Sep 03 2010

Great Austerian Success Stories!

Part 1- Ireland

Irish Ask How Much Is Too Much as Bank Rescue Trumps Austerity

By Joe Brennan and Dara Doyle, Bloomberg News

Sep 2, 2010 5:35 AM ET

Anglo Irish Bank Corp. said Aug. 31 it needs about 25 billion euros ($32.1 billion) in state funding, equivalent to about two-thirds of this year’s tax revenue. Standard & Poor’s, which last week cut the country’s credit rating to AA-, said the state may have to inject as much as 35 billion euros.

While Ireland provided the model for euro partners Spain and Greece in implementing tax increases and spending cuts, the bill for bailing out its banks is mounting. That’s left taxpayers, some enduring pay cuts of 13 percent, questioning the wisdom of the government and Dublin-based Anglo Irish’s management in keeping the lender alive.

“Ireland had been seen as leading the way for the rest of Europe in terms of austerity measures, but now the market isn’t too keen on this black box that’s been opened up by the banks,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “Investors don’t doubt the willingness of the Irish to accept the pain, but they are beginning to ask if the scale of the banking problem is just too big to handle.”

The government so far has injected almost 33 billion euros into banks and building societies, with two-thirds of that going to Anglo Irish. It has paid a further 13 billion euros for real- estate loans that were once worth 27.2 billion euros, the agency responsible for the debt said on Aug. 23.

“At this point, the taxpayer has paid enough,” said Brian Lucey, associate professor of finance at Trinity College Dublin. “It’s time to consider strongly if the senior bondholders should bear some pain. The only group that should be totally protected should be the depositors.”

(h/t AmericaBlog)

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