Lenihan measures put us near edge of a dangerous precipice
Published 01/04/2010 | 05:00
The Government, the banks, the stockbrokers and some who should know better in the media will try to underplay the scale of the borrowing needed to recapitalise the banks. Some will also seek to diminish the wider effects on the economy.
But there is always a cost to propping up zombie banks; the argument is about how big the cost is, and whether it is worth it or not long-term. Financier George Soros is known for delivering the most chilling warning on the subject of zombie banks.
"Instead of stimulating the economy, they (zombie banks) will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive,'' he famously said at the height of the financial crisis.
This remains the big danger in what Brian Lenihan sanctioned this week. Resources are being pinched from other areas of the economy and redirected towards the banks.
We all know why, and there are plenty of good reasons for saving the financial system, but there is no point in trying to deny precisely what is happening.
As debt to GDP hurtles towards 85pc (not including NAMA or the promissory notes for Anglo and Irish Nationwide), Ireland's ability to withstand further economic shocks is hugely and alarmingly diminished.
Countries keep their public debt levels low, not only to protect their tax base, but also because low debt gives them a buffer to withstand further shocks.
As the debate rumbles on over whether we should be following the current strategy at all, we should remember how close to the edge of the cliff we have already come.