One reason why the government won’t close Anglo

From the ESRI Spring Bulletin –

For 2010 and 2011, we have assumed that the Government will borrow €2 billion in each year to fund the recapitalisation of Anglo Irish Bank and INBS. This increases the exchequer deficit in both years by €2 billion, but it does not appear in the estimate of the General Government Deficit. In doing this we are following the official statistical guidelines which treatmonies put into Anglo Irish Bank as an investment by the State. The interest cost of this extra borrowing is included in the General Government Deficit, with a maintained assumption that there will be no counterparty return on these “investments”. Because of this payment, our figure for gross government debt in 2011 is €4 billion higher, equivalent to over 2 per cent of GDP. We are assuming that this will also increase the net debt by the same amount.

In other words, if Anglo and Irish Nationwide were being formally wound up, the €25 billion that they are getting for “capital” wouldn’t be an investment — it would be a down the drain wind-up cost and would show in the official deficit statistics.

Now it’s not that our new overlords, the bond markets, don’t know about this.  But with the Seanie and Fingers money in the fiscal accounts, the fiction that pay cuts and bailouts can be separated would be gone, as would our current agreement with the European Commission on convergence to the Maastricht targets.

On a separate issue, the Iceland (or “ICELAND!” as they say at the Dept of Finance) banking inquiry report is worth a look.  Spring 2008 is a very important period in their chronology, when Landsbanki/Icesave thought they were in a crisis and then seemed to dodge it, only with worse coming down the road. 

In the most recent Dail iteration on NAMAnglo, Joan Burton specifically drew attention to Brian Cowen’s thinking on St Patrick’s Day 2008, when the Anglo share price tanked.  Apparently he was in Malaysia.  As the Iceland report explains, there was still time for them until late summer 2008 to avert disaster.  Let’s hope our own inquiry is asking similar questions.

UPDATE 22 APRIL: Eurostat has called time on the statistical treatment of the Anglo funding.  It is government spending.  Which presumably means that the new money is spending as well.  It’s now a lot harder for the government to separate budget balancing from the bailouts.