Terrible Thursday – The Fianna Fail Titanic hits the rocks

€50bn bank bill will lead to savage cuts and tax hikes
By Shaun Connolly and Scott Millar

Friday, October 01, 2010

THE €50 billion hit of the bank bailout left Ireland braced for deeper cuts and rising taxes as Black Thursday blighted the nation’s finances for a decade.

As Brian Lenihan insisted the country had hit “rock bottom” the Finance Minister warned that December’s austerity budget would now be “significantly” harsher than feared – pushing the cuts needed well above the €3bn already indicated and risking the collapse of Brian Cowen’s increasingly fragile administration.

Taxes looked set to soar as Mr Lenihan revealed what he promised would be the final cost of keeping zombie bank Anglo Irish Bank alive and stepping in to shore-up other financial institutions.

As ministers scrambled to try and absorb the massive cost of the bailout, unions warned them not to put the wages of teachers, nurses and other public sector workers in danger again by invoking the emergency get-out clause of the Croke Park deal.

Opposition parties accused the Taoiseach of presiding over an economic and financial disaster, insisting he had no mandate to draw up a new four-year austerity budget plan which is to be submitted to the European Union next month.

Fine Gael finance spokesman Michael Noonan said Ireland’s credit rating status was now in tatters, which was the real reason ministers had abandoned plans to raise extra cash via the sale of Government bonds in the next two months.

Mr Noonan said the Government had almost ruined the country in its blind obsession with Anglo, describing the Government as “a losing gambler unable to quit betting”.

Labour’s Joan Burton branded “Black Thursday” a “day of infamy” which would haunt generations to come.

Families, taxpayers and welfare recipients were once again put in the financial firing line after the Central Bank massively increased the final cost estimate for the bank bailout to the taxpayer from €33bn to almost €50bn.

Anglo alone will eat up two-thirds of that, with a “worst-case scenario” bill of €34.3bn.

This will push the budget deficit up to 32% of gross domestic product, 10 times the EU limit, and shackle the state with a total debt burden equivalent to almost 100% of GDP.

Mr Lenihan, who initially claimed the bailout would not cost taxpayers a cent, refused to accept any of the blame for the situation and he insisted that the country could cope.

“Yes of course these figures are horrendous, but they can be managed over a 10-year period,” he said.

The minister said he did not expect schools and hospitals to close as a result of the Anglo pay-out, which is equivalent to more than everything the state will receive in taxes this year.

However, he insisted that fundamental changes in Ireland’s public services would be triggered by it.

In a day of frenetic financial activity, the Government also moved to effectively nationalise AIB with a €3bn cash injection and announced it was pumping an additional €2.7bn into Irish Nationwide.