We have fallen prey to a failed and costly policy
A crushed Irish Exchequer should no longer continue to pay off unguaranteed bondholders of bust banks, writes Colm McCarthy
University of California economist Barry Eichengreen has been a persistent critic of eurozone policy failures through the current crisis and he explained, on RTE radio last Thursday morning, that Europe's leaders must now accept the inevitability of a Greek sovereign default.
He also argued, as he has done consistently in recent years, that Europe is in denial about its banking crisis and that Europe's banks must finally be re-capitalised. It has been Ireland's misfortune to have faced the music early in the banking crisis and to have fallen prey, partly through our own errors, to a European policy of extend-and-pretend which has finally run out of road. Ireland has shouldered too large a portion of the costs of the failed attempts to fix the European banking system and must seek to reduce this burden as the crisis approaches the endgame.
At the end of September 2008, Anglo Irish Bank had €4.1bn in book capital. Bank managements and the Financial Regulator maintained that Anglo and the other Irish banks were adequately capitalised and that their problem was just a temporary shortage of liquidity. The Government decided to guarantee virtually all of the liabilities of the banking system, Anglo included. For the 27 months up to the end of 2010, Anglo has booked €34.4bn in loan losses.