Irish PM Should Own Up to His Mistakes

Stunning stuff from the Wall Street Journal yesterday. I'll reproduce the article in full for the benefit of my Green Party readers. A timely reminder perhaps of the person and the Party you are supporting.

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Irish PM should own up to his mistakes By Quentin Fottrell

Who does Ireland’s befuddled Prime Minister Brian Cowen think he’s kidding? In the same day as two seminal reports into Ireland’s banking crisis emerged — a catastrophic event of historic proportions that has brought this small, open economy to its knees — Cowen does what he’s always done: He avoids any responsibility and tries to pass the buck.

“The Sources of Ireland’s Banking Crisis” by economic consultants Klaus Regling and Max Watson and “The Irish Banking Crisis: Regulatory and Financial Stability Policy 2003-2008” by Central Bank of Ireland’s Governor Patrick Honohan make grim reading.

They blame the holy coven of government, regulator and bankers for this crisis.

Honohan writes:

“The government’s pro-cyclical fiscal policy stance, budgetary measures aimed at boosting the construction sector and a relaxed approach to the growing reliance on construction related and other insecure sources of tax revenue were significant factors contributing to the unsustainable structure of spending in the Irish economy.”

You can’t get clearer than that. And what does Cowen do? He releases a statement that conveniently whitewashes the reports’ criticism of “the role of fiscal policy and the macroeconomic management of the economy overall” and claims these reports actually support the government’s actions … that is, AFTER the crisis had already began.

Cowen’s response is unimpressive. “[The reports] confirm some of the previously known failures, but also shatter a number of myths including many concerning the government’s response to the crisis,” he said, citing the government’s €440 billion industry-wide banking deposit guarantee.

“Economics 101 For Dummies” by the writer of this blog: The reason the deposits of Ireland’s once-respectable and widely admired financial institutions needed to be guaranteed by the state in September 2008 is because they were on the verge of collapse. Due to lax regulation, poor corporate governance and — this is the science bit — a government snoozing on the job.

It gets better. Cowen further said that the reports confirm that bank failure would have been disastrous for the economy, that the timing of the government’s nationalization of Anglo Irish Bank did not result in higher costs and that advice given by the Central Bank, the IMF, the OECD and others was that Ireland’s banks had adequate capital. Well, you don’t say!

Here’s a translation from “Economics 101 For Dummies”: Just because you prevent the banks from failing by pumping billions of euros of taxpayers money into them, doesn’t make you the savior of the banking system, especially if you played a central role in helping to almost destroy them by giving incentives to the construction industry in the first place. To buy into his logic, the Irish people would need to be suffering from Stockholm Syndrome.

Just because someone told Cowen and his predecessor that everything was fine, doesn’t absolve them of responsibility, especially when many economists were warning that the bubble would burst. Also, the “timing” of the nationalization of Anglo Irish Bank is not the issue. It is the fact that the bank had to be nationalized in the first place.

Billions of euros have been used to recapitalize just three of the country’s biggest banks. Anglo Irish Bank, widely regarded as the chief culprit in the near-implosion of the banking system, has been nationalized and it’s transactions are currently the subject of a police investigation. Allied Irish Banks looks like it will fall under state control.

After near-full employment during the heyday of the Celtic Tiger, unemployment has long since surpassed 13%. Unlucky, not for some, but many. Construction sites lie empty. Houses are steeped with negative equity. And the government has created a bad bank to buy real estate loans from property banks with a book value of €81 billion … but will only pay around €43 billion for them. Ouch.

The banking system and economy are in dire straits.

But Cowen now appears to be playing the fear card: if you attack the government, you attack the country.

He said:

“I think it is essential for Ireland’s international reputation that the message goes out that strong action has already been taken to deal with the failures identified.”

In other words, it’s too late. Turn your frowns upside down. Smile for the nice men from the IMF. Don’t criticize your benevolent leader or the political party that got you into this mess in the first place. Greece has taken some heat off us. Great! You now need to put your best foot forward. Be nice to the government. Keep your heads down. Say nothing.

“Hindsight is always clear and obviously we would not have taken such a course if we had known of the scale of the property collapse which was facing the country,” Cowen told a press conference in Dublin late Wednesday. “I deeply regret that.”

Yes, prime minister, so do we.
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