Politicians holiday as country teeters on brink
The mounting crisis facing the country was highlighted again this week by the absolutely frightening losses reported by Anglo Irish Bank and some more worrying economic and financial indicators. Combined, they paint a pretty frightening picture of the deep abyss that Ireland now finds itself on the edge of.
Surely at a time of such serious crisis it would be appropriate for our Dáil to be in session, particularly in the context of the bank guarantee scheme which expires at the end of this month?
Government politicians continue to point out to us that respectable international bodies are still very positive about Ireland. That may have been the case six months ago, but it is certainly not the case today. As the magnitude of the losses and the cost of bailing out the banking system become more apparent, international confidence in the country is abating very quickly. Recent commentary from media organs such as the Financial Times and the New York Times has been less than flattering, and rightly so. The New York Times asked this week if one bank could bring down a country. It concludes Anglo Irish Bank is trying its best to find out.
Despite some protestations, Standard and Poor’s was correct to downgrade Ireland’s sovereign debt last week and it was a bit embarrassing to witness the head of the respected NTMA having to come on radio criticising the downgrade and backing up dubious government claims.
The NTMA was set up some years back to manage Irish government debt and it has since established a strong reputation and enjoys strong credibility. However, that credibility is in serious danger of being undermined due to the fact that NAMA is now part of its organisation. NAMA faces a very difficult future and there is a danger that its association with the NTMA might damage the latter’s credibility. It would have been much better to set up NAMA as a separate entity from the NTMA, but this is just another in a long list of mistakes made by our policy makers in recent times. The net result is that Ireland is currently paying 343 basis points more than Germany on 10-year bonds.
The Anglo Irish situation is becoming more of a mess by the day. The big question at this stage is not whether the good bank/bad bank solution should be considered, or whether the bank should be wound down in the longer-term, but rather it concerns the guarantees that are in place, and if those guarantees should be renewed or not?
It is a bit rich that investors who invested in the bonds of the bank, recognising the risks involved in investing in bonds issued by a bank, should suffer no loss. Surely they should bear some of the losses and not just pile the lot on to the shoulders of the already heavily burdened Irish taxpayer?
The Dáil should be sitting at the moment to debate this momentous issue that will have implications for the country for years to come. The reality is if the bond holders are fully protected, it will be at the cost of services such as education and health for decades.
On the economic front, we saw a further increase of 2,500 in the number of people signing on the live register in August and the unemployment rate has now jumped to 13.8%. Not surprisingly, we are seeing an increasingly professional profile signing on.
Retail sales data also weakened in July, which is not terribly surprising given all of the issues afflicting the consumer at the moment. Not least is the fact that 36,438 mortgage accounts were in arrears over 90 days in June, which means 4.6% of mortgages were in arrears. This percentage looks set to climb a lot higher over the coming months.
