Devil’s in the detail at the Department of Finance

The chaotic denouement of the Greek drama is salutary. The debacle calls to mind the worst moments of the Irish crash, when nobody seemed to be in charge as the public finances and the banking system went off the rails. Scary.

For all the sins of Ireland’s banking classes, it’s clear the State played its own monumental role in the collapse. But recovery demonstrates the State still had the capacity to execute a turnaround plan, albeit with external aid, intrusive oversight, harsh conditions and penal costs for taxpayers. Whatever about the high and low politics of the Greek wrangle, it seems the public apparatus in Dublin responded better to disaster than in Athens.

Yet there are lessons to be learned. To varying degrees, the parade of witnesses in the banking inquiry cast a certain light on the compendium of error and indulgence that helped lead us to the mire.

John FitzGerald, formerly of the Economic and Social Research Institute, was blunt when he spoke of a “cultural change” in the Department of Finance in the past decade. “It became more concerned about the politics of things and less interested in the technical detail.”

This seems crucial. It is the department’s role to act as bulwark against political flights of fiscal fancy by saying no, and the naysayer’s hand in that instance should be strengthened by technical data. It follows that the naysayer’s hand is weakened if open debate is closed down from within. In the heady era of run-away spending increases, run-away house prices and run-away bank lending, it seems like there was a big problem in the very department that was supposed to maintain order in the economy.

Surrendered

John McCarthy, the department’s chief economist, told how the notion of fiscal prudence was surrendered at the altar of “events” from 2001 probably right up to 2006-2007. Charlie McCreevy was minister until 2004. Brian Cowen followed him.

“In various publications, the stability programmes and so forth – if you look at the economic text there – we were the contrarians because we were saying that fiscal policy is inappropriate, we were saying that there is an over-dependence on construction, we were saying that there is a loss in competitiveness that needs to be addressed. That was coming from the economic division,” McCarthy said.

“Did the Government act on it? Well, to be fair, the minister signed off on the budget strategy memorandum each year. So he agreed with a more prudent fiscal stance. That’s typically June or July. Unfortunately, later on in the year that process was taken overtaken by events. So what was agreed initially and what was brought to Cabinet early in the summer was subsequently taken over by events.”

Such events, of course, were in the nature of political events as the annual bargaining round got under way.

Pay grade

McCarthy also told the inquiry of instructions beyond his pay grade not to say certain things or put them on the written record. “In my time in the department there were instructions given to people to ‘take this out; they can’t say that; this is too political; get them to not say that’,” he said. Thus there was a consensus in the department that there were problems, but officials were not being listened to.

“It was a case of the the boy who cried wolf, really. We were talking about risks, these risks never materialised so we could almost be ignored.”

There was striking evidence, too, from John Moran, the department’s secretary general between 2012-2014. A former banker, he was the first “outsider” to run the institution. The mop-up was underway by the time he took command, but questions he raised have relevance for the future. “It was surprising, too, to me how little proactive debate about strategic longer-term choices for Ireland was taking place, even in private, within the corridors of power in ways that involved the full broader leadership team of all of the government departments,” Moran said in his written submission.

“Should our political system encourage this more or permit the time to be crowded out by an agenda dictated on short-termism? Do we really have the right structures as a State to encourage wide-ranging cross-disciplinary debate about future spending priorities or infrastructural needs or the structures of our economy?”

There was more, but the picture is clear.