Act now, minister, or we will all live to regret it
We are now reaching the endgame. Few are in denial any more. The situation is dire and we need real leadership to get us out of this mess. Businesses across the country are going to the wall, unemployment is going through the roof and people who have been trading for years say this is much worse than the 1980s.
Cash, credit and demand have evaporated and the prospects look grim. This is a national emergency and we need a national plan.
The following is a six-point plan that would minimise the economic pain over the coming years, while at the same time ensure -- and this is crucial -- that Ireland can emerge from this chaos a considerably more profitable place to do business than it is at the moment.
There are aspects of this plan that need to be put in place immediately and others that could be carried out over time. Most of all we need to be decisive. While we hope for the best, we must prepare for the worst.
1. The minister has to make sure that the banking system does not implode in the coming weeks.
While the falling share price tells us that shareholders have given up on the present management, it also implies that bank funding is drying up, meaning that the liquidity benefit of the "guarantee" is at risk.
At this stage, without massive writedowns, it is unlikely that a private White Knight will emerge to buy the banks even at these prices, so some public recapitalisation is necessary. But this does not just mean State money from the pension fund.
There is a way that we, the public, can fund some of this, to the benefit of hundreds of thousands of ordinary savers. However, before a cent of State or public money goes in, the minister must demand that the board and management of the banks resign immediately. Hopefully, some of the management will resign as a matter of principle. After all, if you preside over a 95pc fall in your share price, it is time to go.
Whether this happens, or whether there is a coup at the top of the banks is immaterial, the point is the people who got us into this mess in the first place are not the people to get us out of it.
2. The recapitalisation should be democratic. By this I mean that the Irish people should be invited to participate.
There is plenty of money on deposit in Ireland -- more than enough to finance the hole in the banks' balance sheets. Therefore, the State could issue a convertible bond, which converts into equity in, let's say, five years.
This could be offered to us, the citizens of this country so that we -- not just some hedge fund from outside -- can profit from the Irish banks' recovery that will be based, after all, on the sweat of Irish workers in the future.
Any recapitalisation must also come with debt forgiveness for first-time buyers and the hundreds of thousands in negative equity.
There will be no recovery if an entire generation is burdened with enormous mortgage debts on houses that will not recover in value for years.
Many might argue that this penalises those who didn't get involved in the property madness. This is true, but there are things that we must do in emergencies, however unpalatable.
3. The new banks must be regulated more closely and instructed to limit property lending.
We have to make sure that we never again become beguiled by the idiocy that we can get rich by buying and selling overpriced houses to each other using other peoples' money. The recapitalised banks will finance proper businesses.
4. The Government must also avoid the trap being set by the bean counters in the Department of Finance. If the Government cuts everything now, slashing public spending across the board, the economy will shrink even more.
We must distinguish between good and bad public spending. At this stage, bad public spending is money spent now that doesn't make the economy more productive in the future. So wages and salaries need to be frozen, public sector employment reduced significantly, but infrastructure projects and investment in education have to be accelerated. We should borrow to do this. The State needs to stimulate the economy, not contract it and offer incentives for the private sector to invest, not save.
By reining in "bad" spending and accelerating "good" spending, the State can make the best out of a disastrous situation. Infrastructure spending and education investment increase the long-term productivity of a country.
5. We need to be smart in Europe. The beauty of EMU is that it allows us to borrow for the future, without the penalty of having your currency hammered. So we should try to co-opt some of our smaller neighbours who are having problems raising government bonds into a European EMU bond. This is where we lead the campaign for a EU sovereign bond market, whereby the combined Euro region issues debt together rather than as individual member states.
6. Ireland should borrow quickly and if we are to do it, we should make sure we raise enough money now so we don't have to go back to the market next year. The reason for acting swiftly is that if the global financial markets don't recover, there is a real danger that the world's bond markets won't finance us in the future.
All plans are inherently risky, but we are facing meltdown. Ireland needs strong decisive leadership now. To borrow the minister's phrase, it is his patriotic duty to act, not prevaricate. If he does so, we'll stand behind him. If not, he and his party will not recover.