Taoiseach says banks were 'in denial' about their problems

TAOISEACH BRIAN Cowen has criticised Irish banks which had been “in denial” about the level of their problems when they sought Government support last autumn.

Addressing the Irish Management Institute in Dublin yesterday, Mr Cowen said: “We were told by the banks they could get cash from the private sector, but that wasn’t true. There was a certain sense of denial that was going on.”

Mr Cowen said Ireland was suffering from “misinformation” about the nature and scale of its economic problems on international markets and the National Treasury Management Agency would be asked to “send out teams” to markets to counteract false information.

Mr Cowen said the markets were asking how the State could give the banks a guarantee worth in excess of 700 per cent of gross national product (GNP), while in fact the State’s guarantee scheme amounted to just 230 per cent of GNP, and would only reach that level if all suspect loans defaulted.

“From an external perception point of view, the problem with the banking system is being merged with the State itself.

“We need to say to international markets, to say clearly what is the scope and nature of that problem and how we are going to deal with it.

“There is a very wrong perception of what it is the Irish State has taken upon itself.”

Mr Cowen told the institute that many global and national factors had converged to create the current difficulties. However, “the real issue is cash flow, how to stay long enough in business for the perfect storm to pass”.

He said new regulatory arrangements would be in place to ensure transparency in the financial sector.

The banking system would be encouraged to get back to its “core franchise” of making loans available to small businesses.

Mr Cowen would not be drawn on the specific measures to be contained in next week’s supplementary budget. However, pressed on the issue of reducing the number of Ministers of State by conference convenor Olivia O’Leary, he said the Government was looking at Dáil reform and “those are part of the problem”.

Asked about making savings and efficiencies in the health service, Mr Cowen referred to the work of Prof Tom Keane in reorganising cancer services from 42 agencies responsible for providing treatment to cancer patients to eight major centres.

He said: “Part of that work had been to make health professionals understand that it would be better”.

Mr Cowen said the budget would not be a “silver bullet” to solve the economic problems , but would represent the “first steps” on the road to economic recovery.

He said Ireland stood to benefit greatly in its recovery by being a member of the euro zone and having access to the European Central Bank.

He insisted “anyone who has a cursory understanding of Ireland must understand a small, open economy like ours has to stay connected with the world”.

He did not think a second vote on the Lisbon Treaty would result in a No vote, and a new referendum would be won “by running a much better campaign”.

Mr Cowen told the business managers a lot more employers must “come up to the plate” during the next referendum, and he criticised what he said was the silence of the sector in the last referendum. There was a feeling from business that it “didn’t want to get its hands dirty”.

He also criticised the farming community’s stance in relation to the Lisbon Treaty.

He said they “voted No on the basis that there was going to be a world trade deal”.

“There was no deal but in the meantime they voted No to Lisbon – figure that out.”