|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.
Speaking last week in the wake of the decision to burn depositors in banks in Cyprus, the German finance minister was asked what implications this had for Ireland, where we had been forced by the EU to pay back all the bondholders and depositors in full to avoid undermining confidence in European banks.
Minister Wolfgang Schauble said that this was different and that Ireland itself had the "sole responsibility" for giving the bank guarantee in 2008. This was very interesting because despite strenuous efforts by the media here, no one knows what happened at the all night meeting on September 30, 2008 between the bankers, the politicians and their advisers.
Even though this is the most important financial decision ever taken in Ireland, we have been kept completely in the dark. Here at last was a chink of light.
Schauble stated categorically that the disastrous blanket bank guarantee was an Irish decision alone. It was not forced on us by Germany or the European Central Bank or the IMF, as has often been suggested. According to him, we dug our own grave.
This is a vitally important issue for Ireland because it was this decision, effectively turning the mountain of debt owed by the banks into sovereign debt owed by the Irish taxpayer, that caused us to go under.
Despite what Schauble says, we don't know how much pressure was put on Ireland at the time to give the guarantee, even if the final decision was left to us. We do know, however, that it was an absolute condition of us getting the EU-IMF €85 billion bailout in 2010 that all depositors, bondholders and other lenders to our banks had to be paid back in full.
It was the EU view that any default by Irish banks could cause "contagion" across European banks and a possible bank run in some countries. So us failing to pay back some big investors/depositors or imposing a haircut on bondholders was out of the question.
So Ireland bit the bullet and started paying back all the bondholders and investors, a process that is now almost complete and was achieved with bailout money that has to be paid back.
Since then we have seen the EU policy on this question shift in Greece and now in Cyprus. It seems that now bondholders or depositors can and will be burned if an EU bank gets into trouble.
What this means, of course, is that the EU is now admitting that the full bank debt repayment policy it imposed on Ireland, either in September 2008 or in the couple of years after that, was wrong.
Forcing Ireland to transform all the private bank debt into sovereign taxpayer debt was wrong.
Despite this effective admission, however, the EU is not changing its policy towards Ireland on the debt question. We got a half promise last year that private bank debt and sovereign debt would be separated in EU countries that got into trouble.
We argued that this should be applied retrospectively to us. But so far, despite the Cyprus deal, nothing has been done.
If it did happen, the new EU financial rescue funds could take over our bank debt and leave the Irish taxpayer to deal with our budget deficit debt. If Spain and Italy get into deeper trouble, you can be sure that some variation of this will happen. Either that or more depositors/bondholders will be getting a haircut.
Ireland's problem is that it was the first country to get into trouble, and since then the rules of the game have changed. And in spite of all the sympathetic guff from our "colleagues" in Europe, no one cares too much that we have been left holding a very bad hand.
As you know, we recently got a deal from Europe on about half of our bank debt mountain (the Anglo-Irish half) which extended our repayment time for that part of the bailout money by a couple of decades. But, crucially, it did not include any debt write down.
We are also campaigning in Europe for a similar deal on the rest of the bank debt mountain, to push our bailout repayments on that out into the future. But again there is no suggestion of a write down.
Morally, all of this stinks. Ireland was forced into the dire position it is now in by the EU, but Europe does not want to share the cost of what has happened to us. They refuse to help even though it was saving European banks and the euro that got us into the mess.
Europe thinks it's okay now to change policy and offer different solutions to other countries, and that Ireland's taxpayers should carry on as before bearing a huge repayment burden.
The end of the state guarantee last week does not change any of this. Nor does it mean Irish banks are out of the woods.
There's a mountain of bad domestic mortgage debt coming down the tracks here which could make the Irish banks insolvent again. Unless of course the Irish government puts more borrowed billions into them and the Irish taxpayer is again left to pay the bill. Watch this space.