Irish Election are pleased to announce our collection of Irish 
How to recapitalise the banks
Read more about: Economy
Ireland now sticks out like a sore thumb among countries whose banks are heavily exposed to property. While the guarantee scheme made a huge splash when it was announced, other countries have since moved onto banking system capital as a major focus of their efforts — providing banks with enough of an additional buffer to withstand serious losses on their loan books. The guarantee scheme only helps indirectly with this, since it helps with the raising of new debt (or deposits) but not equity — and does so by transferring risk to the government. But here’s an interesting idea from Korea: a special fund set up with resources from domestic public and private institutions to invest in banks. Ireland has one obvious candidate to back such an entity: the National Pension Reserve Fund. It’s currently getting over a billion euro from the exchequer each year while the value of its overseas portfolio tumbles with the global market crash. So how could it do any worse as a shareholder in Irish banks — if the government truly has confidence in them?
Unlike the US and Britain, Ireland can’t just turn on the printing presses and devalue the euro at will. And given that Germany are running a trade surplus, we can’t expect that the euro’s printing presses will be turned on. This is why Ireland might have to raise taxes and cut spending while Britain and the US can do the opposite.
Of course, there are many other variables such as current levels of national debt, Irish trade position, and so on. This means we can’t simply compare or contrast ourselves with the US, Britain, or Korea. My point is that there is one massive policy instrument available to the US and Britain which is not directly available to Ireland, namely control over our currency to avoid deflation and to devalue as an easy way to decrease some of our bank’s debts.
And I worry that our banking system is on its knees partly due to massive international dollar-denominated debts? Devaluing the euro won’t help if we owe trillions of US dollars to China! Anybody got figures on this?
One thing for sure — the dollar has appreciated a lot since this crisis began, which has caught a lot of people by surprise since it was expected to stay weak for a long time. Any banks betting on the dollar continuing weak would be in serious trouble.