THE mounting losses at Anglo Irish Bank has thrown the Government’s strategy for the failed bank into disarray.
Anglo was saved because of its perceived “systemic importance” to the economy. Allowing it to fold would have destroyed our credit rating and probably resulted in the IMF taking over the running of the economy.
The losses of €8.2 billion announced on Monday for the first six months of 2010 were worse than most feared. Similar losses are in prospect for the second half, which would push the combined losses over the past 27 months to beyond €29bn.
At this stage, both local and international concerns about the potential damage the Anglo bailout is doing to Ireland Inc suggest the Government and the EU have to resolve this crisis without further delay.
Its ongoing presence is damaging our credit rating and the estimated total cost of the bailout by S&P last week at a staggering €35bn is a long distance from the original figure of €4bn.
S&P downgraded Ireland to an AA- last week, indicating that it saw the risk of a debt default as becoming an increasing threat, all because of Anglo.
Regrettably, the well-intentioned decision to keep Anglo alive is now working against the state and there is clear evidence emerging that keeping the bank going indefinitely is no longer a realistic option.
The crisis at Anglo was discussed as the Cabinet meeting yesterday. On his way to the meeting Taoiseach Brian Cowen said: “The whole purpose of how we are dealing with these issues from the beginning has been how do we minimise exposure to the taxpayer, we’ve outlined that very clearly.”
Few doubt those initial good intentions. Now, however, his coalition partners, the Greens, want the bank wound down, as do the opposition parties.
Minister Eamon Ryan of the Green Party told RTÉ yesterday that the Anglo banking model was “wrong” and that a winding down of the bank at “the least cost to the taxpayer” was the way forward.
“That’s what both parties in government are going to work towards,” he said.
Finance Minister Brian Lenihan conceded for the first time recently there was an alternative to keeping the bank open.
“The other option is an orderly wind-down over time” – a clear signal from the Government that it had to re-think its stance on the nationalised bank.
Whatever decision is reached, the reality is that massive costs have been imposed on taxpayers and that millstone will hang round their necks for years to come.
The next few weeks will be crucial and while the EU has refused to comment, there is a growing sense that it will block the good bad/bad bank proposal on the table from Anglo and the Government.
In that case, the decision becomes clear and deciding the optimum time to wind down the bank will be the next stage in this costly saga.
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