"Dicing with Debt", reported by Marian Wilkinson and presented by Kerry O'Brien, goes to air on Monday 12th March at 8.30pm on ABC1. It is replayed on Tuesday 13th March at 11.35pm. It can also be seen on Saturdays on ABC News 24 at 8.00pm, on iview or at abc.net.au/4corners.
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Dicing with Debt - 12 March 2012
MARIAN WILKINSON, REPORTER: If you want a quick, brutal lesson on Europe's debt crisis, just ask an Irish property developer. Simon Kelly was one of the biggest in Dublin. Today he's bust. His business is over 600 million dollars in the red, and much of the empire he and his father built along the Liffey River is in the hands of the government agency managing Ireland's debt-ridden property assets.
SIMON KELLY, PROPERTY DEVELOPER: Ah, well certainly our two over there are in the asset management agency, but if we switch again to the south side here, this big office block here is... this one up here is as well. We developed the hotel there behind it, which is partially with the agency, and as we move down the quays, we've constructed a second office building there, with the majority of buildings around us would be in the agency. So the agency is to manage all of this real estate.
MARIAN WILKINSON: So all this real estate is basically...
SIMON KELLY: Nationalised.
MARIAN WILKINSON: Nationalised.
SIMON KELLY: Yeah, at this stage. Or as good as.
MARIAN WILKINSON: And how much have asset values dropped? How much have property values dropped?
SIMON KELLY: Down here, these brand new buildings have still dropped 50 per cent.
MARIAN WILKINSON: Wow.
BUSKER (singing): Every day I try to salvage some of my pride / to find some work to pay my way. / But everywhere I go, the answer's always "No, / "There's no work here for any man today".
MARIAN WILKINSON: It's been well over a year since Ireland was bailed out of its debt crisis by the European Union and the IMF. But today, unemployment is stuck at over 14 per cent, and youth unemployment is double this. The Irish economy is showing few signs of life and the Irish government is still mired in debt. Many Irish are asking whether the tough austerity measures demanded by the bailout are curing them or making them worse.
FIONA FITZPATRICK, BONDHOLDER BAILOUT PROTEST GROUP: Our hospitals are under threat of closure. Our schools have been affected, and our education service and health service are really badly affected. People who need help aren't getting it. We are developing a very unfair and unequal society. I want fairness in society and I want my children to have a future here, and I don't think that's happening right now.
MARIAN WILKINSON: Ever since the debt crisis began, this anger has echoed in protests across Europe. Behind it lies one fraught questions. How much do ordinary citizens endure in cuts to wages, pensions and services to pay for the massive credit binge that left banks and European governments, from Ireland to Greece, awash with bad debts? And how much will investors share the burden?
Ireland has repeatedly received the painful message: unless taxpayers foot the bill for its huge debts, global financial markets won't lend to its banks or its government except at impossibly high interest rates. It's a message being pounded out to countries across Europe as the great debt crisis heads into its second dangerous year.
JURGEN STARK, FORMER EXECUTIVE, EUROPEAN CENTRAL BANK: What we have experienced most recently - in the case of Greece, in the case of Ireland, the case of Portugal - is that advanced economies are facing a sudden stop. A lack of access to capital markets. A sudden stop. So, overnight, no access to the capital markets anymore.
DIARMUID O'FLYNN, BONDHOLDER BAILOUT PROTEST GROUP: Basically. this is extortion. and that's what it is. It's extortion. It's the bullyboys of Europe, you know the ECB, the financial bullyboys of Europe. forcing us to pay a debt that was never ours.
JURGEN STARK: A painful approach, however unavoidable, because both countries - Ireland and Greece - have lived beyond their means, and they have now to pay a very high price in this correction process, with the support of the European partners and the international community.
MARIAN WILKINSON: Until now, Ireland has been hailed in Europe and the IMF as the "poster child", showing how a nation in the Eurozone can best face up to its debt crisis. Unlike Greece, Ireland has not yet risen up against creditors or its grim austerity program. But on the ground, the story is not a pretty one. Especially if you start in Leitrim. It's a county I know as one of the poorest in Ireland because my mother grew up here - just outside the little village of Kinlough. And my cousin, James McGuinness and his family, still live here.
Even here, in one of the most remote parts of Ireland, their village was swept up in the madness of the property boom that crippled with the country with debt. And the family is still trying to digest how it happened.
JAMES MCGUINNESS: That was the first big mistake. There would have been no crash, because if they hadn't got planning, they wouldn't have borrowed the money, which in turn wouldn't have led to what we know exists - not just in Leitrim but all over Ireland, in fact.
MARIAN WILKINSON: On the edge of the village my cousin shows me the wreckage of a huge ghost estate now left deserted by the developer and his bank.
(to James McGuiness) How much were they trying to sell these houses for?
JAMES MCGUINNESS: Well, the all-in price was around 340 000 euro - that's completely fitted out and furnished. Down to the television set.
MARIAN WILKINSON: And now a lot of them actually look vandalised.
JAMES MCGUINNESS: Well, they are for a couple of reasons. First of all I suppose, they were looted by many of the workers who were owed money from them, and many of the parts stolen back out of them again. And then local young lads may have broken the windows and stuff like that, you know.
MARIAN WILKINSON: What happened to the developer? Did he go bust?
JAMES MCGUINNESS: He did. Yes, he owed something like about 14 million to the Bank of Scotland.
MARIAN WILKINSON: This sparsely populated county has the most empty houses per head of population in all Ireland. It's a shocking testament to the reckless bank lending that saw property development and construction take over almost a quarter of Ireland's economy just before the crash.
(to James McGuiness) What do you think'll happen to them, these houses?
JAMES MCGUINNESS: The general... the local view or general view is that they'll probably be tossed.
MARIAN WILKINSON: Bulldozed.
JAMES MCGUINNESS: Bulldozed to the ground.
MARIAN WILKINSON: Ireland's property boom was fuelled by cheap credit that poured into the country after it joined the European Monetary Union a decade ago. While foreign banks joined the party, by the far the most reckless lenders were the Irish. This Australian banker knows just how reckless. He was hired after the crash to clean up Ireland's worst ever bank, Anglo Irish. He could barely believe what he found.
MIKE AYNSLEY, GROUP CEO, IRISH BANK RESOLUTION CORP LTD: Well that really was a... it's one of those um you know, "Oh my God" moments. By the time we got through the first analysis of the loan portfolios it was looking pretty bad, but even then we didn't really understand how bad it was. This was an organisation that went from effectively zero to a hundred billion at light speed, so they just had a bunch of relationship managers out there looking for opportunities to lend money to talk to people about new developments, to find out ways how they could finance those developments and to extend the credit, and then they'd turn around and work out after the fact how they were going to fund them.
SIMON KELLY: You had a project, you just... you went to Anglo. You didn't think about going round town and putting your business out there. It's like, if you're in New York, you try to get to Goldman Sachs. You just go to Anglo.
MARIAN WILKINSON: For developer Simon Kelly, the stately Shelbourne Hotel here in Dublin was a cosy spot for his power breakfasts with the money men from Anglo Irish Bank.
SIMON KELLY: It was a lovely place to go and talk business, because you got served a glorious breakfast with silver service.
MARIAN WILKINSON: And what's the biggest deal you discussed over breakfast?
SIMON KELLY: I think we... our redevelopment in Smithfield, which was about 220 million euros of development bank debt, was probably the biggest one in terms of one single deal. I mean, we talked about bigger numbers, but it was the biggest loan we got over breakfast, yeah. That might have taken a few breakfasts.
MARIAN WILKINSON: Anglo Irish Bank, now holds the record for the largest ever corporate loss in Irish history. But during the boom, the bank's then-chairman, Sean Fitzpatrick, railed against tougher financial regulation.
SEAN FITZPATRICK, FORMER CHAIRMAN, ANGLO IRISH BANK: The danger if you have too much regulation is that you're just going to stifle business, and we're not going to have any success, and we're not going to have any growth. So what are we gonna have, then? A situation where we're absolutely, you know... totally regulated and nothing happening? Is that what we want?
BRIAN CAREY, CO-AUTHOR, THE FITZPATRICK TAPES: Sean Fitzpatrick probably would have been amongst the top three or four respected business people in Ireland, absolutely without question. I think what he had done with Anglo Irish Bank in terms of bringing it from a very small institution which was, you know, writing leasing agreements on photocopiers back in the 1970s, 1980s, to a bank that was funding the one billion euro takeover of the Savoy Hotel group in London. It was an absolutely amazing transformation from this very small institution into one of the most respected banks - not just in Ireland but in Europe. He says that he never cultivated political connections, but at the same time there was one particular member of his board, who was a good friend of Sean FitzPatrick, who was also a good friend of Brian Cowen who became the Taoiseach.
MARIAN WILKINSON: And that's the prime minister here?
BRIAN CAREY: That's the prime minister, yeah.
MARIAN WILKINSON: Ireland's former Prime Minister, Brian Cowen, and his long-reigning Fianna Fail party, were cheerleaders for the developers and the banks right up until the crash.
JOAN BURTON, MINISTER FOR SOCIAL PROTECTION: The bankers and the developers and some of the politicians were the masters of the universe, and people like me who dared to ask them questions were just brushed off.
MARIAN WILKINSON: Joan Burton was one of the few Irish politicians who warned of the perils of the boom when she was in Opposition.
JOAN BURTON: We had a government which was to a degree funded by the developers in terms of political donations. And, as it were, a three legged stool or a golden circle, they basically fed each other. Their optimism was boundless. There were no boundaries in relation to financial regulation, and the government then fuelled it with tax breaks for construction. The banks became utterly reckless and our banking regulations structured failed.
JURGEN STARK: The financial sector became extremely large, extremely huge - so let's say three times or five times the GDP of Ireland. And in the case of an accident, the Irish government could not rescue the banking system anymore.
MARIAN WILKINSON: The accident that hit was the Global Financial Crisis and Ireland was completely exposed. The collapse of the giant US bank, Lehman Brothers, in September 2008, triggered a meltdown in Ireland's banks. Creditors and depositors took flight overnight.
ALAN AHEARNE, FORMER SPECIAL ADVISOR TO THE FINANCE MINISTER: Irish banks had made a lot of loans, but they had got that money from abroad - from Europe and from the United States - and that money was flying back out to the countries in which it came from, so they were the first to really feel that funding pressure.
MARIAN WILKINSON: At this defining hour, Ireland's Fianna Fail government took a fateful decision that would ultimately bring the Irish state to the brink of insolvency. It announced the government would guarantee every bank in Ireland. A decision the Finance Minister, Brian Lenihan, justified to parliament as vital to prevent a run on the banks.
BRIAN LENIHAN, IRISH FINANCE MINISTER (September 2008): My view, and that of the government, on the basis of its assessment of the advice it received, is and remains that Ireland faced the likely collapse of its banking system within days in the absence of immediate and decisive action.
DARA CALLEARY, FORMER MINISTER FOR STATE: The decision was taken because at that stage... at that time, our banking system, our entire banking system, was on the verge of collapse.
MARIAN WILKINSON: But some argued even then the government was courting disaster.
JOAN BURTON: Anglo Irish Bank, was at the core of the meltdown in Ireland. We also had big mainstream banks like the Bank of Ireland and Allied Irish Bank, and we had a number of smaller building societies - savings and loans institutions. We put them all in the same pot and we guaranteed all of them without reservation. I thought that was a crazy way to do it.
COLM MCCARTHY, ECONOMIST, UNIVERSITY COLLEGE DUBLIN: The government did not realise how bad the situation was in the banks. They assumed that the banks were facing a liquidity crunch, which banks generally were at that time, but they didn't really allow for the fact that the banks might be seriously insolvent.
MARIAN WILKINSON: So they almost literally wrote the banks a blank cheque.
COLIN MCCARTHY: In effect, in effect they did. As it became manifest that every single bank was in trouble - it wasn't just one or two, including the biggest banks in the state - every one of them would have gone out of business if it hadn't been for state support.
JOAN BURTON: This was the Irish government putting all the debts of the bank, of the banks, onto the quite frail shoulders of Irish citizens and taxpayers, and so far that's turned out to be in the region of 65 billion.
MARIAN WILKINSON: By early 2009, Ireland was heading toward the rocks. At this critical juncture, Dr Alan Ahearne, one of the country's leading economists, was called from his academic post in Galway to work as Special Advisor to the Finance Minister.
ALAN AHEARNE: So there was a feeling of being in the trenches, wondering what missile would be lobbed in on us today. I mean, it was very stressful at that time, because the Irish economy was really falling off the cliff. I think we were losing about twenty five thousand jobs per month, and you could almost feel the economy contracting. And in addition, the banks were losing an awful lot of deposits, foreign depositors were withdrawing their money from the banks, and it was getting more and more expensive for the Irish Government to borrow on international markets.
MARIAN WILKINSON: Adding to the government's nightmare was the realisation that the books of the Anglo Irish Bank were, as one commentator put it, "the greatest work of Irish fiction since Ulysses". Among the many deceptions were hidden loans to Sean Fitzpatrick, Anglo's long time chairman.
MIKE AYNSLEY: Very substantial - over a hundred million worth of of loans that the previous chairman had taken, and he would shift them off balance sheet at the end every reporting period to a building society, and then back on after reporting date, so that no one really knew that they were there. Now that was a major governance failing. One that...
MARIAN WILKINSON: Have you ever seen that …
MIKE AYNSLEY: No I've never seen it. I've never seen that.
BRIAN CAREY: This absolute bombshell came out with regard to his loans, and the fact that he had been hiding the loans, there was no transparency, very, very poor signal to the markets and to the fact that, you know, this was a bank that was operating within a very, very, very suspicious international funding market, and this was coming out. So there was absolutely shock and horror in political circles that the state was standing behind an institution that allowed this to go on.
MARIAN WILKINSON: Worse still, it emerged that the Central Bank of Ireland, in charge of bank regulation, ignored evidence that Anglo Irish Bank massaged its accounts to make it look healthier than it was.
MIKE AYNSLEY: That had the impact of dressing the balance sheet and misrepresenting the size of the client deposits.
MARIAN WILKINSON: And what sort of figures are we talking about with this juggling of books?
MIKE AYNSLEY: Oh these were multi-billion, so that was like you know seven billion-odd of transactions. The central bank/financial regulator was asleep at the wheel. No doubt about it.
BRIAN CAREY: That's what led to the nationalisation of the bank and to the state taking over the problem that is now Anglo Irish Bank.
ALAN AHEARNE: It was just a case of how big those losses were going to be, and as time went on the picture got revealed - as it often does in these situations - and that what the picture we were seeing was that the losses were going to be bigger than anybody had thought. And they just... they just kept growing. There seemed to be no end to it.
MARIAN WILKINSON: In May 2010, the European debt crisis burst into the headlines when protestors launched violent demonstrations in Athens against government austerity measures. Greece, sinking under its debt, had been forced into an IMF/European Union bailout. Nervous financial markets were convinced the problem was much bigger than Greece, and that Portugal, Spain and certainly Ireland were all heading towards insolvency.
ALAN AHEARNE: The second tsunami that hit us - which was I think in May of 2010, when Greece got into deep trouble. I remember talking to investors and Wall Street institutions, and what I came away with at that time was that they were... had really given up on Europe, and I remember coming back and looked every day getting data on the bank flows for example, and I could see huge withdrawals of deposits by American institutions.
MARIAN WILKINSON: Investors had good reason to flee Ireland. Plunging property prices had triggered further defaults by big developers. A government agency was by now managing troubled property loans worth billions of euros taken over from Ireland's banks. Then, in September 2010, came the final blow. The government admitted losses at the recently nationalised Anglo Irish Bank had soared to around 30 billion euros. Other banks were also in the red leaving a huge hole in the Irish banking system.
DARA CALLEARY: I was completely stunned, stunned that those kind of losses were... would happen. Um, you just... all the reaction is anger. You know, what the hell is going on here?
COLM MCCARTHY: So this was a really class-A banking disaster - one of the biggest banking disasters there's been relative to the size of the economy. But when the government realised that that's what was happening, they tried to get out from under the guarantee because they realised that the solvency of the state itself was being threatened.
MARIAN WILKINSON: The European Central Bank had kept Ireland's banks on life support, extending loans worth billions of dollars. Now, the Irish government, as guarantor for the banks, was in deep trouble. And this threatened German, French and UK banks with big holdings of Irish government bonds.
JURGEN STARK: So there is really a need to intervene.
MARIAN WILKINSON: Jurgen Stark was then Chief Economist with the European Central Bank.
JURGEN STARK: So when there was a clear risk that the Irish government to be cut off from the financial markets, not to finance its budget anymore, so for…
MARIAN WILKINSON: And what would happen in those circumstances if a country gets cut off from the financial markets?
JURGEN STARK: The country would get into default.
MARIAN WILKINSON: By November, Ireland's finance minister, Brian Lenihan, was forced into talks with the European Central Bank, the European Union and the IMF for a bailout. Lenihan was by now also fighting for his own life after being diagnosed with cancer.
Lenihan believed he had one key card to play in the pressured negotiations. He wanted private investors, who had bought bonds in Anglo Irish Bank, to take a hit. If he could cut the payout to these bondholders, he was confident he could claw back billions of euros for the taxpayers. In market jargon, it's called "burning the bondholders".
ALAN AHEARNE: Burning the bondholders is trying to put some of the losses that the bank has incurred onto bondholders. The real big issue was this issue over discounting bonds - the senior unguaranteed bonds in Anglo - and that went right through that week. And in fact, even on the Saturday, the day before the Irish Government formally applied the... Brian Lenihan was still fighting. He brought all the senior people from the Troika in for one last go, trying to put some losses onto senior bank bonds, but the ECB were absolutely against it.
MARIAN WILKINSON: For the ECB, the European Central Bank, burning bondholders was completely unacceptable. It warned Ireland this would have a contagious effect and investors would take flight across the whole Eurozone.
JURGEN STARK: One has to consider the spillover effects to other market segments and to other countries, to other economies - and for this reason it was... the Irish government was advised not to follow this path, and it...
MARIAN WILKINSON: Who advised them?
JURGEN STARK: ...it was it was not only the ECB. It was the Troika - so the senior management of the IMF, the Euro Commission and the ECB, so there was a unanimous view at the top management level of the three institutions.
MARIAN WILKINSON: Not to burn the private bond…
JURGEN STARK: Not to burn the private bondholders
JORG ASMUSSEN, EXECUTIVE BOARD, EUROPEAN CENTRAL BANK: But the view of the Troika - and they were united on this - was not to use Europe to burn senior bank bondholders, because the fear was that it would lead to more contagion.
MARIAN WILKINSON: How strong was the fear of contagion at that time?
JORG ASMUSSEN: It was there. You could see this, that the very large Irish banking sector has linkages all over Europe in the Eurozone to non-Eurozone countries - obviously, the UK, but there was also a strong link across the Atlantic.
MARIAN WILKINSON: But the IMF's deputy director for Europe, Ajai Chopra, tells Four Corners the IMF did not agree with the European Central Bank. It told the Irish Finance Minister the unguaranteed bondholders of Anglo Irish and other failed Irish banks should be made to take some of the losses.
AJAI CHOPRA, DIRECTOR FOR EUROPE, IMF: We saw a very strong case that for the failed banks there should be such sharing of the burden with the unguaranteed creditors of the failed banks. That was our view. The government made it very clear that they would act on this only with the consent of their European partners. The European partners were much more hesitant. They were very concerned about the knock-on effects, and hence they... hence the government had to decide not to proceed because it did not have the support of the European partners.
DARA CALLEARY: There seems to be a theory - which I don't agree with - but a theory that you can't burn bondholders. But you know you also have to look at a situation that a country needs the ability to repay its debts. We want to repay our debts here. That's... we're not looking for a a free pass. We want to repay the debts. We want to do so in a manner that allows our country to grow.
MARIAN WILKINSON: By far the most divisive decision of the bailout here was the agreement by the Irish government to pay out the bondholders that had lent to Ireland's toxic banks. Under enormous pressure from the ECB, the government agreed it would not burn the bank bondholders, but in effect what that meant was that bank losses became the responsibility of the Irish state and its taxpayers.
COLM MCCARTHY: The current position, just to be clear for your viewers, is that the Irish government - which is bust in the IMF programme - is being required to pay unguaranteed senior bondholders in banks that had been closed down. and that are no longer open for business. It's made the domestic political situation very difficult. because the government is seen as cutting expenditure, raising taxes. and it's doing both of those things, while it's simultaneously paying off people who bought bonds in banks that have gone bust many, many times over.
MARIAN WILKINSON: Irish voters exacted their punishment in last February's elections and elected a new government led by Prime Minister Enda Kenny. Kenny promised to renegotiate the bailout so the bondholders of the failed banks would share the pain. But he was quickly forced to back down.
BRIAN CAREY: When there was a change of government and a new finance minister came in, and a bit like the Grand Old Duke of York, he marched his men up to the top of the hill again and said exactly the same thing, got exactly the same answer and had to come back down again. So it's pretty clear that the European Central Bank is funding the banking system. The Irish banking system is still on life support from the European Central Bank, and they're still calling the shots with regard to who does and doesn't get paid by those banks.
MARIAN WILKINSON: But in July, the bailout rules that Ireland was playing by were overturned in Greece. The Greek bailout was collapsing. Greece had failed to meet its austerity targets, and its government could not pay its debts. The only way to avoid a full-blown default, was for private bondholders of Greek government debt to agree to share the burden and take big losses.
JURGEN STARK: We need the contribution of the private sector, otherwise there will be a default, and Greece cannot... could not pay its obligations any anymore. This is the difference between Greece and Ireland. Ireland can do it on its own.
BRIAN CAREY: There's almost a feeling, a bit like the prodigal son, that eh the profligate Greece - who hasn't been following the austerity measure to the same extent Ireland has been doing - has got this fantastic break on their debt, whereas Ireland, which has been doing all the right things, making all the right noises, repaying the bondholders, putting through the austerity, cutting the pensions, and all these things, are not getting a break.
JORG ASMUSSEN: European leaders made this very clear at various occasions that, in this respect, Greece is a unique case and this kind of private sector involvement will not be repeated in other countries in Europe.
MARIAN WILKINSON: Despite these assurances, bondholder anxiety over the Greek deal sparked months of panic on financial markets. Interest rates on government and bank bonds shot up, hurting not only Europe but the rest of the world. By December, the bleak outlook forced governments into sweeping action to stem the damage. The ECB pumped around one trillion euros into Europe's nervous banking system to stabilise it, and efforts to prevent any further government defaults were ramped up - moves backed by Australia.
WAYNE SWAN, TREASURER: Our economy's strong. Growth here will not be substantially impacted upon by reduced growth in Europe, but it will be impacted upon by reduced global growth caused by financial instability in Europe. That's why it's really important for Australia that these global issues are dealt with, because at the end of the day it does flow through to growth here.
MARIAN WILKINSON: The crisis is now tipping Europe back into recession. And this will hit the Irish hard. Growth forecasts for their vulnerable export-dependent economy have already been cut to just half a per cent this year. This raises serious questions about whether Ireland will be able to meet its debt obligations, even with harsh austerity cuts.
(to Colm McCarthy) Can Ireland keep servicing this debt?
COLM MCCARTHY: I think with great difficulty. Given the current condition of the international bond markets - which are a lot less forgiving than they used to be - I think there is a need for some deal on these excessive bank rescue costs. Without that - anything is possible - but without that, I think it's unlikely that the Irish government will be able make the sums add up.
MARIAN WILKINSON: But the European Central Bank disagrees.
JORG ASMUSSEN: Ireland - they have to follow a tough adjustment program; they have broad political support still for this program; they have met broadly all program targets - though I think this is a much better path to assure that Ireland can return to the capital markets.
MARIAN WILKINSON: In a small Irish town outside Limerick, a few dozen determined protestors vent their anger at the European Central Bank and the government. Brian Coleman is still outraged that the bondholders in the failed Irish banks are being paid while he has lost his business and possibly his home.
BRIAN COLEMAN: We had two houses and both in negative equity. Three young kids, debts from the business, and in an unsustainable position.
MARIAN WILKINSON: And so how are you surviving at the moment?
BRIAN COLEMAN: We have stopped paying our mortgage..
CAIT COLEMAN: It's a case of that we have no option but to. We can't afford it, we can't feed the kids, heat the house, sort ourselves out. We can't do it.
MARIAN WILKINSON: Joan Burton, as Minister for Social Protection, bears the brunt of the austerity measures. For her, servicing the obligations used to pay the failed bank bondholders cuts deep.
JOAN BURTON: It means that every year, whoever's Minister for Finance has to find three billion for these notes. Now, bear in mind that all social welfare spending is 20 billion, so that gives you an idea of the scale of this commitment, and we're locked into that for up to 17 years.
MARIAN WILKINSON: The Irish will soon be asked to vote in a referendum on a new European Treaty on budget discipline, and many hope it will give their government leverage with Europe to win some concessions on the bill for the bailout.
JOAN BURTON: What can we do if we get that break? It'll basically provide some easement where we have space for the Irish economy to grow - and I keep saying to our friends in Europe, and indeed in the IMF - the best way for Ireland to recover is not simply through cutting and trimming expenditure. We accept that. But on the other hand to have some growth in investment, and it's to have the two of those side by side, that will also give our people some hope.
MARIAN WILKINSON: Hope is desperately needed here. For many Irish, the debt crisis is still keenly felt in the collapsing value of their homes and heritage properties.
ROBERT HOBAN, AUCTION DIRECTOR: Government statistics suggest a 50, 55 per cent drop from peak to trough. On the ground, I think generally agents would experience 60 to 65 per cent peak to trough drop.
MARIAN WILKINSON: Before we left Dublin, auction director Robert Hoban showed us scores of properties being put on the block by liquidators or receivers working for banks. One jumped out.
ROBERT HOBAN: The Sandhouse Hotel on Rossnowlagh beach, in county Donegal, and the property is for sale with the reserve of 650,000 euro. It's a 55 bedroom hotel.
MARIAN WILKINSON: 650,000 euro. That is staggering for a property that size. The famous hotel is less than an hour from where my mother grew up. In the boom it was priced at over five million Euros.
AUCTIONEER: This is the Sandhouse Hotel in Rossnowlagh on Donegal Bay. What an enormous amount of property for the money. Somebody start with 600,000. 650 I have... you can see we're in the market. 650,000 euro. The second time at 650. At 650,000 Euro...
MARIAN WILKINSON: The Sandhouse Hotel went under the hammer for the price of a two bedroom apartment in Sydney's eastern suburbs. But the winners in this crisis are outnumbered by the losers, and their voices are hard to ignore.
PROTESTER: Shame on you! Selling off repossessed house. You should be ashamed of yourself! People here buying repossessed houses! Families suffering, liquidators coming in, takin' people's homes. You should be selling the houses that are vacant! What are you doing, you should be ashamed! What are you doing for this country? What are you doing sitting here bidding, you should be ashamed!
MARIAN WILKINSON: For many here, the great debt crisis is exacting a heavy price. They don't want to be the only ones paying. And given the scale of losses, the demands for the burden to be shared more equally will not go away.
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Dicing with Debt - 12 March 2012
MARIAN WILKINSON, REPORTER: If you want a quick, brutal lesson on Europe's debt crisis, just ask an Irish property developer. Simon Kelly was one of the biggest in Dublin. Today he's bust. His business is over 600 million dollars in the red, and much of the empire he and his father built along the Liffey River is in the hands of the government agency managing Ireland's debt-ridden property assets.
SIMON KELLY, PROPERTY DEVELOPER: Ah, well certainly our two over there are in the asset management agency, but if we switch again to the south side here, this big office block here is... this one up here is as well. We developed the hotel there behind it, which is partially with the agency, and as we move down the quays, we've constructed a second office building there, with the majority of buildings around us would be in the agency. So the agency is to manage all of this real estate.
MARIAN WILKINSON: So all this real estate is basically...
SIMON KELLY: Nationalised.
MARIAN WILKINSON: Nationalised.
SIMON KELLY: Yeah, at this stage. Or as good as.
MARIAN WILKINSON: And how much have asset values dropped? How much have property values dropped?
SIMON KELLY: Down here, these brand new buildings have still dropped 50 per cent.
MARIAN WILKINSON: Wow.
BUSKER (singing): Every day I try to salvage some of my pride / to find some work to pay my way. / But everywhere I go, the answer's always "No, / "There's no work here for any man today".
MARIAN WILKINSON: It's been well over a year since Ireland was bailed out of its debt crisis by the European Union and the IMF. But today, unemployment is stuck at over 14 per cent, and youth unemployment is double this. The Irish economy is showing few signs of life and the Irish government is still mired in debt. Many Irish are asking whether the tough austerity measures demanded by the bailout are curing them or making them worse.
FIONA FITZPATRICK, BONDHOLDER BAILOUT PROTEST GROUP: Our hospitals are under threat of closure. Our schools have been affected, and our education service and health service are really badly affected. People who need help aren't getting it. We are developing a very unfair and unequal society. I want fairness in society and I want my children to have a future here, and I don't think that's happening right now.
MARIAN WILKINSON: Ever since the debt crisis began, this anger has echoed in protests across Europe. Behind it lies one fraught questions. How much do ordinary citizens endure in cuts to wages, pensions and services to pay for the massive credit binge that left banks and European governments, from Ireland to Greece, awash with bad debts? And how much will investors share the burden?
Ireland has repeatedly received the painful message: unless taxpayers foot the bill for its huge debts, global financial markets won't lend to its banks or its government except at impossibly high interest rates. It's a message being pounded out to countries across Europe as the great debt crisis heads into its second dangerous year.
JURGEN STARK, FORMER EXECUTIVE, EUROPEAN CENTRAL BANK: What we have experienced most recently - in the case of Greece, in the case of Ireland, the case of Portugal - is that advanced economies are facing a sudden stop. A lack of access to capital markets. A sudden stop. So, overnight, no access to the capital markets anymore.
DIARMUID O'FLYNN, BONDHOLDER BAILOUT PROTEST GROUP: Basically. this is extortion. and that's what it is. It's extortion. It's the bullyboys of Europe, you know the ECB, the financial bullyboys of Europe. forcing us to pay a debt that was never ours.
JURGEN STARK: A painful approach, however unavoidable, because both countries - Ireland and Greece - have lived beyond their means, and they have now to pay a very high price in this correction process, with the support of the European partners and the international community.
MARIAN WILKINSON: Until now, Ireland has been hailed in Europe and the IMF as the "poster child", showing how a nation in the Eurozone can best face up to its debt crisis. Unlike Greece, Ireland has not yet risen up against creditors or its grim austerity program. But on the ground, the story is not a pretty one. Especially if you start in Leitrim. It's a county I know as one of the poorest in Ireland because my mother grew up here - just outside the little village of Kinlough. And my cousin, James McGuinness and his family, still live here.
Even here, in one of the most remote parts of Ireland, their village was swept up in the madness of the property boom that crippled with the country with debt. And the family is still trying to digest how it happened.
JAMES MCGUINNESS: That was the first big mistake. There would have been no crash, because if they hadn't got planning, they wouldn't have borrowed the money, which in turn wouldn't have led to what we know exists - not just in Leitrim but all over Ireland, in fact.
MARIAN WILKINSON: On the edge of the village my cousin shows me the wreckage of a huge ghost estate now left deserted by the developer and his bank.
(to James McGuiness) How much were they trying to sell these houses for?
JAMES MCGUINNESS: Well, the all-in price was around 340 000 euro - that's completely fitted out and furnished. Down to the television set.
MARIAN WILKINSON: And now a lot of them actually look vandalised.
JAMES MCGUINNESS: Well, they are for a couple of reasons. First of all I suppose, they were looted by many of the workers who were owed money from them, and many of the parts stolen back out of them again. And then local young lads may have broken the windows and stuff like that, you know.
MARIAN WILKINSON: What happened to the developer? Did he go bust?
JAMES MCGUINNESS: He did. Yes, he owed something like about 14 million to the Bank of Scotland.
MARIAN WILKINSON: This sparsely populated county has the most empty houses per head of population in all Ireland. It's a shocking testament to the reckless bank lending that saw property development and construction take over almost a quarter of Ireland's economy just before the crash.
(to James McGuiness) What do you think'll happen to them, these houses?
JAMES MCGUINNESS: The general... the local view or general view is that they'll probably be tossed.
MARIAN WILKINSON: Bulldozed.
JAMES MCGUINNESS: Bulldozed to the ground.
MARIAN WILKINSON: Ireland's property boom was fuelled by cheap credit that poured into the country after it joined the European Monetary Union a decade ago. While foreign banks joined the party, by the far the most reckless lenders were the Irish. This Australian banker knows just how reckless. He was hired after the crash to clean up Ireland's worst ever bank, Anglo Irish. He could barely believe what he found.
MIKE AYNSLEY, GROUP CEO, IRISH BANK RESOLUTION CORP LTD: Well that really was a... it's one of those um you know, "Oh my God" moments. By the time we got through the first analysis of the loan portfolios it was looking pretty bad, but even then we didn't really understand how bad it was. This was an organisation that went from effectively zero to a hundred billion at light speed, so they just had a bunch of relationship managers out there looking for opportunities to lend money to talk to people about new developments, to find out ways how they could finance those developments and to extend the credit, and then they'd turn around and work out after the fact how they were going to fund them.
SIMON KELLY: You had a project, you just... you went to Anglo. You didn't think about going round town and putting your business out there. It's like, if you're in New York, you try to get to Goldman Sachs. You just go to Anglo.
MARIAN WILKINSON: For developer Simon Kelly, the stately Shelbourne Hotel here in Dublin was a cosy spot for his power breakfasts with the money men from Anglo Irish Bank.
SIMON KELLY: It was a lovely place to go and talk business, because you got served a glorious breakfast with silver service.
MARIAN WILKINSON: And what's the biggest deal you discussed over breakfast?
SIMON KELLY: I think we... our redevelopment in Smithfield, which was about 220 million euros of development bank debt, was probably the biggest one in terms of one single deal. I mean, we talked about bigger numbers, but it was the biggest loan we got over breakfast, yeah. That might have taken a few breakfasts.
MARIAN WILKINSON: Anglo Irish Bank, now holds the record for the largest ever corporate loss in Irish history. But during the boom, the bank's then-chairman, Sean Fitzpatrick, railed against tougher financial regulation.
SEAN FITZPATRICK, FORMER CHAIRMAN, ANGLO IRISH BANK: The danger if you have too much regulation is that you're just going to stifle business, and we're not going to have any success, and we're not going to have any growth. So what are we gonna have, then? A situation where we're absolutely, you know... totally regulated and nothing happening? Is that what we want?
BRIAN CAREY, CO-AUTHOR, THE FITZPATRICK TAPES: Sean Fitzpatrick probably would have been amongst the top three or four respected business people in Ireland, absolutely without question. I think what he had done with Anglo Irish Bank in terms of bringing it from a very small institution which was, you know, writing leasing agreements on photocopiers back in the 1970s, 1980s, to a bank that was funding the one billion euro takeover of the Savoy Hotel group in London. It was an absolutely amazing transformation from this very small institution into one of the most respected banks - not just in Ireland but in Europe. He says that he never cultivated political connections, but at the same time there was one particular member of his board, who was a good friend of Sean FitzPatrick, who was also a good friend of Brian Cowen who became the Taoiseach.
MARIAN WILKINSON: And that's the prime minister here?
BRIAN CAREY: That's the prime minister, yeah.
MARIAN WILKINSON: Ireland's former Prime Minister, Brian Cowen, and his long-reigning Fianna Fail party, were cheerleaders for the developers and the banks right up until the crash.
JOAN BURTON, MINISTER FOR SOCIAL PROTECTION: The bankers and the developers and some of the politicians were the masters of the universe, and people like me who dared to ask them questions were just brushed off.
MARIAN WILKINSON: Joan Burton was one of the few Irish politicians who warned of the perils of the boom when she was in Opposition.
JOAN BURTON: We had a government which was to a degree funded by the developers in terms of political donations. And, as it were, a three legged stool or a golden circle, they basically fed each other. Their optimism was boundless. There were no boundaries in relation to financial regulation, and the government then fuelled it with tax breaks for construction. The banks became utterly reckless and our banking regulations structured failed.
JURGEN STARK: The financial sector became extremely large, extremely huge - so let's say three times or five times the GDP of Ireland. And in the case of an accident, the Irish government could not rescue the banking system anymore.
MARIAN WILKINSON: The accident that hit was the Global Financial Crisis and Ireland was completely exposed. The collapse of the giant US bank, Lehman Brothers, in September 2008, triggered a meltdown in Ireland's banks. Creditors and depositors took flight overnight.
ALAN AHEARNE, FORMER SPECIAL ADVISOR TO THE FINANCE MINISTER: Irish banks had made a lot of loans, but they had got that money from abroad - from Europe and from the United States - and that money was flying back out to the countries in which it came from, so they were the first to really feel that funding pressure.
MARIAN WILKINSON: At this defining hour, Ireland's Fianna Fail government took a fateful decision that would ultimately bring the Irish state to the brink of insolvency. It announced the government would guarantee every bank in Ireland. A decision the Finance Minister, Brian Lenihan, justified to parliament as vital to prevent a run on the banks.
BRIAN LENIHAN, IRISH FINANCE MINISTER (September 2008): My view, and that of the government, on the basis of its assessment of the advice it received, is and remains that Ireland faced the likely collapse of its banking system within days in the absence of immediate and decisive action.
DARA CALLEARY, FORMER MINISTER FOR STATE: The decision was taken because at that stage... at that time, our banking system, our entire banking system, was on the verge of collapse.
MARIAN WILKINSON: But some argued even then the government was courting disaster.
JOAN BURTON: Anglo Irish Bank, was at the core of the meltdown in Ireland. We also had big mainstream banks like the Bank of Ireland and Allied Irish Bank, and we had a number of smaller building societies - savings and loans institutions. We put them all in the same pot and we guaranteed all of them without reservation. I thought that was a crazy way to do it.
COLM MCCARTHY, ECONOMIST, UNIVERSITY COLLEGE DUBLIN: The government did not realise how bad the situation was in the banks. They assumed that the banks were facing a liquidity crunch, which banks generally were at that time, but they didn't really allow for the fact that the banks might be seriously insolvent.
MARIAN WILKINSON: So they almost literally wrote the banks a blank cheque.
COLIN MCCARTHY: In effect, in effect they did. As it became manifest that every single bank was in trouble - it wasn't just one or two, including the biggest banks in the state - every one of them would have gone out of business if it hadn't been for state support.
JOAN BURTON: This was the Irish government putting all the debts of the bank, of the banks, onto the quite frail shoulders of Irish citizens and taxpayers, and so far that's turned out to be in the region of 65 billion.
MARIAN WILKINSON: By early 2009, Ireland was heading toward the rocks. At this critical juncture, Dr Alan Ahearne, one of the country's leading economists, was called from his academic post in Galway to work as Special Advisor to the Finance Minister.
ALAN AHEARNE: So there was a feeling of being in the trenches, wondering what missile would be lobbed in on us today. I mean, it was very stressful at that time, because the Irish economy was really falling off the cliff. I think we were losing about twenty five thousand jobs per month, and you could almost feel the economy contracting. And in addition, the banks were losing an awful lot of deposits, foreign depositors were withdrawing their money from the banks, and it was getting more and more expensive for the Irish Government to borrow on international markets.
MARIAN WILKINSON: Adding to the government's nightmare was the realisation that the books of the Anglo Irish Bank were, as one commentator put it, "the greatest work of Irish fiction since Ulysses". Among the many deceptions were hidden loans to Sean Fitzpatrick, Anglo's long time chairman.
MIKE AYNSLEY: Very substantial - over a hundred million worth of of loans that the previous chairman had taken, and he would shift them off balance sheet at the end every reporting period to a building society, and then back on after reporting date, so that no one really knew that they were there. Now that was a major governance failing. One that...
MARIAN WILKINSON: Have you ever seen that …
MIKE AYNSLEY: No I've never seen it. I've never seen that.
BRIAN CAREY: This absolute bombshell came out with regard to his loans, and the fact that he had been hiding the loans, there was no transparency, very, very poor signal to the markets and to the fact that, you know, this was a bank that was operating within a very, very, very suspicious international funding market, and this was coming out. So there was absolutely shock and horror in political circles that the state was standing behind an institution that allowed this to go on.
MARIAN WILKINSON: Worse still, it emerged that the Central Bank of Ireland, in charge of bank regulation, ignored evidence that Anglo Irish Bank massaged its accounts to make it look healthier than it was.
MIKE AYNSLEY: That had the impact of dressing the balance sheet and misrepresenting the size of the client deposits.
MARIAN WILKINSON: And what sort of figures are we talking about with this juggling of books?
MIKE AYNSLEY: Oh these were multi-billion, so that was like you know seven billion-odd of transactions. The central bank/financial regulator was asleep at the wheel. No doubt about it.
BRIAN CAREY: That's what led to the nationalisation of the bank and to the state taking over the problem that is now Anglo Irish Bank.
ALAN AHEARNE: It was just a case of how big those losses were going to be, and as time went on the picture got revealed - as it often does in these situations - and that what the picture we were seeing was that the losses were going to be bigger than anybody had thought. And they just... they just kept growing. There seemed to be no end to it.
MARIAN WILKINSON: In May 2010, the European debt crisis burst into the headlines when protestors launched violent demonstrations in Athens against government austerity measures. Greece, sinking under its debt, had been forced into an IMF/European Union bailout. Nervous financial markets were convinced the problem was much bigger than Greece, and that Portugal, Spain and certainly Ireland were all heading towards insolvency.
ALAN AHEARNE: The second tsunami that hit us - which was I think in May of 2010, when Greece got into deep trouble. I remember talking to investors and Wall Street institutions, and what I came away with at that time was that they were... had really given up on Europe, and I remember coming back and looked every day getting data on the bank flows for example, and I could see huge withdrawals of deposits by American institutions.
MARIAN WILKINSON: Investors had good reason to flee Ireland. Plunging property prices had triggered further defaults by big developers. A government agency was by now managing troubled property loans worth billions of euros taken over from Ireland's banks. Then, in September 2010, came the final blow. The government admitted losses at the recently nationalised Anglo Irish Bank had soared to around 30 billion euros. Other banks were also in the red leaving a huge hole in the Irish banking system.
DARA CALLEARY: I was completely stunned, stunned that those kind of losses were... would happen. Um, you just... all the reaction is anger. You know, what the hell is going on here?
COLM MCCARTHY: So this was a really class-A banking disaster - one of the biggest banking disasters there's been relative to the size of the economy. But when the government realised that that's what was happening, they tried to get out from under the guarantee because they realised that the solvency of the state itself was being threatened.
MARIAN WILKINSON: The European Central Bank had kept Ireland's banks on life support, extending loans worth billions of dollars. Now, the Irish government, as guarantor for the banks, was in deep trouble. And this threatened German, French and UK banks with big holdings of Irish government bonds.
JURGEN STARK: So there is really a need to intervene.
MARIAN WILKINSON: Jurgen Stark was then Chief Economist with the European Central Bank.
JURGEN STARK: So when there was a clear risk that the Irish government to be cut off from the financial markets, not to finance its budget anymore, so for…
MARIAN WILKINSON: And what would happen in those circumstances if a country gets cut off from the financial markets?
JURGEN STARK: The country would get into default.
MARIAN WILKINSON: By November, Ireland's finance minister, Brian Lenihan, was forced into talks with the European Central Bank, the European Union and the IMF for a bailout. Lenihan was by now also fighting for his own life after being diagnosed with cancer.
Lenihan believed he had one key card to play in the pressured negotiations. He wanted private investors, who had bought bonds in Anglo Irish Bank, to take a hit. If he could cut the payout to these bondholders, he was confident he could claw back billions of euros for the taxpayers. In market jargon, it's called "burning the bondholders".
ALAN AHEARNE: Burning the bondholders is trying to put some of the losses that the bank has incurred onto bondholders. The real big issue was this issue over discounting bonds - the senior unguaranteed bonds in Anglo - and that went right through that week. And in fact, even on the Saturday, the day before the Irish Government formally applied the... Brian Lenihan was still fighting. He brought all the senior people from the Troika in for one last go, trying to put some losses onto senior bank bonds, but the ECB were absolutely against it.
MARIAN WILKINSON: For the ECB, the European Central Bank, burning bondholders was completely unacceptable. It warned Ireland this would have a contagious effect and investors would take flight across the whole Eurozone.
JURGEN STARK: One has to consider the spillover effects to other market segments and to other countries, to other economies - and for this reason it was... the Irish government was advised not to follow this path, and it...
MARIAN WILKINSON: Who advised them?
JURGEN STARK: ...it was it was not only the ECB. It was the Troika - so the senior management of the IMF, the Euro Commission and the ECB, so there was a unanimous view at the top management level of the three institutions.
MARIAN WILKINSON: Not to burn the private bond…
JURGEN STARK: Not to burn the private bondholders
JORG ASMUSSEN, EXECUTIVE BOARD, EUROPEAN CENTRAL BANK: But the view of the Troika - and they were united on this - was not to use Europe to burn senior bank bondholders, because the fear was that it would lead to more contagion.
MARIAN WILKINSON: How strong was the fear of contagion at that time?
JORG ASMUSSEN: It was there. You could see this, that the very large Irish banking sector has linkages all over Europe in the Eurozone to non-Eurozone countries - obviously, the UK, but there was also a strong link across the Atlantic.
MARIAN WILKINSON: But the IMF's deputy director for Europe, Ajai Chopra, tells Four Corners the IMF did not agree with the European Central Bank. It told the Irish Finance Minister the unguaranteed bondholders of Anglo Irish and other failed Irish banks should be made to take some of the losses.
AJAI CHOPRA, DIRECTOR FOR EUROPE, IMF: We saw a very strong case that for the failed banks there should be such sharing of the burden with the unguaranteed creditors of the failed banks. That was our view. The government made it very clear that they would act on this only with the consent of their European partners. The European partners were much more hesitant. They were very concerned about the knock-on effects, and hence they... hence the government had to decide not to proceed because it did not have the support of the European partners.
DARA CALLEARY: There seems to be a theory - which I don't agree with - but a theory that you can't burn bondholders. But you know you also have to look at a situation that a country needs the ability to repay its debts. We want to repay our debts here. That's... we're not looking for a a free pass. We want to repay the debts. We want to do so in a manner that allows our country to grow.
MARIAN WILKINSON: By far the most divisive decision of the bailout here was the agreement by the Irish government to pay out the bondholders that had lent to Ireland's toxic banks. Under enormous pressure from the ECB, the government agreed it would not burn the bank bondholders, but in effect what that meant was that bank losses became the responsibility of the Irish state and its taxpayers.
COLM MCCARTHY: The current position, just to be clear for your viewers, is that the Irish government - which is bust in the IMF programme - is being required to pay unguaranteed senior bondholders in banks that had been closed down. and that are no longer open for business. It's made the domestic political situation very difficult. because the government is seen as cutting expenditure, raising taxes. and it's doing both of those things, while it's simultaneously paying off people who bought bonds in banks that have gone bust many, many times over.
MARIAN WILKINSON: Irish voters exacted their punishment in last February's elections and elected a new government led by Prime Minister Enda Kenny. Kenny promised to renegotiate the bailout so the bondholders of the failed banks would share the pain. But he was quickly forced to back down.
BRIAN CAREY: When there was a change of government and a new finance minister came in, and a bit like the Grand Old Duke of York, he marched his men up to the top of the hill again and said exactly the same thing, got exactly the same answer and had to come back down again. So it's pretty clear that the European Central Bank is funding the banking system. The Irish banking system is still on life support from the European Central Bank, and they're still calling the shots with regard to who does and doesn't get paid by those banks.
MARIAN WILKINSON: But in July, the bailout rules that Ireland was playing by were overturned in Greece. The Greek bailout was collapsing. Greece had failed to meet its austerity targets, and its government could not pay its debts. The only way to avoid a full-blown default, was for private bondholders of Greek government debt to agree to share the burden and take big losses.
JURGEN STARK: We need the contribution of the private sector, otherwise there will be a default, and Greece cannot... could not pay its obligations any anymore. This is the difference between Greece and Ireland. Ireland can do it on its own.
BRIAN CAREY: There's almost a feeling, a bit like the prodigal son, that eh the profligate Greece - who hasn't been following the austerity measure to the same extent Ireland has been doing - has got this fantastic break on their debt, whereas Ireland, which has been doing all the right things, making all the right noises, repaying the bondholders, putting through the austerity, cutting the pensions, and all these things, are not getting a break.
JORG ASMUSSEN: European leaders made this very clear at various occasions that, in this respect, Greece is a unique case and this kind of private sector involvement will not be repeated in other countries in Europe.
MARIAN WILKINSON: Despite these assurances, bondholder anxiety over the Greek deal sparked months of panic on financial markets. Interest rates on government and bank bonds shot up, hurting not only Europe but the rest of the world. By December, the bleak outlook forced governments into sweeping action to stem the damage. The ECB pumped around one trillion euros into Europe's nervous banking system to stabilise it, and efforts to prevent any further government defaults were ramped up - moves backed by Australia.
WAYNE SWAN, TREASURER: Our economy's strong. Growth here will not be substantially impacted upon by reduced growth in Europe, but it will be impacted upon by reduced global growth caused by financial instability in Europe. That's why it's really important for Australia that these global issues are dealt with, because at the end of the day it does flow through to growth here.
MARIAN WILKINSON: The crisis is now tipping Europe back into recession. And this will hit the Irish hard. Growth forecasts for their vulnerable export-dependent economy have already been cut to just half a per cent this year. This raises serious questions about whether Ireland will be able to meet its debt obligations, even with harsh austerity cuts.
(to Colm McCarthy) Can Ireland keep servicing this debt?
COLM MCCARTHY: I think with great difficulty. Given the current condition of the international bond markets - which are a lot less forgiving than they used to be - I think there is a need for some deal on these excessive bank rescue costs. Without that - anything is possible - but without that, I think it's unlikely that the Irish government will be able make the sums add up.
MARIAN WILKINSON: But the European Central Bank disagrees.
JORG ASMUSSEN: Ireland - they have to follow a tough adjustment program; they have broad political support still for this program; they have met broadly all program targets - though I think this is a much better path to assure that Ireland can return to the capital markets.
MARIAN WILKINSON: In a small Irish town outside Limerick, a few dozen determined protestors vent their anger at the European Central Bank and the government. Brian Coleman is still outraged that the bondholders in the failed Irish banks are being paid while he has lost his business and possibly his home.
BRIAN COLEMAN: We had two houses and both in negative equity. Three young kids, debts from the business, and in an unsustainable position.
MARIAN WILKINSON: And so how are you surviving at the moment?
BRIAN COLEMAN: We have stopped paying our mortgage..
CAIT COLEMAN: It's a case of that we have no option but to. We can't afford it, we can't feed the kids, heat the house, sort ourselves out. We can't do it.
MARIAN WILKINSON: Joan Burton, as Minister for Social Protection, bears the brunt of the austerity measures. For her, servicing the obligations used to pay the failed bank bondholders cuts deep.
JOAN BURTON: It means that every year, whoever's Minister for Finance has to find three billion for these notes. Now, bear in mind that all social welfare spending is 20 billion, so that gives you an idea of the scale of this commitment, and we're locked into that for up to 17 years.
MARIAN WILKINSON: The Irish will soon be asked to vote in a referendum on a new European Treaty on budget discipline, and many hope it will give their government leverage with Europe to win some concessions on the bill for the bailout.
JOAN BURTON: What can we do if we get that break? It'll basically provide some easement where we have space for the Irish economy to grow - and I keep saying to our friends in Europe, and indeed in the IMF - the best way for Ireland to recover is not simply through cutting and trimming expenditure. We accept that. But on the other hand to have some growth in investment, and it's to have the two of those side by side, that will also give our people some hope.
MARIAN WILKINSON: Hope is desperately needed here. For many Irish, the debt crisis is still keenly felt in the collapsing value of their homes and heritage properties.
ROBERT HOBAN, AUCTION DIRECTOR: Government statistics suggest a 50, 55 per cent drop from peak to trough. On the ground, I think generally agents would experience 60 to 65 per cent peak to trough drop.
MARIAN WILKINSON: Before we left Dublin, auction director Robert Hoban showed us scores of properties being put on the block by liquidators or receivers working for banks. One jumped out.
ROBERT HOBAN: The Sandhouse Hotel on Rossnowlagh beach, in county Donegal, and the property is for sale with the reserve of 650,000 euro. It's a 55 bedroom hotel.
MARIAN WILKINSON: 650,000 euro. That is staggering for a property that size. The famous hotel is less than an hour from where my mother grew up. In the boom it was priced at over five million Euros.
AUCTIONEER: This is the Sandhouse Hotel in Rossnowlagh on Donegal Bay. What an enormous amount of property for the money. Somebody start with 600,000. 650 I have... you can see we're in the market. 650,000 euro. The second time at 650. At 650,000 Euro...
MARIAN WILKINSON: The Sandhouse Hotel went under the hammer for the price of a two bedroom apartment in Sydney's eastern suburbs. But the winners in this crisis are outnumbered by the losers, and their voices are hard to ignore.
PROTESTER: Shame on you! Selling off repossessed house. You should be ashamed of yourself! People here buying repossessed houses! Families suffering, liquidators coming in, takin' people's homes. You should be selling the houses that are vacant! What are you doing, you should be ashamed! What are you doing for this country? What are you doing sitting here bidding, you should be ashamed!
MARIAN WILKINSON: For many here, the great debt crisis is exacting a heavy price. They don't want to be the only ones paying. And given the scale of losses, the demands for the burden to be shared more equally will not go away.
End of transcript