MANY QUESTIONS remain about the terms and conditions of the Government's unprecedented guarantees for Irish financial institutions and their shareholders. Primary legislation is still being rushed through the Oireachtas, at the time of writing, but financial charges and other details have yet to be worked out with the Central Bank.
While Taoiseach Brian Cowen and Minister for Finance Brian Lenihan are being commended for their leadership and the template of the solution provided, the devil - as always - will be in the detail. The Opposition parties have been deeply frustrated by their inability to secure clarification on this massive insurance guarantee to the banks. There has to be public accountability and responsibility for the negligence which brought us to this position.
Last Monday, the Government was shocked into action by the largest fall in Irish banking share values in decades. Faced with the imminent collapse of one or two institutions, it offered a guarantee worth €400 billion to underpin the financial markets and create liquidity in the system. It was a bold initiative, taking the international financial world by surprise, in that it ring-fenced Irish institutions, improved their credit ratings and made them attractive homes for foreign lenders and investors. The move had such an impact that, coming on top of its guarantee of €100,000 for all depositors, it caused the British government - and others - to legitimately question whether EU competition law was being breached.
Mr Lenihan has insisted the rescue package was not designed to protect the interests of the banks, but to safeguard the economy and the welfare of Irish workers. That may be so. But, in this instance, the two interests were so closely entwined as to be indistinguishable. What will separate them out in the days and weeks ahead are the terms and conditions the Government will attach to this State guarantee; the steps it will take to protect the exchequer and the outline of a new regulatory framework that is so obviously required.
The four banks and two building societies have been the architects of their own misfortune. They fuelled a bubble by lending aggressively to developers and then facilitated their customers to buy overpriced properties. Short-term profitability and greed drove a housing market that was supported by official tax breaks.
The Government itself became overly dependent on unsustainable construction growth and stamp duty returns. All this encouraged unhealthy property prices, toxic lending and the growth of unquantified risk.
The Government has moved quickly to address the issue of confidence. What remains, however, is the extent to which they will have primary recourse to the banks, rather than taxpayers, for the €400 billion guarantee just given. What security are the banks giving the Government? Will they be asked to pay a fee out of their cash for the insurance guarantee, affecting their dividends? Or will the Government settle for a soft fee, which will be seen by the public as another State aid to the negligent private banking sector?