According to the International Monetary Fund, Irish banks will lose €35 billion over the next two years and this burden will fall on the taxpayer one way or another. The economy, which has already shrunk, will contract by a further 13.5% before 2011. Unemployment will be 15.5% per cent next year.
Brian Lenihan welcomed these observations, calling them realistic and balanced, but was careful to avoid acknowledging that his government had caused the problem. This is in spite of the fact that other industrial economies will contract by 4% this year and return to growth in 2010., clearly showing that Ireland’s problems are not primarily due to the global downturn. Lenihan failed to acknowledge that the problems were caused by his current leader, Brian Cowen, and his predecessors in the finance ministry, Charlie McCreevy and Bertie Ahern.
As the IMF report says, Ireland has been hit particularly hard by the global economic and financial crisis, reflecting significant vulnerabilities built up during the boom years, amplified by the openness of the economy to global shocks. Critical macroeconomic imbalances emerged as credit supply accommodated an unsustainable rise in property prices; banks’ exposure to property lending soared while their reliance on wholesale funding intensified; and, as wages climbed rapidly, international competitiveness declined.
Isn’t it extraordinary that a government should take credit for trying to retrieve a disastrous situation caused by itself?
I notice that Lenihan wasn’t so quick to agree with the IMF’s advice that the banks should be temporarily nationalised in order to eliminate the problems that will come when NAMA tries to value their toxic assets. He wasn’t jumping at their suggestion of risk-sharing structures either, to reduce some of the dangers inherent in NAMA’s valuation of distressed assets.
Why? Because nationalisation would upset the wealthy elite that owns the Fianna Fáil party, and because Lenihan already has a risk-sharing structure in place. It’s called the Irish taxpayer.
Previously on Bock: