THE MINISTER for Finance has ruled out further bank nationalisations and said the sector must return to a more ‘‘conservative, traditional’’ business model.
Addressing an InterTradeIreland All-Island Economic Forum at Farmleigh in Dublin yesterday, Mr Lenihan said the Government believed nationalised banks would have difficulty securing funds from international investors.
The lessons from the Great Depression in America in the 1920s and the fallout from the collapse of Lehman Brother last year was that bank failure had very serious consequences for the wider economy.
There was an ideological view that certain banks should be let fail and that bondholders and investors in that bank should take the hit. However, if Governments were to allow this happen, the result would be a ‘‘staggering loss of confidence in whole economic system of a country’’ and therefore ‘‘governments have to prevent banks failing and stabilise them’’, he said.
Banks and building societies needed to return to a more ‘‘conservative traditional approach’’ and he noted the current difficulties in the sector were the result of ‘‘two decades of irrational exuberance’’.
The Minister said the economies in the North and South were facing short-term economic difficulties and that the global recession had ‘‘compounded the domestic difficulties we would have had in working through the end of the construction boom in the Republic’’.
According to Mr Lenihan, the cumulative net loss of income in terms of GDP in Ireland during the four years to 2012 will be about 13 per cent.
However, this process was making the State more competitive and would result in labour costs here falling by 7 per cent compared with the EU average.
While the global recession had seen economics move to the centre of the political discourse, Mr Lenihan said economic debate must be well informed.
‘‘What I have experienced in public debate about economics in the past year is that there is a great deal of denial about how serious the problem is and there is also a very, very ready recourse to false solutions,’’ he said.
