As far as I can make out the Irish bank guarantee saga has reached somewhere between Pete’s disapproval and my earlier optimism. Finance Minister Brian Lenihan has been explaining himself to the Financial Times:
“Mr Lenihan insists Ireland did not want to strike out on its own, but needed to act quickly. “Our government and I would have preferred a European approach to guaranteeing confidence and stability of the banking sector,” he says in an interview with the Financial Times. “But in the absence of a European approach, a small sovereign state like Ireland is obliged to ensure the stability of the banks that are orphaned with us.”
After the Dail’s all-night sitting to pass the measure a wider political defence includes the admission:
“For the Government, the sobering reality is that no matter how necessary the legislation was in the national interest, it will take some explaining to the public. The fact that unpopular bankers have been let off the hook is easy to grasp, while the unknown impact of an averted banking failure is an abstract concept”.
“Aside from straining relations with Britain, the move could be very costly. If the Irish government had to honour its guarantee, the national debt would balloon from 25 per cent of gross domestic product to 242 per cent, according to analysts at Collins Stewart. It is also far from clear how Irish banks will be prevented from abusing the guarantee, which runs for two years. Mr Lenihan says they will be charged for it, but would not be drawn on how this will work in practice.
Now that the Irish have agreed to extend the guarantee to the Irish subsidiaries of RBS and HBOS, the British authorities do not see the threat as too serious. Nevertheless, it has intensified calls for Downing Street to introduce a similar guarantee.
Analysts estimate that bad debts at the four guaranteed banks will top between €8 billion and €10 billion this year and over the next two years – with AIB, Bank of Ireland and Anglo Irish Bank accounting for most of the debt.”
Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London