Taoiseach blames crash on 'mad borrowing' frenzy

 

Taoiseach Enda Kenny has blamed Ireland’s "spectacular" economic crash on a "mad borrowing" frenzy.

"What happened in our country was that people simply went mad borrowing," Mr Kenny told a meeting at the World Economic Forum meeting in Davos, Switzerland.

"The extent of personal credit, personal wealth created on credit was done between people and banks - a system that spawned greed to a point where it just went out of control completely with a spectacular crash."

Mr Kenny was taking part in a discussion entitled “Rebuilding Europe”.

His comments drew criticism from Sinn Féin's Pádraig Mac Lochlainn who said it was an outrageous analysis and accused the Taoiseach of blaming Irish people for a crash caused by aggressive lenders and greedy banks.

"He gave an address to the Irish nation in December, telling us it was not our fault, but to
say this today was an absolute contradiction," said Mr Mac Lochlainn.

"This analysis that people in Ireland went drunk with credit, were reckless and they have to
now be cleansed by a decade of austerity to clean them of their sins is very worrying."

Mr Kenny said the action being undertaken to comply with the EU-IMF troika showed that Ireland had measured up on all the key conditions.

Commenting on the euro zone crisis, Mr Kenny said: “The reason this crisis has grown to the extent that it has over the last number of years, is by incompetence by some governments, by a lack of concentration and focus on what Europe should be about and on an interminable inter-wrangling on between institutions and politicians.

Mr Kenny has insisted the Government is not under pressure to sell-off State assets to reduce the country’s debts.

While discussions with EU-IMF troika about what assets might be available for disposal are ongoing, Mr Kenny said there would be no “firesales”, nor would there be any pressure on the Government to sell assets quickly.

“The Government is in discussions with the troika with respect of what assets might be available for disposal but these would not be strategic,” he said in a Bloomberg television interview at the World Economic Forum meeting in Davos, Switzerland, today.

In its Programme for Government, the Coalition originally set an upper threshold of €2 billion but recent indications suggest it may approve more than €3 billion in disposals, including part of ESB.

A report prepared by a special group included Dublin Port, shares in Aer Lingus, and parts of Bord Gáis and Coillte in its list of recommendations.

Mr Kenny said yesterday's €3.5 billion bond switch was a "sign of confidence" as the government seeks to return to international credit markets and exit its bailout programme by the end of 2013.

Investors switched about 30 per cent of government debt due in 2014 for a new note maturing in 2015, as the country's debt agency made its most significant move since bond auctions were suspended in September 2010.

"Yesterday's swap is an indication of a sign of confidence," he said. "But I recognise the scale of the challenge and just how far we have to go. We would expect to be out of the programme by the end of 2013."

The switch was a "tentative dip in the water," he said, adding the swap was "very successful".

"So we look forward to whenever they decide to do the same again," he said. "But we are in a programme and we continue to make progress and meet all the conditions set down by the troika and ourselves."

He said the institutions aiding the nation are working on a paper that could be very interesting and potentially very helpful to Ireland in terms of the burden stemming from the bank bailout.

The troika are working on a common paper on a possible restructuring of about €31 billion of promissory notes the state has used to bail out the former Anglo Irish Bank.

"The troika themselves now realise that perhaps greater flexibility could be shown to a country like Ireland which had to borrow very excessively before the facilities of the EFSF and the ESM actually came into being," Mr Kenny said.

Despite the clear air and bright snowy landscape, there is a palpable gloom and crisis fatigue hanging over the Swiss resort.

World Economic Forum (WEF) head Klaus Schwab tried to make light of this, reminding delegates that Davos originated as a spa town for rest and recuperation. “We are suffering from a world burn-out syndrome and this is the right place to address that,” he said.

After arriving yesterday evening, Mr Kenny today made the case for Ireland in an afternoon panel entitled “Rebuilding Europe”. He’s in good company with European Commission president José Manuel Barroso and the leaders of Denmark and Finland, Jyrki Katainen and Helle Thorning-Schmidt.

The Taoiseach is anxious to make an up-beat impression. Despite difficult decisions, Ireland’s recovery continues thanks to fortitude of the Irish people. A “relentless focus on job creation” is the cornerstone of the Government’s strategy, officials say, to make Ireland, by 2016, “the best small country in the world in which to do business”.

As well as public engagements, the Taoiseach is meeting representatives from Facebook and banks.

British prime minister David Cameron will follow on from German chancellor Angela Merkel’s tough love yesterday, urging “boldness not caution” in improving European competitiveness and reforming the euro zone.

"This is a time to show the leadership our people are demanding,” he will tell delegates. "Tinkering here and there and hoping we'll drift to a solution simply won't cut it any more."

With the euro zone debate firmly established as this year’s dominant Davos theme, visitors from further afield expressed some surprise at the vehemence of the debate. Harvard economics professor Kenneth Rogoff was not referring to the weather when he said "it’s colder than I thought it would be".

"There’s more nervousness than I would have guessed," he said. "I thought last year things calmed down enough for people to look ahead, I don’t sense that now at all."

He has said that concerns over Europe meant attendees were not feeling so ebullient about the US and China either.

Yesterday’s first sessions on the euro exposed seething mutual resentment among participants.

Mr Gerard Lyons, chief economist for Standard Chartered Bank, attacked the euro as a "fundamentally flawed" currency that cannot survive and lambasted Europe’s politicians for “playing to the gallery” rather than tackling the currency’s problems.

"Europe has been driven by politics and the economics are now unwinding," he said, adding that EMU now stood for "even more unemployment".

That prompted a public slap-down from Lord Mandelson, who declared: "I don’t think anyone in this audience needs to take lectures from bankers on the flaws in the financial system."

It was the second public put-down from Britain after Rolling Stone frontman Mick Jagger cancelled his planned appearance at a “Great British Tea Party” to promote the London Olympics.

"During my career I have always eschewed party politics and came to Davos as a guest, as I thought it would be stimulating," he said.

Mexican president Felipe Calderon is in great spirits, having just announced a €1.5 billion investment by Nissan in a new plant.

This evening he will take part in a public conversation over his hopes for the G20 June meeting in Mexico, with the questions being posed by Bill Gates.

The Microsoft founder was the big draw this morning, warning the world’s political and business elite that poverty was immune to economic cycles.

“The choice about whether we keep the poor foremost in our minds could be lost as economic issues cause us to lose sight that there are people in even greater need,” said Mr Gates who, since 1994, has donated $26 billion through his Bill and Melinda Gates Foundation.

Additional reporting: Bloomberg