Developer's collapse threatens Irish bailout

UK banks including RBS and HBOS exposed to failed property empire

The Irish government's plans to create a bad bank suffered a setback this week when the country's Supreme Court ruled that companies belonging to Dublin's biggest developer, Liam Carroll, should be placed in liquidation.

The ruling has created a sense of panic in some quarters, with fears that the Irish property market, which has already experienced one of the sharpest declines in the world, could be flooded with cheap flats and half-built office blocks. This in turn could destabilise the National Asset Management Agency, the Irish government's bad bank which is due to begin operations next month after parliament returns early from holidays to debate the legislation which the government says is necessary to prop up the country's main banks.

It also threatens to hit part-nationalised UK banks, which are owed massive sums by Irish developers. Almost half the €1.2bn (£1.03bn) owed to banks by Mr Carroll, for example, is due to HBOS's Bank of Scotland and Ulster Bank, the subsidiary of RBS, which is 70 per cent owned by British taxpayers.

While most analysts say a fire sale of property belonging to Mr Carroll's Zoe Developments is unlikely, the collapse of his empire has once again raised fears that the government's bad bank will over value loans it plans to buy. Many voters see the bad bank as little less than a subsidy to the banks and resent the idea that the taxpayer will be left holding thousands of dud developments all over the country. Every time property prices fall, that subsidy gets bigger.

These fears could in turn place pressure on Taoiseach Brian Cowen's government, which depends for support on the left-leaning Green Party. The party's grass roots are getting restive and are a long way from their comfort zone when they contemplate a rescue package that might help the developers who have ruined large swaths of the countryside and shown little but contempt for green politics.

These concerns, taken together with the inevitable hospital closures and social welfare cuts that are coming down the track as Ireland engages in a unprecedented fiscal belt tightening, could yet be enough to destabilise a government that has already seen former loyalists resign the party whip of the main Fianna Fail party. However, with MPs knowing an election would almost inevitably usher in a change of party and no obvious successor to him in cabinet, Mr Cowen is expected to continue to govern in the short-term at least.

Dublin, a city where property developers often make the gossip pages for their extravagance and high living, is sure to see other high profile failures in the autumn. While Mr Carroll limited his operations to Dublin, many of the other developers who could find themselves before the commercial courts have extensive interests in London, a city many Irish people know better than Galway or Cork. Irish developers snapped up all sorts of trophy buildings in British cities during the Celtic Tiger boom and many of these are likely to be back on the market next year as the Dublin's bad bank takes over the loans that financed the spree and then looks to sell the properties off.

One of the least remarked upon aspects of the Irish property crash is just how interconnected Irish and British interests now are. There has been a lot of high level communication between Dublin and London and officials on both sides report the two governments are working well, something that would have been inconceivable during the Troubles when problems in Northern Ireland caused constant friction between the two neighbours. The present crisis may paradoxically be strengthening and broadening Anglo Irish relations.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future