Recovery is impossible without credit lifeline

Notwithstanding the fact that the current difficulties in the Irish economy and the Irish banking system are to a large extent due to excessive credit creation in the economy in the period up to 2007, an adequate supply of credit is a vital ingredient for economic and commercial activity.

In any functioning system there are savers whose income is greater than their expenditure, and there are borrowers whose expenditure is greater than their income.

The role of the banking system is first and foremost to intermediate between savers and borrowers and ensure that credit flows to those who want to borrow. Unfortunately since 2008 the banking system has become totally dysfunctional and is not fulfilling its role as an intermediary between savers and borrowers. In fact the Irish economy is currently being subjected to one of the biggest credit squeezes that any developed economy has ever experienced.