Ireland under pressure again despite rescue

28th March 2011

Ireland's real problem: her banks

I wrote this back on the 20th of December last year and it remains true now.

The issue of uncertain bank losses in Ireland is something I have often written about as a barrier to a solution to her problems. Let me explain why this is important.At this moment in time.

1. If we look at commercial property loans then the Irish bad bank called NAMA is dealing with some of these but this begs the question what about the rest?

2.The Irish banking sector also made loans to companies which must have been affected by the downturn.

3 Residential mortgage lending must have been affected by what has happened and will be affected further as time goes by. What about other personal lending on the books of Irish banks?

4. There remains talk of derivative losses sitting on the books of the Irish banks and this needs to be addressed apart from having echoes of AIG/Lehman Bros from 2008.

So much remains to be done and there is still a danger that problems will mount for Ireland and hinder her recovery. Indeed the IMF was worried about potential contagion for itself from this. But then if you use an organisation designed to deal with balance of payments problems ( Ireland has a surplus on her latest figures) for fiscal problems you shouldn't be surprised if you hit trouble

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2 thoughts on “Ireland under pressure again despite rescue”

  1. Anonymous says:

    I am interested in your comment that a recession in one global economic zone can be ‘offset’ in another. Whilst,say, only¬† 23% of US exports are to the EU it could be that,say, 45% of total US bank lending is exposed to the EU. If that lending exposure leads to losses wouldnt that cause additional drag on the US. Does the ‘offsetting’ idea then get challenged?

    1. Simon Ward says:

      The relationship between money and the economy / inflation seems to work best at the global level. G7 real narrow money has been accelerating, with US strength more than outweighing Eurozone weakness. The eurocrisis could lead to a tightening of US financial conditions and a slowdown in monetary growth, as you suggest. If this transpires, I shall give up on the offsetting scenario. Money leads, so a forecast can be based on current signals without trying to anticipate future developments.

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