EU-IMF ‘will unveil significant corruption’
Dr Daniel Gros believes that when the crisis is over the country will need a ‘truth commission’ similar to that established in Iceland to investigate and analyse the collapse of the banks and the lead-up to the catastrophic event.
Iceland found that senior politicians, regulators and bankers were all at fault for bringing down the country’s economy.
He believes that the troika – European Commission, European Central Bank and IMF – will expose the skeletons in the cupboards of the country’s banking system and adds that he believes the losses of €50 billion uncovered so far will be the tip of the iceberg.
Dr Gros says it beggars belief that just months after stress tests gave the all-clear, losses of more than 25% of the country’s GDP appeared to come out of nowhere.
“It’s not like the USA with a highly complicated system. Its simply three to five banks with loan books. It’s typical of what can happen in a small country where everyone knows everyone and as long as everything is going well, nobody notices,” he said.
President of Italian San Paolo Asset Management – one of the biggest in the eurozone – Dr Gros said the troika will look at the banks’ books and make an estimate of the losses, which will not be easy.
Ireland is not unique as property booms worldwide are always linked to local politics – roads have to be built and water provided and planning given.
“There has not been a single property boom where you do not see this kind of corruption – it seems to be unavoidable,” he said.
However, in 2001, when the European Commission warned the Government over rising inflation, Dr Gros published a paper warning that the real problem was a nascent property boom that would lead to a bust.
The bust usually lasts as long as the boom, he says, and expects this to last a decade in Ireland, and, in the meantime, property prices will fall further, he predicts.
The Government will have a choice of how they deal with the situation after that. Either they take the money from the EU, pay everyone off and spend the next 20 years repaying.
“The only question then is how much you cut state spending, and you do that every year for 20 years,” he said.
Or alternatively, they can do a deal with all creditors, offer them par bonds at 100% – so they can expect the full amount of their investment back but pay them just 2.5% a year for the next 20 years before paying off the capital. “Then at least you know what the bill will be and what your liquidity needs are,” he said, adding: “It at least lets you see light at the end of the tunnel because now you are in a very dark place.”
But Dr Gros warns that the Government needs to get a return on assets Irish citizens hold abroad. “Lots of Irish have money abroad – that was the problem in Argentina. Net, like Ireland, Argentina did not have a large debt but the private sector had accounts in Miami and the government could not get them. The state owed to foreign creditors – and went bankrupt. Unless the Irish Government can get some returns from the Irish assets abroad, then you get into an Argentine situation.”
Director of the think tank, Centre for European Studies, he said the rescue first of Greece and now Ireland will continue to have a bad effect on the euro.
Portugal, he says will shortly ask and be given a bailout from the EU-IMF fund also and hopefully that will be the last country needing help. But if Spain and/or Italy were to get into trouble the currency would be in serious trouble, he added.
The solution is for the ECB to buy not just Irish or Greek debt, but to buy bonds from all the eurozone states – similar to what the Federal Reserve System in the US does – it does not just buy California bonds.
“And that is probably what will happen,” he said
* “It seems that Europe will come to the aid of the banks that hold Irish paper. That’s giving Europe a good day. We’re bouncing higher on that”
* “The ECB cannot let the situation continue but unless the bailout can be sugar coated and sold to the Irish public as a rescue of the rotten Irish banking system and also allow Ireland to keep their low tax corporate status then Dublin will continue to resist”
* ”We’re knee deep already in Ireland’s banks. It’s going to get increasingly disturbing for people to see how exposed we are to Ireland’s banks”
* “Once the euphoria about Ireland fades we’ll be talking about places where there is no euphoria to get excited about”
* The talks “may result in some sort of compromise that is amenable to Ireland on the economic sovereignty side and underpins their banking sector”.
– strategists at Credit Agricole Corporate and Investment Bank.
* ”There is no question of loading ‘unspecified burden’ on to the Irish sovereign and the Irish state. The Government was considering ‘substantial contingency capital’ being made available to put the banks on firmer footing”
* “The job of Government is to protect the taxpayer and that is what we have been doing and what we are now doing. If the Government has been reticent in making public comment, it has been in the interests of protecting the taxpayer. Jumping to conclusions ahead of all of the facts is not to the benefit of the taxpayer. Nor is it in our interests in advance of discussions that are now taking place”
* “I think this is the way forward. I don’t see it as something that is really worrisome or should lead to a huge change in direction”
* “In terms of income tax, Ireland is basically an undertaxed country”
CONNECT WITH US TODAY
Be the first to know the latest news and updates
