The public sector could save the economy – if only politicians let it
Spending can be cut by 20 per cent without harming actual services, says Andrew Haldenby, director of the independent think tank Reform
Around the world, the intellectual tide has turned decisively in favour of smaller government and balanced budgets. The best American economists, such as John Taylor at Stanford University, have shown that their country’s fiscal stimulus won’t bring about the short-term boost that was intended. They are also warning that the US faces decades of perilous debt unless it reduces its government spending on health and pensions (which partly explains the lack of support for Barack Obama’s health proposals).
On the Continent, Angela Merkel and the IMF have both warned the governments of the eurozone to match their rhetoric on lower spending with action. The Greek government went so far as to televise the cabinet meeting that discussed its plans to salvage the country’s international economic credibility.
In our own country, too, there are a heartening number of people willing to play their part. My organisation, Reform, has been meeting many of the people who run our hospitals, health authorities, universities, police forces, fire services and government departments. They take it for granted that they can cut costs by 20 per cent – the equivalent of billions of pounds – and improve their services at the same time.
In fact, lots of them are already doing it – accompanied, in some cases, by far-sighted decisions to change the shape of local services. We have spoken to leaders of health services, such as Sophia Christie in Birmingham, who have closed inefficient hospitals that deliver poor quality and patient safety, and replaced them with a number of smaller, more convenient and safer units. As a result, they will save hundreds of millions of pounds – leading to suggestions that something similar should occur with the NHS in London. Similarly, we’ve spoken to chief fire officers, such as Tony McGuirk in Merseyside, who have shaken up long-standing but inefficient shift patterns for firemen. Tens of millions of pounds will be saved, without any increase in response times to emergencies.
Initially, these managers tend to face fierce opposition, due to a natural concern that change will mean the removal of services. But that opposition turns into support when it becomes clear that services aren’t just being maintained, but becoming better.
Another path to reform is to get more out of the workforce. Simple changes have tremendous results. If public-sector workers took the same amount of sick leave as those in the private sector, that would save 3 per cent of their wage bill, which adds up to £6 billion per year. If they worked the same number of hours per week as in the private sector, that would save a further 10 per cent, or £20 billion per year. The same saving would result if the average public- and private-sector employee were paid equivalent wages.
Good public-sector managers try to achieve taxpayer value in the same way that good private-sector ones try to achieve shareholder value. They take the view that if they can provide the same service with fewer people and less cost, they are under an obligation to do so. One senior NHS manager told me that pay in the health service has risen far beyond what is justifiable, and should be cut in actual terms (not just in the form of smaller rises). He predicted that because it is prohibitively expensive to make NHS staff redundant, many of the personnel will agree to work four-day weeks (following the example of leading private-sector companies such as KPMG). This is the kind of radical idea that will get us out of the budgetary hole in which we find ourselves.
All that remains, therefore, is for our political leaders to play their part. But here the optimism starts draining away. Last week Mervyn King, the Governor of the Bank of England, rightly warned that politicians will put the economic recovery at risk if they don’t publish a plan to cut the deficit. He said that because no party has set out a plan for cutting spending, and none shows any sign of doing so.
True, the Government is making some micro-cuts to budgets, with announcements on higher education, defence and the Foreign Office in the past month. But it is resolutely resisting publishing the overall plan that would give the markets confidence. If the Chancellor didn’t do it in his most recent Budget, or in two pre-Budget Reports, I can’t see why he will do it in the forthcoming Budget, right before an election.
The Conservatives are claiming that they would take tougher action on the deficit than Labour, which would be good. They have also set out some mini-cuts and pledged to reduce spending rather than raise taxes. But Benedict Brogan has pointed out in this newspaper that they are not doing the behind-the-scenes work that would deliver major cuts in government.
To make matters worse, the Conservatives have been among the most vociferous opponents of the cuts that the Government has announced. David Willetts berated Lord Mandelson for making a small cut to the university budget, and for making the very reasonable suggestion that some degrees could be taught in two years rather than three. Liam Fox attacked Gordon Brown and Bob Ainsworth for cutting defence spending on reconnaissance and training. David Lidington said that Glenys Kinnock’s cuts to terrorism operations in Pakistan were “appalling”. That’s not to mention David Cameron’s pledge to protect the NHS budget which, measured against the evidence, is among the three worst policies of this Parliament (the others being Gordon Brown’s 50p tax rate and Nick Clegg’s commitment to abolish tuition fees).
On this evidence, it doesn’t look like the Conservatives are up for the fight – or perhaps they will cut the deficit through tax rises after all, with all the damage to the economy that would result. As for the Liberal Democrats, Nick Clegg has rightly pulled back on his party’s big spending commitments, but otherwise they, too, have kept their powder dry.
One common view among public-sector managers – which runs counter to much of the popular perception – is that, in the end, it will be politicians who stop them making the cuts that are needed. They will use phrases such as “protecting front-line workers” or “protecting the NHS budget”. They will appease the militant public-sector unions rather than achieving fairness for the taxpayer. To do so would be to snatch defeat from the jaws of victory. Our leaders have to tackle big government, and Mervyn King and others are handing them a golden opportunity. They should seize it.
Fears of 'Lehman-style' tsunami as crisis hits Spain and Portugal
The Greek debt crisis has spread to Spain and Portugal in a dangerous escalation as global markets test whether Europe is willing to shore up monetary union with muscle rather than mere words.
Ambrose Evans-Pritchard - Telegraph
Julian Callow from Barclays Capital said the EU may to need to invoke emergency treaty powers under Article 122 to halt the contagion, issuing an EU guarantee for Greek debt. “If not contained, this could result in a `Lehman-style’ tsunami spreading across much of the EU.”
Credit default swaps (CDS) measuring bankruptcy risk on Portuguese debt surged 28 basis points on Thursday to a record 222 on reports that Jose Socrates was about to resign as prime minister after failing to secure enough votes in parliament to carry out austerity measures.
Parliament minister Jorge Lacao said the political dispute has raised fears that the country is no longer governable. “What is at stake is the credibility of the Portuguese state,” he said.
Portugal has been in political crisis since the Maoist-Trotskyist Bloco won 10pc of the vote last year. This is rapidly turning into a market crisis as well as investors digest a revised budget deficit of 9.3pc of GDP for 2009, much higher than thought. A €500m debt auction failed on Wednesday. The yield spread on 10-year Portuguese bonds has risen to 155 basis points over German bunds.
Daniel Gross from the Centre for European Policy Studies said Portgual and Greece need to cut consumption by 10pc to clean house, but such draconian measures risk street protests. “This is what is making the markets so nervous,” he said.
In Spain, default insurance surged 16 basis points after Nobel economist Paul Krugman said that “the biggest trouble spot isn’t Greece, it’s Spain”. He blamed EMU’s one-size-fits-all monetary system, which has left the country with no defence against an adverse shock. The Madrid’s IBEX index fell 6pc.
Finance minister Elena Salgado said Professor Krugman did not “understand” the eurozone, but reserved her full wrath for the EU economics commissioner, Joaquin Almunia, who helped trigger the panic flight from Iberian debt by blurting out that Spain and Portugal were in much the same mess as Greece.
Mrs Salgado called the comparison simplistic and imprudent. “In Spain we have time for measures to overcome the crisis,” she said. It is precisely this assumption that is now in doubt. The budget deficit exploded to 11.4pc last year, yet the economy is still contracting.
Jacques Cailloux, Europe economist at RBS, said markets want the EU to spell out exactly how it is going to shore up Club Med states. “They are working on a different time-horizon from the EU. They don’t think words are enough: they want action now. They are basically testing the solidarity of monetary union. That is why contagion risk is growing,” he said.
“In my view they underestimate the political cohesion of the EMU Project. What the Commission did this week in calling for surveillance of Greece has never been done before,” he said.
Mr Callow of Barclays said EU leaders will come to the rescue in the end, but Germany has yet to blink in this game of “brinkmanship”. The core issue is that EMU’s credit bubble has left southern Europe with huge foreign liabilities: Spain at 91pc of GDP (€950bn); Portugal 108pc (€177bn). This compares with 87pc for Greece (€208bn). By this gauge, Iberian imbalances are worse than those of Greece, and the sums are far greater. The danger is that foreign creditors will cut off funding, setting off an internal EMU version of the Asian financial crisis in 1998.
Jean-Claude Trichet, head of the European Central Bank, gave no hint yesterday that Frankfurt will bend to help these countries, either through loans or a more subtle form of bail-out through looser monetary policy or lax rules on collateral. The ultra-hawkish ECB has instead let the M3 money supply contract over recent months.
Mr Trichet said euro members drew down their benefits in advance -- "ex ante" -- when they joined EMU and enjoyed "very easy financing" for their current account deficits. They cannot expect "ex post" help if they get into trouble later. These are the rules of the club.
BoA's former chief charged with fraud
James Quinn - Telegraph
Ken Lewis, Bank of America's (BoA) former chairman and chief executive, has been charged with fraud for "duping shareholders and the US government" into backing the banking conglomerate's botched $50bn (£32bn) merger with Merrill Lynch.
Former Merrill Lynch chairman and CEO John Thain, left, shakes hands with former Bank of America chairman and CEO Ken Lewis when the deal was agreed in 2008. Photo: AP
In the first prosecution of the head of a major Wall Street bank since the start of the financial crisis, Mr Lewis, along with Joe Price, the bank's current chief financial officer, and the bank itself, has been charged by Andrew Cuomo, New York's Attorney General.
Mr Cuomo alleges the three defendants "intentionally failed to disclose" Merrill's "massive" $16bn-plus losses ahead of a key shareholder vote on the deal, a deal which led BoA to take $45bn of funding from the US Treasury's Troubled Assets Relief Programme (TARP) and a $318bn loan-loss guarantee.
The charges came as BoA attempted for the second time to settle charges with the Securities and Exchange Commission (SEC) over disclosing not only the losses but the secret payment of $5.8bn of bonuses to Merrill staff in December 2008.
The new $150m settlement comes six months after an original $33m settlement was thrown out by Judge Jed Rakoff on grounds that not only was the settlement was insufficient, it should not be paid for with shareholder funds. BoA and the SEC had been due to meet in a trial slated to begin on March 1.
The concurrent legal filings have reignited the debate over BoA's takeover of Merrill, which was hatched in just 25 hours on the September 2008 weekend before the collapse of Lehman Brothers.
Mr Cuomo said the merger was "a classic example of how the actions of [America's] largest financial institutions led to the near-collapse of our financial system".
In a detailed 90-page lawsuit, he alleged the two men and the bank itself were involved in "an arrogant scheme... to deceive shareholders and American taxpayers at large".
Working with the support of Neil Barofsky, the TARP special inspector general, Mr Cuomo said the behaviour exhibited by the defendants was "just egregious and reprehensible".
The legal filing alleges not only did the defendants fail to inform shareholders of Merrill's growing losses ahead of a shareholder meeting on December 5 2008, they then allegedly told the US government they would abort the deal if BoA was not supported by further federal funds.
BoA refuted the claim, saying that BoA and its executives "at all times acted in good faith and consistent with their legal and fiduciary obligations."
Lawyers for Mr Lewis and Mr Price said the charges were without merit.
Doubt cast on survival of EMI
Andrew Edgecliffe-Johnson and Salamander Davoudi - FT
EMI’s accountants have raised “significant doubt” about its ability to continue as a going concern in a report that lays bare the parlous state of Terra Firma’s £4.2bn investment in the music company behind Katy Perry and The Beatles.
Guy Hands, Terra Firma’s founder and chairman, has written to investors in two of its private equity funds asking them to inject another £120m, subject to EMI Music producing a new strategic plan.
He must come up with the money by June 14 or risk losing the company to Citigroup, his bankers.
However, accounts for the year to March 2009, released on Thursday, make clear that even if Terra Firma secures this equity, it will face another “significant shortfall” against a test on covenants in its loans by March 2011.
Unless it can persuade Citi to restructure its £3.2bn in loans by then, investors face further cash calls. Terra Firma spent £105m to make up shortfalls against the quarterly covenant tests last year but has less than £10m left for future payments.
Citi declined to comment, but one person familiar with its thinking said it had no plans to help Mr Hands by restructuring the loan. “They’re going to let him spin himself into the ground and will sit back and watch the show.”
Directors of Maltby Capital, the vehicle that bought EMI just before credit markets collapsed in 2007, said there was no certainty that investors would put new equity into an investment that Terra Firma has already written down by 90 per cent.
KPMG, EMI’s accountants, also highlighted the possibility that investors might have to inject a separate sum of £10m to £200m to fund its pension scheme. The pension deficit is the subject of a dispute with trustees in which the UK Pensions Regulator is now involved.
Maltby’s directors said they had “a reasonable expectation” that the group could continue as a going concern, in a report that showed interest costs and impairment charges wiping out operational improvements.
Pre-tax losses for the year to March 2009 widened to £1.7bn, against a £414m loss for the previous period, which covered the first eight months and 21 days of Terra Firma’s ownership.
Maltby booked a £1.04bn impairment charge, of which two-thirds fell on the more stable music publishing arm because this had accounted for two-thirds of the group’s original valuation.
The bottom line was also hit by £279m in interest payments and £297m of foreign exchange losses on its borrowings.
Terra Firma is suing Citi over its role in the EMI auction. The bank has denied its accusations.
Santander's march on UK continues and RBS is next
Ambitious lender issues half of all new UK mortgages
James Moore - The Independent
Banco Santander is selling one out of every two mortgages in Britain as the bank pushes ahead with expansion plans which could see it buying 315 Royal Bank of Scotland branches.
Net mortgage lending in 2009 reached £7.6bn – estimated to be almost half the total market in 2009. That compares with its share of existing mortgages of just 13 per cent. Santander also has around 10 per cent of deposits and around 8 per cent of current accounts.
The Spanish company's current dominance of the mortgage market is a stark illustration of the way other banks have withdrawn in the wake of the credit crunch and subsequent financial crisis. Despite its surge in mortgages, Santander – which has been aggressively marketing itself utilising its sponsorship of the McLaren Formula One team – is still a way from becoming a "fifth force" in British banking capable of challenging the "big four" of Lloyds Banking Group, HSBC, Barclays and Royal Bank of Scotland.
Business banking is a particular weak point. However, the bank would be greatly enhanced with the acquisition of one of the three "new" banking businesses set to come on to the market. Williams & Glyn, the Royal Bank of Scotland business which includes 318 branches, is the prime target because it will include several business banking centres.
Santander knows the business well and has worked with RBS before, including on the disastrous acquisition and break up of ABN Amro. Of the three banks involved Santander was the only one to emerge with its reputation and finances enhanced.
If it fails to buy Williams & Glyn, Santander would likely switch its attention to the more than 600 branches Lloyds Banking Group has to sell, but this would be a consolation prize. It is not expected to bid for Northern Rock's "good bank" when that is sold.
Banco Santander's chief executive officer, Alfredo Saenz, told analysts in Madrid yesterday that the company would "study takeover opportunities in the UK" although he stressed that the lender's goal was to generate "organic growth".
He was speaking as the bank, the second largest in Europe after HSBC, reported a 13 per cent rise in fourth-quarter net profit to €2.2bn (£1.9bn) from €1.94bn a year earlier, which was ahead of analysts' forecasts. Full-year net profit stood at €8.94bn, 1 per cent higher than the €8.88bn reported in 2008. Chairman, Emilio Botin, had targeted repeating the year-earlier profit figure.
In Britain profits grew by nearly a third while turnover increased by a fifth. The bank insisted that despite the enormous surge in mortgage lending, which was helped by the virtual withdrawal from the markets of many weaker players, its loan to value on existing stock was 56 per cent, while the figure for new business was 64 per cent.
Santander's broad geographic spread helped it stand up better to the financial crisis than many other banks, leaving it with enough firepower to snap up less fortunate players.
The bank's rise in the UK has been dramatic – it only entered the market in 2004 with the acquisition of Abbey National but has since added Alliance & Leicester and the deposit business of Bradford & Bingley, recently opting to package them all up under the Santander name.
Deutsche Bank staff to win 30% pay rises
German bank estimates its bill for UK bonus tax will be £200m
Jill Treanor - The Guardian
Deutsche Bank is preparing to hand out pay rises of up to 30% after taking a hit from the UK bonus tax.
The German bank, which employs 8,000 people in the City, revealed that the UK exchequer would receive a boost of €225m (£200m) from the bank to pay the cost of the 50% bonus tax.
The bank has decided not to force its London-based staff to shoulder the burden of the bonus tax – as Credit Suisse has done – but is spreading the cost across its global bonus pool.
When the Treasury announced the tax on bonuses over £25,000 last year, Alistair Darling forecast it would raise £550m. That is now likely to be surpassed, although Deutsche is the first bank to put a specific figure on its tax bill.
Deutsche's chief executive, Josef Ackermann, also admitted that bankers had met behind the scenes at the world economic forum in Davos to try to head off government intervention on bonuses, but revealed little detail of the conclusions of the talks.
Deutsche paid out €11.3bn to staff last year, 18% more than in 2008, but relative to the amount of revenue generated the cost of paying staff fell to a ratio of 37% from levels above 40% more usually.
£175,000-a-year air controllers threaten holiday strike over pay
to cause Easter break chaos
Daily Mail
Hundreds of thousands of British holidaymakers face travel chaos this Easter after Spanish air traffic controllers threatened to strike over pay.
Unions representing the controllers - whose basic salary of £175,000 is three times that of English controllers - warned of ' horrendous delays and cancellations'.
Spain is the top Easter holiday destination for Britons, with around 400,000 planning to visit in late March and early April, according to the Association of British Travel Agents.
But thousands of flights to and from Spain's 48 state-run airports, including Majorca, Malaga, Alicante and the Canary Islands, could be disrupted by industrial action.
Talks between the Spanish airports authority AENA and the controllers' union broke down on Tuesday night. Yesterday it emerged that airport bosses have drawn up emergency plans to deal with a strike.
A secret 52-page plan, leaked to the Spanish press, includes a worst-case scenario in which no air traffic controllers are working, and all airports have to be closed.
The Spanish-government, facing a huge loss of tourism revenue, is considering bringing in military air traffic controllers.
The pay talks began after Spain's development minister Jose Blanco vowed to slash the salaries of air traffic controllers by up to 40 per cent.
Though their basic pay is £175,000, more than 900 pull in between £235,000 and £470,000 with bonuses and ten made almost £800,000 last year.
That is more than 50 times the average wage and ten times what Prime Minister Jose Luis Rodriguez Zapatero earns. Many Spaniards were outraged when Mr Blanco revealed the figures last month.
USCA, the union which represents 95 per cent of Spain's 2,300 controllers, accused the airports authority of 'unilaterally' ending negotiations and said its workers would start working to rule if a deal is not reached by March 31, four days before Easter Sunday.
Spanish tourism chiefs warned that industrial action could be calamitous for the industry. They are already reeling from a 16 per cent drop in visitors last year, blamed on the recession and the poor exchange rate for British visitors.
Wall Street Bonuses Would Be Taxed 50% Under Senators’ Proposal
Ian Katz - BusinessWeek
Two Senate Democrats proposed a 50 percent tax on bonuses of more than $400,000 at financial firms including Goldman Sachs Group Inc. and Bank of America Corp. that received U.S. government bailout money.
Barbara Boxer of California and James Webb of Virginia introduced legislation to put a one-time levy on the bonuses of employees at financial companies that took at least $5 billion from the Troubled Asset Relief Program, the senators said today at a Washington news conference. The bill would affect 13 firms and could raise $10 billion to help cut the federal deficit, Boxer said.
“It’s outrageous that many of these companies are doling out millions of dollars in bonuses while the rest of America feels the pain of reckless decisions,” said Boxer, who is seeking re-election in November. American International Group Inc., Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley are among the companies that would be affected, Boxer said.
Lawmakers are taking aim at financial firms in response to public anger over Wall Street’s role in the global financial crisis. President Barack Obama said last month he wants to tax as many as 50 financial firms with assets of more than $50 billion to recoup U.S. bailout money. The administration hasn’t backed levies on individual bonuses and the Senate has been reluctant to expand government’s role in compensation.
Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co. set aside $39.9 billion for pay in 2009, below the 2007 record of $44.7 billion. The total was less than the $46.1 billion five analysts expected in January and almost $10 billion less than what some analysts estimated in October.
Jobless youth, ‘not terrorism’ a danger to World Cup
Wilson Johwa - Business Day
The Young Communist League (YCL) wants President Jacob Zuma , along with the Department of Public Works, to explain what became of the pledge to create 500000 jobs by the end of last year.
A million jobs were lost last year due to global recession. However, during his first state of the nation address in June, Zuma had pledged to create half a million jobs by the end the year.
Zuma intended using the R787bn Expanded Public Works Programme to help more unemployed people enter the job market.
YCL national secretary Buti Manamela said the real concern around this year’s Soccer World Cup was not from terrorism but throngs of unemployed youth who did not stand to gain from SA’s hosting of the games in June.
“The threat to the World Cup doesn’t come from al-Qaeda but comes from the youth of this country who see it coming and will not benefit,” said Manamela in an interview ahead of the YCL’s annual lekgotla which starts today in Pietermaritzburg.
The lekgotla comes a week after a similar gathering by the African National Congress Youth League (ANCYL) which finalised a discussion paper calling for the state to own 60% of all new mines.
Manamela said nationalisation had always been within the agenda of the YCL which was keen to engage with the youth league proposal. “There has never been an opposition by the YCL towards nationalisation,” he said. However, the two youth movements were likely to cross swords over what the YCL saw as a new onslaught against communists in the ANC.
The youth league appeared to be backing deputy police commissioner Fikile Mbalula to replace ANC secretary-general Gwede Mantashe, also chairman of the South African Communist Party (SACP), at the ANC’s elective conference in 2012.
“If you prefer Mbalula over Gwede, do not oppose Gwede on the basis that he’s a communist but on the basis of his performance in the ANC,” said Manamela.
Tensions escalated when, after youth league president Julius Malema was booed at a special congress of the SACP in December, the league pledged to fight any attempts by “greedy yellow communists” to control the ANC.
Manamela said the YCL aimed to continuing its campaigns, including the programme against HIV/AIDS as well as its push for universal access to identity documents. Its call for year-long voluntary military service also appeared its programme of action for this year.
India's IT exports to touch $50 billion
Times of India
Nasscom has forecast a strong recovery for India's software exports, and said it expected the sector to add another 150,000 jobs in the next fiscal. The IT industry body also estimated that the sector would hit the landmark $50 billion export figure this year, and the association's president Som Mittal called it a "historic moment".
Nasscom on Thursday said that growth in software and services exports revenue would more than double to 13-15% in 2010-11, compared to the 5.5% increase it is expected to see this year. The slowdown this year was on account of the cuts in IT budgets by overseas customers following the global recession. Domestic software and services revenues is estimated to grow by 15-17% next year.
Nasscom said export revenues for the IT-BPO industry was likely to touch $49.7 billion this year. The domestic market is expected to witness 12% growth in 2009-10 to reach Rs 66,200 crore.
"It's a historic moment for the Indian IT-BPO industry as it touches the $50 billion landmark," Mittal said. The growth, he said, was led by the domestic market buoyed by increased government spending in IT. "In addition, new areas such as engineering services and product development displayed phenomenal momentum clocking a combined revenue of over $10 billion," he said.
Direct employment in the sector is estimated to grow by 4% and cross 2.3 million with over 90,000 jobs added in 2009-10. Nasscom president Som Mittal said about 150,000 jobs are expected to be created next year. That's a 6.5% growth. "Jobs do not rise at the rate at which the sector revenues rise because segments like support staff do not have to increase to the same extent. We have based our job estimates on the basis of a number of factors, including what our members have told us," Mittal said.
Pramod Bhasin, chairman of Nasscom and CEO of Genpact, said performance of industry this year was far stronger than what was reflected through growth numbers. "The industry has reinvented itself by increasing its cost efficiencies, utilization rates, diversification into new verticals and markets and new business and pricing models. In the process, it was also able to turn itself into a business transformation enabler for its clients. With a renewed value proposition, we look forward to a terrific future," Bhasin said.
With 450 delivery centres in 60 countries across the world, the industry is seen to have an unparalleled global value chain. "The industry has also enhanced its global workforce, hiring specialized talent in developed markets and building a truly global delivery model," Mittal said.
No more junkets for Central Bank wives
Spouses to pay their own way, insists new governor
Shane Phelan and Aine Kerr - Irish Independent
The new governor of Ireland's Central Bank last night banned the practice of using taxpayers' money to pay for trips abroad by the spouses of staff members.
The dramatic move came after a day of sustained criticism for the bank after it was revealed that it used public money to bring dozens of employees' spouses on trips in 2007 and 2008.
Trinity College professor Patrick Honohan, who took the governor's job four months ago, said he had not been aware the organisation had been covering the cost of so many spouse trips.
"While some of the expenditure could perhaps have been justifiable in the past, the practice does not seem appropriate in the present circumstances," he said.
Prof Honohan's decision comes as a remarkable climbdown for the Central Bank, which had initially staunchly defended the trips.
The announcement was made within hours of the Dail spending watchdog, the Public Accounts Committee (PAC) signalling it planned to investigate the matter.
The cross-party committee is now set to question Central Bank officials about the controversial practice in April or May.
Regret
PAC chairman Bernard Allen said the committee would also be examining other state agencies that covered travel costs for people other than their own staff members.
In a statement last night, Mr Honohan said that, between 2007 and 2009, spouses had accompanied Central Bank staff at foreign business meetings on 71 occasions. The cost to the taxpayer was €67,450, he said.
Of these trips, 62 were within Europe with an average cost of €435.
The other nine trips were long-haul journeys involving business-class flights and had an average cost of €4,515.
In 2007 and 2008, the spouses of 35 staff members travelled by invitation to 49 separate meetings. Last year, the spouses of 17 staff members travelled by invitation to 13 international meetings.
The bulk of the travel was to Frankfurt in Germany for meetings connected to the European Central Bank (ECB).
Mr Honohan's announcement does not mean that spouses will no longer be allowed to travel to foreign events. It just means they will now have to pay their own way if they wish to attend.
Department of Finance guidelines state that spouses can travel with their partners "in exceptional circumstances" and where it is has been "certified that attendance is in the public interest".
The Central Bank said it has been the norm for the ECB to invite spouses, usually once a year. But Fine Gael finance spokesman Richard Bruton said the bank had behaved in "a cavalier fashion" with taxpayers' money and people were understandably angry.
Meanwhile, the Comptroller & Auditor General (C&AG), John Buckley, said yesterday he regretted the wording of a report last week that sparked the spouse-flights controversy.
The report gave misleading information about the travel records of one unnamed organisation, later revealed to be the Central Bank.
Mr Buckley's report had stated that 52 spouses had gone on one single trip. It later transpired this was incorrect and several trips were involved.
Mr Buckley admitted the original information published by his office had not been the subject of an independent audit and was "wrongly interpreted" as a single event.
"I regret the fact that this happened and that politicians and the press . . . were misled," he said.
The report revealed that, across the 20 organisations, around €1.5m was spent on 4,000 flights for non-staff members, with none of the money being reimbursed.
Readers
please email comments to: editorial AT
martinfrost.ws including full name