THE DECISION to clean up the banking system through the establishment of the National Asset Management Agency (Nama) may prove a pivotal point on the path to economic recovery. The scope and ambition of the project cannot be faulted. By taking problem property loans off the hands of the banks, the Government hopes to put those institutions in a position where they can resume lending, albeit in very difficult economic circumstances. This is a vital prerequisite to any upturn because it will liberate funding to allow the wheels of commerce to turn again.
The cost of the initiative will be enormous and will be borne by the taxpayer. The problem loans in question amount to somewhere in the region of €90 billion. Even if they were bought by Nama at two-thirds of their face value – to reflect the risk that they may never be repaid – the bill will come to €60 billion. To put this in perspective, Ireland’s national debt is currently €54 billion. Some of the cost will be offset by revenues from the assets held by the new agency and income from the Government’s shareholdings in the banks. The latter are almost certain to increase to levels in excess of 50 per cent as part of the process and it may yet prove expedient to nationalise some banks to reduce the upfront cost.
However it unfolds, the impact of the additional borrowing to fund the agency will be considerable in the initial stages and could push the costs of servicing the national debt from the current projected rate of 19 cent in every euro of tax collected by 2013 to in excess of 27 cent in the euro. That level has not been seen since the late 1980s and 1990s.
The decision of the Government to go down this path is an indication of both the extent of the mess the banks have got themselves into and their fundamental importance to the functioning of the State. The bill for this unavoidable rescue has been calculated and presented to the taxpayer. It will be felt in every household for decades to come and the careers of all those who presided over this calamity should be in inverse proportion.
But with adversity comes opportunity. If the agency proceeds as planned it will be the largest commercial entity in the State. It will have a virtual monopoly on development land and commercial real estate. If the Government is so minded it will have an immensely powerful tool with which to try to rectify some of the damage done by out of control property developers and complicit banks. And the hold which the State will have over the banks by virtue of their large shareholdings will ensure they play a part.
Unfortunately there is little in the events of the last 10 years to make one believe that politicians of any hue – or the State apparatus for that matter – have the vision, appetite or ability for such a task. The unhealthy relationship between the political system and property interests is of particular concern in this regard. Even at this early stage, the utmost consideration must be given to the governance of Nama and how a balance can be struck between ensuring oversight and preventing political interference as it fulfils its crucial mandate.