Worst won’t be over until Lenihan gets to grips with the banking mess

FINANCE Minister Brian Lenihan’s budget assertion that “the worst is over” is sadly wide of the mark. There cannot be recovery in the real economy unless and until solutions are found to secure the viability of our banks and building societies.

A start has been made on resolving our fiscal crisis. The Government must now focus on a new landscape for Irish financial institutions.

Firstly the enormity of the problem has to be acknowledged. Total private sector credit peaked at €404 billion last year and has contracted to €376bn. The losses from defaults on these loans are currently unquantifiable. We know property values and asset-based lending may take a 50% hit on loan values. All forms of loan repayments will be affected by the unprecedented contraction of our economic output, business failures, falling incomes and unemployment.