Dithering over cost of Anglo mess must stop
It was pointed out by Ray Kinsella, a business professor in the Smurfit Business School, that Sweden took a clean cut at the banks and put a figure on their gross losses. It worked and Sweden got back on its feet.
Anglo Irish Bank, which has been responsible for so many distressing headlines, has failed to do this.
In effect, the Government failed to come to terms with the problem and the end result was the soaring cost of borrowing to the state that went above an unprecedented 6% earlier this week.
Since the Government finally decided on a strategy for Anglo, the figure has eased to 5.9% but it is way above German bond rates.
Finance Minister Brian Lenihan said the decision to wind down Anglo is not the answer to all our problems.
He is right, because once the losses in Anglo are sorted, overseas investors, who account for 80% of the bonds issued by Irish banks, will put a fresh focus on AIB and Bank of Ireland.
Investors want certainty and they will demand more for the money they lend, if we fail to allay concerns over the risks facing not just the banks but the economy as well.
The danger is that investors will become seriously risk averse about Ireland and if that happens then our problems will get far worse.
Unconfirmed reports suggest the ECB lost confidence in this Government’s ability to resolve the Anglo question. It’s been alleged that the Department of Finance had to deal with a series of very detailed requests from Brussels about Anglo.
One high-placed source said it was clear from the tone of the letters that the ECB had developed serious misgivings about the ability of the Irish authorities in that regard and over the lack of clarity on Anglo.
That, according to some sources, explains the dramatic change of heart by Taoiseach Brian Cowen and Brian Lenihan over Anglo and their decision to go for a wind-up of the bank.
Up to recently, the Government was still supporting Anglo’s good bank/bad bank strategy. That position changed in recent weeks when the noises from Brussels were less than favourable for the strategy put forward by Anglo, clearly with government support.
After Mr Lenihan’s visit to Brussels last week, he was left in no doubt that the European Commission and the ECB wanted a line drawn under Anglo.
The lack of clarity on its loses turned into a serious worry internationally, with rating agency Standard & Poor’s claiming the cost to the state would be €35 billion, and not the €25bn claimed by Anglo.
The €10bn difference wasn’t what concerned the markets.
The problem was they did not know what to believe as two years on, neither the Department of Finance nor Anglo has been able to ring-fence the numbers.
Anglo’s chief executive Mike Aynsley later said the total cost could be €30bn.
What the markets need is a figure that will not have to be revised again. If the figure is higher, then so be it.
Failure to set boundaries on the figures threatened to bring this economy to its knees. It has fuelled speculation that after Greece, Ireland was the most likely to default on its debts.
This has been a regrettable episode. Having done the right thing in guaranteeing the bank debts and deposits in September 2008, the Government then allowed the Anglo case to drift.
The bank was saved on the grounds that to let it go would have destroyed the banking sector’s reputation and left the economy in tatters. In the end the failure to sort out the mess has almost done that. The clock is ticking down and the floundering around has to stop.
