Shellshocked Irish weigh bank bailouts, bankruptcy

DUBLIN — It's the world's biggest banking black hole — and it's in Ireland, one of Europe's most troubled economies.

The debt disaster at Anglo Irish Bank means that Ireland is tasked with carrying out the continent's most ambitious bank-bailout program at a time of surging deficits and welfare lines. The unrelenting tide of red ink has analysts and Dubliners alike asking: How on earth will Ireland keep paying its bills?

"Every man, woman and child walking down that street out there has been put in a deep, dark hole by the bankers. We've all been given a bill we can't pay for a hundred years," said John Doyle, a car mechanic patching a flat tire at his backstreet Dublin garage.

At the center of the crisis is Anglo, a specialist lender that bet all its chips on a runaway property market during Ireland's boundlessly optimistic Celtic Tiger boom of 1994-2007.

Ever since the global credit crisis plunged the economy into reverse two years ago, unemployment has tripled to 13.8 percent, private construction activity has collapsed, tax collections have shriveled and the national deficit has swelled to the largest in percentage terms in Europe.

"You wonder if Ireland is going down the same route as Greece. The country is hemorrhaging money at an alarming rate," said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin.

The government of Prime Minister Brian Cowen has won plaudits internationally for its swift intervention since 2008 to prevent bank failures and fight the deficit with severe cuts in ordinary people's incomes. Cowen, the European Union and International Monetary Fund agree that Ireland must keep cutting spending by at least euro3 billion next year — but the ballooning cost of saving Anglo keeps undercutting that effort.

So far, the government has thrown euro35 billion ($45 billion) into Irish-owned banks, about two-thirds of that into Anglo alone, in hopes of preventing the chaos that followed the U.S. collapse of Lehman Brothers. In doing so, it offered a Europe-unique blanket guarantee to pay back international holders of all Irish bank-issued bonds, rather than let Anglo fail and let its investors stomach the losses.

But many, even within Cowen's own coalition government, now criticize that guarantee as recklessly generous, and question whether Ireland would be better off making Anglo investors bear at least some of the losses.