Ireland surprised fellow EU member states last week by announcing that it would guarantee all bank deposits and inter-bank loans for the six domestic Irish banks, in order to regain confidence in the Irish banking system. The potential risk for the Irish taxpayer is €400 billion ($575 billion). Or to put it another way, it’s over 200 percent of Ireland’s GDP.
The scheme was devised in less than twelve hours after worried executives from major Irish banks sought an emergency meeting with the Minister for Finance at 9:30 p.m. on September 30. By 6:45 a.m. on the following morning, the Department of Finance announced the guarantee.
European leaders protested at Ireland’s unilateral decision because they feared, not unreasonably, that depositors in their own countries would shift funds to the Irish Banks. In fact an Irish Nationwide executive, Michael Fingleton, Jr. in London (who also happens to be the son of its CEO, Michael Fingleton) sent an email soliciting deposits, saying that Ireland “represented the safest place to deposit money in Europe.” Another criticism of the measure was that it was anti-competitive, because it only included protection for domestic banks and no provisions for foreign banks operating in Ireland. Following these protests, the Irish Government announced today that it would extend the guarantee to four foreign banks with “significant” operations in Ireland.
An initial critic of Ireland’s plan, German Chancellor Angela Merkel subsequently followed Ireland’s lead, announcing that Germany would guarantee all deposits, and on Monday European finance ministers agreed that across the EU there should be a minimum guarantee of €50,000 ($68,000) on all deposits.
As the British government came forward with its rescue plan on Wednesday, Irish Taoiseach (prime minister) Brian Cowen announced that Ireland would need more time to finalize the details of their plan to take into account “the breaking situation in the United Kingdom.” Details on the Irish plan are expected to be released next Wednesday or Thursday.
As it stands, the Irish plan provides the government with little control over the behavior of the banks, leaving taxpayers liable for the risk. On Morning Ireland yesterday, Charlie Goodhart of the London School of Economics described the situation as follows: “At the moment they’ve accepted all of the risk and left all of the upside with the bank if they take on more risk. And that’s a position that no government can allow itself to be left in.”
This week Ireland’s Economic and Social Research Institute released a report saying that in 2009, Ireland would have a net migratory outflow of 30,000 people. This would be the first time since 1995 that the number of people leaving Ireland will exceed the number of people emigrating there, representing a grim throwback to Ireland’s history of mass emigration. Whatever the final package the Irish Government comes up with, it seems that the Celtic Tiger may be with O’Leary in the grave.
WIDE ANGLE’s film Mixed Blessings looks at Ireland’s dramatic transformation from a poor nation of rolling green fields, farmers’ pubs, and devout Catholics to an urbanized, secularized and giddily flush society.