|Irish graffiti former Finance Minister Brian Lenihan and former Taoiseach Brian Cowen|
At midnight last Thursday the disastrous blanket guarantee given to the Irish banks in September 2008 by the last government reached the end of its extended term and finally came to an end.
The present government believes that the banks are strong enough now to function without the guarantee and will be able to access the funding they need without state back-up.
That remains to be seen. In the meantime, the ending of the guarantee last week was hailed as evidence of the success of the present government's policies.
In fairness, it is an achievement of sorts. But it has come at the expense of the Irish state pumping billions and billions into our banks over the last four years to pay their debts and to recapitalize them, which means that with one exception they are now all owned by us taxpayers (and we own a chunk of the single exception).
Whether our state owned banks could now fail to pay their debts without the country appearing to default is doubtful. So the announcement of the ending of the state guarantee for Irish banks last week may be more for the optics than anything else. But it is certainly a welcome footnote to a disastrous period in the Irish economy.
The infamous state guarantee decision in September 2008 ended up bankrupting the country within two years. In 2010, with the state unable to cope with the mountain of bank debt, the guarantee had forced us into the IMF bailout and into the program that robbed us of our economic sovereignty.
That state guarantee was the worst decision ever taken by an Irish government. Of course it was presented at the time as being a temporary measure necessary to avoid a run on our banks.
At the time the markets were worried about our faltering property boom. Billions in deposits were being pulled out of Irish banks that September and their share prices were plummeting.
The crisis intensified over a couple of weeks. There was a real danger that our banks would collapse altogether.
So after an all night crisis meeting with the bankers on September 30, 2008, the government gave the infamous blanket guarantee which meant that all the deposits in the Irish banks and all their debts were underwritten by the Irish state. This was necessary, we were told, to stabilize the banks. We didn't want the ATMs to run out of cash, did we?
We were assured that the banks had a temporary liquidity problem, but that basically they were solvent. The Irish property boom would end in a soft landing, not a crash, and everything would be okay.
In the beginning we were told that we were on the hook for a few billion. Trying to gauge in 2008 how big the potential risk was going to be meant guessing how far the market was going to fall.
Either the bankers did not know or deliberately underplayed the scale of the problem. The politicians, Brian Cowen and Brian Lenihan, and the top civil servants who were involved, failed to grasp what they might be getting themselves -- and the rest of us -- into.
In the end, as we now know, the total guarantee given by the state to the banks meant we had jumped into a black hole and no one knew how deep it was. We soon learned that the amount involved -- the liabilities of the Irish banks in debts and deposits -- was close to half a trillion euro.
A significant portion of that had been given out in toxic property loans and we ended up pumping around €64 billion into the Irish banks to make up for the losses and enable the banks to pay back their liabilities without all of them going bust.
Financing that, plus paying for our budget deficits, bankrupted the country and forced us to take the €85 billion IMF bailout in 2010. And the repayments on that debt are now a millstone around our necks and will be for decades to come.
Coincidentally, last week's resolution of the crisis in Cyprus prompted further revelations about the disastrous bank guarantee in Ireland in 2008.