THE €17.6 BILLION in estimated losses recorded by Anglo Irish Bank in 2010 brings home – yet again – the enormity of the banking crisis. So does the growing dependence of the banking system on short-term funding from the European Central Bank (ECB) and, increasingly, from the Irish Central Bank.
The precise nature of the latter support – called Extraordinary Liquidity Assistance and amounting to €51 billion – is unclear in many respects. What is clear, however, is that it directly exposes the State, via the Central Bank, to losses on the assets banks put up as collateral to obtain that funding.
The International Monetary Fund (IMF) published an early report card yesterday on how the terms of the EU-IMF bailout are being implemented. Although broadly positive, the report noted that some of the conditions attached to the bailout must be put in place by the end of February. Shortly after publication yesterday afternoon, Minister for Finance Brian Lenihan made an unexpected announcement. The recapitalisation of the banking system, scheduled to be completed by the end of this month, will not now go ahead because the Government did not have a majority. The IMF, in turn, signalled its displeasure at the move.
Mr Lenihan risks causing a loss of trust in Ireland as a reliable interlocutor and his actions will do nothing to hasten the restoration of confidence in a fragile banking system. Yesterday’s action will serve merely to pile further pressure on the next government. The new administration will be cognisant of the very considerable time pressures that they will be under and of the enormous and immediate challenges they will face upon taking office. The most immediate of those will be the formulation of a strategy on changing the terms of the bailout, something both Fine Gael and Labour are strongly committed to doing.
IMF precedent in recent years is clear on such change: when a country under its tutelage undergoes a change of administration, it is prepared to discuss altering non-core terms. But there is no precedent for EU-IMF bailouts because such joint assistance has only recently come into existence. Ireland, as one of only two countries in the euro zone that has been forced to resort to external aid, is the first to hold an election while in that unhappy position. The two EU institutions with which a new government will have to deal – the European Commission and the ECB – have signalled less flexibility than the IMF. It is clear at this juncture that there is very limited appetite among two of the three members of the rescuing troika to grant more favourable terms.
If some of the comments made by Opposition parties about renegotiation have been counter-productive, those politicians are right to seek a mandate to look for more favourable terms. The European troika should realise that we live in a parliamentary democracy and politicians do compete for votes in elections. In a State where our independence was hard won, the bailout is not simply a financial issue. We have to be given space to come to terms with our loss of economic sovereignty.