Noonan’s legacy: coaxing the economy back from the abyss

From bailout to fastest-growing state in Europe, with a few controversies along the way

One of Michael Noonan’s greatest coups was securing a deal on the promissory notes in 2013. Photograph: Eric Luke

One of Michael Noonan’s greatest coups was securing a deal on the promissory notes in 2013. Photograph: Eric Luke

 

When Michael Noonan’s leadership of Fine Gael went down in flames in the general election of 2002 with the party reduced to just 30 Dáil seats, his political career looked dead and buried.

However, political fortunes can turn in mysterious ways, and less than 10 years later he was again at the apex of political life as part of a revitalised Fine Gael, propelled into office courtesy of the worst financial crisis in the State’s history.

When he took over the finance brief in 2011, the State was staring into a financial abyss. Unemployment had ballooned to nearly 14 per cent, the banking sector was in ruins; and mass emigration, the perennial badge of economic failure in this country, had returned.

Perhaps more significantly from Noonan’s perspective, the economy was effectively being run by the troika – the European Commission, the International Monetary Fund and the European Central Bank – following an international bailout agreed months early by the previous administration.

This meant decisions on key aspects of policy had been removed from Noonan’s department and were taking place in far-off corridors of Brussels, Frankfurt and Washington. The joke at the time was that if you wanted to move the waste-paper basket in the Department of Finance, you’d have to run it by the troika first.

The new reality would be tested early on, when Noonan’s attempt to burn the bondholders – by imposing losses on senior lenders to Anglo Irish Bank and Irish Nationwide – was torpedoed by the troika .

He had inherited a bailout agreement that he described in Opposition as “a bad deal for Ireland” and his inability to secure much in way of significant change in its parameters could justifiably leave him most open to criticism.

While a better deal would have reduced the State’s debt mountain, it wouldn’t have averted the need for a significant fiscal consolidation.

And Noonan would make a virtue of budget probity in a sequence of swingeing austerity budgets that would eventually bring order to the public finances – his crowning achievement.

Vicious austerity

When all was said and done , some €32 billion in spending cuts and tax increases was taken out of the economy between 2008 and 2014, a significant chunk under Noonan’s tenure, making Ireland’s austerity project one of the most vicious adjustments ever attempted by a modern industrial state.

His focus on budget cuts rather than job-limiting tax increases has played a role in the rapid recovery in employment since that period.

From an investors’ standpoint also, Noonan was viewed as a proactive Minister, instrumental in restoring Ireland’s creditworthiness and its financial reputation.

In his 70s and facing 13-hour days and an opposition buoyed by public anger at austerity and water charges, he managed to deflect many challenges with a wily charm and an unshakeable confidence that played well with a certain cohort of the electorate.

In February 2013 he pulled off perhaps his greatest coup by managing to reduce debt burden by reconfiguring the promissory note system by which the State was propping up Anglo.

The deal was announced overnight without a green light from lenders, who were clearly circumspect. Nonetheless, Noonan was tenancious in seeing it through.

On the banks, he can also take credit. He took office weeks before a troika-ordered stress test of the banking sector was completed, which ultimately led to a taxpayers’ rescue bill for the sector rising to a gross €64 billion.

He subsequently forced EBS to merge with AIB and Irish Nationwide and Anglo Irish Bank to be put into wind-down in a a vehicle called Irish Bank Resolution Corporation (IBRC). A restructuring of the €35 billion IBRC rescue in early 2013, easing the burden on the State, helped pave the way for the Government to exit its troika bailout programme later that year.

Noonan looks set to cap his legacy in the coming weeks by pressing ahead with sale of a 25 per cent stake in AIB, provided the UK election doesn’t result in too much market turmoil.

He also managed to hold firm on Ireland’s corporate tax regime in the face of fierce criticism from abroad, while reversing out of the double Irish tax loophole without upsetting investor appetite.

Two controversies

He leaves behind two controversies, however. The first centres on the European Commission’s €13 billion Apple tax ruling. Noonan led the Government response to it but failed to stem a wave of criticism that Apple had received a sweetheart deal from the Irish State.

The second controversy centres on Nama’s Project Eagle and his failure to tell the Public Accounts Committee that he had met representatives from the successful bidder, Cerberus, on the day before the contract bid.

Noonan was also blamed by many in Fine Gael for the confusion over the “fiscal space”, which marred its last election campaign and left it with a weakened administration, reliant on the support of Fianna Fáil.

Nonetheless, history will view him as the man, who inherited a state on the brink of financial ruin and left it as the fastest-growing economy in Europe and close to full employment, perhaps disproving the maxim that all political careers end in failure.

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