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.Reuse content