EU Oversight on Irish Economy & Property Market

The property boom in Ireland was in large part supported by huge amounts of capital borrowed on the European money markets. A failure of proper regulation and oversight by Government of the Irish property and banking markets has meant in effect that the European commission now has a greater supervisory role than ever in the economic affairs of Ireland.

The recent approval of the Nama plan by the EU competition commissioner Joaquin Almunia has given the green light for the Government, through Nama to go ahead with issuing bonds to the banks in respect of toxic assets.

Almunia has already stated:

"This is an important step towards the overall restructuring of the sector and its return to a normal and responsible functioning of the market. The scheme will help address the issue of asset quality in the Irish banking system and promote the return to a normally functioning financial market."

The commissioners also stated that "We took great care to ensure that there was an adequate burden sharing mechanism through first of all the transfer price, which cannot be higher than the long term economic value of these assets."

The commission has requested that the Government should instruct Nama to reduce the amount it pays for those property assets which are expected to take longer than average to recover their value.

Almunia has also stated that that Nama should not underestimate the cost of enforcing loan repayments and seizing assets from those borrowers that default.

If the Nama plan is successful, the banks will be supplied with sufficient capital to recommence lending again. This does not guarantee that the banks will start lending soon, but without extra funding they will fail to supply much needed credit to business, thereby restricting the economy from recommencing growth. As many mortgage applicants have discovered, the banks and mortgage institutions are now extremely cautious about lending funds to purchase property.

The downside to the proposed Nama plan is that it is a huge risk to the taxpayer. The government may well have to pay more than the loans are worth. The correct valuation of these loans is very much in dispute, with the assets they are based on falling in value every day. Ultimately the taxpayer will pay for any losses rather than the shareholders of the banks.

This article is only intended as a basic general summary and you should always seek professional advice where necessary.

Limerick Mortgage Brokers.

Parish Life
46 O'Connell Street
Limerick
Co. Limerick

G.V.M.
26 Glentworth Street
Limerick
Co. Limerick

ODCL Financial Services
1 Mount Kennett Place
Henry Street Limerick
Co. Limerick

Redmond Mortgages & Pensions
1A Hartstonge Place
Upper Hartstonge Street
Co. Limerick



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