Recapitalisation Plan not universally welcomed. Post author By Philip Lane Post date December 23, 2008 Morgan Kelly provides a critique of the re-capitalisation of Anglo-Irish Bank in today’s Irish Times: you can read it here. Categories In Uncategorized 3 Comments on Recapitalisation Plan not universally welcomed. ← Some unpalatable pension arithmetic → In Praise of Quantitative Easing 3 replies on “Recapitalisation Plan not universally welcomed.” I see that the bankers are crowing about what a good deal they got for shareholders. They are right. They got an amazingly good deal for themselves as well. And Morgan is right about the Anglo bailout. All this has political implications. Eliminating the deficit is a political process, and the political economy of getting the state’s finances sorted out has just gotten immeasurably more complicated. As to why the government has made these choices: Morgan is suggesting we follow the advice of Deep Throat. Until I hear a better suggestion I will go with that. The government has now backed itself in to a corner. Anglo is going to need at least another €10bn (6% of GNP), possibly a lot more, in order to cover its likely future bad debts. This is money the government is going to find increasingly difficult to raise in international markets. I’m not sure the government has made contingency plans for when the Pension cash runs out. Morgan writes, “Attempting to recapitalise Anglo Irish is not only expensive and economically pointless, but futile.” Assuming this is true, it begs the question as to how the capital injection could be consistent with EU rules. The Commission’s recent communication (see link below to PDF file) emphasises the distinction between banks that are fundamentally sound and those that are not. Perhaps the way this will work is that the Commission will get a copy of the PwC report (which reportedly states that the Irish banks are compliant with minimum capital requirements — See Patrick Honohan’s IT piece below). In that case, will we see the “‘violent and ruthless truth telling” that Keynes demanded of international institutions? http://ec.europa.eu/competition/state_aid/legislation/recapitalisation_communication.pdf http://www.irishtimes.com/newspaper/opinion/2008/1211/1228864660643.html Comments are closed.