Now we come back to the earlier question \u2013 how much of the money which the state \u2018invested\u2019 in the three lenders did it get back?<\/p>\n
If you were to just read government press releases, you would likely be under the impression that the Irish state did very well.<\/p>\n
\u201cOn an overall basis, the state is \u20ac1.3 billion above break-even on its \u20ac29.4 billion investment in AIB, Bank of Ireland and PTSB from direct shareholding linked income,\u201d Minister for Finance Simon Harris has said.<\/p>\n
\u201c[It] has recovered a further \u20ac1.8 billion from the banking sector since the introduction of the bank levy.\u201d<\/p>\n
Wow, so an extra \u20ac1.3 billion plus another \u20ac1.8 billion \u2013 sounds like Irish taxpayers made over \u20ac3 billion on their investment into the three lenders.<\/p>\n
It sounds great \u2013 until you realise that these numbers are a \u2018cash in, cash out\u2019 basis. That is, you just look at the upfront money in, and don\u2019t consider any other factors.<\/p>\n
But if we are truly treating the bailout as an investment, there are at least three other things which we should also consider:\n<\/p>\n
- \n
- Financing costs<\/li>\n
- Inflation<\/li>\n
- Opportunity cost<\/li>\n<\/ol>\n
When you factor in these three, things look far less rosy. Let\u2019s take them one at a time.<\/p>\n
Breaking it down<\/p>\n
First, financing. When the Irish state poured billions into the banks, it borrowed money to do so. There is a cost to doing this, something which the Comptroller and Auditor General (the state spending watchdog) previously examined.<\/p>\n
It estimated that the debt servicing costs related to the bailouts in AIB, PTSB and BOI had amounted to \u20ac8.5 billion as of the end of 2021.<\/p>\n
There has been no official estimate since then, but it\u2019s likely that debt financing related to the three lenders has cost the Irish state about \u20ac200 million per year since. Given that was 4.5 years ago, debt servicing costs are likely now close to \u20ac9.5 billion or so. That should be added to the final bill.<\/p>\n
Then we have inflation. Say you invest \u20ac10,000 for 10 years. If prices rise by 10% over that period, but your investment earns nothing, you\u2019ll still have \u20ac10,000.<\/p>\n
The problem is that \u20ac10,000 now buys about 10% less than it did a decade earlier. That\u2019s why investments generally need to outpace inflation.<\/p>\n
\u20ac29.4 billion from 2010 converted to today\u2019s money is about \u20ac39.6 billion. Again, this means the Irish state is really another \u20ac10 billion down on its banking \u2018investment\u2019.<\/p>\n
![\"ptsb-bank-branch-dundalk-county-louth-republic-of-ireland\"](\"https:\/\/www.europesays.com\/ie\/wp-content\/uploads\/2026\/08\/1785668473_749_.jpeg\")
\n Alamy Stock Photo<\/p>\nAlamy Stock Photo\n<\/p>\n
Finally, there\u2019s opportunity cost. That is, the money which the state\u2019s cash could have generated if it had been used elsewhere.<\/p>\n
For example, $1,000 invested in the S&P 500 in early 2010 would be worth roughly $7,000 \u2013 about seven times more \u2013 today.<\/p>\n
You could credibly argue that the Irish state was never about to throw billions into the stock market. But the \u20ac29.4 billion could have been used to do something like pay down the national debt, avoiding the billions in debt servicing costs we discussed earlier.<\/p>\n
Now you might say \u2013 well, the bailouts shouldn\u2019t be treated as \u2018investments\u2019. They should be treated as an emergency measure to save the country\u2019s banking system.<\/p>\n
If they were judged solely from that perspective, they have been successful \u2013 the three banks are now all in solid financial positions.<\/p>\n
However, the government has repeatedly insisted on referring to the bailouts as \u2018investments\u2019. It is the one which has continuously insisted that the Irish state has made a profit. In doing so, it is the one which is creating a misleading picture.<\/p>\n
The official stance<\/p>\n
When asked why the government just looks at its bank investments on a \u2018cash in, cash out\u2019 basis, the Department of Finance referred The Journal to a ministerial brief prepared by its officials last year.<\/p>\n
It again contained similar claims around the state\u2019s returns, saying: \u201c\u20ac29.4 billion went into AIB\/EBS, BOI and PTSB. In recent years, the Department has recovered the full amount of this investment and retains a further c. 57.4% stake in PTSB [note – now being sold].\u201d<\/p>\n
\u201cUnlike the approach of the C&AG, we have not factored in a funding or opportunity cost for these investments.\u201d<\/p>\n
On the justification for this decision, the briefing states: \u201cWhile the C&AG funding cost figures are perfectly rational, what they don\u2019t measure is the benefit to the wider economy from rescuing the core of the banking system which was the reason for the intervention in the first place.\u201d<\/p>\n
This argument is again somewhat misleading. It is essentially impossible to measure the economic benefit to wider Irish society of rescuing the three banks.<\/p>\n
Also, if the true point of the \u2018investment\u2019 was to benefit the wider economy, then why not call it what it was \u2013 a bailout?<\/p>\n
What it means for taxpayers<\/p>\n
The department and government is trying to have its cake and eat it too. On the one hand, say that the state got a return on its \u2018investment\u2019 into the three private banks.<\/p>\n
On the other, say that the move actually can\u2019t be viewed as an investment due to it essentially functioning as a bailout.<\/p>\n
This issue is something which we\u2019ve previously discussed, when the Department of Finance last year highlighted being \u2018above break even on its \u20ac29.4 billion investment\u2019.<\/p>\n
Maybe all this seems like a silly quibble over terminology \u2013 who cares if the money which went into the three banks was an investment or a bailout?<\/p>\n
But the reason it matters is because it fundamentally changes how you view the return Irish taxpayers got.<\/p>\n
If you view it as a bailout, there\u2019s a very strong argument that it was the right move as it kept the country\u2019s private banking system alive.<\/p>\n
But viewed purely as an investment, it looks like a poor one. The state got back billions less than it put in and also couldn\u2019t use the cash for other important spending.<\/p>\n
The government and Department of Finance are the ones insisting on calling it an investment, in a move which looks purely like an attempt to spin a narrative.<\/p>\n
It\u2019s well past time to rethink that approach.<\/p>\n","protected":false},"excerpt":{"rendered":"WHEN IS AN investment not an investment? This might sound like the start of the world\u2019s driest riddle.…\n","protected":false},"author":2,"featured_media":616518,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[73],"tags":[2552,260163,8139,79,179,18,19,17,825,37657],"class_list":["post-616517","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-analysis","tag-bank-bailouts","tag-banking","tag-business","tag-economy","tag-eire","tag-ie","tag-ireland","tag-money","tag-ptsb"],"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/616517","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=616517"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/616517\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/616518"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=616517"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=616517"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=616517"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}