Irish Banks Still Ailing

In an article by Landon Thomas in the New York Times on the 30th of March 2011 outlines the deepening problems and the bottomless black hole that is the Irish banking system. Months after the initial rescue package of €85 billion further stress tests which will be released today are expected to show that our national banks “may need another €13 billion to cover bad real estate debt”. Some specialists say the final tally could be closer to $140 billion, an extraordinary amount for a country whose annual output is $241 billion. Thomas talks to Dermot O’Leary, chief economist for Goodbody Stockbrokers in Dublin who outlines that Ireland can no longer afford the burden of its banks with national interest payments set to rise 13 % of government revenue by 2012. He believes that “You need burden-sharing with the bondholders. Without that, the debt becomes unsustainable” If the country defaulted on its external debt then we would be ostracised from financial markets. Capital flows to Ireland would stop. Also the IMF would step in to restructure the debt to ensure that private debt holders lose as little as possible. We would become, effectively, left out of the world economy/political system until we agreed to pay the debt back which is not really a possible scenario however can we afford this debt? Given the new government which is in place has become “more vocal in arguing that $29 billion in unsecured senior debt which is not tied to an asset and as a result is deemed riskier from the start is ripe for restructuring because the banks that issued it, like Anglo Irish, have essentially failed and been taken over by the government. So the government should not be obligated to keep paying interest. A major problem is out line by Thomas “banks account for a much larger share of national economies in Europe than they do in the United States with Irish bank assets been 2.5 times the size of its economy” which shows the importance of a healthy banking system. In conclusion the stark reality outlined Ireland has 100 billion euros in irrecoverable bank loans which is something that we will have to accept sooner rather than later..