Honohan shines a light amid the gloom
THERE CAN be no doubt that this has been a seminal week in Irish politics and history although much of the talks about how distressed our dead patriots would be is ridiculous hyperbole.
Among all the denial, anger and incoherence around whether Ireland was or was not in negotiations about a bailout it has been difficult to decipher the precise order of events.
It seems that as the rate for Irish bonds soared in the lead-in to last weekend, the European Central Bank made it known to officials in Dublin that it was no longer prepared to shovel money into the Irish banks on an ad-hoc basis. At about the same time the European Commission grew increasingly nervous about the collateral damage which Ireland’s difficulties might inflict on the euro area generally. Both bodies quickly came to the view that Ireland would require and should rapidly avail of international assistance. They made this suggestion to Ireland, tentatively at first, and then more insistently.
Some of our senior politicians and officials have privately envisaged since late September that international support on the scale we are now availing of would ultimately become necessary. It seems, however, that events moved quicker than they had anticipated. When the crucial moment came last week they were initially in denial.
Notwithstanding the speed at which the funding difficulties for both the Irish sovereign and the Irish banks have deteriorated in recent weeks, many in Dublin naively assumed that they would get to explore the suggestion of an international rescue package in institutional settings and at a diplomatic pace.
They clung to this belief last weekend even as sources in Frankfurt and Brussels made their wishes for Ireland known to respected media outlets.
By Saturday afternoon international newswires vibrated with suggestions that Ireland was in negotiations for a bailout and of course these reports quickly echoed around Irish media outlets. Unable to keep up with the speed of events the Government lost control of the situation internationally and lost further credibility domestically.
It was a terrible week for a Cabinet that has had many terrible weeks and which has shown for two years that it cannot do coherent communications or joined-up Government. Four worrying days passed before the public felt there was any clarity about what was really going on.
From Sunday to Wednesday the Government presented as unsure, uninformed, belligerent, and unco-ordinated. It was also divided. Some Ministers simply did not know what was going on. Others refused to recognise the reality. It will stand, perhaps, as this Government’s worst week and has served to shorten further its already shortened lifespan.
How the Irish Government failed to manage its messaging around these crucial developments over the course of this week is not what matters for the country in the medium to long term, however. It is what happens in the next four weeks on the detail of the “bailout”, the budget and the four-year fiscal plan which will shape this country’s destiny.
The political impacts of the bailout are obviously negative for the Government. So too are the reputational consequences for Ireland. The economic impact of this loan and oversight from the IMF and its European counterparts might actually be positive for the country.
At this stage it is premature to try to set out the extent of the economic and political impact. We first need to see the size of the multibillion-loan facility. We need to know how much of it will be drawn down immediately. We need to know whether and for how long the facility will enable our banks and the National Treasury Management Agency to stay out of the bonds markets. We need to know the full terms and conditions likely to be attached to the loan.
There has been much overblown rhetoric about how Ireland has lost its sovereignty. Again, however, before we can assess the extent and likely duration of our diminution in economic sovereignty we need to know whether these international financial managers will be running just our banking policy or also our budgetary policy. We need to know how much they will concern themselves with the detail of our future budgets. We need a clearer picture of what, if any, leeway there will be for competing Irish political views on our economic policy.
Such clarity as we have had this week has come, primarily, from the Central Bank governor Patrick Honohan on Thursday’s Morning Ireland. Honohan’s acknowledgement that he expected the negotiations to end in a multibillion-euro loan to Ireland was inevitably given much prominence. He too, however, rejected the “bailout” description and characterised the loan facility as generating contingent capital, which could be “shown but not used” by the banks. He even argued that notwithstanding this international intervention the ultimate costs of the bank restructuring to the Irish taxpayer would not exceed the figures announced in September.
What has got very little prominence since Honohan’s interview is his view that although the loan was also likely to be used for sovereign funding, the arrival of the IMF/EU/ECB and the availing of the loan facility should not been see as something “really worrisome”. It would not, he said, lead to a huge change in policy direction.
Honohan’s view as set out on Thursday was optimistic. It contrasted sharply with much of the apocalyptic commentary which dominated the week.