I think a clearer picture is starting to build of where we are & how the govt intends to tackle things. The question is where will this leave us in 5-10 years time? Unfortunately, not in a good position. My reasoning:
The Govts approach/assumptions:
The govt wants to preserve the banks & status quo as much as possible. There will be no major reforms, purge or jailings.
Both the govt & the ECB want Ireland to remain in the euro. (This is the primary objective of the ECB). Hence devaluation is not possible.
The banks are insolvent, NAMA is the ideal solution because:
- The cost is not immediate but rather spread out over time or even rear-loaded.
- The banks can remain in private hands
- This is a short term problem; in 3-5 years time the economy will have recovered and the loans won’t look as bad as they are now.
The reality:
The economy will continue to contract beyond 2010.
Employment will continue to stagnate/fall, as our cost base remains high (devaluation is the easy solution here).
Consumer debt default will increase as the savings & ability to cut back of people laid off/on reduced income is eroded. This will be compounded by interest rate increases in 12 mths time as the rest of Europe slowly starts to grow.
The result:
In the short term, strikes and unrest as the govt attempts cut backs this Dec. They will fall short of implementing the target €4bn, which wouldn’t have been sufficient in any case.
Several emergency budgets next year, as our borrowing grows beyond €500m a week, and the markets start to stop lending.
Longer term, there will be a NAMA II to cater for consumer debt, and a NAMA III because the projected capital repayments for NAMA I aren’t materialising. (1st 3 years of NAMA are “interest only”?).
Honestly, I don’t see a way out of this. Any one care to shine some (reasoned) optimism?
The Govts approach/assumptions:
The govt wants to preserve the banks & status quo as much as possible. There will be no major reforms, purge or jailings.
Both the govt & the ECB want Ireland to remain in the euro. (This is the primary objective of the ECB). Hence devaluation is not possible.
The banks are insolvent, NAMA is the ideal solution because:
- The cost is not immediate but rather spread out over time or even rear-loaded.
- The banks can remain in private hands
- This is a short term problem; in 3-5 years time the economy will have recovered and the loans won’t look as bad as they are now.
The reality:
The economy will continue to contract beyond 2010.
Employment will continue to stagnate/fall, as our cost base remains high (devaluation is the easy solution here).
Consumer debt default will increase as the savings & ability to cut back of people laid off/on reduced income is eroded. This will be compounded by interest rate increases in 12 mths time as the rest of Europe slowly starts to grow.
The result:
In the short term, strikes and unrest as the govt attempts cut backs this Dec. They will fall short of implementing the target €4bn, which wouldn’t have been sufficient in any case.
Several emergency budgets next year, as our borrowing grows beyond €500m a week, and the markets start to stop lending.
Longer term, there will be a NAMA II to cater for consumer debt, and a NAMA III because the projected capital repayments for NAMA I aren’t materialising. (1st 3 years of NAMA are “interest only”?).
Honestly, I don’t see a way out of this. Any one care to shine some (reasoned) optimism?