Political consensus behind disastrous decision
Two dates haunt this election campaign: 30 September 2008 and 28 November 2010. The first of these was the date of the bank guarantee. The second was the day of national shame, the day of the EU-IMF rescue deal, writes Vincent Browne.
The bank guarantee represented the most spectacular single transfer of wealth ever in the history of this country, from society at large to a financial elite. The elite being depositors of more than €100,000 (depositors up to €100,000 had been guaranteed previously) and bondholders who had lent money to the banks. Even if the banks had not collapsed subsequently, it was still a huge transfer of wealth because of the insurance it gave the big depositors and bondholders.
We hear much in this campaign about who did and who did not support that guarantee and who said what then.
Brian Lenihan said: “I stress that the provisions we are asking the House to approve are in no way a bailout for the financial system….The terms and conditions on which the guarantee is provided will ensure the taxpayer gets value for money”.
Richard Bruton said: “We (Fine Gael) are offering support to this Bill because we believe it is important that we copper fasten our financial system. …. I support the view of the Government that it is better to provide the broad deposit guarantee involved in this legislation”.
Brian Cowen said: “In the event of there being a future situation where one had to work out the assets of an institution, if it emerged after working out those assets that there was a deficit, clearly the sector would pay for the difference through a levy over time rather than expecting the taxpayer (to cough up)”.
Joan Burton offered no opposition to the Bill on Second Stage (the crucial initial procedure where the principles of a Bill are debated). She wanted to be assured there would be no exorbitant payments to executives of the banks during the period of the guarantee. She said Labour was willing to provide a guarantee but not a blank cheque.
Micheál Martin said: “I applaud the decision taken by the Taoiseach and the Minister for Finance to bring this issue to the attention of the Government yesterday evening”. John Gormley bemoaned the absence of a global financial regulator, whilst urging support for the Bill.
Only Pat Rabbitte expressed deep unease. He said: “The question remains as to why the markets are frozen towards Irish banks. The answer has to be that international banks regard Irish banks as having too many bad debts and bad loans on their books…. Banks who have been lending too much to dodgy builders come in the back door to Merrion Street and make a case, presumably that one or other of them is in deep trouble, and we opt to convert the country into a massive AIG. We are one massive insurance policy now for some €400 billion”. But even he protested he was not against the bill.
Not a single party voted against the Bill at the Second Stage (this is where parties opposed to measures indicate their disapproval by voting against). The Labour Party did vote against the Bill at the final stage but only on the basis of disagreements with technical elements of the Bill.
So every one of them were agreeable to this massive transfer of wealth and every one of them ignored alternative and less risky measures that could have been deployed.
Patrick Honohan is quoted as an authoritative supporter of the bank guarantee. However before he became governor, Patrick Honohan wrote the following in the Economic and Social Review: “No public indication has been given that the authorities gave serious consideration to less systemically scene-shifting – and less costly – solutions. For example, they might have provided specific state guarantees for new borrowings or injections of preference or ordinary shares – approaches that were widely adopted across Europe and the US in the following weeks.”
And it was this guarantee that brought us to 28 November 2010. It was not the deficit in the public finances that caused that humiliation, it was the guarantee to the banks which precipitated that crisis and caused the surrender of part of our sovereignty. And to a large part the election campaign is about that EU/IMF deal: whether it can be renegotiated, whether it can be abrogated.
The stuff about the 5.8 per cent interest on the €80 billion loan provision, misses the point that the ECB is subverting our banks to the extent of €150 billion at an interest rate of 1 per cent. The 5.8 per cent interest rate will be reduced after a while and some posturer or other of the new government will claim credit for that. But getting rid of some or all of the bank debt will not be a runner in the EU, according to a source that knows. And disowning it all would cause massive problems, not just with the bond markets but otherwise – if Ireland is seen to breach contracts at will, what confidence would any prospective investor or trader with Ireland have in the sanctity of their contracts?
We are in some pickle now.