Sins of the Father (28 page)

Brian Lenihan welcomed Eurostat’s decision, adding that it meant that the toxic loans due to be purchased by the NAMA SPV ‘will not increase the general government debt ratio and neither will our budget balance be directly affected by the NAMA initiative’.
¹¹²
Not everyone, however, was convinced by such a desperate scramble to reposition the reality of Ireland’s banking debacle. The head of global economics at Fitch Ratings, Brian Coulton, said that ‘NAMA loans will still count as national debt regardless of Eurostat’s accounting, and stripping out the debt will not improve the way Fitch rates Ireland’s creditworthiness.’
¹¹³
He added that NAMA would put Ireland’s debt ratio to 110 per cent of GDP – the third-highest in the eurozone.

The reaction of the opposition parties was equally dismissive. Sean Barrett of Fine Gael called the SPV ‘a con job’, while Labour’s finance spokesperson, Joan Burton, said that it was ‘extraordinary the NAMA Bill could have got as far as committee stage without the SPV architecture being set out in detail’. And even though the CSO, the Department of Finance, NAMA and Eurostat had been discussing the possibility of a NAMA SPV for weeks, the Dáil had not been told about the scheme, and only found out about it with the release of Eurostat’s preliminary judgement. The Bill marched on through committee stage regardless, and was signed into law by President McAleese on 22 November 2009. The Irish government had committed €64.1 billion to the banks and a further €31.6 billion for bad loans in NAMA. Twelve months later, Ireland was forced to accept a joint EU/IMF bailout of €67.5 billion, after fears of contagion swept the European Union.

Michael Burke, economist, 16 October 2009.

The Irish government brought in three budgets in the wake of the banking crisis. Each one had a deflationary impact on the Irish economy. The first of these budgets was put to parliament on 14 October 2008, less than two weeks after the bank guarantee was signed into law. Normally, Irish budgets are put before the Dáil during the first week in December. Brian Lenihan said that the decision to move the budget forward by two months was made so that the government could ‘seize the initiative [and provide] political leadership in the time of changed economic realities’.
¹¹⁵
He added that ‘while the strength of the economy in the past decade has given us some room for manoeuvre, we cannot put our reputation for fiscal responsibility in jeopardy’. With this in mind, Lenihan told the Dáil that the government planned ‘to reduce public expenditure as much as possible on the current side and as much as is sensible on the capital side’. Lenihan said that the choices made in the budget did not serve any vested interest. ‘Rather,’ he said, ‘it provides an opportunity for us all to pull together and play our part according to our means so that we can secure the gains which have been the achievement of the men and women of this country.’ He ended the speech by saying that the budget was ‘no less than a call to patriotic action’ – thus proving that while patriotism may be the last refuge of a scoundrel, it’s the first port of call for a government minister under pressure.

In April 2009, the government passed a supplementary budget in order to provide a correction to the ‘unexpected’ deterioration in the state’s finances. Once again, draconian cuts were made in an effort to stabilise the deficit, and once again the effect was to further shrink the economy. On 9 December 2009, Brian Lenihan presented his third budget to the Dáil, but before doing so he commented on his previous two efforts:

The government over the past 18 months has made budgetary adjustments of more than €8 billion for this year [2009]. Had we not done so, the deficit would have ballooned to 20 per cent of GDP … Because of these decisive actions, we are now in a position to stabilise the deficit.

He announced that the government planned to make cuts of €4 billion for 2010, despite the fact that the EU Commission had given Ireland some leeway in meeting its target of a deficit of 3 per cent of GDP. ‘We welcome this revision,’ said Lenihan, ‘but it does not change what needs to be done in this budget. €4 billion is still the right target. Our strategy is on track.’

Three months later, a letter appeared in
The Irish Times
which was signed by twenty-eight leading economists, social scientists and analysts. Entitled, ‘All the wrong options have been pursued’, it set out to explain why the government’s deflationary policies were counterproductive, and what the government could do to help, rather than hinder, growth.
¹¹⁶
The letter was the initiative of the independent think-tank TASC. ‘Budgetary policies have been short-termist and reactive,’ it read. ‘Instead of cutting real waste in the public sector by increasing productivity and efficiency, the Government has cut public services and the living standards of those who can least afford it, further reducing domestic demand and, thus, employment.’ The signatories argued that the only way to combat debt is to outgrow it. Borrowings should be used to enhance and modernise the country’s infrastructure, as such investments lower business costs for all in the long-term, and they stimulate growth and increase tax revenue in the process. ‘It may seem astonishing that we face … economic and social deficits after 15 years of boom,’ they said, ‘but these are the consequences of pursuing a failed low-tax, low-spend model which sought short-term gains from the speculative activity of a small but powerful golden circle.’ The Irish government was borrowing billions of euro to soak up toxic property debt, while the real economy lay dying of thirst beside the fountain. ‘Embedding investment, rather than debt, into the economy,’ they said, ‘while restructuring taxation and expenditure in a progressive and expansionary manner to ensure a job-rich recovery – this, and not the current deflationary strategy, is the road to success.’ The idea that the road to recovery is paved with cuts – that cuts are identical to savings – was so embedded at this stage that the TASC initiative was ridiculed as madness. The government insisted it was on the right path; the logical, sane and sober path to recovery, and for the most part Ireland’s media agreed with them. Meanwhile, the economy continued to contract.

The debt obligations bestowed on the State by the banks and speculators, however, had become almost impossible to bear. In May 2010, Greece was forced to accept EU/IMF funding in return for a series of austerity budgets. It was reckoned that either Ireland or Portugal was next. The pathological rush to deflate the Irish economy, the obvious instability of the Irish banking system, and the announcement that the government intended cutting a further €15 billion from its budget, saw the State slouch towards its endgame. On 18 November 2010, a delegation from the IMF and EU arrived in Dublin to discuss a funding strategy for Ireland, despite a deluge of almost surreal denials by the government that such meetings were due to take place. By the end of the week an announcement was made that Ireland had accepted a three-year, €85 billion bailout. Ireland would contribute €17 billion from its national pension fund, while the remaining €68 billion would come from the EU, the IMF, and individual states within the European Union. The news shook the ruling Fianna Fáil/Green coalition to its core, eventually leading to a general election in February 2011. Both government parties were decimated at the polling stations. The Taoiseach-in-waiting, Enda Kenny, assured the Irish public that he would not shirk from the ‘tough choices’ to be made regarding cuts in social provisions. He also promised that, above all else, Ireland’s corporation tax rate would remain untouched. The parties may have changed, but the approach and analysis remained the same: just keep on digging.

On 19 April 2011, the Irish government published a report on the Irish banking crisis entitled
Misjudging Risk: Causes of the Systemic Banking Crisis in Ireland
. It is more commonly known as the Nyberg Report after its author, Peter Nyberg, a former senior official at the Ministry of Finance, Finland. He was the sole member of the commission which was set up to investigate procedural and oversight failure within the relevant financial and State institutions. Nyberg could not investigate anything before 1 January 2003, nor anything after 15 January 2009. And he could not investigate, nor draw conclusions from, anything relating to illegality or corruption. In the words of Nyberg, the ‘mandate of the Commission did not include investigating possible criminal activities of institutions or their staff, for which there are other, more appropriate channels.’
¹
Furthermore, the statutory instruments which framed its investigation stated that ‘evidence received by the Commission may not be used in any criminal or other legal proceedings.’
²
Given such constraints, Nyberg was led to conclude that in the six years prior to the guarantee, decisions within the world of Irish finance were ‘made more because of bad judgment than bad faith.’
³

Two years later, the
Irish Independent
ran a series of articles based on recorded conversations between senior officials within Anglo Irish Bank in the days leading up to, and after, the bank guarantee. They appeared to shine a light on the decisions made at that time and the subterfuge which allowed the bank to appear in public as a lot more secure than was the case. John Bowe, the head of Capital Markets at Anglo Irish Bank, told his colleague Peter Fitzgerald that the strategy was to get the Irish central bank to commit itself to funding Anglo, to ‘get them to write a big cheque.’
⁴
By doing so, the Central Bank would find itself locked in to Anglo as it would have to shore up the bank to ensure it got repaid. The Irish financial regulator, Pat Neary, in a conversation with Bowe, said that Anglo was asking his office ‘to play ducks and drakes with the regulations.’
⁵
Once the guarantee was passed the bank’s CEO, David Drumm, told his executives to take full advantage but advised them to be careful and not to get caught. In June 2013 Taoiseach Kenny spoke of an ‘axis of collusion’ surrounding Anglo and Fianna Fáil, only for it to be later revealed that he himself had been in personal contact with senior management at Anglo in early 2009.
⁶

In the week of the Anglo tape revelations the
Irish Independent
’s legal editor, Dearbhail McDonald, appeared on RTÉ’s
Late Debate
and questioned the State’s commitment to investigating criminality within Irish banking. She talked about how in 1996 the State put in place, at very short notice, ‘extraordinary apparatus, the Criminal Assets Bureau, multi-disciplinary teams’ in response to the murder of the journalist Veronica Guerin. Yet, with regard to the banks, she asked, ‘has there been anything near that political will reflected in legislation and other measures? [It] speaks volumes about the real commitment.’
⁷

In contrast to these expressions of doubt regarding the bailout and the Anglo strategy, the policies of austerity are accepted in Irish mainstream debate as unfortunate but inevitable. With few exceptions, the opposition to the strategy has tended to focus on
where
the cuts should occur, on the morality of the decisions, not on why they are even happening in the first place. Certainly, there is an absence of
cui bono
, who benefits? These policies are inseparable from the financial industry-specific monetary policies and mechanisms adhered to by the governing bodies of the EU and ECB – as well as from the profit-seeking strategies of private business chasing public sector contracts. There is no lack of commitment in its execution from political players and entrepreneurial
rentiers
– the lords of paper claims – and their standing army of lawyers, accountants and administrators.

The 2008 crisis caused a rupture in the mechanics that support economic class power in Ireland, and the strategy ever since has been about rebuilding those structures by whatever means necessary, regardless of the social cost. The nature of the crisis was such that some members of that class have had to lose out – collateral damage if you will – but the core remains and the system has been secured, albeit tentatively. This was done via an unprecedented transfer of collective wealth from the citizenry to the banking system – a transfer only possible at State level. In terms of Irish mainstream analysis of these events the best we can get is: how does this play out in moral terms?

It seems bizarre to have to point this out but the crisis was not a theological one; it was of an economic social system and the position that Ireland’s comprador class have carved out for themselves within that system. There are no moral bankers within capitalism, only those who return a profit and those who do not. The profit-seeking strategies of finance are the ones that broke in 2008 – in other words, finance failed on its own terms, and by its own hand. This is the world it wanted to make. It surrounded itself with an opulence that was underpinned by nothing more than promises and paper. But what it gained from that, it has sought to protect. And it has done this by swapping financial paper claims for the citizen-wealth of a nation – a process facilitated by its symbiotic relationship with the political system and State bureaucracy. There is a class dynamic at play, one that is hotwired into the very nature of the State itself. To speak of morality is to miss the whole point, and maybe that is intention. When we strip away the handwringing we see that this has been about the survival of the Irish class system, of the dynamics that allow that system to reproduce itself. Back in May 2008 David Drumm said that the slowing of the property market would allow young lenders in Anglo the opportunity to see ‘the other side of the show.’
⁸
How right he was.