The Celtic Tiger has given way to the "Celtic Zombie." Oh, that name isn't making the rounds, but the word "zombie" seems to be a regular feature in any report on Ireland's economy these days.
Today Bloomberg carries a report on Ireland's "zombie" hotels. During the boom years Ireland added hundreds of new hotels thanks to tax breaks that made hotel investment attractive. Now, unfortunately, with the decline in visitor numbers, particularly business travelers, occupancy rates at Irish hotels have fallen to levels not seen in 30 years. So a lot of the new hotels are no longer viable, but due to the way the tax breaks were structured it would cost more to close them than to keep them open.
Those are the zombie hotels, but the biggest, most damaging zombie of them all is our zombie bank. If you haven't heard of Anglo-Irish Bank, that's probably just as well. This is the zombie that in Hollywood movies is the last and most difficult to kill. The biggest and strongest zombie only this zombie may kill us all and leave us with no Hollywood ending.
Today the bank posted a loss of €8.2bn ($10.4bn) for the first six months of this year. That is €2,000 ($2,500) per head of population lost, although the money was really lost during the stupid years when Anglo lent money to anyone who could turn the handle on the bank door.
The losses reported today are in addition to the €12.7bn ($16bn) reported as losses in the previous 15 months. Oh, and, lest you think the shareholders or bondholders have lost their shirts due to these losses, Anglo is 100% taxpayer-owned and bondholders are 100% state-guaranteed. So Anglo managed that feat solely for our benefit.
How much more money will the zombie bank cost us? That's anybody's guess, but billions anyway. And in an attempt to pretend things aren't quite as bad as they are, the zombie is reaching out and creating more zombies. The bank has a diversified portfolio of non-performing commercial loans and has been writing off loans to pharmacies, technology firms, hotels and other businesses in exchange for shares in these otherwise bankrupt companies. Or, as economist Brian Lucey sums it up: "You have a zombie bank propping up zombie companies. This creates a zombie economy."
For the past year or more the Minister for Finance in the Irish government has been praised lavishly for the manner in which he implemented a series of steps to save the Irish economy. He cut government spending and set up a so-called 'bad bank' (Nama) to absorb the banks' (it's not just Anglo, you know) bad property loans. Much of that praise has come from outside Ireland, such as last week's support from Canada's Finance Minister Jim Flaherty.
Flaherty, with that name he's clearly a member of the greater Irish family, was probably only trying to be helpful, but he'd better stand back now. I suspect that the Irish public's patience may soon evaporate as it's clear that recovery is still a long way off and that we haven't yet bottomed out. The zombies haven't finished their work yet.
Well-intentioned people like Flaherty might find themselves grouped with those in the government, who are after all, largely responsible for the fact that Ireland is now terrorized by zombies.