By Vincent Browne (for the Irish Times)
All has changed in just three months. Last August we were looking at a temporary hiccup to the economic success we have enjoyed since 1995 because of the mismanagement of the economy by Charlie McCreevy and then Brian Cowen. A return to high growth rates in 2010 with an inbuilt advantage over other EU countries: new generations coming on to the workforce would be far better educated than the generations leaving the workforce, thereby ensuring a large productivity bonus running through for maybe 10 years.
But then, on the night of September 29th, all changed. The share price of the banks had gone into free fall, there was an apprehension of a run on some of the financial institutions. Overnight, it seemed, the Government agreed, “to put in place with immediate effect a guarantee arrangement to safeguard all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt (lower tier II)” with six Irish-based financial institutions.
The scale of that guarantee was gigantic - potentially of the order of €450 billion.
That’s more than three times the size of our gross national product.
The performance in office of the three Government Ministers who were up all night on September 29th putting this scheme together - Brian Cowen, Brian Lenihan and Mary Coughlan - had been less than reassuring up to then.
There was a sense they were out of their depth. It was not comforting to learn they had taken a decision that, if wrong, would devastate the country for decades.
We are talking here of doomsday! The statement that night continued: “The Government’s objective in taking this decisive action is to maintain financial stability for the benefit of depositors and businesses and is in the best interests of the Irish economy.”
Many wondered then why they did not do what the Swedish government did in a similar crisis in 1992: take ownership of the banks, invest capital in them and later sell them off at a profit.
No blank cheque and very little risk.
We now know that the gigantic Irish guarantee did not achieve its intended purpose. It did not “maintain financial stability”.
It did not operate to the benefit of Irish businesses and was not “in the best interests of the Irish economy”.
The share price of the banks continued to fall.
Credit dried up to the detriment of businesses and the economy continued to worsen.
The mark of the failure of the September 29th initiative came last Sunday night with a new announcement, this time on the recapitalisation of the financial institutions, something the Government had said repeatedly it would not engage in.
The statement said: “The Government’s objective is to ensure the long-term sustainability of the banking sector in Ireland and to underpin its contribution through the availability of credit to individuals and businesses in the real economy.
This initiative will help to foster and encourage the flow of funds to the economy, and limit the impact of financial market difficulties on businesses and individuals.”
But wasn’t that supposed to have been achieved by the doomsday mortgage of September 29th?
Did we really mortgage the future of this society for decades on a guarantee that we now know, less than three months later, didn’t work?
Last Sunday’s statement continued: “The Government has decided either through the National Pensions Reserve Fund or otherwise and subject to terms and conditions, to support, alongside existing shareholders and private investors, a recapitalisation programme for credit institutions in Ireland of up to €10 billion.”
€10 billion! That’s more than the projected expenditure in 2009 on education ( €8.5 billion), and almost as much as we are projected to spend on the HSE ( €12.3 billion).
What is really unnerving about all this is that the people who are taking these decisions are those who have made such a colossal mess of the budget.
And this is hardly a partisan view for if they did not make such a mess of the budget, why did they have to back off so many of the key elements of the budget so quickly?
On top of all this, the economy has headed towards ruin.
The collapse of tax revenue, even on the projections in the budget of just two months ago, is alarming.
On Friday week last, Brian Lenihan told the Seanad: “We now have an exchequer deficit of almost €7.9 billion at end-November, compared to a surplus of almost €1.6 billion in the same period last year . . . tax revenues are now almost €7.4 billion behind target.”
By the end of 2008, tax revenues will be at least €8 billion behind target; as for 2009, the situation is dire.
Aside from this, they have emasculated the Equality Authority, undermined the Commission on Human Rights, abolished the independent agency on poverty, inflicted the worst rigours of the retrenchment package on the vulnerable, and deepened inequality and unfairness. And they panicked and did terrible damage to our meat industry.
We have a problem here, folks.