Monday, September 6, 2010

Bank bailout imperils Irish recovery efforts

DUBLIN, Ireland - Ireland, one of Europe's most troubled economies, is the world's biggest banking black hole.

The debt disaster at Anglo Irish Bank means Ireland is tasked with carrying out the continent's most ambitious bank-bailout program at a time of surging deficits and welfare lines. The unrelenting tide of red ink has analysts wondering how Ireland will keep paying its bills.

"We've all been given a bill we can't pay for a hundred years," said John Doyle, a car mechanic patching a flat tire at his backstreet Dublin garage.

At the center of the crisis is Anglo, a specialist lender that bet all its chips on a runaway property market during Ireland's boom of 1994-2007.

Since the credit crisis plunged the economy into reverse two years ago, unemployment has tripled to 13.8 percent, private construction activity has collapsed, tax collections have shriveled and the national deficit has swelled to the largest in percentage terms in Europe.

"You wonder if Ireland is going down the same route as Greece," said Alan McQuaid, economist at Bloxham Stockbrokers in Dublin.

The government of Prime Minister Brian Cowen won plaudits for its swift intervention since 2008 to prevent bank failures and fight the deficit with severe cuts in ordinary people's incomes.

Cowen, the European Union and International Monetary Fund agree that Ireland must keep cutting spending by at least 3 billion euros next year, but the ballooning cost of saving Anglo keeps undercutting that effort.

So far, the government has thrown 35 billion euros ($45 billion) into Irish-owned banks, about two-thirds into Anglo alone. In doing so, it offered a Europe-unique guarantee to pay back international holders of all Irish bank-issued bonds, rather than let Anglo fail and let its investors stomach the losses. But many now criticize that guarantee as recklessly generous, and question whether Ireland would be better off making Anglo investors bear at least some of the losses.

by Shawn Pogatchnik Associated Press Sept. 2, 2010 12:00 AM

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Bank bailout imperils Irish recovery efforts

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