Fine Gael banking strategy in meltdown
The party about to go into government is unable to take a coherent position on the biggest problem facing the country, writes FINTAN O'TOOLE
IF YOU’RE of a certain age, you’ll remember the story of the heroic Dutch boy who put his finger in the dyke to prevent the land from being flooded. If you’ve ever wondered what it feels like to be that boy, look in the mirror. There is a tide rising against the euro and the European banking system. Our brilliant Government volunteered us to stick our finger in the dyke.
Our masters have now gone off to high ground and are shouting at us through a loudhailer to keep that finger in the hole. We’re tired and cold and starving and we don’t want to do it any more. So how do we get this message across? There’s only one way – threaten to pull our finger out of the dyke. Nothing else will get more than a few cosmetic concessions.
Fine Gael is now on course to form a single-party government. Voters need to know whether the party is at all serious about facing up to the immorality and impossibility of the official approach since September 2008. (The money still at stake is €75 billion of debt securities held by Irish banks, including €7.3 billion in subordinated bonds and €17 billion in senior unsecured bonds.)
Leaving aside the rhetorical posturing and the photo opportunities, is there the slightest chance that Fine Gael in government will get the finger out? The evidence so far is that Fine Gael is bluffing.
Before looking at that evidence, it is worth remembering the background to the party’s approach to the banks. Much attention is rightly paid to the role in the crisis of Fianna Fáil’s hinterland – its social, intellectual and cultural closeness to the likes of Seán FitzPatrick.
But Fine Gael’s banking hinterland is every bit as murky. Two of the party’s most prominent intellectuals (both former Fine Gael attorneys general), Peter Sutherland and Dermot Gleeson, played key roles in making Allied Irish Bank the toxic mess that it is. Sutherland, as chairman, responded pitifully to the Dirt tax evasion crisis – a crisis that should have marked a watershed in the culture of Irish banking. And Gleeson, also as chairman, oversaw AIB’s disastrous attempts to out-Anglo Anglo.
Have these underlying attitudes changed? Fine Gael enthusiastically supported the catastrophic blanket guarantee in 2008. As soon as it was announced, Richard Bruton was rejecting suggestions of tight caps on bank executive salaries for fear that we might lose the “best people” – the same “best people” who had caused the crash. And one of the party’s elder statesmen, Alan Dukes, as “public interest” chairman of Anglo, soon discovered that the public interest was best served by shovelling billions into Anglo’s grave.
None of this means that Fine Gael can’t change. But it does mean that there’s reason for scepticism.
And had it not been for the terrible crash at Cork Airport, which dominated the news agenda for two key days last week, scepticism would now be rife. The plane crash obscured Fine Gael’s midweek meltdown on banking policy. Last Wednesday and Thursday, the party was in utter disarray.
Its confusion emerges from three basic questions. Does Fine Gael support Brian Lenihan’s decision to defer a €10 billion recapitalisation of three banks? Yes and no: Michael Noonan first said “I think it’s prudent and I think he’s done it on the advice of the IMF”; then he described it as “a typical FF election stroke to avoid bad news in the last week of the election”.
Will Fine Gael unilaterally burn bondholders? Yes and no, and yes-and-no. Leo Varadkar said the banks would not get “another cent” beyond the agreed €35 billion until they showed how they would “impose losses” on all bondholders and creditors. Noonan, on the other hand, said “we cannot act unilaterally. There’s agreement on that.” And then Noonan and James Reilly suggested that when Leo said “the banks”, he meant only Anglo, implying that there could be a unilateral default on Anglo but not on any other bank. Except that Reilly then suggested that Leo was talking “mainly” about Anglo, so he might mean other banks after all.
Should billions be put into the banks now, before the stress tests which are to be done in March? Yes and no – both from Michael Noonan in the same answer. Lenihan “should have gone ahead with the recapitalisation” of AIB next week but “there’s a bit of the cart before the horse if you decide to capitalise to 12 per cent in February and then you don’t do the liquidity or the solvency test until the end of March. It looks as if they got the procedure backways.”
This is what should have been the big story of the election so far: Fine Gael is winging it on the banks. On the overwhelming issue facing the country, it is making things up as it goes along. It knows it has to sound tough and throw a few shapes. But if it can’t articulate a clear strategy within Ireland, it has nothing to negotiate with in Europe. The finger stays in the dyke.