Easing Ireland's banking crisis

[rdouthwaite]

When, in September, the Irish government said it would guarantee the Irish banks, it effectively turned private debts, which could have been written down or written off, into national debts which can only be reduced if there is a national default. My view is that such a default is almost unavoidable but, even so, a group of us in Feasta are working to come up with ideas that might save the situation. We have already had discussions with ministers about some of them and a report we were asked to write has just gone in. We will publish it when we can.

Meanwhile, here as an attachment, is some of the material on which it was based. It is an article I wrote for the current edition of Construct Ireland magazine. The most alarming thing it reveals is that the amount of money in circulation in Ireland is falling month by month. (The evidence for this is in the September edition of the Bulletin published by the Central Bank. See http://www.centralbank.ie/data/MonthSta ... r%2008.pdf, page 8, the figures for M1, which shows that Irish residents had 11.4% less cash and money in their instant access bank accounts at the end of September than they did a year earlier). This makes it progressively difficult for people to pay their debts, which in turn means that the banks will make losses which the taxpayer will have to cover. If the decline goes on, those losses may be more than the country can bear.

So all our thinking has been about how the losses might be reduced, both by getting more money into circulation and by using a technique to reduce the debt burden which Chris Cook described in this year's Feasta lecture. If you are particularly interested to learn more, contact me by e-mail.

Richard.