Sunday 20 October 2019

A solution to our personal-debt burden

In 2010 we were assured by all parties in the EU that Greece would not default – subsequently it did default as the debt burden was finally recognised as completely unsustainable.

The current Irish parallel is the personal-debt burden – it is completely unsustainable but we seem content to pretend otherwise. We are repeatedly being told by banks and politicians that a blanket debt writedown is not possible and that debt forgiveness will only be considered on a "case-by-case" basis.

Operating a case-by-case personal-insolvency model is very expensive and time-consuming. It serves to extend the duration of the crisis without reaching resolution.

Furthermore, the financial burden on households is set to significantly increase when interest rates return to more normal levels – whilst all the pressure on rates is downward at the moment, they will revert to more 'normal' levels over the coming years. We need to act now if we are to prevent a crisis becoming a catastrophe.

There is a simple solution. A structured blanket writedown, coupled with a change in the rules regarding the treatment of negative equity on residential sales, would reduce the cost of the debt overhang and would free up the residential property market.

The spin-off would be an increase in consumer spending as the debt writedown would reduce the monthly mortgage bill across hundreds of thousands of houses, literally, overnight.

The capital cost of this (€10-20bn) could be funded directly into the banks out of the ESM – indeed, as this would represent a 'future' and not a 'legacy' debt issue, we would likely get more support for this idea than for the current plan to have the ESM 'over-pay' for our bailed-out banks.

Solutions such as this are somewhat radical and require a willingness to take a risk. It's time to bring some respite to households in Ireland and bring this credit crisis to a conclusion now rather let it drag on for a decade.

Brian Molloy

Ballinderreen, Co Galway

Irish Independent

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