Coalition must address Northern Ireland’s exposure to Republic’s banks

Gavin has dug out this instructive interview with Patrick Neary the former Irish Financial Regulator. It’s just after the Irish Government’s comprehensive bank guarantee. Neary repeatedly insists that the Irish banking system was adequately capitalised. This presumably is what he told Minister Lenihan too. But as Pete picked up at the time, the Guarantee was issued on Monday, by Thursday Morgan Kelly was already warning the real problem was not being addressed (emphasis added):

Effectively the Irish banks are heading in the same direction that the Japanese banks were in the 1990s: zombies that are kept on life support by the Government, but without the capital to provide firms and households with the borrowing that they need. However this cosy Japanese solution to an Irish problem could come unstuck if bank auditors refuse to sign off on the valuations that banks are still putting on their dead assets. This would precipitate a new crisis that would make last Monday seem like a picnic.

The details of the bank restructuring have still not been made public, and may not for a while. And for a country that’s just been bailed out (again), the bond markets are none too impressed. But neither is Lee, who argues that the Conservative and Lib Dem government in Westminster must address Northern Ireland’s over exposure to a virtually bankrupt Irish banking system:

…it was the Euro that negated the need for our participation in the bail-out.  The IMF are sufficiently concerned about the world economy and the EU from an economic (and equally political perspective to keep propping up the Euro) that whatever borrowing Ireland needed would have been forthcoming.  The absence of a £7bn loan from us would not have left Ireland wanting it would have beens ecured elsewhere.  It would have also kept us out of the potential morass of further bail-outs for other countries. Any promises that we won’t should be treated with the sceptcisim any statement on Europe from this government deserves.  For me the 55/45 comes down on the side of No.

The die is cast on our particpation but if the government’s concern for Northern Ireland is genuine there is a further step it must take.  The Coalition government is to produce a paper on the future of British banks, the over-reliance of Northern Ireland on Irish banks must be addressed in that paper.

  • For the moment, I go along with Lee on this one.

    George Osborne’s explanation that we have a direct and very close interest to Ireland’s problems is absolutely right. It is also right that we are part of a consortium of nations there to guarantee loans through Europe and the IMF for countries such as Ireland.

    It still does not explain why the UK was obliged to provide a £7bn bilateral loan.

    The only thing I would add is that it is highly unlikely that every relevant factor behind this decision is in the public domain.

  • A.N.Other

    The highly influential Zerohedge.Com, ranked in top 1000 sites in the US writes:

    “A bunch of completely irrelevant numbers released by Ireland. At best these will achieve nothing but will kick the can down a few more months. At worst violent rioting will be a daily occurrence in Dublin within a week.”

  • dodrade

    Surely £7bn could buy back the treaty ports at least?