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ECB launches review, keeps policy on hold

The European Central Bank launched a broad review of its policy today that is likely to see new President Christine Lagarde redefine the ECB’s main goal and how to achieve it. 

The European Central Bank has fallen short of its inflation target of just under 2% for years, even after Lagarde’s predecessor, Mario Draghi, launched increasingly aggressive stimulus measures. 

Christine Lagarde told a news conference the review was likely to take about a year but hinted it might take longer. “It is over when it is over,” she said. 

She declined to comment on what changes she might favour to the inflation target, but promised: “We will not leave any stone unturned and how we measure inflation is clearly something we need to look at.” 

The review will also look closely at how the bank can incorporate the economic impact of climate change into its policy models. 

The ECB will adhere to its current strategy until a new one is adopted, Lagarde said today. 

ECB rate-setters did not make any policy change today, simply standing by their pledge to keep buying bonds and, if needed, cut interest rates until price growth in the euro zone heads back to their goal. 

The ECB said its rate on bank overnight deposits, which is currently its primary interest rate tool, remains at a record low of -0.50%.  

The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0% while the rate on the marginal lending facility – the emergency overnight borrowing rate for banks – stayed at 0.25%. 

The euro dipped slightly after the ECB rate announcement but hardly budged during Lagarde’s press conference. It was last down 0.1% at $1.1084.

While the review takes place, the ECB is expected to leave its monetary policy on hold, as it did today. 

That would leave it adding €20 billion worth of bonds to its €2.6 trillion portfolio every month and charging banks 0.5% on their idle cash for most of the year. 

“The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2%,” the ECB said. 

Ms Lagarde told the news conference that risks to growth in the euro zone remained tilted to the downside, but this bias had become less pronounced as uncertainty around international trade recedes. 

Euro zone data has improved recently, leading economists to believe the export-focused economy has weathered the storms of the global trade war. 

A trade deal between the US and China, and the prospect of an orderly Brexit are also lessening the two main risks the ECB had said were clouding the horizon. 

Changing the ECB’s formulation of price stability – currently defined as an annual inflation rate below, but close to, 2% over the medium term – will be the focal point of the review. 

The ECB could signal its commitment to boosting inflation by raising the goal to 2% and spelling out that it will take any undershooting just as seriously as an overshoot. 

“Our inflation target must be symmetric. If the central target is seen as a ceiling, we have less a chance of meeting it,” ECB policymaker Francois Villeroy de Galhau said recently. 

But policy hawks on the Governing Council, who have long called for the ECB’s money taps to be shut off, will not go down without a fight. 

Some of them favour creating a tolerance band around 2%, which would reduce pressure on the ECB to act, while others would leave the target unchanged or even cut it. 

Rate-setters will also debate the pros and cons of their tools, such as sub-zero rates and massive bond purchases, which have been credited with staving off the threat of deflation but at the cost of an unprecedented rise in house and bond prices. 

The ECB regularly lauds those instruments, recently estimating that without them, the euro zone economy would have been 2.7 percentage points smaller at the end of 2018. 

But minutes of the December meeting show growing discomfort about their side effects. 

That led to calls by some policymakers to give housing costs greater weight in inflation calculations and take into account households’ perceptions of price growth, which is generally higher than official figures.

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France reaches deal with US on digital tax talks

French Finance Minister Bruno Le Maire said France had reached an agreement with the US on the basis for future talks over a global digital tax, at the Organisation for Economic Development (OECD) level.

“We had long talks this morning with the US Treasury Secretary and the OECD Secretary General,” Mr Le Marie said at the World Economic Forum in Davos. 

“I am happy to announce to you that we have found an agreement between France and the United States, providing the basis for work on digital taxation at the OECD,” he added.

“It’s good news, because it reduces the risk of American sanctions and opens up the prospect of an international solution on digital taxation,” he added.

Earlier, Mr Le Maire had expressed optimism that a deal on taxing global tech giants can be reached.

Speaking during a panel discussion on the topic in Davos,  Bruno Le Maire also appeared to implicitly criticise Ireland’s record on taxing tech firms.

“We are moving in the right direction,” Le Maire said, adding that he thought France was close to striking an agreement with the United States.

Without explicitly naming it, Mr Le Maire also appeared to make a jibe at Ireland, claiming it was profiting from applying a low rate of tax to tech companies operating elsewhere in Europe.

“I don’t want to quote that country, but everybody knows which country I’m thinking of,” he said. 

“If we have a level of minimum taxation of 12.5%, it means France could have 10 point of revenue of taxation coming back to the public good in France and to the French consumers.”

“A race to the bottom is not the future I want for Europe.”

But Angel Gurria, the Secretary General of the OECD added that Ireland is very enthusiastically engaging with his organisation on the reform agenda.

Work on a global digital tax agreement is being led by the OECD, a Paris-based club of wealthier economies.

Mr Gurria has been working for years on finding ways to create a level playing field on digital taxation, but those efforts are now being accelerated to see if an agreement can be reached by December.

He said he was hopeful of having a framework that would apply to more than 130 countries drafted by July. 

“We have no Plan B – we just have to get it done,” he said.

Mr Le Maire has thrust France front and centre of the digital taxation debate, despite the fact several countries, including Italy and Britain, are already pursuing or imposing their own national digital-tax regimes.

“It would be far better to have an international framework for everybody,” he said, adding that otherwise the world would end up with a cacophony of national systems that would compound the problem.

“So we have to build something different and that’s exactly what we want to do during 2020, by building on the extremely good work being done (at the OECD).”

France’s existing digital tax is based on turnover. But Mr Le Maire admitted that was not optimal from an economic point of view, saying the OECD’s plan to tax profits was more sound.

There will be intense discussion over what level of profit would be taxed and how it would be collected.

“Everything is on the table,” Mr Le Maire said.

“We just have to decide if we want to avoid a loophole in the international taxation system or have many national solutions that would be detrimental to all of us.

“We just can’t go on any longer with a taxation system in which the richest companies, those that are making the biggest profits, are paying the least tax.”

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Costs and competitiveness a key focus for tourism industry

The tourism industry needs to focus on costs and competitiveness as the sector faces into choppier waters in the years ahead.

That’s according to the head of the national tourism development authority, Fáilte Ireland.

Paul Kelly said the industry had to avoid complacency against a backdrop of a softening in demand.

“We absolutely need to keep our focus on competitiveness. There are a lot of cost pressures there. The issue of insurance costs has been well publicised, but there are other inflationary pressures, like wages, that businesses are facing. 

“We do need to make sure that we’re absolutely not complacent. There is a softening in demand.”

Mr Kelly described last year as ‘mixed’ from a tourism performance perspective.

Brexit uncertainty was a big factor, but there were issues around delays in aircraft being made available and a softening in the German market.

“This is very important from an overall economy point of view. Tourism is a labour intensive industry. A 1% decline in tourism can lead to a drop in 2,500 jobs. Small changes in revenue can make a big difference in absolute job numbers.”

He said the effect of job losses could be particularly acute in rural and regional areas where it would be hard to find alternative employment.

“Things are more challenging in rural Ireland. Dublin and the big cities have the corporate market with business travel helping to sustain them. Rural Ireland certainly relies more on the holiday maker.”

Paul Kelly said the clarity provided by the Brexit transition phase after the UK leaves the EU as scheduled next week was welcome.

However, he said there were still big questions about what happens after the transition phase ends in December.

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Irish tax system best in EU at reducing inequality – ESRI

Research by the Economic and Social Research Institute has found that the Irish tax system does more than any other system in the EU to redistribute income and reduce inequality.

It also found that raising the point at which taxpayers pay the higher rate of tax, or abolishing the Universal Social Charge, would both favour those on higher incomes most.

Ireland has the most unequal share of income in the EU before social welfare benefits or income taxes are applied.

In new research, the ESRI found that the Irish tax system reduces this inequality by more than any other tax system in Europe.

After tax and social welfare payments, Ireland ranks in the mid-range of inequality in the EU.

It also found that Ireland would become significantly more unequal if the standard rate band was increased to €50,000 or the Universal Social Charge was abolished.

The ESRI concluded that it is because the impact of the system is so bound up with income, that it may no longer be able to deliver any further reduction in income inequality.

Instead, it recommends that tax reliefs and payments like the Family Income Supplement should be examined.

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ECB to launch review that will redefine its mission and tools

European Central Bank President Christine Lagarde is set to launch a broad review of the bank’s policy today that is likely to see her redefine the ECB’s main goal and how to achieve it. 

The ECB has fallen short of its inflation target of just under 2% for years despite increasingly aggressive stimulus measures under her predecessor, Mario Draghi. 

ECB rate-setters are not expected to make any policy change this week but simply stand by their pledge to keep buying bonds and, if needed, cut interest rates until price growth in the euro zone heads back to their goal. 

Ms Lagarde will, however, announce the start and scope of the ECB’s first strategic review since 2003.

The review will last for most of the year and will span topics from the inflation target to digital money and the fight against climate change.

Investors will be looking for clues to whether the review will see Lagarde cement her predecessor’s legacy of monetary largesse, or if she will use it to acknowledge worries that years of easy credit have fuelled financial bubbles. 

Changing the ECB’s formulation of price stability – currently defined as an annual inflation rate below, but close to, 2% over the medium term – will be the focal point of the review. 

The ECB could signal its commitment to boosting inflation by raising the goal to 2% and spelling out that it will take any undershooting just as seriously as an overshoot. 

“Our inflation target must be symmetric. If the central target is seen as a ceiling, we have less a chance of meeting it,” ECB policymaker Francois Villeroy de Galhau said recently. 

But policy hawks on the Governing Council, who have long called for the ECB’s money taps to be shut off, will not go down without a fight. 

Some of them favour creating a tolerance band around 2%, which would lower pressure on the ECB to act, while others would leave the target unchanged or even cut it. 

Rate-setters will also debate the pros and cons of their tools, such as sub-zero rates and massive bond purchases, which have been credited with staving off the threat of deflation but at the cost of an unprecedented rise in house and bond prices. 

The ECB regularly lauds those instruments, recently estimating that without them, the euro zone economy would have been 2.7 percentage points smaller at the end of 2018. 

But minutes of the December meeting show growing discomfort about their side effects. 

That led to calls by some policymakers to give housing costs greater weight in inflation calculations and take into account households’ perceptions of price growth, which is generally higher than official figures. 

While these matters are addressed, the ECB is expected to leave its monetary policy on hold. 

That would leave it buying €20 billion worth of bonds every month and charging banks 0.5% on their idle cash for most of the year. 

“While the ECB reviews its strategy, we see no change in policy settings,” economists at Morgan Stanley wrote in a note. 

Euro zone data has improved recently, leading economists to believe the export-focused economy has weathered the storms of the global trade war. 

Furthermore, a trade deal between the US and China, and the prospect of an orderly Brexit are lessening the two main risks the ECB had said were clouding the horizon. 

But the outlook for euro zone growth and inflation remains lukewarm, meaning the ECB is likely to strike a cautious tone by reaffirming its warning about “downside risks” to the economy.

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Digital tax should be dealt with multilaterally – IDA chief

The chief executive of IDA Ireland has said it is hard to see how a digital tax makes sense.

Speaking to RTE News in Davos at the World Economic Forum annual meeting, Martin Shanahan said Ireland believes the issue should be dealt with on a multilateral basis through the OECD.

His comments came just hours after British Chancellor Sajid Javid signalled that the UK would introduce a digital tax in April.

France is also working on a common framework with the US to address the issue and prevent a trade dispute between the countries. 

“Ireland has been extraordinarily consistent on this matter, we do not believe that there is on the one hand a digital economy and on the other hand the rest of the economy,” Mr Shanahan said.

“We believe there is a digitised economy and for that reason it is difficult to see how a digital tax makes sense. Ireland’s position is that this should be dealt with on a multilateral basis at the OECD. That is what is happening and now we have to wait and see what comes out of the OECD process.”

In relation to signals given by Donald Trump in Davos that the US is prepared to escalate a trade war between the US and EU, the IDA boss said anything that impedes trade and slows investment is not good for Ireland.

Ireland is one of the most globalised economies in the world, he said, and a stable agreement across the globe about how trade should be done is needed.

Mr Shanahan also described the UK timeline for completion of a trade agreement with the EU by the end of the year as ambitious.

He said the fact there has been a conclusion to the first part of Brexit has provided some degree of relief for investors and short term stability. 

But he added that although everyone says they are going to work towards an agreement by the end of the year, there is no question but it is ambitious.

Mr Shanahan said the IDA is in Davos because it is where the leadership of global companies are this week. 

“It is a very efficient use of time, we get to meet both investors who are already invested in Ireland and check in with those and of course we are always looking for new potential investments,” he said.

Ireland is not represented politically at Davos this year as the Taoiseach, Tanaiste and Minister for Finance decided not to travel because to the election.

“Obviously there is an understandable reason as to why the government isn’t represented, but IDA as an agency and the state is here and we are doing all the things we would normally do,” Mr Shanahan said.

“I will host a dinner for CEOs and senior leadership of the companies that we engage with tomorrow evening, we will be delivering Ireland’s message to them. The bilateral meetings we would normally have are going ahead and they have been very useful so far.”

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Home building levels reach 10 year high – Goodbody

21,500 new homes were completed last year, according to new analysis from stockbrokers Goodbody, up 19% on the figure for 2018.

The increase marked the highest rate of growth in a decade and is nearly five times greater than the 2013 trough of 4,575.

However it still sits below the 34,000 units that the Central Bank estimates needs to be built each year up to 2030 in order to meet demand.

Goodbody uses the issuing of new energy ratings for calculating the number of new homes. This is seen to be a more accurate gauge of new builds than ESB connections, which can be muddied somewhat by old buildings getting reconnected. 

In today’s analysis, Goodbody noted that commuter counties saw the biggest number of new home completions last year as more and more buyers are priced out of Dublin. 

The stockbrokers said that homebuilding in Dublin increased by just 2%, pushing urban sprawl out into the Mid East region. 

Dublin represented 33% of completions last year, down from 38% in 2018 but still ahead of its share of the national population. 

Today’s figures show that the Mid-East region saw a surge of 36% in home completions in 2019, despite a slowdown in the growth rate in the fourth quarter of the year. 

All other regions experienced growth in completions in 2019, with the Midlands seeing a 61% increase and the West reporting a rise of 46%. 

Goodbody noted that the building of apartments surged by 55% last year, led by Dublin. 

But the stockbrokers said that apartments continue to represent a very low share of output in the country’s residential sector and the sector is estimated to represent 17% of home completions last year. 

This is the lowest share in Europe and is well behind the average of 59% in 2019.

Goodbody said that the growth in the apartment sector is very much led by the Build-to-Rent sector and cautioned that any moves to restrict this sector would have detrimental effects on the trajectory of new supply.

Dermot O’Leary, Goodbody’s chief economist, said that there are many moving parts in Ireland’s residential construction sector. 

“The build-to-rent sector is driving apartment building, while the public sector and Approved Housing Bodies (AHBs) are contributing to a surge in social housing,” Mr O’Leary said. 

“In the private market, we showed in our analysis in 2019 that those builders selling at the lower end of the price distribution are achieving significant volume growth, a feature of the recent updates by both Cairn and Glenveagh,” he added. 

“We are forecasting completions to grow to 24,000 in 2020, but these trends are likely to feature prominently once again,” the economist said.

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Ireland has fifth largest number of billionaires per capita – Oxfam

A new study has found that Ireland has the fifth largest number of billionaires relative to its population of any country in the world.

The report, produced by Oxfam ahead of the start of the World Economic Forum in Davos, claims that with 17 billionaires, most of whom are men, Ireland is mirroring the global trend on wealth inequality.

It says this inequality is now out of control, with 2,153 billionaires around the world now owning more wealth than 4.6 billion people who make up 60% of the Earth’s population.

Only Hong Kong, Cyprus, Switzerland and Singapore have more billionaires per capita than Ireland does.

The analysis claims this inequality is trapping millions of people in poverty, with half of the world’s population now living on under €5 a day.

Within this massive group, women are particularly badly impacted, it states, as they do not get properly rewarded for the care work they do.

In looking after children and the elderly, they make a contribution worth $10.8bn a year to the global economy, and €24bn in Ireland.

This is three times the amount of value generated by the technology industry.

Women and girls around the world are putting in 12.5 billion hours of unpaid care work every day and do more than three-quarters of all such work.

38 million hours of that work is done by women in Ireland.

“Sexist economies are fuelling the inequality crisis – enabling a wealthy elite to accumulate vast fortunes at the expense of ordinary people and particularly women and girls,” according to Jim Clarken, Chief Executive of Oxfam Ireland.

“Our upside-down economic system deepens inequality by chronically undervaluing care work – usually done by women and girls.”

According to Oxfam 2.3 billion people will require care by 2030, up 200 million from 2015, putting further pressure on caregivers.

Oxfam claims the inequality has been fueled by the policies of governments around the world, who have under taxed the wealthiest in society and underfunded the public services and infrastructure necessary to reduce women’s workloads.

Such services include electricity, childcare, public health and sanitation.

Oxfam has called for governments to create fairer systems and crack down on tax loopholes.

If the wealthiest paid 0.5% more in tax on their wealth over the next ten years it could raise enough money to create 117 million jobs.

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ComReg cuts 1800 Freephone services costs for businesses

ComReg is introducing measures that will reduce the costs for businesses and charities offering ‘1800’ Freephone numbers to users of their services. 

Calls to 1800 Freephone numbers are free to the caller, but it has been very costly for business and organisations who offer services and helplines over such numbers to provide such services. 

ComReg said this was partly due to high operator-to-operator charges levied by telephone network operators. 

The regulator said it will set the rates that network operators can charge to originate a call to an 1800 Freephone number to a maximum of 0.87 cent per minute from a fixed network or 1.62 cent per minute from a mobile network. 

1800 Freephone numbers had previously been as high as 34 cents per minute.

These new rates will come into effect from May 1. 

ComReg said up to 280 million calls are made every year to Non-geographic Numbers (NGNs) on average.

It is anticipated that the reduction in price will allow more organisations to offer 1800 Freephone numbers to their customers and callers – especially those who offer important services and helplines, the telecommunications regulator said. 

Transparency and consistency around the rates for 1800 Freephone numbers will bring clarity to the market and allow organisations to compare 1800 offers, it added.

ComReg Chairperson and Commissioner Garrett Blaney said that 1800 Freephone numbers provide access to important services for many people in Ireland, from mental health and child protection helplines, as well as banking and other customer service helplines.  

He said that ComReg has undertaken an extensive analysis of Non-geographic Numbers (NGNs), including 1800 Freephone numbers, which showed that an estimated 44% of organisations would consider using NGNs in future if the organisation costs reduced. 

“By making 1800 Freephone numbers a more cost-effective option, we hope that we will see more organisations use this NGN range which will allow their callers to access services for free,” Mr Blaney added.

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Dublin Port reports strong growth in EU trade volumes

Dublin Port Company has again reported record growth figures for 2019 as trade with the European Union countries experienced strong growth. 

Volumes on Ro-Ro (Roll-on/roll-off) and Lo-Lo (life-on/lift off) services to Continental Europe grew by 10.7%, but UK volumes fell by 0.2%. 

Dublin Port reported growth in unitised volumes (both Ro-Ro and Lo-Lo combined) of 3.6% to a total of 1.5 million units.  

It noted that over the six years since the economic recovery began in 2013, unitised trade has grown by over 41%. 

But it said the continued strength in unitised growth was offset by a large one-off decline in bulk solid commodities and, as a result, overall tonnage growth for the year was just 0.4%.

Dublin Port said its RoRo volumes grew by 2.6% to 1.1 million units, while its Lo-Lo container volumes grew by 6.5% to 774,000 units. 

Bulk liquid volumes – mostly petroleum products – grew by 0.9% to 4.7 million tonnes driven by increasing activity in the road transport and aviation sectors.

But bulk solid commodities declined by 23.4% to 1.8 million tonnes due to a number of factors, including the fact that 2018 had been an exceptionally strong year for agri-feed imports. 

2019 also saw exports from Boliden Tara Mines ceasing for a four-month period while major construction works in Alexandra Basin were proceeding.

Dublin Port said that these works are now complete, and exports of lead and zinc ore concentrates have fully resumed.  

Meanwhile, ferry passenger volumes increased by 6.7% to 1,949,000 last year, while the number of tourist vehicles increased by 9.9% to 560,000.

Dublin Port’s cruise business grew again with 158 cruise ship arrivals, up from 150 in 2018 and growth of 16.7% in visitor numbers.  

It noted that the average size of cruise ship increased again reaching 55,648 gross tonnes in 2018, an increase of 11.1% compared to 2018.

Dublin Port’s chief executive Eamonn O’Reilly said last year’s dominant feature was the continued strong growth in the unitised modes with Ro-Ro ahead by 2.6% and Lo-Lo by 6.5%. 

But he said that behind these growth figures Dublin Port saw a marked difference between the UK and the EU-26, adding that UK volumes declined by 0.2%, while volumes on Ro-Ro and Lo-Lo services to Continental Europe grew very strongly by 10.7%.  

“The effect of the deployment in recent years of new ships on direct routes to Continental Europe by shipping lines such as Irish Ferries and CLdN is clear to be seen and we expect to see this trend continue as trading patterns adapt post Brexit,” he added.

Mr O’Reilly said the continued large growth in unitised volumes underpins the need for Dublin Port Company to continue the major €1 billion investment programme from now to 2029. 

In December, it finalised a €300m private placement debt facility.

With the finance now in place, capital investment will continue this year on the Alexandra Basin Redevelopment Project, at Dublin Inland Port and on the redevelopment of the port’s road network to provide the capacity needed as the port grows to maximum capacity utilisation by 2040.

“While the final impacts from Brexit remain unknown, we have completed a series of projects during 2019 in conjunction with the OPW to provide the border infrastructure needed for whatever level of checks are ultimately required,” Mr O’Reilly added.

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