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Monday 20 November 2017

Fears about debt default replacing public anger

Anglo chief claims investors would not return to resource-free Ireland

DISGRACED: Sean FitzPatrick, former chairman of heavily indebted Anglo Irish Bank
DISGRACED: Sean FitzPatrick, former chairman of heavily indebted Anglo Irish Bank
Ronald Quinlan

Ronald Quinlan

"WE can't default even if we wanted to, because it's too late. We have made our bed and we have to lie in it."

That's the depressing conclusion of one person when asked if Ireland should default on the multibillion-euro debt of its most rotten financial institution, Anglo Irish Bank. And he isn't alone: 54 per cent of those surveyed in a Sun- day Independent/Quantum Research poll have now resigned themselves to paying for the reckless management of the bank by Sean FitzPatrick and David Drumm.

Public anger at the cost of the Anglo bailout -- variously estimated at between €25bn and €35bn -- is now being replaced by a very real fear of the consequences of default, with one female respondent saying such a course of action would "ruin our country" and turn us into a "Third World nation".

Her concerns will be heightened today by remarks from Anglo Irish Bank chief executive Mike Aynsley on the potential consequences of defaulting on the bank's massive debts.

Speaking to the Sunday Independent, Mr Aynsley said: "You can't really default on Anglo's debt across the board without having flow-on consequences at the sovereign level.

"It could result in Ireland pulling out of the euro. It could see foreign investors not coming back in to support economic growth, and therefore it would put an end to the prospects of economic recovery for an extended period of time.

"This is a country that relies on over €150bn of foreign investment by way of lending. If you turn that away, it's taking an approach that is tantamount to a scorched-earth policy. Default at a sovereign level is nothing that you would want to see."

The Anglo chief is dismissive of the views of some economic commentators that international investors would return to Ireland within two years of a default, as they had in other countries.

"You look at those nations [where investors came back in two years], they have huge natural resources that people want to come back and get. Ireland is so reliant on the export market and the services industry. It's very different than a nation that everybody wants to come to for their natural resources" he said.

Research published late last Friday evening by internationally respected market analysts, Barclays Capital, has identified the potential costs of recapitalising the banking system, and Anglo Irish Bank, "especially" as the "one factor that could bring some [large] uncertainty" to Ireland's cost of borrowing on the markets.

The Barclays' commentary, which is widely relied upon by international investors, came at the end of a week in which the yield on Ireland's 10-year bonds rocketed at one point last Tuesday morning to 6.1 per cent -- representing a spread of 3.85 per cent on German borrowing costs.

Asked by the Sunday Independent for his views on the Anglo bailout, Barclays Capital head of European fixed income strategy, Lauren Fransolet, said the cost -- whether that was €25bn or €35bn -- was not a "game-changer".

"The only problem would be if they [the Government] need to put up something like €20bn upfront for Anglo Irish, but that is unlikely to happen: a gradual wind-down over a period of time will spread that cost -- the Government budgets €2.5bn a year for the next 10 years, maybe it is going to be a bit higher, but even if it is €3.5bn, that is not a game-changer if spread over time," Mr Fransolet said.

But while the analysts at Barclays Capital might not see annual Anglo bailout bills of €2.5bn to €3.5bn as being "game-changing", costs such as these would hit the Irish taxpayer hard.

If the yearly cost was to reach the eye-watering €3.5bn upper limit over 10 years, each and every one of Ireland's 1.8 million-strong workforce would be forced to hand over an average of €1,944 per annum in additional taxes for a decade.

"This is coming from the international markets," said Mr Aynsley. "It's coming from a very credible player and it's very consistent with what the Minister for Finance and the Governor of the Central Bank have been saying. This is a lot of money and it's disgraceful that this amount of money has been lost, but at the end of the day, it's manageable. When you look at spreading this cost over a period of time, that's what makes it manageable."

Asked if the Government's decision to firstly include Anglo in its guarantee of the banking system on the night of September 30, 2008, and then nationalise it in January 2009, had in hindsight proved to be a costly mistake, Mr Aynsley said letting the bank go "would have taken the country down much harder".

A decision, meanwhile, by the EU Commission on the Government's latest proposal to wind down Anglo Irish Bank's operations through an orderly "work-out" in which the institution would be split into an asset recovery bank and deposit bank is expected in the coming weeks.

Informed government sources said that discussions with the EU were proceeding well, and while a number of matters in relation to the plan would need to be clarified, Commission officials had not expressed any concerns so far.

But while the Government might insist that Ireland's relations with the EU are on a strong footing, comments by ECB president Jean Claude Trichet to the Financial Times last Friday suggested a degree of tension exists. Asked if he believed member states should be suspended or even expelled for failing to adhere to the EU's rules on fiscal governance, Mr Trichet said: "No, I don't call for expelling members, but a temporary suspension of voting rights is something that should be explored."

Sunday Independent

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