House prices could fall 13.4% this year in bank test scenario...
HOUSE PRICES could fall by a further 13.4 per cent this year and 14.4 per cent next year before recovering in 2013 under a scenario considered by the Central Bank to stress test the banks.
This would represent a 55 per cent decline in house prices from the peak of the market in 2007.
But under a worst-case scenario, house prices may fall by 17.4 per cent this year and 18.8 per cent next year, which would be a decline of 60 per cent from the peak.
The Central Bank, which published details of the scenarios yesterday, is testing the lenders to see how much of the €35 billion set aside in the EU-IMF bailout fund for the banks will be needed.
Minister for Finance Michael Noonan acknowledged yesterday that more than €10 billion may be required, but said he had “no idea at this stage” how much more was needed.
He was speaking after he and Minister for Public Expenditure and Reform Brendan Howlin met senior officials from the IMF and the EU to discuss the new Coalition’s programme for government.
The bank tests are being applied to AIB, Bank of Ireland, Irish Life and Permanent and the EBS and the results will be published on March 31st. The Central Bank is not testing Anglo Irish Bank and Irish Nationwide Building Society as they are being closed down over time.
The tests are aimed at determining the scale of further losses at the bank and whether they have sufficient cash to cover the losses and remain above a higher minimum level set by the Central Bank.
The next €10 billion to be pumped into the banks will bring the total cost of bailing them out to €56 billion, though this is likely to increase further as a result of the stress tests.
Mr Noonan and Mr Howlin said the IMF and EU officials did not raise any objection to the programme for government, even though it contains proposals that run counter to the conditions in the €85 billion rescue package agreed with the previous Fianna Fáil-led government.
The two Ministers met the mission chiefs from the three international bodies concerned: European deputy director of the IMF Ajai Chopra, ECB chief economist Jurgen Stark, and Istvan Szekely, a senior official with the EU Commission.
Mr Noonan said the “troika” of bodies had agreed in principle that the conditions laid down in the memorandum of understanding agreed last November could be changed to accommodate the new programme for government as long as the overall targets remained unchanged.
A separate European battle came to a head yesterday as the Commission pushed ahead with the publication of long-delayed legislation to establish a common consolidated corporate tax base, an initiative seen by Taoiseach Enda Kenny the “back door” to tax harmonisation.
Dublin fears the plan would dim the lustre of Ireland’s heavily contested tax regime by lessening scope for large multinational companies to maximise the profit they record in Ireland.
But taxation commissioner Algirdas Šemeta made light of criticism from Ireland, saying much of it was based on false assumptions about the initiative. “I don’t understand why some of us are so worried about it,” he told reporters.
Publication of the draft law comes as Mr Kenny faces intensive pressure from France and Germany to make a “gesture” on corporate taxation as a condition for a lower interest rate on Ireland’s bailout loans.
In Brussels last night, Minister of State for Europe Lucinda Creighton expressed cautious optimism about the prospects for a resolution.
“There’s scope for manoeuvre and dialogue with the Germans in the next few days. I think it has to be clarified that one country is not the European Union,” she said.
“The French have always had a problem with corporation tax, have always been on this agenda. Mr Sarkozy is now making a major issue of it, probably for domestic reasons.”
Report by SIMON CARSWELL, HARRY McGEE and ARTHUR BEESLEY - Irish Times