CURRENT AFFAIRS
With a new Government in place whose significant majority in the Dáil should bring a degree of stability, we ask the experts what can be done to facilitate Ireland’s recovery
New beginnings
FINANCE: A functioning banking sector Dr Elaine Hutson, a Lecturer in Banking and Finance at UCD Smurfit School, has been widely published in finance and interna- tional business journals, and has become a familiar face as a com- mentator in the Irish media during the financial
crisis.Hutson’s was one of those voices calling for temporary nationalisation of the Irish banks when the crisis hit, but like others her calls went unheeded. “When the crisis started I advocated in the media that we should nationalise immediately, as did a lot of my colleagues,” she says. “It turns out that would have been the right thing to do, because they are essentially nationalised now, but it has been at a much higher cost. “Within a couple of months of the crisis the British had already
taken major stakes in the big banks there, and that’s what the Government should have done here,” she adds. When it comes to getting Ireland back on its feet,Hutson believes
the real priority is re-establishing a functioning banking system. “I really think the critical thing is to get the banks lending again,
which clearly they are not,” she says. While it doesn’t getmuch coverage in the media,Hutson points out
that moves are afoot to do just that. “In the background there are huge teams in the banks and in the central bank working hard to sort this out. When the EU/IMF bailout was announced, they said that within three months they would have a plan for the banks. It is fair enough that itwould take time, because it was necessary to put people into the banks to find out what was going on and what could be done. “They are due to come out with a radical plan for the banks – and it
will have to be radical, because at the moment they quite literally have no money and they’re not lending at all. Until we get a properly func- tioning banking system, then there’s going to be little progress.” Hutson describes the likely scenario in coming months. “Anglo Irish andNationwide will bewound down of course, then the
two small players, Permanent TSB and EBS, will be merged with one of the other banks or taken over,” she says. “Of the two main banks, AIB and Bank of Ireland, I suspect at least one of those will be sold off to a foreign bank. That is a good thing inmy view, because the way we can get the banks lending again is for one to be sold to a large triple A-rated foreign bank that can actually raise funds at a decent cost.” There will be some pain to take, says Hutson. “The only way that
an acquisition by a foreign bank will happen is if there are various guarantees against some of the potentially bad loan book, and that’s
18 UCD BUSINESS CONNECTIONS
fine,” she says. “Yes there will still be liabilities for the State, but over- all it would be a very positive development.” Hutson believes that fears over lack of competition in such a con- solidated banking sector are, for the most part, unfounded. “We have Europe-wide regulations on competition in banks, so if a bank is licensed in one EU country it can operate quite easily in another. Of course the sector may not be particularly competitive in the next few years, but we’re just going to have to put up with that, and in the medium to longer term it will be fine. “When Ireland gets back on its feet, and if the banks here really are making fantastic profits, of course competitors will come in again.” She is optimistic too that the lessons have been learnt when it
comes to regulation of the banking sector. “I do admire Brian Lenihan for one thing, and that is that he put in two very strong cen- tral bankers, inMatthew Elderfield and Patrick Honohan.” On the fiscal side too,Hutson sees some hope. “I know it is not look-
ing good at the moment with the French and Germans digging their heels in, but behind the scenes I’m sure it is quite different. I’m rea- sonably hopeful. I think the EU will have to back down on senior bondholders, particularly in Anglo, and if they do we’ll pull through. “Some people argue that we don’t have much negotiating strength,
but I think we do, because we’re part of Europe and there’s no way that the eurozone can split. We’re all in this leaky boat together. They’re going to have to back down from this hard stance that I think they’re taking for political reasons.” Not that Hutson underestimates the challenges. “It’s a very com-
plex issue because a lot of the bondholders are European banks, but there is going to have to be some more pain sharing,” says Hutson. “Either that or Ireland gets run into the ground – and that would not be a good thing for the eurozone.”
ENTREPRENEURSHIP: Rising from the ashes Dr Ian Walsh is a Lecturer in the Department of Management at UCD Smurfit School. In his research he focuses on processes of redemptive organising that transforms negatively construed condi- tions into constructive outcomes.Unsurprisingly then, he has strong views on what can be done to get the country and its organisations back on their feet. “One of the things that I look at it inmy research is the experience of organisational decline and even demise, and how rather than
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