Quick decision on Anglo Irish Bank now vital

Can one bank bring down a country? That was the question posed last week by the New York Times. If the coverage in the days after the stark headline itself hit the headlines is anything to go by, then, yes, many people in Ireland do believe Anglo Irish Bank could bankrupt the country. Let's look at the numbers. Last week, Anglo Irish Bank reported a first half loss for 2010 of €8.2 billion; its losses for the whole of 2010 are thought likely to be in the order of €15 billion. Total State aid to the toxic institution so far has hit €22 billion. Ratings agency Standard & Poor's (S&P) reckons a total of €35bn is what will be needed to plug the black hole in its accounts. The bank's management and the Government disagree, saying the figure will be closer to €25bn. Whatever the final figure, the sums involved are simply staggering. The figure of €35bn represents about 22 per cent of Ireland's GDP, a scarcely credible figure given that Anglo was only the third largest bank in the country at the time of the boom. The question that people have been afraid to ask over the past 18 months is now being openly repeated in the domestic and international press - could this zombie institution really bring the entire country to its knees? A majority of people polled in a weekend broadsheet newspaper seem to believe it could. Internationally, Ireland is being buffeted by a wave of negative publicity linked to the enormous costs of the biggest banking bust of the recession, with some respected organs warning of a much deeper recession in Ireland and a high risk of a default on our debts. A default is not something the Government will countenance as it is now the owner of the institution, but there is no simple or inexpensive fix when it comes to ridding ourselves of this millstone that weighs heavily around the neck of every Irish citizen. The trail of destruction Anglo has left in its wake has derailed the country and has led to an almost exclusive Government focus being placed on how to solve this issue rather than being targeted where it really needs to be - driving jobs growth and instilling confidence in consumers to go out and spend again. While the shadow of Anglo Irish Bank continues to hang over the country, sadly, this looks less than likely to happen anytime soon. This ongoing problem manifested itself last week as our credit rating suffered further when S&P last week downgraded Ireland further, and the cost of borrowing money internationally just became more expensive again. The bond markets, too, are growing increasingly alarmed that Anglo Irish bondholders may have to bear some of the costs associated with the bank's disastrous losses, but Irish taxpayers are justified in asking the question why they alone should be forced to carry the can for Anglo's failings. The Government now faces growing public pressure to shut the bank down - and is moving towards that position now, having procrastinated over its future for almost two years. Finance Minister Brian Lenihan discussed its future with the European Union competition commissioner, Joaquín Almunia, prior to a meeting of finance ministers in Brussels earlier this week but the European Commission is saying very little at present, only that it is still evaluating the options for the bank. Indications are that closing the lender over a period of about a decade, thus avoiding a quicker and potentially far more costly closure, is now favoured. Anglo is not likely in itself to bankrupt the country but countries have been known to go bust simply because international lenders refuse to give them any more money for fear it will not be repaid. That is the danger for Ireland and it is this uncertainty that is turning out to be more damaging than the actual amounts of money involved. The markets on which we borrow, already rattled by S&P's €35bn loss estimate, hate uncertainty more than anything else. That is why everyone is looking for as quick a decision as possible on the future of Anglo Irish Bank as the ongoing uncertainty over Ireland's economy and the Government's total bailout costs will continue to weigh on our borrowing costs and banking sector in general into the future.