TAILIEUCHUNG - ELA, Promissory Notes and All That: The Fiscal Costs of Anglo Irish Bank

The medium of exchange function is redundant because the auction generates the real rates of exchange between all goods. Problems associated with real world barter, such as the double coincidence of wants, do not arise in a time-0 auction so the medium of exchange function of money is not required to solve them. In the real world money is an innovation that reduces risk and increases the choice, trade and production sets of agents. The Arrow- Debreu auction in a world of complete markets circumvents these challenges of the real world obviating the need for money. Goods buy goods in. | UCD CENTRE FOR ECONOMIC RESEARCH WORKING PAPER SERIES 2012 ELA Promissory Notes and All That The Fiscal Costs of Anglo Irish Bank Karl Whelan University College Dublin WP12 06 February 2012 UCD SCHOOL OF ECONOMICS UNIVERSITY COLLEGE DUBLIN BELFIELD DUBLIN 4 ELA Promissory Notes and All That The Fiscal Costs of Anglo Irish Bank Professor Karl Whelan University College Dublin February 2012 Abstract This is a briefing paper the author distributed to the Irish parliamentary committee responsible for finance and public expenditure. It describes the balance sheet of Irish Bank Resolution Corporation the organisation that was formed by combining Anglo Irish Bank and Irish Nationwide Buildings Society. The nature of the long-run cost to the Irish state of taking over the liabilities of these institutions is outlined and suggestions are made for reducing these costs. 1 1. Introduction It is well known that the Irish state has taken on huge debts by taking over liabilities previously owed by privately-owned banks with the majority of this cost related to Anglo Irish Bank and Irish Nationwide Building Society which have been merged to form the Irish Bank Resolution Corporation IBRC . The total cost of taking on these liabilities has been about 35 billion or 22 per cent of Ireland s nominal gross domestic product in 2011. Without this cost Ireland s debt-GDP ratio in 2011 could have been 85 per cent roughly in line the Eurozone average rather than the 107 per cent that was recorded. It is possible that without the cost of absorbing the IBRC s liabilities Ireland may have maintained access to sovereign bond markets and thus avoided an EU-IMF programme. It is also well known that a significant fraction of the funds provided by the state to the IBRC have gone to pay off unsecured bondholders and perhaps for this reason much of the domestic and international commentary has focused on the idea that the Irish government should change its policy in relation to payment of unsecured .

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