Patrick Honohan: Debt and austerity - post-crisis lessons from Ireland
Address by Mr Patrick Honohan, Governor of the Central Bank of Ireland, to the London School
of Economics, London, 17 November 2015.
* * *
Accompanying slides can be found on the Bank of Ireland's website.
I am delighted to have been invited back to the LSE over forty years since I embarked on my
PhD studies under Michio Morishima and Cliff Wymer, having first taken the M.Sc. in
Econometrics and Mathematical Economics anchored then by Terence Gorman and Denis
Sargan, ably supported by up-and-coming stars such as Partha Dasgupta, David Hendry,
Steve Nickell and Amartya Sen.
My topic then was "Uncertainty, Portfolio Choice and Economic Fluctuations", a theme which
has not proved irrelevant to someone involved in macroeconomic and financial sector policy
in subsequent years! I still draw on the framework taught at the LSE in the 1970s, with its
emphasis on solid data analysis and time series econometrics as well as attention to
distributional issues and welfare economics. Certainly all of this and more is needed to
understand and respond to the required economic adjustments that emerge following a
financial crisis.
The challenge
From late 2008 the inevitability of a devastating economic downturn in Ireland, entailing
massive job losses and acute indebtedness difficulties, became increasingly clear. The task
for the Irish authorities from then on was to minimise the aggregate damage and navigate
through the coming years in such a way as to maximise the chances of a strong recovery of
employment and incomes. In parallel this would entail choices that would influence the
allocation of the heightened risks that had become evident as well as how the looming burden
would be distributed.
And recovery is under way. Having jumped from about 4 to 15 per cent, unemployment is back
in single digits. The decline is partly attributable to migration, but job growth has also returned.
The Irish downturn hit bottom in mid-2012, and the recovery since then has been solid:
employment grew by a cumulative 7 per cent in the following three years. [Three Charts:
unemployment and employment.]
Origins of the Irish crisis
The origins of the Irish financial and economic crisis of 2008-12 are well understood. The
strong economic performance of Ireland in the years running up to euro area membership (a
performance which had been based on a sustainable expansion of competitiveness-driven
exports) combined with the sharp lowering of interest rates at the time of entry created the
preconditions for a property bubble, not least a subversive overconfidence in the continuity of
growth and a complacent market-trusting regulatory and policy environment. From 2004-7,
easily financed by the plentiful supply of international liquidity, Irish and foreign-owned banks
advanced vast sums to Irish property developers and final purchasers of residential and
commercial real estate at home and abroad.
By 2007, 13 per cent of Irish workers were engaged in the country's construction industry -
twice as many as normal - and, as the boom fed other domestic sectors, the Government's
tax revenue soared with swollen inflows from capital gains tax and corporation profits tax as
well as property transaction-related receipts. The additional revenue allowed the Government
to lower the income tax schedule substantially over the years (as well as offering many
property-investment related tax concessions) and to increase social benefits and public
spending generally.
Overall real GDP growth rates - previously flattered significantly by the activities of
multinational corporations - were in the early 2000s being recorded at around 5 per cent per
annum, levels which, by this stage, were now attained largely because of the construction
boom.1
Role of bank credit
Qualitatively similar features to the Irish boom were also in evidence in other countries in those
years. What made Ireland distinctive was the scale of credit expansion, and the fact that a
bank credit-fuelled property-price bubble was accompanied - yet not noticeably moderated by
- a construction boom, exacerbating the scale of losses.
As far as the local banks are concerned,2 it is worth recalling that their growth and their losses
were entirely conventional and traditional in nature. For example, in contrast to the US case,
Irish banks did not rely extensively on an "originate, package and sell" model for their lending;
almost all of what they lent was kept on their balance sheets. And the Irish banks did not invest
much in the notorious US-based securitisations.3
After a record-breaking run-up to the point where Dublin residential property prices deflated by
the CPI were about 31⁄2 times the level of a decade before, property prices in Ireland peaked
around the turn of 2006-7 and started falling quite sharply soon thereafter. [2 Charts House
prices] By the Autumn of 2008, it was clear that a major economic correction was under way.
Employment in construction was falling, with knock-on effects throughout the economy. The
fiscal position was suddenly deteriorating. While there had been on average a general
government surplus for the previous decade, with gross government debt shrinking to below
25 per cent of GDP by 2007, reliance on the boom-time revenue sources that were now
evaporating had been so large that a sizable deficit was now emerging, augmented by the
increased cost of social protection spending. The deficit was growing both in absolute terms
and especially as a percentage of GDP, which was already shrinking alarmingly. Total
Government spending jumped from 39 per cent of GDP in 2007 to 58 per cent two years later
as measured at the time.4 Tax revenue fell by 30 per cent in the same period. While the tax
and spending movements had the merit of being a strong automatic stabiliser - the general
government position moved from balance to a deficit of about 14 per cent of GDP in the same
1
Indeed these measured growth rates greatly exaggerated the degree to which sustainable income was being
generated, given the future loan losses that were being embedded.
2
In addition to the banks active in lending to domestic borrowers (and this included half a dozen foreign-controlled
entities as well as the six main locally-controlled banks), almost half of the total assets of the Irish banking
system on the eve of the crisis related to export-oriented banks located in what had been known as the Dublin
International Financial Services Centre. These included sizable operations by banks such as DePfa/Hypo,
Merrill Lynch, State Street, and Citi. Thus, to say that the Irish banking system amounted to about 8 times GDP
in 2008 is correct, but exaggerates the size relevant to the Irish crisis by up to about half. (DePfa did fail in the
crisis, as did a small number of other German-owned bank or nearbank entities, but the assets, liabilities and
overall business of these entities were essentially all offshore, and their losses were not assumed by the Irish
Government).
3
Furthermore, there was only a modest involvement of Irish banks in explicit equity-type risk-sharing with their
borrowers, in contrast to the case of Iceland, whose banking system imploded within days of the dramatic Irish
guarantee of September 2008. Another contrast in pre-crisis banker behaviour with the situation in Iceland is
reflected in the fact that, in post crisis Ireland, criminal proceedings have to date been taken only in respect of
persons in one bank. Several other banks, including the two largest, were, however, sanctioned for
administrative breaches.
4
These are the figures as reported in 2010. The latest data give 37 and 54 per cent.
period (and would have been 111⁄2% in the absence of bank rescue spending), this would not
be sustainable for long.
Initial policy response
Although a deficit of 14 or even 11 per cent of GDP can hardly be considered austere,
Government had already begun a programme of fiscal adjustment in 2008, without which the
deficit would have been even wider. The taxation of income in particular was increased, and a
four-year plan of tax and expenditure changes designed to restore stability to the public
finances was under way.
Additional fiscal pressure was emerging from the banking system. Initially interpreted as
merely part of the global liquidity tightening that emanated from the US subprime problems,
the Irish banks were encountering increasing difficulties in rolling over their international
borrowings: maturities were shortening and the geographical spread of the providers of funds
narrowing (Lane 2015). Eventually, at the end of September 2008, just after the bankruptcy of
Lehman, the third largest bank (Anglo) was on the eve of being unable to meet its obligations
when the Government stepped-in with a blanket guarantee for the liabilities of the locally
controlled banks. At first it was not expected by the national financial authorities that the
guarantee (which was copper-fastened in legislation) would entail a significant budgetary
outlay, but they had not built in any safety-first mechanism to limit the State's exposure to the
pig-in-poke they had acquired. It soon transpired that supervisory awareness of the
vulnerability of the banks to the property turn-down had been very limited.
The sudden stop
The combination of the loss of tax revenue and increased spending on social transfers with
the emergence of a large contingent liability on foot of the bank guarantee was what created
the vulnerability of the Irish sovereign to a sudden stop in its access to international funding.
With market attention focused on Greece in the Autumn and Winter of 2009-10, and in the
absence of clarity on the likely loan losses of the Irish banks, the sudden stop was somehow
deferred. However, these conditions changed. The scale of the embedded bank losses began
to crystallise as the larger property-related loans were purchased at a market-related
"longterm economic value" by the Government-created asset management agency NAMA. That the
Government would have to meet either a large recapitalisation bill or an even larger cash call
on the guarantee became clearer in the third quarter of 2010. With the ECB reluctant to
envisage a long-term substitution of central bank funding for the private bank funding that was
not now being renewed (despite the Government guarantee5) the scene was set for an
international rescue, engineered with the IMF and a new European lending mechanism.
Worried that funding costs were moving higher than the cost of borrowing at the IMF, the
Government's borrowing arm (the National Treasury Management Agency) withdrew from the
market at the end of September 2010, hoping that conditions would improve before its sizable
cash balances would run out in the middle of the following year. But the banks were no longer
able to fund themselves and did not even have sufficient eligible collateral to refinance at the
ECB's normal operations: one-by-one they had to fall back on emergency liquidity assistance
from the Central Bank of Ireland, a facility tolerated by the ECB only for the short-term.
Had the ECB convinced the market that the Irish banks would be provided with sufficient
liquidity for as long as needed, the Government might perhaps have been able to formulate
and implement a renewed and deepened budgetary adjustment without the need for recourse
to official financing. Absent such statements of support, it was clear that an IMF programme
could not be avoided and this was negotiated in November 2010.
Austerity and macroeconomic adjustment
The fiscal plan embedded in the EU-IMF programme fully recognised the deterioration in
economic and fiscal conditions that had occurred since the Government's own four year
adjustment programme had been launched back in early 2009. The deterioration of conditions
at home and abroad meant that further belt-tightening would be needed, though in fact most
of the heavy lifting had already been done in 2008-10. The new plan envisaged reaching a 3
per cent deficit by 2015. This could have seemed a stretch to a naïve observer noting the
recorded deficit of 31 per cent in 2010 (about two thirds of which related to bank
recapitalisation), but in fact it was more than achieved. [Chart: deficit]
Unlike the situation with Greece, and to a lesser extent other stressed countries making fiscal
adjustments at the time, the Irish programme employed a realistic set of macroeconomic
spending multipliers from the outset (November 2010) and, while the forecasts did prove to be
somewhat optimistic for the early years of the programme, this was wholly due to
underperformance of Ireland's trading partners (not least in the double-dip euro area recession
of 2012). All in all, the programme delivered what it said on the tin, and so did the Irish
authorities, who adopted a policy of seeking to promise only what could surely be delivered
and then over-delivering.
The fact that it was external macro conditions in 2011 and 2012 that underperformed what was
projected at the outset of the Irish programme reminds us of the interdependence of European
economies and justifies raising the question here of whether the euro area fiscal stance as a
whole was not unduly contractionary in those years; I believe that it was. While many euro area
governments were also concerned about the rapid rise in their indebtedness during the first
phase of the crisis, it is easy to argue, especially given the sizable international balance of
payments surplus of the euro area as a whole, as well as the very low interest costs of
borrowing, that the aggregate euro area fiscal stance - with fiscal consolidation of as much
as two per cent of GDP in 2011, for example - was too tight.
But with Ireland's gross government debt soaring to 120 per cent of GDP by 2012, and with
much punditry at first about the apparent attractions of a sovereign default or debt restructuring,
Ireland's unilateral ability to run a more relaxed fiscal stance was extremely limited. Indeed, I
would argue that the speed of the subsequent recovery from about the middle of 2012 was
enhanced by the way in which fiscal policy halted and then reversed the growth in the debt
ratio. Delaying this dynamic would probably have slowed the economic recovery because it
would have deferred the return of business and market confidence in Ireland's financial
stability. [Charts: debt]
Not incidentally, it is important to bear in mind that the debt ratio figure of 120 per cent of GDP
needs to take account of the very large difference in Ireland between GDP (which includes the
profits of multinational corporations) and GNP. As has often been observed (IFAC, 2012) a
more internationally comparable ratio for debt sustainability calculations would use a number
closer to GNP than to GDP as numerator. So, comparing Ireland's 120 with figures for other
countries understates the relative scale of the Irish exposure.6
Still, servicing costs are also relevant in assessing debt sustainability, and these improved
dramatically from mid-2011, when the surcharges over cost of funds were greatly reduced in
respect of the borrowings from the European official creditors. Repayment of most of the higher
cost IMF borrowings in 2013 and 2014, and their substitution by market borrowings (now again
available at spreads of 100 basis points or less above Germany) also greatly eased debt
servicing costs, as did the general lowering of long-term interest rates in the euro area, and
the arrangements around the collateral seized by the Central Bank when the successor to
Anglo Irish Bank (IBRC) was liquidated in early 2013. In the view of many, including myself,
these servicing cost improvements made the difference between a sustainable programme
and one which would have had to be prolonged or renegotiated.
Q1: Should the fiscal plan built into the Irish programme have involved larger deficits?
Could fiscal adjustment have been slowed sufficiently to reduce the employment loss without
this simply postponing an inevitable adjustment and potentially making the long-run effect of
the needed adjustment even worse?
To slow the fiscal adjustment would clearly have entailed a higher rate of primary deficit,
thereby contributing to the accumulation of debt. But would there have been offsetting effects,
for example through the avoidance of hysteresis in unemployment reducing future
unemployment-related fiscal spending? What would the medium-term effect on the cost of
borrowing have been? And what might the impact have been on capital formation and saving?
These are not easy questions to answer. Macroeconomic models that work well through the
crisis and recovery are hard to find, and calibration must be rather speculative. But in the range
where Ireland has found itself, it is simply not the case that fiscal contractions are
selfdefeating: corrective action does work: the deficit ratio was reduced substantially and, in due
course, the debt ratio was placed on a downward trajectory.
I agree that some mechanisms arguing against accumulation of debt may tend to be
exaggerated in some quarters. The empirical growth impact of higher debt burdens is not as
great as has sometimes been claimed. And both optimal and safe transitory levels of national
debt are surely not insensitive to the medium term prospect for interest rates.
Let us imagine some simple counterfactuals. Suppose the programme had envisaged a higher
deficit path, thereby requiring the deficit to be reduced by, say, 2 percentage points of GDP
less than the actual path in each of the three years of the programme. Under such a
counterfactual, mechanically and assuming all other things equal, by the end of the three years
of the programme the deficit would have been running at 6 percent of the baseline GDP more
than it was and the debt ratio at that point would have been 12 percentage points higher. The
somewhat higher GDP levels which might have been attained in the counterfactual (as a result
of the higher fiscal deficit) would not have altered these ratios by much.7 Besides, GDP might
not have been much higher despite more net Government spending: doubts about the chances
of the Government recovering access to market financing on any reasonable terms at the end
of the programme would likely have constrained business investment and household
consumption. Undoubtedly, such a programme could not have delivered debt sustainability;
official lenders could surely not have endorsed such a plan.
But even if they had, could a path closer to full employment have been maintained at the cost
of a more gradual adjustment of the deficit and accumulation of more debt? That too must be
doubted: after all, the bulk of the peak-to-trough employment fall of 327,000 (over 15 per cent)
had happened in the eleven quarters before the programme came into effect. Only a decline
of 25,000 (seasonally adjusted) occurred between the fourth quarter of 2010 and the trough
seven quarters later (chart).8
Clearly, this sharp fall in employment - half of them construction jobs - in the first three years
of the downturn would have been hard to eliminate with aggregate fiscal demand. I think we
can rule out any Keynesian mechanism strong enough to re-employ workers who had lost their
jobs as a result of this combination of a sectoral shock (construction) with an externally-driven
macroeconomic demand contraction.
Anyone wishing to assert that a significantly better aggregate fiscal adjustment path, in terms
of the attained output and employment path, than the one actually negotiated by one Irish
Government - and implemented by its successor - in the EU-IMF programme of 2010 thus
has their work cut out for them. I would go further and suggest (but not prove) that, all other
things being equal (and I will come in a minute to the matters that might have been better not
being equal) the adjustment path was close to the best available to Ireland. Indeed, the
recovery might have consolidated somewhat faster if the Government had moved a little more
ahead of the curve, as in my expressed opinion at the time, though there was probably not
much in it.
Q2: How important was the bank guarantee in creating the need for fiscal contraction?
To be sure, in any assessment of the overall cost of the Irish boom and bust there are other
questions that can be asked about counterfactuals that track back to earlier decisions. Most
often discussed is the question of the bank guarantee. I have repeatedly observed that this
guarantee was too wide and too unconditional; I will not repeat here the details of what might
have been done differently. But, while it is often correctly emphasised that the Irish
Government's guarantee socialised private bank losses, any overall assessment needs to
consider a comprehensive alternative path, and not simply fixate on the direct fiscal long-term
costs of making good on the guarantee, costs that have been variously estimated at between
€35 and €43bn, or between 22 and 27 per cent of 2008 GNP.
One approach is to consider a counterfactual in which Ireland would not have provided as
extensive an unilateral bank guarantee in September 2008, either hoping to persuade
European partner countries to share in the cost or risk of such a guarantee, or resolving the
two weakest banks with heavy losses to senior bank creditors (as would be implied by the
BRRD legislation just now coming into effect in Europe). Of course the decision makers of the
time did not consider such options, because they did not think there was a significant risk of
losses on the scale that actually occurred. If they had pursued this course, it is clear that
economic disruption could have been greater. The net costs would have been lower, but
arguably only by a sum in single digits of billions.
To be sure, the larger policy errors were made long before the bank guarantee. Perhaps the
most interesting counterfactual to be considered is to imagine that the bank lending excesses
of 2004-2007 could have been eliminated by effective bank regulation. If so, the post-crisis
period of fiscal contraction could have been wholly avoided. (Chart)
Inequality in boom and bust (i) income
It's one thing to say that aggregate economic activity was protected by the Irish Government
as well as might be, but another to say that the income and capital losses were distributed in
an equitable manner.
At first sight, the situation here might not seem too inegalitarian. For example, while the Gini
coefficient of market income jumped in 2008 and 2009 and by 2012 was still notably higher
than it had been during the boom, the Gini for disposable income, after taking account of
income-related taxes and social payments, hardly moved and indeed reached a lower level by
2012 than it had eight years earlier. [Charts: Gini and poverty]
Likewise for relative poverty lines: while the poverty count (at the 50% threshold) measured on
market income increased in the crisis; poverty rates measured on disposable income fell.
The contrasting movements of the Gini on gross and net income reflect the degree to which
reductions in social payments were limited in the fiscal cutback, and also the progressive tone
of income-related tax changes in the downturn. The Irish tax-and-welfare system held relative
poverty rates to levels comparable to those of the UK, for example, despite a much steeper
increase in comparable market divergences in Ireland (likely reflecting the much steeper jump
in unemployment to almost 15 per cent in Ireland by 2012.)
Still, a proportional lowering of income surely means a more severe welfare impact on lower
income groups. The fact that the Irish macroeconomic correction has not worsened measures
such as Gini or relative inequality should not be interpreted as saying that the burden has been
shared equitably.
Inequality in boom and bust (ii) wealth
And these income calculations do not take account of the capital losses incurred especially by
those who had leveraged themselves near the top of the market to buy residential property
and other assets (such as bank shares!) that subsequently slumped in price.
There are areas of concentration. Households too uncreditworthy to have access to borrowing
escaped this dimension of the boom and bust: this dimension to the downturn is not evidently
correlated with that of income changes. Residential property losses are disproportionately
found in certain age groups, notably those now in their late 30s and early 40s.
Not everyone lost in the bust: after all, sellers of real estate in the boom period had a gain to
fall back on when the downturn came.
The first extensive household wealth survey for Ireland in over a quarter century was carried
out during 2013 for the Central Bank of Ireland. Using this data and imputations based on
independent sources of data on house prices and mortgage credit it is possible to quantify
some of the main features of household wealth and indebtedness during the boom and bust.
(Charts from Lydon et al).
The movements here are large but they affected all classes of individual and household.
Attempts to measure the movements in Gini of wealth during the crisis suggest that these were
small relative to the trend in the Gini of wealth over the previous quarter century.9
Personal over-indebtedness
Personal over-indebtedness remains a significant problem for many households, albeit a small
minority. Everyone agrees that this situation is suboptimal, but analysts are divided as to
whether the ideal solution involved more collateral repossessions or deeper debt write-downs.
The number of repossessions is very small if compared with the experience of the UK or US,
for example, so we may take it that Ireland has escaped the error of levels of repossession
that are so high as to be economically inefficient. On the other hand the banks have been too
slow, despite sticks and carrots from the Central Bank, to recognise situations where deep
debt restructurings involving some element of financial engineering (e.g. split mortgage
solution) would result in debt sustainability and better loan-loss performance over time.
Progress has been made, but still the level of unresolved non-performing loans remains too
high. As the economy recovers, so too will the debt servicing on some of these loans, but
probably not as many as the banks hope. All available policy tools to improve the situation
have been energetically deployed, but on the whole have proved somewhat lacking.
Q3: The role of international solidarity - could it have done more?
Were some other options potentially available at the level of the European Union to reduce the
damaging output and activity effects of the fiscal contraction, thereby potentially accelerating
the recovery in Ireland (and why were they not implemented)?
Ireland did lose access to the financial markets in late 2010 and would have had to implement
a drastic and sudden fiscal contraction in the absence of international financial assistance. The
Irish authorities were not entirely passive in the decisions about the speed of adjustment that
would have to be implemented, but (as already indicated) they could not have negotiated a
more gradual adjustment than actually happened. Still, perhaps other things should not have
been equal. What factors, if implemented differently by partner countries, could have eased
the situation and allowed a more gradual adjustment, without damaging longer term growth
prospects?
(a) Financial engineering (i) bank recap - could have been profitable
The EU-IMF Programme as negotiated included a sum of €35 billion - about one fifth of annual
GNP - to be provided by the Government for additional capitalisation of the banks if needed
to meet the higher capital requirements of the programme and to cover deleveraging costs and
more aggressive stress test assumptions that could result from a new and intensive capital
adequacy review to be carried out in the early months of the programme. In the end, less than
half of this €35 billion was needed - and much of what was injected in this phase will eventually
be recovered by the Government as it sells off its stake in the three surviving banks. But would
it not have been better for these sums to have been injected directly by the ESM directly? The
ESM could, for example have taken an equity stake in the relevant banks, or it could have
offered a tail-risk insurance on the banks' assets, rather than adding to the debt overhanging
the Government. This point was argued by the Irish authorities at the time, but received a stony
response.
A smaller debt overhang for the Irish Government in 2011 would surely have hastened the
restoration of market confidence, the recovery of productive investment and consumption
spending (sustaining domestic economic activity) and the recovery of the public finances.
And the ESM could well have made a higher return on the capital injection than it has on the
Government loan.
(b) Financial engineering (ii) GDP growth-linked loan - could have enabled faster
growth response with lower servicing at first
The Irish Government did have to borrow on a scale which threatened debt sustainability.
Could the debt have been structured in a way that reduced that threat? Clearly: yes. A
GDPgrowth linked loan could have substituted for part of the debt. Such a contract would have
transformed the consequences of a slower-than-hoped recovery by limiting or eliminating debt
servicing payments in an orderly and pre-agreed way until GDP recovered sufficiently. This
too would have accelerated the return of private sector confidence and boosted economic
activity. Servicing of the indebtedness would not in fact have been interrupted and here again
the ESM could, depending on the parameterisation of the contract, have cleared a larger profit
in a win-win result. This too was floated to an unresponsive ESM and IMF, neither of which
had such tools available.
(c) Stronger EU demand policy from countries with headroom
Even if stressed countries like Ireland had no headroom for relaxing fiscal adjustment, this is
not the case for the euro area as a whole. While debt ratios increased a lot during the crisis,
they were still well away from a danger point, not least when the low level of long-term
government bond yields on the unstressed countries are taken into account. Aggregate fiscal
policy in the euro area was strongly contractionary, and this adversely affected stressed
countries. The scale of the favourable demand spillover may not have been uniform or large,
but it would have been advantageous.10 The increase in ECB policy rates in 2011, announced
to head-off what proved to be a short-lived, largely oil-price driven, uptick in inflation, didn't
help either.
(d) ECB promises
Could the ECB have prevented the need for an EU-IMF programme? Two suggestions have
been made in this direction. One proposition is that reassuring statements from the ECB about
the continued availability of funding for the Irish banks would have stemmed the deposit outflow
and reduced the urgency of entering a Programme. That may be the case, but it can also be
argued that attempting to struggle on with bond yields at 7 or 8 per cent (because of the
remaining concerns of the market about Government debt sustainability) would not ultimately
have reduced the burden on the average Irish citizen even if the Government had indeed
followed the same tightening of fiscal policy as it did in fact pursue. Probably a programme
would have become inevitable within months anyway.
The second proposition is that the Mario Draghi's announcement and the ECB's Outright
Monetary Transactions (OMT) programme came two years late, and would have prevented
the Irish crisis. This simply misunderstands the nature of OMT, which kicks in only for countries
that are entering a programme (and is only really needed to protect the system as a whole
when the pressure is coming on very large countries). By the way, one can recall that, even in
2010, quite significant volumes of Government bonds of Greece, Portugal and Ireland were
bought in the secondary market by the ECB in its SMP programme (extended in 2011 to Italy
and Spain).
(e) Holders of unguaranteed senior bank debt
Finally I need to include the very widely discussed issue of the holders of senior bank debt. It
is well known that the Irish Government was leaned upon in late 2010 and mid-2011 to avoid
burden-sharing with the holders of unguaranteed senior debt in the failed banks Anglo and
INBS. The sum involved was about €5 billion or around 3% of Ireland's GNP. From Ireland's
point of view, saving even a fraction of this amount would have been a valuable cont