Wave of negative press abroad leaves country exposed to bailout
Ireland has been battered by a wave of negative international press in recent days, creating an increasingly downbeat mood toward us and leading some to say we will need a Greek-style bailout.
Last week in the highly regarded Lex Column in the Financial Times serious questions were raised about the National Asset Management Agency (Nama).
"Nobody knows. That is all that can be said in reply to Ireland's most pressing question -- is the National Asset Management Agency working? Nama was established to absorb €81bn of bad property loans held by Irish banks, allowing the lenders to recapitalise.
"Yet the country's banking crisis continues, two years after Lehman Brothers collapsed. The banks remain on life support through a blanket guarantee on deposits and most debt; Anglo Irish Bank continues to make ludicrous losses; and there is growing scepticism over official assurances that the cost of rescuing the system has been contained."
It continued: "Nama is an odd creature: part debt-collection agency, part property developer. As well as toxic loans, it may end up with a portfolio of property which was collateral for the banks' lending binge. It was meant to fix the broken banks, convince taxpayers they might be repaid and reassure the markets the banks' liabilities would be met in full. Facing in three directions, it has not appeared convincing in any: slow, bureaucratic, initially indecisive, almost excessively transparent (every toxic loan is assessed individually).
Then two separate pieces appeared in The New York Times last week.
Simon Johnson, a former chief economist at the International Monetary Fund, warned of a much deeper recession in Ireland and a high risk of default:
"Watch for renewed emigration from a famously footloose population," he wrote.
"If current policies continue, the calamity of the Irish banking system will lead to a much deeper recession and the consequences will be felt for decades."
Mr Johnson wrote: "Many years ago Ireland cut corporate taxes to attract businesses. This created one of Europe's most impressive tax havens. Ireland boasts a large industry of foreign tax minimisers, but these tax minimisers hardly employ any people. Nearly one quarter of Irish GDP comes from the profits of these ghost corporations."
He also wrote: "Ireland could have cut the budget deficit while also acknowledging insolvency and requiring creditors to share some of the burden. But a strong lobby of real estate developers, the investors who bought banks' bonds and politicians with links to the failed developments (and their bankers) prefer that taxpayers rather than creditors pay."
In a more damning column, written by Landon Thomas junior, the question was asked: 'Can one bank bring down a country?'
He wrote: "Anglo Irish Bank, the mid-size Irish lender whose profligacy has come to symbolise the excesses of the real estate bubble here, is doing its best to find out. No other country outside of Iceland suffered a banking bust as severe as Ireland's in the current financial crisis.
"Ireland was also the country that took the most direct route in tackling the problem, by recognising upfront the bad loans of its devastated banks and transferring them to government ledgers. Both the United States and Britain avoided such a move by taking stakes in their troubled banks and, in the case of Britain, insuring their worst-performing loans.
"Now the Irish Government's strategy is being called into question as its credit rating suffers and its borrowing costs resume their upward trajectory. Ireland's struggle to cope with mounting bank losses could well be a harbinger for other parts of Europe and for the United States as stuttering economic growth and stagnant housing markets put further strain on bank balance sheets," he added.
"Anglo Irish, which reported last Tuesday a first-half loss of €8.2bn, also said the Irish Government had injected an additional €8bn into the bank, increasing total aid so far to €22bn.
"Mike Aynsley, chief executive of the bank, said Tuesday that he expected the Government's total investment in the bank to be about €25bn. He added that commercial property, the company's core lending market, which is already down 60 per cent, had not yet reached bottom," wrote Mr Thomas.