Decoupling bank debt and sovereign debt

The Irish Banking crisis 2008-2011 has been catastrophic for the economy and wider society. The state has recapitalised the banks to the tune of €63 billion. The banking guarantee is still in place and the state intends to use taxpayers’ money to pay all bank bondholders to the value of €62 billion over the next number of years, including unguaranteed and unsecured bondholders.

The €30 billion promissory note to Anglo and Irish Nationwide is to be repaid at a total cost of €74 billion by 2031, including the capital repayments, the interest on the capital and the interest for the Government to borrow the money. Economists argue this figure could reach €85 billion. In the same bank, 22 of the top senior Anglo figures during the lead in to the crisis still hold their jobs, with 19 of them earning salaries in excess of €175,000 per annum.

So long as banking and sovereign debt are tied together, the Irish banking sector and by consequence, this state’s finances and the economy, cannot and will not function effectively. The Irish people and not private shareholders own the majority of the Irish banking system. Those banks need to operate on the basis of serving our economy and maximising the potential of the state.

Proposals:

The fundamentals that need to be addressed for our banking sector are as follows:

• The overwhelming focus must be on restoring economic growth rather than an over focus on banks in isolation to the wider economy. The de-coupling of bank debt and sovereign debt can and must happen. The Government must immediately negotiate the non-repayment of the €30 billion promissory note to Anglo and Irish Nationwide, which would effectively mean the ECB and the ICB taking the hit.
• Funding for our banks needs to be put on a stable long term footing with the co-operation of the ECB. The ECB must retrospectively recapitalise our banks so Irish taxpayers can reclaim some of the €63 billion already put in.
• Repayment of the €62 billion in bond over the next number of years must be written down. The need for debt restructuring has been recognised across Europe. Ireland cannot continue to be the poster country for repaying debt when others are negotiating haircuts.
• AIB must be fully nationalised and converted into a state bank with separate sectoral functions – retail being the primary one, then strategic investment sections such as SMEs, agri-food, IT etc. If BoI cannot repay the state its recapitalisation investment, or is in need of more recapitalising, the state must move to nationalise the bank in the public interest.