Time for some calm analysis
Published 28/09/2010 | 05:00
TOMORROW we will mark the second anniversary of the fateful night of September 29-30, 2008, when the Government, fearing the collapse of the entire banking system, gave an unlimited guarantee covering deposits and other holdings in the main Irish banks. They included the ultimate "basket case", Anglo Irish, considered to be an institution of systemic importance.
Soon after, when the true state of affairs at Anglo began to emerge, the Government nationalised it. It also spent huge sums of borrowed money recapitalising Anglo and other banks, with the declared aim of getting credit flowing. Two years on, that objective has not been achieved.
In recent weeks, the pace of events has increased to a dizzy speed -- but towards Ireland's detriment, not towards a solution.
The financial markets have given numerous signals of their lack of confidence in us. Of these the chief sign, and a very expensive one, has been the higher interest rate we have to pay on Government bonds. This has been well above 6pc, an unsustainable level.
The rating agency Moody's has downgraded two categories of the Anglo debt -- now in effect Irish sovereign debt, since the Government bears the responsibility. That means that the agency sees a risk that we will default.
No surprise, because speculation about default has been current since the beginning of this month. It has been fuelled by uncertainty about the cost of bailing out Anglo Irish Bank. Estimates of this cost have risen constantly from month to month and from year to year. The latest guesses go as high as a terrifying €40bn, a quarter of gross domestic product.
We have been promised an authoritative figure by the end of the week. But the latest suggestion is that we will see two figures, an official estimate and a "worst-case scenario". In all probability, such an outcome will neither allay public fears nor calm the markets, because it still will not end the uncertainty.
Yet the underlying facts do not justify the prevailing mood. Our situation is critical, but Ireland is solvent. Instead of panic, we need calm analysis -- and political action. The Government must stop limping from week to week or even year to year. It should draw up a four-year fiscal programme and put it up to Fine Gael and Labour to support it now and when they come into office. That is the way to end uncertainty.