Banks brought economy to edge of disaster but crisis has eased

It was a frightening year for many who lost their jobs and a troubling one for those juggling mortgage and other debt. The banks needed billions of euro from taxpayers and will need shovelfuls more of Government cash to keep them going. A series of emergency budgets raised taxes and cut wages. A year ago there were many who feared that the scandal-ridden banks would collapse altogether. But the crisis has undoubtedly eased. This is how Business Watch columns saw 2009 unfold. January - The year of rising national debt Sovereign debt markets and the ballooning cost of Government debt because of the mistakes of our bankers are not usually the stuff of New Year columns but they will, unfortunately, feature as the hot business topics of 2009. The sudden reversals of fortunes of a booming economy may make Ireland one of the most studied small economies again, but this time for all the wrong reasons. Dell axes over 2,000 jobs The significance of the loss of 1,900 computer manufacturing jobs in Limerick to the national economy is significant. When Michael Dell set up the plant over 18 years ago making desk-top computers in Limerick and then moving to Raheen Business Park on the city's southern suburbs, the Celtic Tiger phenomenon was only getting started and had yet to be named. Last week, local management announced to mass meetings that all but 1,000 of the 3,000 jobs Dell employed across the huge 440-acre business park were either moving out to Lodz in Poland or ending altogether. February - Bankers and taxpayers In recent months, we have almost become immune to the shock that taxpayers should pledge billions of euro of their cash into failing financial institutions. But the Government's plan to inject €3.5bn into each of the two biggest banks, Allied Irish Banks and Bank of Ireland, is a big deal. The combined €7bn represents more than seven times the amount that Taoiseach Brian Cowen, after negotiations with the trade unions broke down last week, imposed in the pension levy taxes on the pay of over 250,000 public service workers. It is equivalent to a large chunk - over a sixth - of the €40bn the Government hopes to raise in tax revenues this year. Banking scandals Even a few weeks ago it would have seemed unthinkable that a senior member of the governing coalition party could accuse leading bank executives of economic treason for "irregular" accounting and their promiscuous lending of the last four years. The pace of events of the home-grown parts of the banking crisis has been so rapid, and the implications for the national economy so serious, that many people are reeling. March - Budget sums unravel How are these for some scary figures? You are the Minister for Finance of a small western European Union country. You did the sums a few weeks ago and budgeted for a deficit this year of about €18bn, or about one-tenth of the value of the annual output of the economy. But then things get a bit scarier. Spooked by the banking crisis and scandals, even people who have savings, who are unlikely to lose their jobs during this deep recession, and who have lower mortgage payments, also cut back their spending and pay less tax in the last two months. Then, the economic crisis deepens further and, as more people lose their jobs and fewer people pay taxes, the cost of social welfare rises. April - Overseas reports predict collapse Just before Alan Ahearne, an NUI Galway lecturer and astute commentator of the economic slump, was appointed special adviser to Brian Lenihan, he urged the Minister for Finance to go on a roadshow of European capitals to counteract the negative publicity Ireland was generating overseas about its economic woes. May - Going public about Nama's strains The bursting of the property bubble created such a big banking mess, it was inevitable that disputes about cleaning it up would be sharp. Last week Michael Somers, the head of the National Treasury Management Agency, the debt agency he set up almost two decades ago spoke frankly, as is his habit, about the huge task involved in setting up the so-called bad bank, Nama. Somers went on to say that the plans to set up a bad bank were still at a very early stage and, strangely, for a senior official appearing in front of a parliamentary committee, gave the impression that his enthusiasm for Nama was less than total. June - Black holes at Anglo Irish Putting a positive spin on the figures Anglo Irish published last Friday defied even the most determined attempts of the Government's public relations advisers. But there is more than one reason to distrust the figures put before taxpayers who now own the toxic bank. Surely, the €4bn the recently nationalised lender will get from taxpayers will be enough to shore up a soured bank? Unfortunately, the promiscuous lender that for years never knowingly said 'no' to any property developer warned it may need to tap the Government for at least €3bn more to cover losses. Surely, Anglo's souring loan book was shrinking? No, the half-year figures showed that the loan book increased by €1.3bn between last September and the end of March, because, like a ballooning credit card bill, its property borrowers were either not paying up some or any of their interest payments. The key IMF report On the day last week that two international forecasting-monitoring organisations - Washington's IMF and the OECD out of Paris - published separate end-of-term reports on the Irish economy, the business news headlines illustrated the troubles facing the economy. It was the report that Cadbury was seeking to drop 220 jobs at two of its three plants, at Dublin's Coolock and Rathmore in Kerry, which was the most troubling, cruelly underscoring the major theme of the IMF report: the loss of competitiveness that will make the effects of this recession more deeper and more painful than necessary. July - Nama The amounts involved are so huge that it's little wonder the Government's plan to buy the soured commercial property loans from the Dublin banks has raised considerable doubts and fears. Draft legislation to set up the new agency, Nama, is published this week. Understandably, the risks have raised fears that the taxpayer will be lumbered with huge losses that will need to be financed through higher taxation for a generation. August - The crisis eases Climbing jobless numbers and falling Government revenues are evidence enough of the economic tough times facing many households. But the die-hard pessimists of the Irish economy should look away now. Even after another set of summer economic downpours - indicators showing off-target tax revenues and unemployment, at 12.2 per cent, back up at the rate of the mid-1990s - one big important market is saying that the worst is over for Ireland. The sovereign debt market that determines the creditworthiness of Ireland and, specifically how much interest payments taxpayers need to pay for a ballooning Government debt, is saying that the worst is over. Little heard about Britain's problems Economic debates and discussions on many BBC TV programmes covering the world economic crisis this year have been something of a bizarre viewing experience. The rest of the world may know that the British economy will emerge from deep recession as the most damaged large economy (The rest of the world certainly knows that Ireland will emerge as among the most damaged advanced small economies). But the casual viewer of the premier news and current affairs shows would be hard-pressed to know about Britain's mounting sovereign debt burden. September - Third banking force rides again The big banking plan back when Ruairi Quinn was Minister for Finance in 1997 was to create the so-called 'third banking force' by fusing the TSB with the then state-owned ACC and ICC banks. The big idea was to create a lending force to compete with the banking duopoly, AIB and Bank of Ireland. A dozen years later, and in circumstances that could never have been imagined back then, a different banking landscape has emerged. October - Nama-ed banks will need more taxpayers' cash It's been a good few weeks for Minister for Finance Brian Lenihan and the big bank rescue plan. The coalition parties secured the support of the Green Party members for the bad bank, Nama, and got the legislation through to the committee stage of the Dáil. Then, the Government published its so-called business plan for Nama that forecast it could turn a profit of €4.8bn on behalf of taxpayers in ten years. After the summer months of unrelenting criticism, the Government's bad bank agency is enjoying some more favourable reviews December - Fairness is needed The undoing of Brian Lenihan's latest budget could all come down to how fair it is perceived to be. The measures certainly showed a good deal more thought and coherence. It is clear that the budget strategy was thought out by the Department of Finance officials many months earlier and, after the fiasco of the early budget in October 2008, it looks like officials decided to prepare the ground somewhat more carefully.