Big words and old tactics won’t evade deadly punch

I HOPE our two Brians — Cowen and Lenihan — won’t share the same reputation as George W Bush.

I hope they are not foolishly trying to imitate the Bush-Paulson-Bernanke plan.

I hope they do not have feelings of Irish greatness in that we as a small island can compete with America by promising big figures.

The €400-plus billion Government promissory note is a dangerous piece of paper that was hastily and probably immaturely produced.

If things go wrong, and many in the global financial markets see no bank liquidity and consequently no economic boosters for the next 18 months, then the Government will have ruined the country.

But what should be done? Firing top bank executives or the implementation of new, rigid banking regulations is only a drop in the ocean.

The Government needs to save the banks not by unsupportable promissory notes from the top of this pyramid, but rather by producing a real liquidity influx into the banking sector from below where the roots of the problem lie. In the current situation it is vital to encourage the people to pay off as much of their mortgages and bank loans as is feasible in as short a time as is possible.

Mechanisms such as forcing the banks to accept sizeable loan repayments at discounted prices could work.

For instance, a temporary agreement that would allow someone who owes, say, €50,000, on which 8% interest is charged, to pay €40,000 to the bank by, say, the end of the year and, as a reward, be freed from the whole burden of interest on the entire loan and have a short-term (three years) period of grace before having to restart payment of the remaining €10,000.

Such a stimulus would create huge liquidity and reward the people burdened with loans.

True, the banks would suffer serious losses, but they would not go bankrupt and they would not lead to a national disaster and the collapse of the State.

Unfortunately, increasing liquidity in Irish banks will not allow the Government to catapult out of a recession that is apparently entering hyper mode. Clearly, other radical measures are needed.

Although most people would suggest that Government spending on costly consultants, diplomatic parties, executive travel and expensive tribunals needs to be suspended, the greater problem is protecting the skeleton of an economy — people in employment. Rising unemployment needs to be contained by a national readiness to accept temporary reduction in salaries and work hours so that companies can survive.

Trade unions need to be focused on encouraging a collective responsibility to stop a recession rather than fighting for salary increases in particular sectors. The budget needs to do everything possible to help people live on lower earnings, while still keeping the consumer sector of the economy functioning: taxation cuts for most, and a serious burden on those companies or businesses which are making large profits or refuse to reduce prices.

In short, big words and old methods are not sufficient in the current crisis. The credit crunch has become a deadly punch.

Philip Andrews

19 Douglas Road

Cork