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Monday 20 February 2017

Government's dithering 'cost €40bn in withdrawn deposits'

DANIEL McCONNELL Chief Reporter

Published 21/11/2010 | 05:00

Up to €40bn of deposits could have been retained by Irish banks had the IMF bailout been accepted only two weeks ago, a major independent think-tank has reported.

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The Government's dithering and delaying over the bailout has added significantly to the likely cost of the fund, which is to be finalised in the coming days, it said.

According to the new report, much of the pessimism surrounding Ireland is unwarranted and the country is the best placed of the so-called 'PIGS' (Portugal, Ireland, Greece and Spain) to emerge from the current crisis.

Despite the country's current woes, Ireland's medium-term prospects for growth and prosperity are better than most, London-based financial think-tank Independent Strategy (IS) said in its report.

IS president David Roche said that had the bailout happened even two weeks ago, as much as €40bn of deposits could have been retained in Ireland.

"We reckon Ireland is solvent and capable of reducing its debt burden to manageable proportions within the next four years. Ireland is a liberalised, young, dynamic, export-oriented economy unlike any other in Europe.

"Market regulation is low, growth is sensitive to exports, domestic labour costs are now falling and Ireland's exports are not so dependent on China and Asia as others in Europe," the report said.

Dave McKee, chief economist of IS, said: "Ireland is well ahead of the other PIGS.

"English-speaking, well-educated, and the strength of its export industries mean it will be far better-placed when the world economy picks up."

The IS said it also believed Nama to be the best approach possible to fix our wrecked banking system.

It said that while in the short run, things may appear "horrible", eventually Ireland would be left with a "reduced but cleansed financial system and no overhang of bad assets and loans from the bubble economy".

It also stated that the mounting fear over the pending home mortgage crisis has been overstated. Even if the level of arrears hit 10 per cent as has been forecast in 2011, the system would cope.

"The home mortgage problem is containable within the scale of the existing crisis measures.

"Ireland's tough medicine also increases the likelihood that the written-down, but clean, assets (banks, loans and real estate) can be sold off later, leading to dramatic falls in sovereign liabilities," the report said.

Mr McKee said talk of bringing lower income earners into the tax net was welcome.

"There is room for large improvements in the equity of taxation, with more than 50 per cent of wage earners paying no tax and the rich hardly anything, either."

A separate report by Goldman Sachs released this weekend said Nama had applied far too harsh haircuts on the loans being taken over from the banks, resulting in the banks being over-capitalised.

"Nama is more likely to have overestimated than underestimated the scale of the problem (in the banks)," it said."Correspondingly, the Government will significantly have over-capitalised the banks, perhaps by tens of billions of euro."

Sunday Independent

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