Here are a few to reflect on:

YEAR                      GDP                       GDP per HEAD                   NATIONAL DEBT                    DEBT AS % TAGE

1987               €25,724 billion                 €7213                              €30,085 billion                            115%

2000                 €104,553 billion           €23,503                               €39,490 billion                                 38%

2007                €189,751billion         €45,000                           €38,000 billion                                        25%

2009                 €171,000(est)           €42,000                            €75,000 billion                             64% est.

The Economy returned to centre
stage with a bang in the run up to Easter, with the launching of NAMA and the
revelations of the cost of bailing out the Irish banks. The fallout continues as
I write, with public outrage and shock at the amounts involved and media
commentators and politicians shouting about fiscal and financial Armageddon and
a debt burden that will continue for several generations.

The facts seem
stark. The building and developing boom collapsed in 2008, throwing the banks
which had financed it into financial crisis. These included the two major
systemically important Irish banks, Allied Irish and the Bank of Ireland, which
cater mainly for the retail market, but also Anglo Irish Bank, a non retail bank
which had specialised in loaning to developers, and a savings and loan type
institution, Irish Nationwide Building Society. With the spectre of a major bank
default looming (just weeks after Lehman Brothers) the Government, at the end of
September 2008, issued a blanket guarantee for bank
loans, deposits and bonds. The last 18 months have seen the Government grappling
to come to terms with the banking crisis as its extent has slowly become clear.
This has included taking over Anglo Irish Bank, which has effectively ceased to
function.  During this period bank credit has virtually dried up, with serious
knock on effects for the economy.

The main instrument for cutting what
has become in effect a financial Gordian knot has been the setting up of NAMA –
the National Asset Management Agency – to relieve the banks of their major
development loans (bad, doubtful or otherwise). NAMA has begun “buying” the
loans by issuing, in effect, IOUs which the banks can redeem from the European
Central Bank, and thus start lending again. NAMA’s notes are issued at a
discount on the banks’ valuations of the loans (euphemistically referred to as a
“haircut”) and, in theory, when the property market recovers (in say, 8-10
years), the properties can be sold by NAMA to recoup some or all of the state’s
investment (a similar smaller-scale scheme in Sweden in the 90s actually netted
a profit for the state).

While the cost will be spread over a number of
years and there is the prospect of getting at least some of it back as assets
are sold, what has outraged public opinion has been the scale of the rescue
required, with a figure of roughly $45 billion being bandied about, and the
distribution of the potential losses between the institutions concerned.
Anglo-Irish Bank alone is set to cost roughly $30 billion, with the threat of
another $14 billion to come; the Irish Nationwide a further $4 billion. The two
main banks – used by most of the public – account for $11 billion. As if this
were not enough, the discounts extracted by NAMA will have the effect of
reducing the capital bases of both the Bank of Ireland and Allied Irish Banks,
thus reducing their lending capacity and ensuring that credit will continue to
be in short supply for some time, unless fresh capital is injected by the

While all this is painful, it could have been borne with
public resignation, like the other economic steps the government has taken.
However, the realisation that Anglo Irish Bank is in effect a zombie bank,
casting doubt on whether there will be any return for the $30 billion, could
prove the last straw.  A debate on whether it would be cheaper to close the bank
forthwith is underway with the government saying it would cost much more and
that the state cannot default on its debts but being tight-lipped about giving
details. Opposition politicians and some commentators are demanding
clarification and more information. The public mood has not been helped by the
spectacle of the principal architects behind the Anglo fiasco walking around
with impunity.

Current projections for government borrowing – which,
remember, continues at $400 million plus per week just to keep the country
running – envisage it peaking at 85-90% of GDP in 2014.  These are admittedly
before factoring in the cost of funding the bank bailouts and are based on
continued adherence to the strict programme of control and fiscal rectitude on
which the government embarked in 2009 and on a sustained global economic
recovery. Granting these two conditions Ireland’s peak borrowing would have been
no worse than many other Euro zone countries, as well as Britain. Adding on the
additional burden of bank debt, whatever that proves to be over the next four
years, will obviously affect these calculations, for even if the debt itself can
be rolled over (the way all Western style governments deal with debt), the
annual cost of servicing the total debt will have to be met through further cuts
or higher taxes.

There is no doubt therefore that the bank bailout will
add considerably to the government’s woes and also to Ireland’s national debt!
However, as can be seen from the rough figures at the top of this article we
have a long way to fall to reach the depths (and debts) of 1987. Back then the
country really was broke, with a generalised recession, double digit inflation,
unemployment at record levels (17% at a very conservative estimate), a
spiralling national debt almost one fifth greater than GDP, together with
historically high interest rates (I unearthed recently a letter of that era from
my bank manager giving me the good news that my mortgage interest rate was being
cut to 16 %!).  In the 20 years that followed, GDP grew by almost 700%, the
workforce doubled and the whole (rising) population benefitted from higher
incomes, better benefits, services and infrastructure, as well as lower taxes.
Even with the “hits” we have taken in the last two years, comparisons with 1987
are risible. It is worth noting that the story that dominated the media in March
before the bank bailout related to queues at the Passport Office and the backlog
of 40,000 applications (1% of the population). Those waiting were overwhelmingly
heading for Spring holidays. Recession? What recession?

This is not to
deny there are huge problems with the Irish economy. There are, and one is
coming steadily down the rails, for the most part ignored, as public attention
focuses on the latest high visibility story. For while states can roll over
debt, individuals cannot. The level of private debt is awesome, much of it in
the form of mortgages (over $200 billion), many in respect of properties in
negative equity, others to finance the autos and second homes that marked the
Tiger years. This was certainly not the case in 1987. With interest rates set to
rise over the next year this slow squeeze may well prove more damaging than
anything a bank rescue can inflict. There is no sign of a NAMA Mark



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