Government stimulus will help — but don’t expect a big bazooka
BUSINESSES should not get too excited about the lift they might get from the Government’s new stimulus package due to be announced tomorrow. Firms up and down the country have been crying out for some kind of dig out when it comes to liquidity, covering growing debts from the pandemic like rent, and simply surviving with fewer customers and lower revenues.
Different sectors have been queueing up to make their case for what they say is billions in State help. Tourism reckons it needs €1bn to help viable businesses survive. Ibec reckons small firms need €15,000 each to get through the crisis.
Lobby group SME Recovery Plan says €15bn is needed for SMEs to come through it.
The Government might want to help, but it won’t be delivering any bazookas of that magnitude.
First off we are told the package is likely to be around €2.5bn to €3bn in scale.
Since that figure was mentioned last weekend by Tánaiste Leo Varadkar, he has gone on to announce details of a credit guarantee scheme of State-backed low-interest loans worth around €2bn.
This €2bn was originally announced on May 2 and is already counted in the €15.5bn of extra Covid spending that the Government has so far committed to. The biggest question facing the economy is how do we get cash moving again. Businesses need customers to spend money so they can re-hire staff, pay their bills and hopefully invest.
The role of a stimulus package should be to stimulate, ie get people spending. The Government plans to announce details of a new economic plan in October. This plan is likely to involve further long-term measures which might be more in keeping with the traditional notion of a stimulus package, which essentially means more spending by the State.
Small businesses shouldn’t get their expectations up too high for tomorrow. The new credit guarantee scheme won’t be up and running until September at the earliest although there is a different smaller scheme already in place.
Stimulus to get people spending might involve things like lower Vat rates. However, there is speculation that the Government is not overly keen on cutting Vat rates in the hospitality sector right now because many consumers are not yet ready to spend, and it might help business margins more than deliver lower prices to stimulate demand.
There will be improvements to the restart grant which would be welcomed by small firms. Overall, the Government is reluctant to, as Varadkar put it, “fire all its bullets at once”.
The stimulus will involve a few bullets alright but the question is whether many of them will hit the target.
EasyJet’s Bellew in hot water over dirty job of cutting costs
EASYJET chief operations officer Peter Bellew has landed himself in some hot water with the pilots’ union at the airline. It has decided to hold a vote of no confidence in the relatively new COO over his handling of cost cutting at the airline.
As an ex-Ryanair executive you might think that a pilot union having a confidence vote is like a badge of honour. But this certainly wasn’t the reputation that Bellew had at Ryanair and later Malaysian Airlines where he was chief executive until he rejoined Ryanair again.
If anything he was criticised by Ryanair chief executive Michael O’Leary for being very generous in negotiations with German unions. Bellew was widely seen as the right man to return to Ryanair not only to fix its pilot rostering crisis, but also as a potential successor to O’Leary.
It is hardly surprising that pilots would be pretty annoyed with management in the middle of a massive crisis for EasyJet and every other airline, especially as the British low-cost carrier seeks to raise £400m (€441m) in a new rights issue.
The problem for Bellew is more that the publicity is surrounding him and not the chief executive, Johan Lundgren. It is never ideal to be the focal point of union ire and the public face of job cuts, when you are not the CEO. Let the boss take the flak.
Bellew’s move to EasyJet has not been as smooth as he would have liked. Ryanair didn’t make it easy for him when it took a court action to try to prevent his departure to a rival. Bellew won the action.
Then along comes the coronavirus. EasyJet shares are 54pc below their January 2020 levels and the company is preparing for a massive rights issue.
Meanwhile, Ryanair is continuing with its pandemic pattern of putting a brave face on things, assuming the best, and then having to adjust to the worst. Not long after the crisis started and flights were first cancelled, Michael O’Leary said the airline still expected to have a good Easter after a short-lived blip.
Then the airline said it would resume flights with the mother of all seat sales. Despite the opening up of many countries, it remains to be seen exactly what levels of booking are taking place. Ryanair said it would relaunch with 40pc of previous route capacity. This was a hugely optimistic level of flights given that so many people are still nervous of flying, unsure about what awaits them and have seen their incomes drop.
This week Ryanair said it was going to pull back on up to 1,000 flights between Ireland and the UK, blaming the government’s extended quarantine rules.
Each time the airline has pushed hard on the positive marketing spin but has had to pull things back as reality bites.
Berlin makes solid case for sticking with rent freezes
RENT freezes introduced by the Government during the pandemic have given rise to hopes that they may be here to stay. Naturally there are rumblings from investors that if the rent freeze is extended it may be challenged in court.
Property interests have always maintained that rent freezes would never work because they would deter new investment, reduce new housing supply, force existing landlords to leave the market and basically cause a range of new problems.
It is a circular argument that favoured big investors, particularly in Dublin where rents overtook pre-2008 crash levels while house prices remained well short.
But not so in Berlin where the local government imposed a rent freeze some months ago.
Big interests owning lots of apartments said they would leave the market. Instead, one of the biggest is buying up.
Deutsche Wohnen (DW), Germany’s second-largest property company, said it would invest elsewhere but months later it is spending €90m to scoop up 23 properties, mostly in Berlin, where rents on 1.5 million homes have been frozen.
The rent freeze is being challenged in court and perhaps DW is taking a punt on the outcome.
Or it still looks like a reasonably good investment. Some lessons for Dublin no doubt.