With a number of clauses included in the final agreement, the Government is to proceed with the recapitalisation of the banks, according to this morning’s Irish Times:
The Government is to seek a cut in bank chiefs pay ahead of the €7 billion recapitalisation of AIB and Bank of Ireland.
Minister for Finance Brian Lenihan, speaking on RTÉs The Week in Politics programme, said the deal was not finalised and referred to senior executive pay in banks, which has been the subject of much public anger and criticism.
He also said he would seek more credit for businesses and a stay on home repossessions, before consenting to the €7 billion plan.
If they do proceed it will be despite dire warnings. David McWilliams wrote in yesterday’s Sunday Business Post:
. . . the unemployment figures announced this week are not only a personal tragedy for thousands of families but, for the banks, rising unemployment means rising mortgage default. These defaults will also have to be covered by the recapitalisation.
So you can see a huge amount rests on the recapitalisation of the banks. If it is not successful, the banks will sink under the weight of bad debts. When the government makes its decision this week, it has to fix the problem. If it fails, the money will be wasted, and the banks will burn through the new capital as they try to maintain their capital adequacy ratios in the face of a meltdown of their loan books.
Let’s cut to the chase: the proposed recapitalisation will fail. There’s little point pussy-footing about: €7 billion of your cash is about to be blown this week on our dysfunctional banks. The reason for using the term ‘‘blown’’ is that the money will be wasted and we will be back at square one by summer, with a larger hole in the balance sheets . . .
. . . If I can figure this out, what of investors who are being asked to buy into the government’s plans? Brian Lenihan should understand that investors will only come back to Ireland if we make it attractive for them. This means the Irish state has to take a bigger risk in the deal than they do. Given the basic mathematics of why €8 billion will not be enough, don’t be surprised if the shares of Irish banks fall and fall again on the news that this botched recapitalisation has been announced and Ireland has used up all its ammunition.
It seems terrifying that a Government that has to slash the incomes of working people in the public sector in order to find €2 billion, can find €7 billion for a plan that is being described as abortive before it is ever implemented.
What is extraordinary is the patience of the Irish electorate, buffeted by wave upon wave of bad news. The electors in England show signs of growing frustration with their mainstream parties. There are hundreds of local councils in England and thousands of local councillors, which means by elections are frequent; in fact, there are a handful every week. The Association of Liberal Democrat Councillors track the weekly results. These are not opinion polls, these are actual votes. The extreme Right have stood in four wards – polling an average of over 20% in turnouts that are very respectable for local government by elections:
Bexley LBC, East Wickham
Con 798 (26.8;-5.2), BNP 790 (26.5;+12.4), Lab 700 (23.5;+1.5), Lib Dem 564 (18.9;+2.9), English Democrats 128 (4.3;-4.9), [UKIP (0.0;-6.8)]
Majority 8. Turnout 36.9%. Con hold. Percentage change is since May 2006.
Mid Sussex DC, Bentswood
Lib Dem 514 (36.9;+1.4), Lab 456 (32.7;-2.6), Con 332 (23.8;-5.4), BNP 92 (6.6;+6.6)
Majority 58. Turnout 34.3%. Lib Dem hold. Percentage change is since May 2007.
Newcastle City Council, Fenham
Lib Dem 1049 (33.9;-11.8), Lab 1025 (33.1;-3.3), BNP 836 (27.0;+18.0), Con 186 (6.0;-2.9)
Majority 24. Turnout 39.6%. Lib Dem gain from Lab. Percentage change is since May 2007.
Tameside MBC, Hyde Newton
Lab 1379 (45.6;+9.0), BNP 889 (29.4;+1.9), Con 485 (16.0;-7.8), Lib Dem 172 (5.7;-6.5), Green 69 (2.3;+2.3), UKIP 33 (1.1;+1.1)
Majority 490. Turnout 32.0%. Lab hold. Percentage change is since May 2008.
Where will Irish votes go if McWilliams is right about the Government’s rescue plan?