International
Tuesday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Nov 15, 2005, 08:53

Financial markets increased their bets on the first rate rise in five years coming at the December 1 meeting of the European Central Bank governing council.

Barclays Capital and Commerzbank joined other leading international banks such as UBS, Deutsche Bank and Bank of America in forecasting a quarter point rate rise next month.

"The momentum of ECB opinion swinging in favour of higher interest rates now looks unstoppable, and so, reluctantly, we now look for the ECB to raise rates on December 1 by 25 basis points," Barclays European economist Julian Callow said in a note to clients.

That momentum increased when Christian Noyer, president of the Bank of France, said it is "always better to prevent rather than cure" when asked whether the ECB could raise rates as early as December.

"It is easier to act to prevent inflationary behaviour than to intervene once this has developed," Mr Noyer told French business daily Les Echos. Many analysts believe the stress on prevention marks out members of the council who are prepared to raise rates.

Klaus Liebscher of the Bank of Austria is one of them, saying: "I belong to the camp of those who think prevention is better than the cure afterwards. I don't believe it is good to wait until certain things materialise."

Perhaps even more significant was Mr Noyer's comment that the market has already factored in a relatively high probability of action next month. Unless ECB officials soften their rhetoric in the next few days, they will be accused of misleading the market if rates do not rise.

FUTURES

Eurozone interest rate futures have priced in an 80pc likelihood of a December rate increase. Short-term markets are less sure but are still assigning a more than 50pc probability.

With Bundesbank president Axel Weber warning yesterday that inflation is "way above our comfort levels," the two biggest central banks seem ready to approve a rates rise. Although no details are given of meetings, it will be assumed that the Governor of the Irish Central Bank, John Hurley, would not be averse to an early rates rise to cool the property market.

Commerzbank economist Michael Schubert has brought forward his forecast by a full 12 months, from December 2006.

The Irish Independent also reports that hopes of a deal to liberalise transatlantic air traffic this week are fading, just days after a new agreement was agreed on phasing out the Shannon stopover.

The Irish Times reports that social partnership was placed under increasing strain last night with the rejection by Irish Ferries of a Labour Court call for it to shelve its controversial outsourcing plan.

In a recommendation issued yesterday, the court said the company should not proceed with its plan to lay off up to 543 seafarers and replace them with cheaper labour from abroad.

It told the company to honour a three-year agreement on seafarers' pay and conditions, reached with unions in June last year.

The recommendation was rejected within hours by the company, which described it as being "incapable of acceptance and implementation".

It repeated its assertion that it had no choice but to implement the redundancy and outsourcing programme in order to ensure it remained competitive.

The company's stance increases the difficulties faced by the Government in its attempts to secure a new partnership deal.

Unions have decided not to enter talks on a successor to Sustaining Progress in the absence of specific commitments from the Government on measures to prevent exploitation of workers.

The talks had been due to begin tomorrow but have now been postponed indefinitely.

The unions' stance arose directly as a result of the Irish Ferries controversy.

Unless the Government moves to prevent the company from proceeding with its plan, which involves hiring agency seafarers on hourly pay of €3.60, it is unlikely that unions will enter talks.

The outsourcing plan has been condemned by Taoiseach Bertie Ahern, who has said it remains to be seen whether the company "gets away with" it.

However, both Mr Ahern and Minister of State for Labour Tony Killeen have expressed doubts in the Dáil about the potential for Government action to stop the company.

In its recommendation yesterday on the dispute between the company and Siptu, the Labour Court said the conduct of "orderly industrial relations" required that parties honour agreements.

The company, it said, had not made out a "sufficiently compelling case" to justify unilateral termination of the agreement reached with unions in June last year on seafarers' pay and conditions.

Accordingly, it was recommending that the company honour the agreement of 2004 and that the parties resume negotiations on such modifications as were considered necessary.

In a second recommendation, the court found in favour of a Seamen's Union of Ireland claim that members who wished to remain at the company ought to retain their existing terms and conditions of employment.

The company also rejected this recommendation. It has offered its 543 seafarers on Irish Sea routes the option of redundancy or continued employment, but on reduced pay and conditions.

The Taoiseach said last night the Labour Court was "the proper arbiter" of good industrial relations practice. "I would hope that both parties would respect the decision of the court."

But in its statement rejecting the recommendations, Irish Ferries said its cost reduction programme was needed to address "unprecedented adverse trading conditions".

It said fuel costs were on course to double between 2004 and 2006, the car tourism market was in decline and its labour costs were substantially higher than those of its competitors.

"Indeed, given the fiduciary responsibilities which must be discharged by the board of the company under law, it is impossible to see how management can accept any course other than the cost reduction programme proposed by the company."

Shares in its parent company, Irish Continental Group, fell by 18 cent, or 1.7 per cent, to close at €10.47, after the Labour Court recommendations were delivered.

An application by the company to re-register its Irish Sea vessels to Cyprus, meanwhile, has been turned down by the Department of the Marine.

The Irish Times also reports that decoupling production from direct payments in the reformed Common Agricultural Policy will reduce the incentive to produce and presents a threat to the beef and grain sectors, the Irish Cooperative Organisation Society (ICOS) conference was told yesterday.

Michael Dowling, head of agri strategy in AIB, told ICOS delegates that because the payments being made to farmers were not index-linked, they were certain to reduce.

Outlining the benefits and deficits, Mr Dowling, a former secretary general of the Department of Agriculture, said the changes offered no threat to milk supply but added that beef production and cereal production in the new era would face threats.

He said that while all sectors faced tougher competition, sugar beet was most vulnerable.

Beef was also facing tougher competition because it was doing so in what he termed a deficit market.

Mr Dowling said the policy environment needed to be stabilised and scale was essential at farm, processing and marketing levels.

He also called for barriers to rational development of the market to be removed and in that context, the rigidity of the milk quota system to be examined.

The chairman of the Irish Dairy Board, Michael Cronin, predicted that there would be a fall in the prices dairy farmers received for their milk and they should plan for that.

However, Irish producer prices were still higher than those being received elsewhere in Europe and Irish farmers had major economic advantages in producing milk; he expected that many European farmers would give up their quota, he said.

In the long term, said Mr Cronin, there was the possibility of milk quota being traded across national boundaries and there was a possibility of Irish farmers being allowed to produce more milk than now.

However, there was going to be a dramatic fall in the number of Irish dairy farmers in the next four or five years with the present level of 24,000 possibly falling to half that.

Dairy farms would have to become larger and more efficient and he believed Irish farmers had the capacity to adapt more quickly than other European farmers.

Speakers at the annual conference had called for a fresh look at the control non-milk producer shareholders now have over co-operatives and indicated that the so called "dry shareholders" were beginning to outnumber the producers in dairy co-ops.

The director general of ICOS, the umbrella body for the co-op movement, said that the issue was being addressed in some co-operatives where voting power was based on the trading links the shareholder had with the cooperative.

The Irish Examiner reports that US pharmaceutical giant Johnson & Johnson is pressing ahead with its €530 million investment in Little Island, Cork, despite an EU threat to block €50m in IDA grants committed to the project.

In the course of its investigation it has demanded extensive back up material from the department and IDA Ireland on the nature of the commercial development planned by the giant pharmaceutical group.

It has yet to make a final decision, but an announcement is due within a month, it is understood.

Precedent for the blocking of grant aid to multinationals setting up here already exists.

That was set in March when the EU blocked a €170m aid package to Intel, the world’s largest computer chip manufacturer.

The funding was towards its new state-of-the-art €2.5 billion plant in Leixlip. Intel has massive investment in Ireland and the move by the commission raised fears of further restrictions down the line.

Another ruling against the IDA grant aid system could seriously damage this country’s ability to entice foreign direct investment into Ireland.

With competition intense across Europe and elsewhere for new investment the IDA is struggling to win new start-ups and the past few years has seen a fall in investment trends.

As a result of the uncertainty over the grant package the project has been delayed and will be 12 months behind schedule, but that was due to the commission’s demands.

It does not reflect any reluctance by the company to proceed, the department spokeswoman said.

She refused to comment however that this latest attempt by the commission to block funding of another inward investment project has been taken up at the highest level within Government.

At this point the department was dealing with Brussels on the matter and “we have not further comment to make at this time”, she said.

The Irish Examiner also reports that there was good news for publicans yesterday as official figures showed bar sales continued to bounce back after last year’s dip.

The Central Statistics Office (CSO) said pub sales in September were 5.1% ahead of the same month last year, when measured in value terms. It was the seventh month in a row that publicans’ revenues increased.

Goodbody Stockbrokers chief economist Dermot O’Leary said it augured well for the pub sector ahead of the key pre-Christmas trading season.

“Publicans had been losing custom to the off-licence trade in recent years, due in part to the uncompetitive pricing trends in the sector. However, the moderation in inflation, coupled with increased levels of discretionary spending, is helping to entice consumers back to the pubs.”

Overall consumer spending continued to surge during September.

Total retail sales during the month were 7.2% ahead of last year in value terms and 5% higher in volume terms, excluding the effect of price hikes.

Mr O’Leary said consumer spending was driving the economy and the growth in retail sales in the three months to September had been “impressive.”

Department stores saw sales up 10% in the quarter ended September, was far ahead of the sluggish 1% growth figure at the start of the summer. Sales of clothing and footwear were also 10% ahead.

Mr O’Leary said consumers were dealing with the shock of higher energy prices “reasonably well.”

He also predicted a strong consumer spending performance over the next two years, thanks to the injection of fresh momentum from this year’s Budget package and the release of funds from the Special Savings Incentive Account (SSIA) scheme, which will start to unwind in April.

The Financial Times reports that Vladimir Putin, the Russian president, on Monday promoted Dmitry Medvedev, his powerful chief of staff, to a top government position in a move observers said initiates the succession process for the presidency.

In a rare government reshuffle, Mr Medvedev, who is also the chairman of Gazprom, the country's most powerful energy company, was appointed first deputy prime minister.

Sergei Ivanov, the defence minister and Mr Putin's confidant since the time when both men served as KGB spies, will assume the additional role of deputy prime minister.

Analysts said the moves mark out Mr Medvedev as the Kremlin's favourite to succeed Mr Putin as president in 2008, with Mr Ivanov as a reserve candidate.

“The project called ‘the successor' has begun,” said Lilia Shevtsova, analyst at the Carnegie Moscow Center. “Putin has clearly shown he will not stay as president after 2008.”

Nikita Belykh, the leader of the liberal Union of Right Forces, said: “Vladimir Putin has marked out his possible successors for the future presidential elections.”

“This decision effectively means the start of the presidential campaign of 2008 and it is clear the successor is going to be Dmitry Medvedev,” said Dmitry Rogozin, the leader of the nationalist Rodina [Motherland] party.

Both Mr Medvedev and Mr Ivanov are close allies of Mr Putin from his native city of St Petersburg. Mr Medvedev, a 40-year-old former lawyer, has been close to Mr Putin since both men worked in the city's administration during the early 1990s.

Last month Mr Putin put Mr Medvedev in charge of the Council for National Projects a body which will oversee billions of dollars of spending on social and infrastructure projects.

Being in charge of national projects will allow Mr Medvedev to be associated with increasing spending on health and education, thus improving his chances as a presidential candidate.

The FT also reports that Microsoft will on Tuesday reveal plans to cash in on the second version of its Xbox games console, with the help of an online marketplace where users can download games and music videos.

The software group's Home and Entertainment division, which lost nearly $4bn (Ł2.3bn) in four years of developing and marketing the original console, is hoping Xbox Live Marketplace sales where users will be able to choose from up to 400 items will help move the division into the black.

Microsoft earns revenues from sales of the Xbox console and the games its studios produce as well as royalties from other games publishers that use the platform. The Xbox Live service, where more than 2m members worldwide play each other over the internet, also brings in subscription revenues.

Microsoft users will be able to download complete games from November 22, the day of the launch, although these will be relatively unsophisticated titles such as Bejeweled and Zuma as well as backgammon and card games. The online store could be used to provide full console games but the leading publishers are not ready for such a step and Microsoft would risk alienating retailers. Aaron Greenberg, marketing manager for Xbox Live, said: "Our arcade will deal with smaller games; we are not disrupting the retail channel. "That's the focus right now, we have a great relationship with our retail ecosystem."

The online market will offer free interactive demonstrations of popular games such as the latest Electronic Arts' Fifa soccer title and a King Kong game based on the new film.

There will also be new music videos from rock bands Franz Ferdinand and Audioslave.

The Xbox 360 will in effect open another channel through which Microsoft can sell and deliver digital entertainment for the home. The console contains a Media Center extender technology that allows video and music to be played from computers running Windows Media Center software on a remote television using a wireless connection to the 360.

The company is also launching Microsoft Points in a bid to overcome the fact that many people do not have credit cards. Consumers will be able to buy a card worth 1,600 points for $19.99 at shops in the US and then use the points to buy items such as a scenario for the Amped 3 snowboarding game costing 150 points or a gamer picture for 20 points.

Downloading an arcade game such as Bejeweled 2 costs 800 points, or about $10.

The services and cards will be available for the North American 360 launch next week and international versions should be ready when Microsoft launches the console in Europe on December 2 and Japan on December 10.