Tom McDonnell: One of the images below is from Patrick Honohan's paper in the Economic and Social Review June 2009. If you combine the two you can see how the foreign banks (as they were the main holders of the Irish banks' bonds) were what funded the last 1/3 of the Irish bubble, i.e. its wildest phase.[click to enlarge images]
The other gives the BIS's latest figures available on foreign banks claims on Irish banks (see the second line in the Ireland section). (See the bottom of the page for the reference). Some of this has been paid back, especially in August-September as a considerable amount of bonds were redeemed then at Irish people's expense, but most still remain.
In other words, the Irish people are bailing out the German, UK and other banks for funding the most crazy stage of the Irish bubble, which simply could not have happened without their investment in it. Now they want the Irish people to bail them out fully for their bad investments and the damage they have done. This is what the IMF/ECB loan is essentially about.
The clear implication is that these private institutions fuelled the boom through their unwise lending. They are at least partially responsible for it. Bubbles will go to the extent that banks will lend – that is the primary determining factor. So it is these private institutions that must take the vast majority of the pain – not the Irish taxpayer. If the ECB wants them bailed out then they should do it themselves.
We shouldn’t exonerate the IMF from blame either. We need to bear in mind the IMF's clean bill of health and encouragement to the Irish banks and their regulation in their assessments of the Irish banks (Honohan Report).
Tom McDonnell is senior economist at the NERI and is responsible for among other things, NERI's analysis of the Republic of Ireland economy including risks, trends and forecasts. He specialises in economic growth theory, the economics of innovation, the Irish and European economies, and fiscal policy. He previously worked as an economist at TASC and before that was a lecturer in economics at NUI Galway and at DCU. He has also taught at Maynooth University.
Tom obtained his PhD in economics from NUI Galway.