Joan Burton, quoted in the Guardian, describes this morning’s announcement about the latest bank bailout costs as ‘Ireland’s Black Thursday.’ Patrick Honohan announced this morning that the final bill for bailing out Anglo Irish Bank, all being well, will be €29.3bn, another €3bn is to be pumped into AIB (making the State the majority shareholder) and another €2.7bn into Irish Nationwide. The figure for Anglo could rise to €34.3bn if the haircut being applied to the remaining loans being transferred into NAMA exceed 67%. The State is now the majority shareholder in four banks (AIB, Anglo, Irish Nationwide, EBS).
Quoted in the Irish Times, ‘Mr Lenihan said today’s final figures for repairing Ireland’s banking system would provide reassurance to investors: “The overall level of State support to our banking system remains manageable and can be accommodated in the Government’s fiscal plans in the coming years.”‘
Manageable? Well, hopefully, but at what cost? A year’s tax receipts at present is €33bn. The €29.3bn that’s gone into Anglo has disappeared into a black hole never to be seen again. Another €15.4bn has been pumped into the other banks (Bank of Ireland, AIB, Irish Nationwide, EBS), which hopefully will be recovered over the long term. The €40bn or so going into NAMA may or may not pay back depending on the nature of the assets transferred in and whether the Irish property market recovers sufficiently over the next 10-15 years. The government are presently borrowing €20bn per annum to bridge the gap between tax receipts and the cost of running the country. Since the bank guarantee two years ago, the Irish state has borrowed a fantastic amount of money, so much so that the Guardian reports that government debt now exceeds GDP, with the deficit 32% of GDP (easily the highest in Europe). If there is a reason that overseas investors are nervous, this is it. Our economy has shrunk markedly, our unemployment and welfare bill grown significantly, our austerity measures do not seem to have worked, the banks have been financial blackholes, and we owe a fortune. Yet we are committed to reducing the deficit to 3% of GDP by 2014, committed to the bank guarantee, and to paying back our debts in full. Hardly reassuring.
The government are trying to draw a line under the bank bailout. Lenihan, again quoted in the Guardian, ‘insisted that these were the final figures, adding “this bring the crisis to a closure”. “We’re quite satisfied that the balance sheets of the banks have been cleaned up and restored and the banks are ready and fit to go back into business”.’ That said, the government has insisted that the bank bailout would only cost so much before, and the banks were sound, and everytime it has been woefully wrong and had to announce another round of expensive bailouts.
It is not unsurprising then that citizens and international investors are wondering whether this really is the last time; whether this is the last black day in a string of such days. For all our sake’s let’s hope it is, because it’s going to take a generation or more for the Irish taxpayer to pay back the debts of bailing out the banks. And paying it back is not going to be easy unless there is a radical transformation in the present state of the Irish economy and it will involve quite a bit of pain (get ready for the tightening of belts come budget day).