As the Irish banks are hiking ARMs, it is worth reminding us as to why this is a bad news for Irish economy:
Now, here's the Catch22.
- Irish banks funding costs are joined at a hip with the Sovereign funding costs, thus reducing these costs will require reducing Sovereign costs, which in turn means taking in more taxes and cutting back more Government spending.
- The former part of (1) means that households on the ARMs will be bearing all of the burden of the high funding costs for the banks.
- The latter part of (2) means that households on the ARMs are going to experience, alongside all other economic agents, the cost of Government deleveraging.
(2) + (3) means that in our 'fairness-concerned' society, ARMs holders will be paying twice the rate of the fiscal adjustment that any other group of agents.
Good luck, Michael Noonan, bankrupting the ARMs.