Tuesday, 20 January 2009

The worst day in Irish financial history

"It's the worst day in Irish financial history and the government doesn't seem to be saying anything."

Brian Lucey, associate professor of finance at Trinity College, Dublin.


Share prices for Irish banks are in freefall. Yesterday, Allied Irish Bank dropped 72 percent while the Bank of Ireland plunged 48 percent. Anglo Irish bank - the country's third largest - is in now public ownership. It is an overused word, but the Irish financial system is close to meltdown.

There is something very odd about this collapse in share prices. A few months ago, the Irish government offered a blanket guarantee on all deposits. At the time, a great roar of approval went up in Ireland. The banks were sorted, the Irish government had come to the rescue.

Now, that generousity is looking rather ill-advised. Although Ireland may have recently enjoyed an extended period of unprecented growth, it still remains a comparatively small economy. Furthermore, the days of the celtic tiger are over; the economy is in recession, the housing market is collapsing and tax revenues are evaporating.

It is questionable whether the Irish government can make good on that promise to cover all deposits. Unlike the UK, Ireland doesn't produce its own bank notes. It gave up that right when it joined the euro. So when Darling promises to cover bank losses, he has the confidence of knowing that he can rely on the Bank of England to produce limitless quantities of money. The Irish finance minister has no such luxury.

So, while understanding Mr. Lucey's frustration, the silence of the Irish government is understandable. Right now, there is nothing useful that the Irish government can say. When a government is this deep in trouble, silence is definitely the best policy.

8 comments:

dublin lizzy said...

Ireland will bring the euro down, just wait.

AntiCitizenOne said...

> So when Darling promises to cover bank losses, he has the confidence of knowing that he can rely on the Bank of England to produce limitless quantities of money.

It doesn't seem to have helped fix MugabeLand.

vado said...

Darling's confidence may result in inflation, but at least he can debauch the currency.

Ireland can not, at least while it remains a member of the euro area.

Anonymous said...

Currency debauching is not a good thing. The euro as a straight jacket, is a good thing. It is screaming get your house in order: it is meant to make local politicians hurt and force them to make better decisions. Alistair Darling's printing machine is a bad thing, on the same level as Robert Mugabe's printing machine: and it will have the same result.

Zed said...

The higher you fly, the further to fall.

Anonymous said...

EU law prevents the Irish from printing money to bail out their financial system.

It also prevents the UK from printing money to bail out their financial system. So not as easy as it seems.

It just remains to be seen whether "being in the club" outweighs compliance with that law.

Anonymous said...

Is the rumours true that Bank Of Ireland have writedowns of €90 billion euro - about 10 times higher than previous estimated - this is being kept quite to avoid a run on the banks.

v2020 said...

A team of 50+ business consultants have got together to help save 200,000 jobs by helping the banks extend credit to business clients who have great strategic business plans.

I am sure many people are looking for a solution – because we all know it’s needed desperately.