Here's How Ireland Got Into This Huge Mess With Anglo Irish Bank

Ireland Construction

Update: The Irish government has announced plans to split Anglo Irish Bank in two. Full details here >

We may only be a few hours away from an Irish government statement on Anglo Irish Bank that could decide the future of its position in the company.

It may not longer be worth it for Ireland to backstop the troubled bank as costs rise and impair the state’s ability to escape economic recession.

But the story didn’t start with Anglo Irish Bank. Ireland has gone through a housing bubble and credit boom, which resulted in a state bailout and now a bank that may be too big to bail for the tiny Irish state.

It All Started With A Massive Property Bubble

Ireland's property boom was at the heart of the Celtic Tiger phenomenon, and when it bust it brought much of the previous decade's economic growth with it, including several of the country's biggest banks.

Dublin: Boom To Bust

Dublin saw itself fall from Dubai on the Liffey levels back to Earth as massive projects like the 'U2 Tower' were canceled.

Photo: Overseas Property Mall

Recapitalization of Many Irish Banks

Ireland had to recapitalize its banking sector as a result of bad loans and property deals on their books. The National Asset Management Agency is continuing to funnel money into the system by taking bad loans onto its books.

Anglo Irish Bank

Status: State Owned

Current Cost to Irish State: €12.3 Billion

The Irish state's commitment to Anglo-Irish bank looks likely to be a 10 year affair.

Bank of Ireland

Status: State supported

Current Cost to Irish State: State continues to own €1.8 billion in shares

The Bank of Ireland intends to move away from government support in the next three years.

Allied Irish Bank

Status: State sponsored (State owns 18.6%)

Current Cost to Irish State: €3.5 billion in government recapitalization

Allied Irish Bank is currently attempting to sell off its Polish division in an effort to raise capital.

Irish Depression

Ireland fell officially into a depression in 2009, with at least a 10% drop in GDP from its previous heights.

Ireland left its recession only in June of 2010.

Bulldozing Vacant Homes

The National Asset Management Agency intends to buy up large quantities of finished and unfinished sites and bulldoze them to stabilise demand in the property marketplace.

Photo: Ireland After NAMA

The Irish Austerity Budget

The Irish austerity budget made severe cuts to public services across Ireland in an effort to reduce the deficit as a percentage of GDP and increase confidence in Irish sovereign debt. Welfare payments were slashed 4.1% and the total budget was cut 8.8%.

Picture: The Gulf Scream

The Situation at Anglo Irish Bank

Things are deteriorating rapidly for one of Ireland's bailed out banks.

Anglo Irish Bank has become the most expensive of Ireland's bailouts, with estimated costs rising to €25 billion, though that price could go higher, in a 10 to 20 year wind-down scenario.

The upfront costs of winding up Anglo Irish Bank right now are €70 billion.

It looks like Ireland's leadership may be on the brink of settling on a 10-year wind up plan with the ECB, however, in which the bank would be divided between a good and bad half.

Anglo Irish Bank's CDS has skyrocketed in the past few days, as investors have become concerned that Ireland may back down from its obligations. But Ireland's sovereign CDS has surged too, which may indicate that many are concerned that state might step in to support the bank with even more cash.

Anglo Irish Bank has even had to sell its extensive art collection.

Ireland's Choice

Ireland's position in the bailout may be the result of the EU's position that no bank in the region be allowed to fail. If that's the case, some are calling for the ECB to step in and bailout the bank themselves, as Ireland may not have the money to progress.

But if Ireland has to continue to spend, it may need to make even more cuts to its already austere economy.

Now Check Out How The U.S. Government Would Look Under An Austerity Budget

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