Former deputy director of the IMF Dr Donal Donovan sees 'zero chance' of a bank bailout

Ireland is not going to get a retroactive bailout from the European Stability Mechanism according to the former deputy director of the IMF, Dr Donal Donovan.

Mr Donovan said that the chances of Ireland getting some money from the ESM as per an agreement signed in July last year were “fairly zero” in his opinion. However he said it is possible that there could be some other mechanism through which money could come into the country.

He called on the banks to emerge from their “defensive cocoon” and be less conservative with lending, while there could be a “rough time ahead” on mortgage arrears.

He said foreclosures were likely and in some ways desirable in the buy-to-let sector if the economy was going to recover, while banks needed to be “ruthless” on people who were strategically defaulting on their mortgages.

Dr Donovan said banks needed to stop wasting resources on chasing people attempting to arrange payments and instead needed to start lending.

The comments were made on the penultimate day of the MacGill Summer School in Glenties, with Dr Donovan claiming the banks should have been present to put forward their view.

On the issue of mortgage arrears, he said the banks were spending “enormous resources” chasing people “and this is not what banks should be doing — banks should be doing new lending.”

Foreclosures were likely, and in the case of the buy-to-let market, desirable, and he did not feel this would lead to a housing market collapse but there might be some “downward pressure” on prices.

The banks needed to adopt a two-handed approach, of helping those people doing their best to meet their mortgage payments and absorb the losses, while moving aggressively against strategic defaulters.

Brendan Keenan, former group financial editor at the Irish Independent, said the Government had got the “old machine back into gear” but it was a defective machine that needed changing.

Broadcaster and author, Richard Curran, said the release of the Anglo tapes “told us how little we knew” and also reminded us that, despite some posturing, the Government had not done a lot about holding a major inquiry on these issues.