At the time of writing, the Irish bank shares have fallen by about 50 per cent since last Friday’s closing price. The last time there was a one-day fall of comparable percentage size was at end-September, 2008 and it was immediately followed by the announcement of a blanket guarantee.
Let’s not have any knee-jerk reaction this time. The bank shares were already worth almost nothing, so there is scarcely any real impact of this price movement on the economy and on incentives.
Instead we need to have a process of confidence-building in the coherence and feasibility of the overall economic policy strategy for recovery. This must include a broad acceptance of the parameters of tax and spending policy, including on public sector pay. (Banking issues are only part of the equation and they will not be improved by sudden or half-baked initiatives.)
Previous posts have talked about public sector pay and restructuring the tax system. Getting a broad social consensus around an acceptable policy approach must surely be the priority. Here too, precipitate action will not be helpful. We need to know not only the government’s intentions; but that they will be seen as sufficiently effective and fair to elicit broad support rather than a general rejection and protest.