The government has been trying out a series of arguments against nationalisation. However, while one can make cogent arguments against nationalisation (and we have had a wide-ranging discussion about these arguments on this blog) the latest arguments from government seem particularly weak. My old friend Alan Ahearne, now special adviser to the Minister for Finance, roled out the latest arguments today:
“Nationalization has lots of downsides for a banking system like Ireland which relies on international funds,” Mr Ahearne, a former Federal Reserve economist, said at an event in Tullamore, Co Offaly today. “Nationalization is often viewed from wholesale markets as a sign that the banking systems have completely failed. That’s a message the Government would not want to give out,” he said.
Let’s recall, however, that the only reason the Irish banks are currently able to borrow international funds is because the government has issued a blanket guarantee on their liabilities. In effect, the banks’ debts are also government debts. So, there is no reason to think that nationalised banks would have any less access to international funds than the current propped-up outfits.
As for not wanting to send out messages about the poor state of our banking system, I think that’s a ship that’s already sailed. We should not let wishful thinking substitute for a rational assessment of the scale of our problems.