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Honohan warns mortgage misery will be next stage of bank crisis

Central Bank governor Patrick Honohan's warning that the Irish banks could lose more money on their mortgage lending confirms fears that home loans going bad will be the next phase of the Irish banking crisis.

Speaking on RTE, Professor Honohan said that the mortgage lending of the Irish banks were now the subject of "specific scrutiny".

Translated from central banker-speak into plain English, this means that the Central Bank is terrified that the Irish banks are sitting on tens of billions of undisclosed losses on their €134bn of mortgage lending. The governor warned that there would be "increased" mortgage losses but carefully avoided stating what those increased losses might be.

Honohan also had a strong warning to the incoming government not to ease off on balancing the exchequer's books, speaking of the need for continued "fiscal rigour".



Irritation

In other words, don't even think of abandoning the outgoing government's target of reducing the budget deficit to less than 3pc of national output by 2015.

He also made clear his irritation at the outgoing government's decision to postpone injecting €10bn of fresh capital into the Irish banks until the new government takes office.

Honohan stated that an "important" deadline had been missed. While he went on to say that, by leaving the decision to the new government, there could be more "buy-in", it was difficult to avoid the impression that he was seriously annoyed by Brian Lenihan's decision to pass that particular hot potato on to his successor.

However, it was what Honohan had to say on the prospect that Ireland might default on its debts that will have been most closely listened to.

When asked by the interviewer if Ireland might default, Honohan replied that default was "not an attractive option for any part of Irish society". To which a sceptic might point out that he was merely stating the blindingly obvious but that the governor had carefully sidestepped saying that Ireland would never default.