Ireland is suffocating under a pile of debt assumed to bailout Irish banks. After observing how Iceland is faring after deciding to let the banks fail, it is a wonder that other European countries do not change tack.
Ireland is currently servicing a €30bn loan to bail out AIB, its largest lender. Irish GDP is only €160bn, and this loan makes Irish total debt €168bn for a lofty 106%. This number is worsening as the Irish budget is out of control, so this number is growing at a rapid clip.
In addition to Ireland’s outstanding bailout loans, the Irish are also paying hundreds of millions of euros a year to maintain capital ratios in their nationalized banks as their loan portfolios slowly bleed.
In June, the Eurozone countries reached a deal to allow bank recapitalizations to proceed directly from the ESM fund. This would have allowed the cost of bailouts to be excluded from a country’s GDP. The FANG reneged on the deal in September. As a result, Ireland continues to be shut out of bond markets. Had the deal gone through, Ireland would be looking at a debt to GDP ratio of 86%, a much more manageable number.
The Emerald Isle should have followed the lesson of the White Isle to the North. It is too late for that, but Ireland can still leave the Eurozone and resume growth after an adjustment period.