Irish banks may need life-support as property prices crash
Last Updated: 12:48am GMT 11/03/2008

The Dublin government appears to be almost powerless to prevent a severe downturn. Ambrose Evans-Pritchard reports

The Irish banking system faces acute strains and may require a phase of temporary nationalization as the property slump leads to a wave of defaults, according to a leading Irish economist.

Morgan Kelly, of University College Dublin, said the government is almost powerless to stop the downturn becoming a severe slump. "We're in a classic post-bubble recession, yet we can't do anything that a country would normally do in this situation because we're inside the eurozone," Prof Kelly said. "We can't cut interest rates, we can't devalue, and there is a lot less room for fiscal stimulus than people think. We're stuck.

"We have a domestic recession now colliding with a global recession. It is the state of the banking system that will determine how terrible this will be, and frankly that is looking very shaky."

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