Too big to fail, you say? Judging by the results of recent stress tests, the Irish banks seem to cross the dark side and become too large to fit.
It turns out that Spain needs 24 billion euros to save its banking sector in trouble at the top of the EUR 46 million already allocated by the government. That brings the total tab to 70 million or one hundred billion U.S. dollars. To put this in perspective, that is roughly equal to nominal GDP in 2010 from Vietnam, or eight times the GDP of Jamaica. Yah man!
The good news is that the additional funds required can be taken from the bailout of 35 billion euros in the generous pockets of the European Union (EU) and the International Monetary Fund (IMF). The bad news is that the EU and the IMF forecast that Spain would need 10 million euros only, which means you probably complaining that branch into two times the estimated amount.
What is worse is that the additional funds needed to fix the banking sector in Spain could amount to two times more than their total tax revenue last year. Although some of the new costs would be covered by the bailout package, 4.5 million people in Ireland have to pay the remainder of the bill by paying more taxes. I’m pretty sure the Irish would complain more than the belly Cyclopip!
But as the luck of the Irish have it, there are other ways through which Spain can get out of this banking disaster.
New Irish government is currently working on a series of proposals to ease the burden on taxpayers. Details are still fuzzy, but talk at the bar is that officials of the Irish government and the ECB is planning to create a new credit for banks in the restructuring process called “Fund for banks in the restructuring process.” Not only lack of funds, but are short on creativity too! Ah
I call the “even more debt Disguised as a Super Awesome Lending Facility”, but that’s beside the point. Ireland seems to be running out of innovative solutions for the banking crisis could be left with no choice but to take more loans. With this, Ireland’s debt could increase to more than 120% of GDP in 2013.
Another suggestion is that Ireland could borrow some funds from the European Global Financial Stability (EFSF) to help recapitalize banks. I know what you’re thinking … I still going to be another loan! And the larger nations of the euro zone being a little too stingy with money, this proposal is not likely to happen.
A more radical solution, proposed by Finance Minister Michael Noonan, involves the creation of two universal banks in order to reduce the number of national lenders. By ensuring that these two banks are backed by the superpower status, could restore public confidence and financial market in Ireland.
Of course, this proposal sounds promising, but is it possible? And, more importantly, would solve the problem of the current recapitalization in hand
Ireland better weigh their options carefully before making a decision because you can not afford to dig a deeper hole. His last four attempts to clean up the banking disaster have not succeeded, but perhaps the fifth time lucky. Better bust these people from four leaf clovers!.