr Noonan told a conference in Dublin yesterday on the Irish economy, organised by Bloomberg, that the IMF was “totally on our side” in relation to getting a deal on Ireland’s €30 billion Anglo Irish Bank promissory notes and the European Commission was “working in the background” on a solution.

The European Central Bank was the “tough nut to crack”, he said.

However, he said the bank’s interests and Ireland’s coincided up to a point and there were alternatives to re-engineering the promissory notes.

There was an awareness “at all levels” in Europe that there was a legacy issue in Ireland in relation to how the banks were recapitalised and that Ireland had played a role in protecting other European banks from a contagion effect.

COLM KEENA, Public Affairs Correspondent (Irish Times)

Northern Bank may be one of the North’s oldest financial institutions, but after more than two centuries in business, its name is about to disappear in Northern Ireland. Why?

Simply because its parent group, Danske Bank, has decided to create a new organisation “structured around three business units that will operate across its geographical markets”.

Corporate-speak aside, what this means is that Danske intends to make its presence felt more strongly by rebranding Northern Bank’s 72 branches and other operations in the North.

The familiar logo will be replaced and the Danske brand will become a new landmark in local towns and cities.

It is not just Northern Ireland, of course, that is affected by Danske’s group-wide shake up. It may be the largest bank in Denmark, but it also has banking operations across Finland, Sweden, Norway, the Baltics and the Republic.

This means its subsidiary south of the Border, National Irish, will also be rebranded.

As part of the restructuring, the personal banking and business banking divisions of National Irish will merge with Northern Bank to create a new all-Ireland banking operation.

Eivind Kolding, chairman of Danske’s executive board, says the move reflects the bank’s ambition to “become a truly customer-focused bank in all markets under one name: Danske Bank”.

But in a tiny pool of financial institutions, Northern – or Danske as it clearly wants to to be known – is a huge player and the rebrand will have more than just a subtle impact.

Some customers with a certain sentimental attachment to the Northern Bank name – it is a link with where they live and the history that it represents – may find it a little unsettling. After all, Northern Bank, which has been owned by Danske since 2005, has been around for a long time. It first opened its doors in 1809 as a Belfast-based banking company known as the Northern Banking Partnership. It is likely to take people a little time to get used to handing over Danske-branded banknotes for their purchases instead of the familiar Northern Bank notes that feature the pictures of local inventors. But new notes aside, what will it really mean for Northern Ireland?

Gerry Mallon, Northern Bank’s chief executive and soon to be head of Danske Bank in Ireland, says the move shows its commitment to the North – the fact it is willing to put its name where the money is, so to speak.

Mallon, as you might expect, says the project makes perfect sense. He says he does not expect customers will be overly concerned about the name change.

Mallon is also undettered by the fact he is going to have to appeal to customers in two very different market places – North and South.

“Customers are more alike than different, which is part of the philosophy of the entire Danske Bank Group. As one of Danske’s directors said to me last week, we all drive the same cars, we even watch the same television programmes regardless of where we live. I believe our customers throughout the island want the same thing – a bank that is customer-focused,” Mallon says.

He says Danske has certain strengths that will work to its advantage to create a new unified all-island banking force. But he also admits the new, larger operation will also have to play to “different market politics”.

Northern Ireland’s economic prospects are hardly anything to celebrate, with Mallon himself warning “2012 will be a tough year, with continued low economic growth, low interest rates and a sluggish property market leading”.

But at least it is not in the throes of a Celtic Tiger hangover.

If anything illustrates Danske’s understanding of what it is now up against in Ireland, it is the decision to transfer the commercial and investment property loans portfolio “to a new separate unit of the group”.

Northern Bank, meanwhile, will continue to manage its own woes relating to the property market – in the shape of loan impairment charges totalling £72.5 million in the first quarter of 2012.

Mallon appears to relish what he describes as the “new challenges” that lie ahead of him when it comes to marrying the Northern Bank with National Irish. “It is a new brand and a new name but what it says is that Danske intends to be here for a long time, that a major international group, one of Europe’s strongest financial institutions, is committed,” he says.

And could there also be a potential business boost from the rebranding exercise for some local firms in the North?

At the very least Danske is going to have someone to make new signs for Northern Bank 72 branches. For the moment, though, Northern says it is going to be business as usual under the old familiar logo.

“We are at the very beginning of what will be a major rebranding exercise and, as such, do not yet have all the answers in terms of what contracts will be available or which suppliers we will use.

“Currently we do use some local suppliers and we are likely to continue to do so.”

FRANCESS McDONNELL

Germany's economy confounded expectations by posting robust growth in the first quarter of the year while France could summon up none at all and Italy slid further into recession, data showed today.

Gross domestic product in Germany, Europe's biggest economy, rose by 0.5 per cent on the quarter, bouncing back from a 0.2 per cent slide in the last three months of 2011. France's economy stagnated, although it grew slightly at the end of last year.

"This is a very strong comeback. The decline in the fourth quarter was not the start of a recession but just an economic dip," Joerg Kraemer, economist at Commerzbank, said of the German figures. "Germany is faring better than the rest of the euro zone. But I do not believe that it will continue at this speed."

The yawning gap between Europe's largest economy and its peers will fuel an austerity versus growth debate in the currency area as it teeters on the edge of a new crisis, again
centred on Greece.

The figure for the euro zone as whole is forecast to show it shrank by 0.2 per cent, following a 0.3 per cent contraction in the last three months of 2011 – putting it back into recession.

Germany's strong showing could just allow the currency area to skirt recession and it certainly bolstered markets which were battered yesterday by growing fears that Greece will plunge Europe back into crisis by leaving the euro zone.

The FTSEurofirst of top European shares climbed 0.5 per cent in response, safe haven German government bond futures dipped and the euro recovered some poise.

A Reuters poll of 41 economists had forecast German growth of 0.1 per cent on the quarter. The actual figure beat even the highest forecast. Strength was broadly based with both exports and domestic consumption gaining ground.

France, by contrast, was held back by weak household demand and slowing exports.

"There was no good surprise," said Philippe Waechter, chief economist at Natixis Asset Management of the French data. "There was weak consumption, no investment."

Germany is the exception to a euro zone picture which shows nearly all its constituent parts back in recession or flirting with it.

Italy's economy contracted 0.8 per cent in the first quarter, the third consecutive quarterly decline and the steepest for three years, according to preliminary data which were weaker than expectations.

The Dutch economy also contracted for a third consecutive quarter, shrinking 0.2 per cent.

Data released two weeks ago showed Spain has already succumbed to recession as it struggles to reduce its budget deficit and shore up a banking sector beset with bad property debts.

Greece, still without a government nine days after elections as its political parties argue about whether to rip up its bailout programme, is in its fifth consecutive year of recession, which is tantamount to a depression.

Reuters

 

A “ROBUST” economic planning unit at the Department of Finance will define an economic plan for the State over the next eight to 10 years, secretary general John Moran has said.

Mr Moran said that, in the past, economic capabilities had tended to be spread around the department. These would now be “recentralised” to deliver better results.

“We will have a new economic planning unit, which will look at the forecasting of the economy but will much more importantly take a strategic view of our economy and define what our economy should look like,” he said.

Mr Moran said the unit would help drive economic recovery and jobs by identifying the sectors that deliver capabilities for growth and making sure barriers to initiatives in those areas can be removed.

“To do that, what we need is a much more robust economic strategy team that can really analyse for us the impact of decisions that we make along the way,” he said.

Mr Moran said the project management unit would be enhanced.

He praised the existing “efficient” unit for its work under the troika programme, which was one of the elements that had “set Ireland apart” from other countries going through these programmes.

One of the lessons to be learned from the past was that risk capabilities had also to be enhanced. There would be a “greater embedding” of a risk management and “control culture” throughout all areas of activity in the department, “so that we have proper checks and balances in the system”.

Mr Moran said he believed Ireland’s international reputation had been restored in the last year or two and that could be taken advantage of by enhancing the department’s international division.

It would play a greater and more leading role in the development of policies for economic recovery in the euro area, and support the development of stronger economic relations outside traditional markets.

He said the diplomatic system should be “leveraged much more efficiently” so that every embassy should be “properly connected” to ensure that Ireland’s advantages were promoted.

Mr Moran said the department’s most significant initiatives had to be identified and resources realigned in line with the revised version of finance’s strategy plan for the years up to and including 2014 that he launched yesterday.

He outlined a series of goals for the department, as well as a series of short-term strategies to meet those goals.

Among these were the completion of the restructuring of the banking system and a “vibrant, secure and well-regulated” financial sector. Formulating solutions to the problem of distressed mortgages and difficulties with personal debt were among the strategies proposed to meet this goal, along with the reform and restructuring of the credit union sector and the maximisation of the State’s investment in banks.

Returning Ireland to the international debt markets “so as to achieve the exit from the EU-IMF funding programme at the earliest possible date” was also a goal.

He said there would be a particular focus on initiatives that could contribute to economic growth and recovery. Communications and transparency would also be enhanced, Mr Moran said.

KEY POINTS: 

A warning that solving the problems of some sectors of the population may require the use of public funds contributed by others.

A strategy to broaden the tax base and put forward policies to support the promotion of fairness, enterprise and competitiveness.

A resolution to formulate “fair” resolution of the problem of excess debt of citizens.

A commitment to come up with solutions to the problem of distressed mortgages.

A proposal that economic policies should promote increased living standards.

A commitment to maximise the value of the State’s investment in banks.

MARY MINIHAN

Greece's possible exit from the euro area moved to the centre of Europe's financial-crisis debate, rattling markets as authorities in Athens struggled to form a government.

Meetings brokered by Greek president Karolos Papoulias were set to continue today after Syriza, the leading anti-bailout party, rejected a unity government following inconclusive elections May 6th. That moved the country closer to a new vote, with at least five European central bankers broaching the once-taboo topic of its exit from the euro.

"We're really getting to a denouement," Michael O'Sullivan, head of portfolio strategy at Credit Suisse Private Banking, said today in a Bloomberg Television interview. "We're getting to the part where a decision has to be made" on whether Greece leaves the 17-nation currency union."

Euro finance ministers meeting today in Brussels may discuss the bailout for Greece, as well as the situation in Spain, where the government last week made a fourth attempt to clean up banks. Getting German chancellor Angela Merkel to weaken her demand that debt cutting be the core of the crisis response will be a key objective of new French president Francois Hollande when the two meet tomorrow in Berlin.

The euro fell for the 10th day in 11, weakening 0.4 per cent to $1.2872 at noon in Brussels, the lowest in three months. Bonds in Italy and Spain tumbled, with Spanish 10-year yields climbing to more than 6.2 per cent today for the first time since December 1st. Each country's spread against German 10-year notes jumped by more than 30 basis points.

The Euro Stoxx 50 Index declined as much as 2.4 per cent to its lowest in almost five months after European Central Bank policy makers including Christian Noyer today joined Jens Weidmann, Patrick Honohan, Ewald Nowotny and Joerg Asmussen in discussing a potential Greek exit from the euro.

"Whatever happens in Greece won't be a problem for the French financial sector," Mr Noyer told journalists today in Paris. "I don't know a single group that will be placed in difficulty by an extreme scenario for Greece."

German finance minister Wolfgang Schaeuble reiterated in Sueddeutsche Zeitung that member states seeking to hold the line on austerity in Greece could not force the country to stay.

The euro-area finance ministers will convene in Brussels at 5pm local time.

The European Commission isn't considering easing the terms of the joint bailout for Greece from the EU and the International Monetary Fund, EU spokesman Amadeu Altafaj said, denying a report by Athens-based Real News.

"I'm not aware of any discussions within the commission to grant new provisions, new concessions in the programme" for Greece, Altafaj said by phone yesterday.

A Greek departure from the euro area could trigger a default-inducing surge in bond yields, capital flight that might spread to other indebted states and a resultant series of bank runs. Although Greece accounts for 2 per cent of the euro-area's economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.

Europe's central bankers are discussing the possibility of a Greek departure and how to handle the fallout, Swedish Riksbank deputy governor Per Jansson said in an interview on May 11th.

European Union Economic and Monetary Commissioner Olli Rehn said in Tallinn that the region is "certainly more resilient" to a possible Greek exit than it was two years ago, when the region would have been "massively underprepared".

"I still believe that Greece can stay in the euro and find the way to make sure that it respects its commitments," Mr Rehn said. "It would be much worse for Greece and Greek citizens, especially for the less well-off Greek citizens, if Greece did leave the euro than for Europe as such. Europe also would suffer, but Greece would suffer more."

Germany's Der Spiegel magazine today reported that the EU may provide funding for Greece even after a euro exit, citing plans formulated by Schaeuble's ministry.

After elections in Greece and France signaled a backlash against the German-led agenda of scaling back spending to battle the debt crisis, officials across the region have re-tuned their rhetoric to emphasise growth and employment.

Bloomberg

A future German inflation rate above the euro zone average could be part of a natural adjustment process as crisis-hit states pulled themselves out of recession, the Bundesbank argued to German parliamentarians yesterday.

It followed comments by finance minister Wolfgang Schäuble backing stronger wage increases, which would boost domestic demand – benefiting other European countries exporting to Germany – but which could drive German inflation higher.

The Bundesbank has for some time seen European Central Bank policy as too loose for Germany. The willingness to contemplate higher domestic inflation in public comments points to a new flexibility in German thinking.

Despite the Bundesbank’s conciliatory stance on inflation, German policy-makers have been among the toughest in insisting Greece sticks to its agreed reform programme underpinning its bailout in the aftermath of Sunday’s Greek election, when most voters rejected the plan.

The Bundesbank rejected “actively” weakening the competitiveness of German firms or loosening fiscal policy in the hope of boosting demand elsewhere in the euro zone, but argued as crisis-hit “periphery” economies restructured, their competitiveness relative to Germany would improve.

“In this scenario, Germany could in the future have an inflation rate somewhat above the average within the European monetary union, although monetary policy will have to ensure inflation overall in the EMU is consistent with the goal of price stability and that inflation expectations remain firmly anchored,” the bank said.

The commentary could help counter fears that Germany’s angst about inflation will restrict policy-makers’ room for manoeuvre in combating the region’s debt woes by, for instance, pushing for the ECB to raise interest rates prematurely.

 The Financial Times Limited 2012

 

Belgian bank KBC set aside €195 million in loan loss provisions for its Irish division in the first quarter of 2012.

This compares to loan-loss provisions of €228 million for the previous three-months.

Loan-loss impairment stood at €261 million in the first quarter, compared to €97 million for the same period a year ago but significantly down on the €599 million recorded in the previous quarter.

In it latest quarterly figures, the bank said it injected €75 million into its Irish business during the quarter as residential mortgage arrears worsened.

Total non-performing loans increased to 20.5 per cent at the end of March, it said with Non-performing loans that are than than 90 days overdue rising to 14.8 per cent.

The group kept its guidance for total Irish loan-loss provisions of between €500 million and €600 million for the full-year.

The group today announced better-than-forecast underlying profits for the first quarter.

KBC reported a net profit of €380 million for the quarter as against a net profit of €437 million in the preceding three-months and €821 million in the same quarter a year ago.

The group said its exposure to government bonds in the euro zone periphery was further reduced to €2.8 billion at the end of April 2012, from €4.8 billion at the end of 2011.

Underlying net profit fell 31 per cent in the first quarter to €455 million.

"Our underlying result has been driven by the good results generated by our strategic banking and insurance business model on our home markets in Belgium and Central and Eastern Europe. Net interest income remained solid and insurance results remained good. The dealing rooms, in particular, had an excellent quarter," said KBC chief executive Johan Thijs.

"The quarter was also characterised by low levels of impairment. However, the result was also affected by additional loan loss provisioning in Ireland, as well as by the additional and final losses recorded on our Greek government bond position," he added.

KBC said it remained committed to repaying €4.7 billion to the Belgian government for state aid it received, plus penalties, by the end of 2013. The group paid back €500 million in December.

CHARLIE TAYLOR