Chamber’s mixed reaction to bailout

The most disappointing aspect to the €85 billion bailout for Ireland, agreed over the weekend, was that there was, in fact, no bailout, according to Shannon Chamber.
The chamber’s reaction to the bailout announcement, like its reaction to the National Recovery Plan, continues to be mixed, chamber director Ian Barrett said. The chamber did, however, welcome the retention of the 12.5% corporation tax, he added.
Accepting that funds have been secured for the Irish banking system and to fund Irish Government borrowing requirements over the next few years and that €17.5bn of this funding is to come from the National Pension Fund, Shannon Chamber is concerned about the split of the interest rates between the various fund elements.
“It was indicated that if all the funds were immediately drawn down, the composite rate of interest would be 5.8%. What is worrying is that these rates are variable and it is not clear to what extent they will rise as future ECB interest rates increase,” said Mr Barrett.
“Ireland got itself into its own budgetary situation but with a little help from its European ‘partners’. The very low interest rates prevailing in the early part of this decade were designed by Germany and France for the benefit of Germany and France and were inappropriate for the Irish economy, which was enjoying a strong economic performance on the back of very strong foreign direct investment and a very attractive headline corporation tax rate.
“The biggest mistake we made was in allowing a property bubble to grow in tandem with this strong economic growth and to compound the problem by engaging in a spending plan based on a non-sustainable level of property-related income.
“When the bubble burst and the Irish banks faced a severe liquidity situation, it is now clear that European pressure led to the Irish Government adopting a position of not letting any bank fail.
“This pressure resulted from a combination of the consequences from the collapse of Lehman Brothers in the US and the potential increased pressure on the euro that would result from a European bank failing.
“This pressure resulted in Anglo Irish Bank being saved, which was a major mistake from an Irish national self-interest perspective as Europe is now leaving the Irish taxpayer to foot a €30bn plus bill for its bailout – a bill that rightly belonged to the bondholders in the banks. With this precedent set, why should any bondholder invest in an individual European government bond when they can earn a higher rate of interest investing in a European bank – with a now explicit European Union guarantee against default?
“The European Monetary Union countries should have participated in a true bailout of the Irish Banks, Anglo Irish Bank in particular, which was of little national importance to Ireland when compared to Bank of Ireland and AIB but was of significantly greater cosmetic importance to our European neighbours in terms of protecting the euro currency.
“Given this significantly greater importance to Europe of protecting all of the Irish banks then Europe, having decided to protect the Anglo Irish Bank bondholders, should share in the cost and pain of this bank protection. 
“This does not appear to be the case as they have saddled the Irish taxpayers – alone – with the protection of the euro resulting from the Irish banking crisis. Ireland could have shared a large proportion of this pain with the bondholders if it adopted a purely national self-interest stance,” Mr Barrett stated.