Minister for Finance Brian Lenihan has accused Fine Gael of pursuing a policy on the National Asset Management Agency (Nama) and the banks that could have catastrophic consequences for both the banks and the State.
He described the Fine Gael “good bank” policy as “a mirage” and said last night it was extraordinary the main Opposition party had advanced such a proposal. “At the heart of the Fine Gael legacy bank proposal is default. It is a mystery as to how Irish banks would obtain any funding if that happened,” said Mr Lenihan.
Nama is the so-called “bad bank” being established by the Government to buy toxic loans from lenders.
Mr Lenihan made his comments as he released a copy of a letter he has written to Fine Gael leader Enda Kenny calling on him to correct “a very serious mistake” that had been made by the party’s deputy leader and finance spokesman, Richard Bruton, in an RTÉ Radio interview last Sunday.
“The mistake to which I refer is Deputy Bruton’s assertion that the EU had instructed Anglo Irish Bank to stop paying interest to senior debt holders. This, which I presume was simply a mistake, is completely false and would be a breach of the State bank guarantee that Fine Gael supported in the national interest,” said Mr Lenihan in his letter.
He added that neither the EU nor the Government ever suggested such a thing and if such an assertion went uncorrected or led to a belief among bank investors or depositors that their funds in Irish banks were not secure, there was a real danger that both the banks and the State would struggle to fund themselves.
“The consequences of this at best would be considerably increased funding costs and, at worst, would be catastrophic,” wrote Mr Lenihan.
He added that he would expect Fine Gael to be particularly eager to correct any mistaken impression that had been created, as everybody had seen the damage inaccurate commentary could do to Ireland’s international reputation.
“Now there is a serious risk that the improvement in the spreads on our borrowing could be undone by . . . Fine Gael’s statement that Ireland could default on senior debt, but also that we have already done so,” he said.
Speaking to journalists after he had released a copy of his letter, the Minister said: “I hope it was a mistake but, if it was, it was a mistake that chimes very easily with Fine Gael policies.”
He contrasted Fine Gael’s “extraordinary” policy with that of the Labour Party. The Minister said that while he did not agree with Labour’s nationalisation plan, he could understand why the party had taken that stance, given its ideological position.
Mr Lenihan said he would inform the Dáil on September 16th of the overall valuation being placed on the €90 billion or so in bank loans being transferred to Nama, and would also announce the likely writedown on the loan book for each of the participating banks.
He also expressed confidence that the Nama Bill would be passed, saying Green Party Ministers had worked very closely with the project.
Fine Gael hit back at Mr Lenihan last night, accusing him of “a desperate and embarrassing” attempt to divert attention away from the growing opposition to Nama. “If the issue was so serious, as the Minister seems determined to insist, then why did it take him 3½ days to respond to it?” Mr Bruton asked in a statement.
He said if the issue was of such importance and posed a threat to our banking system, “it would appear to be a reckless approach in the extreme to try to publicise the supposed problem when not one commentator had identified an issue with the interview”.
Mr Bruton said the reality was that the Nama gamble was being exposed day by day, as more and more people recognised its folly. “The fact that the public and now a growing number of economists not linked to the Government, banks, developers or estate agents are rejecting the Nama gamble is, I believe, at the heart of the Minister’s rather embarrassing attack,” he said.