Read
David McWilliams's column this morning.
When this borrowing splurge stopped abruptly last year because the credit markets shut down, the Government was faced with the choice: does it allow the banks to collapse because they were so borrowed that they couldn't finance themselves or does it guarantee the banks, buy time and see whether it can put a plan B in place? Had the Government allowed banks to go bust in October, there would have been a run on the other banks, leading to a collapse of the system and we would have been "Iceland inside the euro".
But amazingly it didn't put plan B into action, it never came up with a plan B and now the banks are again in dire straits. Although the guarantee means that they might not default, their delinquency has contaminated the sovereign debt and now the market thinks that the banks will bring the State down with them.
Consider the position of Anglo. If Anglo goes bust, because people withdraw their deposits, the State will have to write a large cheque. That cheque could be as big as €30bn if the assets in the bank's balance sheet are as bad as many fear. Will Ireland be able to write this cheque? Will we be able, at short notice, to borrow that much cash?
He then looks back to the mid-70s when the Federal Government bailed out New York City (although Ford
never did tell the city to "drop dead").
To avoid a similar situation threatening the euro, the Commission imposed the 3pc budget deficit rule on all euro countries so that no country could undermine the currency. What would happen if we were to test this? Would the EU bail us out rather than countenance a sovereign default that might destabilise the euro? Could we renegotiate Lisbon along such lines? Could we go to the ECB and look for a bailout?
I love the way he tosses in Lisbon. Although the situation is very serious, it is kind of amusing to consider that we may need our European partners to bail us out after voting no to the Lisbon Treaty. I think the re-run of Lisbon will be an offer we can't refuse.
