Economy: Ireland Confronts The Cost

• October 1st, 2010
• Posted by EUEditor

The Irish government has faced up to total costs of bailing out the nation’s banks, revealing the real burden of the recession that hit the country two years ago.

FAILING BANKS, RECESSION

It has accepted the figures will be in the range of €35 to 50-billion (A$49.48 – 70.68-billion; xe.com, 1.10.10)

Easy credit during two decades of free-wheeling, free-market expansion gave way to the impacts of the Global Financial Crisis.

Recession; falling real estate prices especially, meaning defaults on loans; and the costs of the investment in weak or collapsing banks, has run up a stupendous deficit in terms of the size of the national economy.

Government declarations (30.10.10) showed that the state would have to buy a controlling share of the largest bank, Allied Irish, adding to its aid or purchases across the banking sector – notably in the case of the spectacular loss-maker Anglo Irish.

The new bail-out, said the Irish Independent, was “based on a worst-case scenario including a 65% crash in commercial property values, a double-dip recession and losses of 70% on the toxic loans Anglo has to transfer to the National Assets Management Agency (NAMA).”

HEAVY DEFICIT, STRONG PROTESTS

The  Finance Minister, Brian Lenihan, admitted that committing the public to pay for  such dud enterprises, in the national interest, would produce a budget deficit equivalent to 32% of GDP, for this year at least – though expected to settle on a high, but more “normal” 11% later on.

Several observers had expected the shock, the Standard and Poors agency moving to down-grade the country’s credit rating earlier this week, and trade unions mobilising strong demonstrations, as part of Wednesday’s Europe-wide protest against austerity budgets, severe pay cuts and unemployment (picture). (see EUAustralia, “Austerity and anger”, 30.9.10).

“From Celtic Tiger to road kill: Ireland’s rapid economic descent”, one commentator’s view, summed up some harsh reckonings.

BID FOR CREDIBILITY

Irish national television, quoting the Irish Times, saw the figures coming out of Dublin as a bid to restore credibility and engineer a fresh start:

“The gross cost of rescuing Anglo Irish Bank, AIB, Bank of Ireland, Irish Nationwide and the EBS is now put at €50 billion.

“But this is expected to fall to nearer €35 billion when the State recoups the money put into Bank of Ireland and AIB, it says.

“Other eventualities may push the bill up or down, but yesterday’s announcement was an effort to put a credible final number on the cost, … to provide some certainty for the international banks, pension funds, insurance companies and wealthy individuals who lend money to Ireland.

“They have become increasingly worried that the Government has seriously underestimated the cost of bailing out the banks and may not be able to meet it …”

IMF WATCHING

The International Monetary Fund, for one, was showing some institutional faith in an Irish recovery from the present bog, now being described with such dismal official figures.

Its director, Dominique Strauss-Kahn, said he did not expect Ireland would need to draw on the safety net fund put together by the IMF and European Union, among other interests, to allow governments to continue borrowing at sustainable rates.

He said Ireland was in a different category to Greece and Portugal, which had come under extreme pressure as government loans matured, because of the country’s fiscal policy: a grinding austerity program to cut the government’s commitments, much at the expense of wage earners and the unemployed.

The Irish affair is another chapter in the economic battle of Europe; growth versus austerity; governments versus their sacked or devalued employees; creditors versus their cannot-pay clientele.

Reference

Laura Noonan, “€34bn Anglo bill could be revised down in weeks”, Irish Independent, Dublic, 1.10.10.
http://www.independent.ie/business/irish/euro34bn-anglo-bill-could-be-revised-down-in-weeks-2360601.html, (1.10.10).

New York Times, NY, “Ireland takes over a second bank”, 1.10.10. http://dealbook.blogs.nytimes.com/2010/10/01/ireland-takes-over-a-2nd-troubled-bank/, (1.10.10).

Reuters, London: “Investment Banking Ireland Takes Over a 2nd Troubled Bank”, 1.10.10; Update 1 – “IMF doesn’t expect Ireland to tap Euro fund-paper”, 1.10.10; Analysis and Opinion, “From Celtic Tiger to road kill: Ireland’s rapid economic descent”, 1.10.10. http://www.reuters.com/article/idUSLDE69009I20101001, (1.10.10).

RTE Business, Dublin, “Today in the press: the final bill for the banks”, 1.10.10.
http://www.rte.ie/business/2010/1001/presswatch.html, (1.10.10).

Picture teachersolidarity, studentsmart

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