Bank guarantee 'not big mistake'
Madam – In last week's Sunday Independent, Colm McCarthy took issue with one of the conclusions of our recently published book, The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis. We suggested that even if the Irish authorities had suddenly become aware on September 29, 2008, of the impending insolvency of the banking system, it would have been "difficult to see how the granting of some sort of comprehensive guarantee ... could have been avoided".
Somewhat surprisingly, McCarthy, while stating his own opinion on the matter, did not refer at all to the argument underlying the authors' view contained in a lengthy chapter that examined thoroughly all aspects of the guarantee. At the time of the guarantee decision, the authorities believed that the banks were suffering from liquidity, rather than solvency problems. The authorities' principal preoccupation was to prevent the collapse of any Irish bank. This position, while shared throughout Europe (as evidenced by the Northern Rock affair), was not the result of an ECB imposed diktat. Rather, experiences of major bank failures elsewhere led them to believe that there would otherwise be incalculable economic and financial damage, including to Ireland's international reputation. In particular, there was a well-grounded fear that all the other banks would quickly have faced insurmountable pressures if Anglo was permitted to fail.
The book concluded that none of the other options available at the time of the guarantee, could have provided assurances for solving this immediate looming problem. Nor is there convincing evidence for the assertions that the government was "rolled" by the banks or that Merrill Lynch, adviser to the government, disagreed with the action taken.