Financial crisis deepens
The nationalisation of Anglo Irish Bank is an indication of the abject failure of the Fianna Fail [the main party of Irish capitalism] and Green government to deal with the banking crisis, but also that the crisis has reached a new and dangerous level. In the wake of the nationalisation, the shares of the two main banks, Allied Irish Bank (AIB) and Bank of Ireland (B of I), plummeted.
The Irish government’s response to the economic and financial crisis has been characterised by a tentative continuation of right-wing neo liberalism, which is always careful to safeguard business interests and property rights. They certainly did not want to nationalise anything. In fact, with their blanket guarantee of bank assets last September, they hoped that their word would be enough to safeguard the Irish banking system. However, as is inevitable in a serious economic crisis, their word was never going to be enough.
Just as the government were about to implement their recapitalisation programme for Anglo Irish Bank, the situation changed and they were forced to abandon it. That the government felt compelled to nationalise what, in terms of the value of loan liabilities, is Ireland’s third biggest bank shows how their policies are being compelled to shift away from free market capitalism.
Neither the government’s bank guarantee, or their plan to take control of 75% of Anglo shares, were enough to save the bank from collapse. Already, in the last weeks, major depositors were withdrawing their cash and with S & P (Standard and Poor), an important bank rating agency, about to significantly downgrade Anglo’s credit rating, Anglo would have become insolvent.
That Fianna Fail and the Green Party (government parties) nationalised a bank that was not seen as being essential or strategically vital to the future of the economy, at what will be a huge cost to the public purse, raises serious questions as to why Anglo was nationalised. It is true that Anglo’s portfolio is dominated by builders, speculators and business spivs. They used it to organise extreme profiteering, particularly from the property bubble, which, in turn, has made the economic crisis much worse.
The Socialist Party is opposed to the capitalist nationalisation of Anglo, which is about saving individual business tycoons, on the one hand, and the capitalist financial system, on the other. We demand that Anglo and all the main banks be immediately nationalised and taken into democratic public ownership, with no benefit or compensation for the big business sharks. Compensation should be provided only on the basis of proven need.
Undoubtedly, the demise of Anglo is a very dirty, grubby affair. It is clear that many developer friends of Fianna Fail, and particularly the billionaire, Sean Quinn, are relative beneficiaries from this nationalisation. Some of the debts that Anglo holds ("undated subordinated debt") would not have been guaranteed by the government’s bailout scheme if Anglo had collapsed. With this nationalisation, the state (and, by implication workers/taxpayers) will bear the ultimate liability for losses in Anglo’s portfolio.
Due to the deal it struck with Sean Quinn, when he borrowed vast sums (before nationalisation Quinn owned a 15% share in Anglo), the bank had the power to take over a controlling interest in most of the Quinn Group’s companies and would probably have been forced to act on this clause if bank hit difficulties. Quinn’s various companies employ over 8,000 workers. Undoubtedly, Quinn is hoping for more sympathetic treatment from his pals in Fianna Fail over the next weeks and months.
Investigations were already afoot, into the €179 million worth of loans given to former Anglo Chairman Sean Fitzpatrick and other board members and into the loans and shares that Sean Quinn has with the bank. Undoubtedly, rotten practices were in operation. If information emerged, confirming that Fianna Fail’s inaction regarding the goings on at Anglo or that its nationalisation of Anglo was, to a large extent, about bailing out its friends, then the government could be fundamentally weakened.
Whatever role political patronage and corruption played in the decision to nationalise Anglo, its collapse, in the current circumstances, would have threatened a systemic collapse of Irish banking. Those economists who say it should have been allowed to collapse are basing themselves on the idea that Anglo is not strategically vital to the Irish economy. While that is partly true, it doesn’t mean its sudden, inglorious collapse would have had no effect on the rest of the banks, the banking system and the economy generally.
Potential for collapse
As many of Anglo’s big business clients are also clients of the other banks, a collapse would inevitably have had a knock-on effect. With such clients caught up in insolvency, their loans with other banks would have become increasingly toxic and the bad debts and capital-to-loan ratios of those banks would increase. Any confidence that the international money markets did have in the Irish banks would evaporate and dramatically compound the liquidity and capitalisation crisis that exists for AIB and B of I.
Most importantly, it was the weakness of AIB and B of I and the whole banking system in Ireland, which meant that the collapse of Anglo would immediately have had a devastating impact on the rest. As was the case last September, the Irish banking system, as a whole, is on the verge of collapse.
A sudden collapse into insolvency at Anglo meant the state, because of the guarantee it gave in September, could very quickly be presented with a bill for billions of euro worth of bad debt. Such a collapse and scenario had to be avoided. Not only the banks would have been threatened, but also very serious questions would be raised about the debts and solvency of the state itself. The only way to avoid such a collapse was through nationalisation.
Those who say a financial collapse, similar in ways to what happened in Iceland, is ruled out in Ireland should think twice. Being in the eurozone does give Ireland some currency stability and security, though many businesses now bemoan the strong value of the euro. However, while such an acute crisis may have been avoided for now, given that the economy is still collapsing; with the government’s finances spiraling out of control and the national debt soaring, being part of the euro may well not be enough to avoid a future financial collapse.
What exactly will happen with Anglo is not clear, as the government does not have a clear policy and are simply reacting to events. It is only a matter of time before one or more of the developers who owe vast sums to Anglo, who are currently paying neither the interest nor the original sum, becomes insolvent and bankrupt. The crisis is deepening in the commercial property sectors in the US, Britain and Ireland and a lot of the outstanding loans are linked to projects in these areas. Such events can create a chain reaction.
As the government was prepared to recapitalise the top three banks to the tune of €10 billion, many took that as an indication that Anglo’s bad debts would be in the region of €3 to €4 billion. However, most similar economic and financial estimates still underestimate the extent of the crisis and potential for bad debts.
At the end of September 2008, the value of Anglo’s loans were over 73 billion. Others have stated that Anglo’s bad debts could be €10 to €15 billion, or even more. One way or another, the policies of the government will cost the Exchequer and the taxpayer a fortune, at a time when the government is imposing billions in cutbacks on public services.
The nationalisation may have averted an immediate collapse, but inexorably, the banking system is sliding further into crisis. The idea of turning Anglo into a toxic bank has been raised. From a capitalist point of view, there is a certain logic to taking all the bad debts out of the main banks and sealing them away. However, it is not easy to just identify, shift and manage bad debt. The bad debt situation will emerge and change and be made much worse, as the economy declines. Banks would have to be upfront about their bad debt, which is something they have stoutly resisted, as it would hit their share prices, and they would need to come to some arrangement for a trade-in or price for the bad debts prior to their removal.
Even if this were in some way possible, in the case of Anglo and the other banks, it would still end up costing taxpayers billions. However, there are not any serious indications that the banks or the government are considering such a route and if it were to have any chance of happening, a decisive approach and action would be necessary.
These events have further undermined the position of the Irish banks and the Irish State on the international money markets. That means that Ireland and institutions from Ireland have to pay more for any money they borrow, as it is believed they represent a greater risk than others do. Already Ireland pays 1.8% more on its borrowings from the international markets than Germany. This means that borrowing an additional €20 billion would cost the Irish state an additional 400 million in interest.
Government discredited
As a result, the banking crisis is having an immediate and very debilitating affect on the government’s ability to borrow and deal with its own financial crisis. The potential for national or state insolvency is clearly increasing and the speed of the growth in the government’s revenue deficit is justifiably worrying many. Public sector trade union leader, Dan Murphy of the PSEU (Public Service Executive Union), mentioned the potential for IMF (International Monetary Fund) intervention, probably mainly to try and frighten his members into agreeing to some government cuts in wages. However, the idea of an intervention by the IMF is not so fanciful, given the depth and trends of the government’s financial crisis, particularly if it is not able to get the cash it needs from other sources.
Even before the events of the last days, Allied Irish Bank (AIB) and Bank of Ireland (B of I) were facing extremely serious problems. They were finding it very difficult to raise funds from private institutions, to go alongside the €4 to €6 billion the government has said it would invest in both. The two main banks denied that they faced any significant difficulty for months, but clearly their collapsing share prices and the fact that they cannot borrow means investors simply do not believe them.
The whole Anglo Irish affair, the corruption at the top, and the fact that the Financial Regulator has also resigned will undoubtedly make international investors extremely sceptical of anything the heads of AIB or B of I or, for that matter, what the Irish government may say.
Both these banks are essential financial cogs in the Irish economic wheel and, likewise, both are badly exposed to the crisis in the property sector. They also followed Anglo into more reckless loaning policy towards sectors like commercial property after 2005, when the illusion was being peddled that the boom in commercial property would continue, even after the housing bubble burst.
As the price of property continues to decline and, in particular, with unemployment growing at a record rate, a very significant crisis of bad debt is about to hit both banks. The estimates of some – that the price of Irish property will decline by 80% from its highs of late 2006 and early 2007 – must give these bankers very dark nightmares.
Given how the crisis at Anglo has spun out, the recapitalisation of these banks is now absolutely urgent. From its point of view, the government was caught out with Anglo. Their recapitalisation programme was too little, too late. But it is entirely possible that they will continue to move too slowly and the same could happen with AIB or B of I.
The debate in the Dail [parliament] on the Anglo nationalisation showed the government remains behind the dynamic of events. They continued to stress that they did not see any need to nationalise the main banks. However, they are likely to try to move quickly to recapitalise and increase the state investment in both AIB and B of I. With the diminishing of the bankers’ authority, the government, in many ways, has now got effective control of these banks. If, because the banks cannot get private investment, the government is forced to buy billions worth of AIB and B of I’s shares, then they will end up owning a majority of the banks shares.
Despite the fact that the government was in the process of purchasing 75% of Anglo, the extent of the economic crisis and its very poor loan-to-capital ratio, meant such a substantial stake still was not enough and it had to be nationalised. While it is impossible to say exactly what will happen, the nationalisation of AIB and B of I and, in effect, the whole Irish banking system, is now a very serious prospect.
The six main Irish banks pushed neo-liberal profiteering past the limits over the last fifteen years and, in doing so, completely undermined the financial system that they base themselves on. Collectively, they have loans in the region of €450 billion. This crisis, where the over-leveraging of the Irish banks is being exposed, is taking place in the context of a renewed crisis hitting the whole international financial system and that, in turn, will make the situation in Ireland much worse.
The bank bailouts in the US are not working and more money is being pumped into Bank of America, because the debts at Merrill Lynch and Citigroup, which it took over, turned out to be much worse than anticipated. British domestic banks are considered by "experts" to now be insolvent and are on the verge of collapse. It has been announced there will be a new £200 billion investment into the British banks. The same scenario is repeated in country after country. All this instability in the international financial markets will make the particular crisis of Irish banking even more acute.
Nationalise to save jobs, not bankers!
The plan to nationalise Anglo or, as many see it, the bailing out of corrupt bankers and developers, is provoking a lot of disgust. The trade unions should organise a day of protest and demand that those under threat of unemployment and public services are ‘bailed out’ instead. They should demand that companies sacking workers or closing down, like Waterford Crystal or Dell, be nationalised. They should stand resolutely against any cuts in public services and counter-pose that instead of vicious cuts, services could be expanded, if the billions were used for people’s needs and not to bail out the banks. If the unions took such a stance, they could get a very receptive response.
However, their lack of action against the government’s policies speaks volumes. It is a disgrace that, while all this is going on, they are prepared to sit down with the government and bosses to discuss cuts in pay and in public services.
The events around Anglo, and the crisis that will hit the other banks, will increase anger in society and serve to undermine the position of the government and the leaders of the trade unions further.
Since the start of the year, the crisis is hitting people in a much more immediate way. Unemployment is soaring, particularly in the retail sector, where bosses are shedding jobs in huge numbers, after the Christmas sales.
The labour force in Ireland is approximately two million strong. Official estimates now predict that another 240,000 unemployed people will be added to the 290,000 currently on the live register before the end of 2010. That is, they are predicting that more than 500,000, out of two million, will be jobless!
The shifting of production/assembly by Dell to Poland, so that the company can benefit from €3 an hour wages, will have a devastating effect on the whole Irish mid-West region. The loss of the 1,900 jobs at Dell is expected to cause the laying off of up to 10,000 to 15,000 other workers in related companies and in retail. As a result of Dell’s greed, Limerick city and the surrounding region will face depression-like conditions within months.
The recently announced sacking of nearly 300 workers at Dublin Bus represents a crisis for those workers, but will also have a terrible effect on people and communities, whose bus services will be axed.
Social crisis
The economic crisis is now impacting in a real and dramatic way and becoming a social crisis. Most people are shocked and fearful of what the future holds. When no lead is being given by the trade unions, it is difficult for workers to organise to fight against the job losses and wage cuts. It is likely that many workers, while very angry, will hold back and hope against hope that the situation improves.
With the threat of unemployment looming very large, some workers may even accept wage cuts, in the vain hope that as a result, their jobs will become more secure. However, these conditions of crisis and unprecedented attacks on jobs, pay and services will inevitably provoke huge active opposition from the working class.
Although the government has been grappling with serious crises in the last months, they have not been undermined by instability on a daily basis. However, since the start of the year, the pressure and instability is intensifying. Up to now, the government have stuck to the approach and policies that helped create the crisis in the first place. Those policies are failing and, in fact, making the situation worse. The government doesn’t know what to do and, in reality, Irish capitalism is experiencing a crisis of leadership.
For months, the government said that the banks were fundamentally sound. If they really believed that, then clearly, they are completely at sea and rudderless. If they did not believe that, but have simply failed to act, then they are a government in paralysis. Either way, they are being exposed and undermined, and opposition to them is likely to deepen quite dramatically. Events in the economy can fundamentally undermine the government even in the weeks ahead. A bad result in the local and European Elections, in June, could be the beginning of the end for this government.
The undermining of the government will undoubtedly mean that pressure can grow for a general election in Ireland. However, the idea is increasingly being pushed, mainly by the capitalists, that the political parties need to come together and co-operate, in some way, to bring political stability. In the circumstances of severe economic and political crisis, it cannot be ruled out that a new consensus might emerge amongst some of the parties, and the composition of the government could change accordingly, even without a general election.
The situation is crying out for a fighting lead from the trade union movement. While there is fear, there is also huge disgust and anger, that working people are being made pay for this crisis in such a brutal way. The government talks of solidarity yet it is increasingly clear that there is no equality in terms of who is bearing the brunt of the crisis. The fact that free market capitalism is increasingly outdated and there is a growing need for socialist policies is actually shown, in a distorted way, by the nationalisation of Anglo.
Socialist nationalisation
The Socialist Party’s calling for the defence of the jobs at Dell and for the nationalisation of the plant, equipment and assets received a positive response. However, the dominant mood was that Dell and the jobs were gone and while many people agreed its assets should be taken over and used by the state to provide jobs, most people felt that this was unlikely to happen. Then within days, the government actually nationalised a bank, which has a workforce of 1,200, at the cost of billions of taxpayers’ euros.
The nationalisation of Anglo represents a very important turning point in the political situation in Ireland. For many, the question is now not whether there should or could be nationalisations, but increasing is what type of nationalisation there should be. It is essential that workers get organised and take action, including occupation, where companies sack workers or are threatening closure. Workers should demand the nationalisation of such companies and their assets, under the democratic control of workers and the wider community.
In Limerick (the mid-Western city where Dell recently announced 1,900 redundancies), the Socialist Party raised the need to end the reliance on the private sector to provide jobs, and called for, “The nationalisation of Dell [as] the start of a plan to develop a viable industrial base, in which working people must have the decisive input and control, to ensure the economy is geared to the interests of the majority, rather than the profits of the few." It is around such demands, which offer a viable socialist alternative to capitalism, that the developing struggles of workers and youth must be organised, if working people are to escape the ravages of capitalist crisis.
Anglo Irish Bank nationalisation
Nationalise for social need, NOT to bail out speculators
Take all banks into public ownership
Press statement issued by the Joe Higgins on behalf of the Socialist Party (CWI in Ireland)
The panic decision to nationalise Anglo Irish Bank is not done to serve social needs and the welfare of the majority of ordinary people in society, but to once again bail out the speculators and major developers whose activities have crashed the Irish economy and to save market capitalism itself from the crisis that engulfs it. Taxpayers are being saddled with the risk of massive burdens of bad debt with no real information on what the exact situation is in this bank.
The Socialist Party has always demanded nationalisation of the banks and major financial institutions. But by ‘nationalisation’ we mean public ownership under democratic control and management so that these institutions are harnessed to serve the needs of the majority in society rather than facilitate super profits for major shareholders and to facilitate the obscene property speculation and profiteering which have plunged the economy into an unprecedented crisis
Open the books
Today the Government should be forced to publish in full the real situation in Anglo Irish Bank, to name those to whom the bank has loaned large amounts for property dealing or other forms of speculation and what the losses are on these loans. There should be no compensation whatever for these people, indeed other major assets they may own should be taken into public ownership to compensate for the huge damage they have already inflicted on society.
Nationalise Allied Irish Banks and Bank of Ireland
AIB and Bank of Ireland should be taken into public ownership as part of a plan to overcome the current crisis and develop the economy for the benefit of the majority. The profits and assets of these institutions should be used for the benefit of society and not to further enrich their billionaire shareholders. This is also the best way to protect the funds of small depositors and pension funds, and to guarantee investment for small business and self employed people.
The events of the last few weeks have exposed the fundamental weakness of capitalism. Globally, the capitalist system has failed, it is bankrupt.
Right-wing politicians claimed that the market would provide a decent health service, that it would provide the means to educate our children and meet people’s housing needs. Instead it has plunged the country into enormous crisis wrecking the livelihoods of tens of thousands of working people and threatening hundreds of thousands more. This latest crisis in capitalism is once again confirmation that it is time to end the domination of the market and to instead replace it with democratic socialist policies in which the priority is the needs of the majority.
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