Ireland overrun by debt - personal, national and toxic (Feature)

By Fiona Smith Apr 20, 2010, 6:07 GMT

Dublin - With a bank bailout costing 41 billion euros (54.5 billion dollars) and government plans to pay the same amount for the banks' toxic debt, every Irish family is set to shoulder a debt of 50,000 euros to pay for the recklessness of the boom years.

The Irish banks' balance sheets were devastated by the collapse of the property market as many enormous, unsecured loans were made to developers and are unlikely ever to be recovered.

Ireland's budget deficit, now at 79.3 million, amounted to 11.7 per cent of gross domestic product (GDP) in 2009. EU rules stipulate it should be within 3 per cent of GDP.

With billions being poured into the banks, this deficit is set to widen in 2010.

Last December's austerity budget, which cut social welfare and the pay of all public servants, including those on low pay, was aimed at tidying up the public finances.

Yet the latest recapitalization means that the sacrifice of many public sector workers will serve only to shore up the banks. The colossal cost of bailing out Anglo Irish Bank, once the poster boy of the Celtic Tiger boom - now a zombie bank taken over by the state - is 8.3 billion euros this year on top of the 4 billion invested last year.

Shockingly, Minister for Finance Brian Lenihan announced recently that a further 10 billion may be needed for the bank, which announced a loss of 12.7 billion euros on March 31, the biggest loss in Irish corporate history.

The Irish taxpayer was seeing the 'costs and consequences of crony Irish capitalism,' opposition Labour's finance spokesperson Joan Burton said of the latest bailout, announced March 30.

Burton described the recapitalization and transfer of assets to the bad bank, the National Assets Management Agency, as 'socialism for bankers and developers,' while each taxpayer was being saddled with 22,000 euros of debt for the Anglo Irish arrangement alone.

One of Anglo's bad loans, now the subject of a police investigation, amounted to 87 million euros made to its former chairman, Sean Fitzpatrick. The bank is also owed 8.3 billion from its former chief executive, David Drumm.

Liquidating Anglo would cost between 27 and 35 billion, while running the bank down over 10 years would cost between 18 and 22 billion euros, according to its new chief executive, Australian banker Mike Aynsley.

Perplexed taxpayers fail to see why enormous amounts of money are being spent on keeping failed banks open while workers are asked to tighten their belts and others have to pay the human cost in unemployment and crippling debt.

'People are hurting out there,' says Michael Culloty, a spokesman for the government's Money Advice and Budgeting Services (MABS).

'There is a 25-per-cent increase in calls to the service this year over last year so far,' Culloty says.

'In the satellite towns around big cities, a lot of people in the building trade lost their jobs. The biggest problem for people is the threat of losing their homes.' he says.

According to figures published by the Financial Regulator in December, 26,271, or 3.3 per cent of all mortgages, are now in arrears.

'There is forbearance from the banks, but people have to engage with the system in order to get it,' says the MABS spokesman.

Under a new code of conduct, lenders would wait a minimum of six months before taking legal action against the estimated 14,000 borrowers in arrears.

This period extends to 12 months for banks, which availed of the state's recapitalization scheme. It is small comfort for taxpayers paying the price of what the finance minister has called the banks' 'appalling decisions.'