At the moment the Irish government and the ECB/EU/MF are hammering out a deal which will see Ireland borrowing approximately €85 bill primarily to bail out its bankrupt banking system – the government is only really in dire straits because it has to bail out a banking system whose assets had grown to 700% of GDP[1]. By comparison the US banking system has assets of roughly 100% of GDP.
If I were an Irish (opposition) politician in the upcoming general election I would run my campaign on a “no” to this so-called bail out and ask: Why should a generation be paying for this? What will stop any able-bodied Irish man or woman leaving Ireland now? The size of the bail-out will increase Irish government debt by 40-45% of GDP in one quick move.
The reality behind the urgency was the markets waking up to fact that Ireland could not afford to keep its pledge to guarantee all senior obligations of its banks, which swiftly brings us to the next question:
Is €85 bill even enough? Who knows? Two (out of four) of the troubled Irish banks actually passed the ECB’s stress test earlier on in the year, which just goes to show how good and reliable they were…..! With €1.4 trillion is assets between the banks how much has actually been/will be lost?
As a would-be Irish popular politician I would say that the bailout is mainly to let the people of Ireland pay for the mistakes made in London, Frankfurt and other financial centres where its actually the mistakes of the holders of the Irish banks senior debt that are being bailed out! Chancellor Merkel is quite keen on making ‘those who profit’ pay when it comes to sovereign debt restructuring – so how about just letting the senior bond holders pay? The banks taking the losses can go to the markets and try and raise the capital they have just lost and if necessary Ms Merkel can underwrite the German banks so they don’t default. Why should the Irish tax-payer pay for a bail out of the UK and German banks?
I would guarantee the domestic deposits and re-incarnate the banks to service the domestic economy (much like they had to do in Iceland) if need be leave the Euro, re-introduce the punt take a devaluation as it’s much less painful than an internal devaluation, which is the result of the current policies and get on with it! Of course I would keep the 12.5% corporation tax rate and negotiate directly with any inward investor who might lose money as a result of the banks defaulting, but paying for the UK and German banks’ mistakes – no way!
Will you vote for me??????
