PENGUIN IRELAND
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First published 2009
Copyright © Matt Cooper, 2009
The moral right of the author has been asserted
All rights reserved
Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book
A CIP catalogue record for this book is available from the British Library
ISBN: 978-0-14-193230-9
Introduction: The hard landing
PART I
The media baron
1 Friends in high places
2 Payback
3 His master’s voices
PART II
The Taoiseach
4 The great defender
5 The fund-raiser
6 The money labyrinth
7 What friends are for
8 Bertie’s closest confidante
9 Circle of friends
10 A day at the races
PART III
Tax is for the little people
11 Horse sense
12 Probably the best Minister for Finance in the world
13 Tax is for the young and the poor
PART IV
They haven’t gone away, you know
14 Home and away
15 Stay (Faraway, So Close)
16 Killmallock’s answer to Santa Claus
17 Charlie’s loyal friend
18 ‘Still I rise’
PART V
Bringing down the house
19 House of cards
20 The bank of the boom
21 The man who booby-trapped the bank
22 Going for growth
23 The St Patrick’s Day massacre
24 Losing the biggest bet of his life
25 ‘Fair play to you, Willie’
26 The fall of Sean FitzPatrick
27 The man at the mutual
PART VI
Playing with the big boys
28 The state gets into bed with the developers
29 Catching the development disease
30 Loadsa leverage
PART VII
Two barons fall to earth
31 The last days of Celtic hubris
32 The battle for the Independent
33 Testing times for Tony O’Reilly
PART VIII
The failures of regulation
34 The high price of giving investors what they wanted
35 Two humps on the same camel
36 A carrot rather than a stick approach
PART IX
After the boom is over . . .
37 Guaranteeing the banks
38 The price for drinking too deeply from the national cup of confidence
39 The NAMA cure . . . as bad as the banking disease?
40 The view from abroad
41 Doing the right thing to impress the global financial community
42 The end of the affair
43 Getting the country back on its feet again
PART X
The comeback kings
44 The resurrection of the beef baron
45 The man they love to hate
Conclusion: Taking off again . . .
Postscript
Acknowledgements
Index
To my family, Andie, Aimee, Millie, Zach and Harry, and, of course, Aileen
Monday, 29 September 2008, was the evening when the most powerful people in Ireland felt almost powerless. They were grappling with a once-in-a-lifetime crisis, on a scale none of them had ever expected to experience, or had even feared. The continued existence of the Irish banks was under threat and with it much of the country’s future. The standards of living that our citizens had come to enjoy hinged on the decisions that these men would take.
The Taoiseach, Brian Cowen, and his Minister for Finance, Brian Lenihan, sat in Government Buildings along with the governor of the Central Bank, John Hurley, the chief executive of the Financial Services Regulatory Authority, Patrick Neary, and the secretary generals of the departments of An Taoiseach and Finance, Dermot McCarthy and David Doyle. They were joined soon by the attorney general, Paul Gallagher. A retinue of their advisers flocked around the building, popping in and out when asked. Almost overwhelmed by what was happening, they were seeking information, offering and assessing options, and taking calls from people with advice – but they were also trying to ensure that nobody outside found out what was happening before the necessary decisions were taken, implemented and announced.
Power resided with these people, but so did extraordinary responsibility. These men had to battle to establish the government’s sovereign responsibility for our future. What if they were to choose the wrong course of action? What if they were to do nothing at all? Would that be for good or bad?
‘I had to inform the minister that the risks to financial stability were becoming unacceptably high, with knock-on effects for the wider economy,’ Central Bank governor John Hurley explained days later. ‘A major consideration was that the highly concentrated nature of the Irish banking system created a high risk of contagion. Decisive action to protect the stability of the economy and its financial system was needed.’
In plain English, that meant that some banks were running out of money. If one were to go out of business, as seemed likely, the risk became that much higher that this could happen to all of them, although – and here was the rub – that was by no means a certainty. If the main banks closed suddenly, and citizens and companies were unable to get at their cash, there could be riots in the street. External forces seemingly had taken control of Ireland’s economic destiny and, by extension, its social stability.
The bankers were outside, sitting in the nearby Sycamore Room. The four men there represented the country’s two biggest and most important banks: the chairmen of Allied Irish Banks and Bank of Ireland respectively, Dermot Gleeson and Richard Burrows, and their chief executives, Eugene Sheehy and Brian Goggin.
Sheehy and Goggin had come together at 6.30 p.m. to ring Cowen, requesting the meeting. They feared the imminent collapse of Anglo Irish Bank and possibly Irish Nationwide Building Society, and that such an event would create a domino effect, sweeping away their banks too. Anglo shares had fallen 46 per cent that day alone, the latest and most significant in a series of major price falls. The news got worse within minutes of the phone call. Just before 7 p.m., after the Irish markets had closed, the US House of Representatives delivered a shock rejection to the Bush administration’s $700 billion plan to re-stimulate the US economy; the Dow Jones fell sharply, ending by 9 p.m. Irish time with the highest one-day fall of all time and the worst performance since Black Monday in October 1987.
The following day threatened to be dreadful for the Irish banks unless action was taken. Irish banks were massively reliant on borrowed money from overseas, and regularly had to borrow new money for old loans that were due for repayment. Suddenly this money was less readily available, and the fear was that nobody would lend to any bank in Ireland if one or two were seen to die. Liquidity – money in the system, like oil lubricating a machine – is essential to the banks and to the overall economy. If it dried up, as suddenly looked possible, it would not merely ruin the banks but also the entire economy. AIB and Bank of Ireland provided the bulk of this cash flow, which is why they were regarded as being of ‘systemic importance’.
The bankers, very experienced, tough men, responsible for tens of thousands of employees, billions in shareholders’ investments, and the deposits and loans of millions of customers worldwide, had arrived at Government Buildings around 9.30 p.m. They were made to know their place: it was two hours before they were granted an audience with Cowen and his entourage.
The government was not unprepared. For weeks it had been in crisis mode, although it hid this from the public for fear of undermining public confidence. The problems were multiple: the instability of international markets, made worse by the collapse in mid-September of massive US investment bank Lehman Brothers and the expensive rescue of insurance giant AIG, something that made money more expensive and harder to get; the increasing belief that Irish banks had lent too much money for property speculation and that this would never be recovered; a flight of deposits out of the Irish banks, Anglo in particular, from which big businesses were moving hundreds of millions of euro at a time.
Expert groups had been set up to prepare contingency plans. EU Commissioner and former finance minister Charlie McCreevy was consulted by Lenihan, and others were canvassed as well. On Saturday, 20 September, Lenihan made a sudden announcement that the state guarantee on all bank deposits was to be increased from €20,000 to €100,000. He accompanied this with the assertion that the Irish banking system was full of ‘soundness and stability’. ‘I want it to be known that the government is confident about the strength and resilience of the Irish financial system,’ he said.
Frantic work went on behind the scenes to try to protect the banks, with the European Central Bank asked for help. In public Lenihan got into a row with RTÉ’s Liveline when callers told presenter Joe Duffy the truth: people were taking their money out of banks for fear of losing it. Efforts to maintain confidence failed. Now the wolves were at the door.
The four bankers made their pitch for help and were then questioned. They were sent out by Cowen, only to be recalled later and informed of decisions taken in their absence.
Others were heard as well, via telephone, during the evening. Logs detailing who called in and who was called have not been made available, but, regardless of who had input, a consensus was reached quickly. The nationalization – or taking into state ownership – of the banks was not considered an acceptable solution; nor was letting a bank collapse. Something else had to be done.
The buck stopped with Cowen, subject to his cabinet’s approval, having taken the advice of those around him. This was probably the closest a Taoiseach has ever been to deciding to go to war, a powerful yet vulnerable position to be in. The war was to be with faceless investors in international money markets who had an arsenal with which they could destroy the Irish economy.
It was an evening for cool heads, rigorous analysis and firm decision-making, when trust and confidence in one another was of primary importance.
Lenihan was struggling to convince that he had been the right man to succeed Cowen as Minister for Finance. Although clearly highly intelligent and principled, he was a barrister hampered by having had absolutely no experience of either finance or economics prior to his appointment. He was a man who needed guidance.
Neary had become a poor joke with the public in previous weeks, because of television and public appearances in which he insisted that everything was fine and dandy in Irish banking, just short of shouting, ‘Don’t panic!’ He had work to do to convince everyone else present that he could make a valuable contribution.
Hurley was one of the highest-paid central bankers in the world, but it was not a reward for his powers of foresight; he had not beaten down the doors of government to warn of impending doom because of excessive and dangerous lending by the banks. He had reinforced, rather than challenged, the government’s wishful thinking about a so-called ‘soft landing’ but was required now to disagree strongly with the politicians, drawing on all of his presumed expertise to do so.
McCarthy had spent the last decade as a conciliator, a man who struck deals and compromises, particularly with the social partners: trade unions, employers and non-governmental organizations that engaged in the long-standing process of negotiation with government over economic plans and national pay agreements. Reaching those deals, as well as working on the peace process in Northern Ireland, coming up with solutions that were acceptable to all, had required great patience and stamina. This, however, was a night for speed of thought and decisive action.
Doyle was a brusque man who had worked his way up through the civil service over many years. He was in charge of a department that had shed nearly all its staff of trained economists and that had a woeful record of predicting the annual likely tax take – a basic requisite for planning – and other important statistics. While it was an evening for decisiveness, it was also a time for listening to other points of view.
Nobody doubted Gallagher’s legal brain or analytical brilliance. He could be relied upon to ensure that no laws were broken, but, while he would be able to tell people what they could do legally, along with what they couldn’t do, that didn’t necessarily mean that he would initiate any useful ideas.
What these people thought of each other, and of Cowen – in terms of character, experience and ability – was crucial to the dynamic of the evening. They also had to make judgements about the quality of the information that was about to be conveyed by the four bankers, and to be aware of the agendas that would drive the manner of its delivery.
Sheehy was a career banker who had been only four years at the helm at AIB, with a confident, almost arrogant demeanour that had also been typical of his predecessors. He had not foreseen or prepared AIB for the sharp downturn, and it had become clear that he had gambled the bank’s enormous resources in the property market. Sheehy’s chairman was well known to most of those in the room: Gleeson, a former attorney general appointed by the last Fine Gael Taoiseach, John Bruton, had been highly regarded for his intellect, much as Gallagher was now, but he tended to emphasize the legal principle over the practical position. Gleeson had weakened his own authority just a few months earlier by authorizing a massive and unaffordable increase in AIB’s interim dividend payment to shareholders. It was a futile gesture in a bid to prove that the bank had no need for additional reserves to cope with a rise in bad debts.
Burrows was the former managing director of Irish Distillers, a whiskey manufacturer that had been purchased by the French Pernod Ricard group in a controversial takeover battle twenty years ago. He had stayed with the French, working his way up to the very top of the group, while also taking on a part-time position with Bank of Ireland a few years earlier. Under Burrows’s approving eye, Goggin had only weeks before he began the long-overdue, painful process of telling shareholders things were not as good at the bank as they had believed. They cut the dividend and raised estimates of bad debts. The reward for this belated candour was a continuously falling share price.
The officials and politicians had to treat these bankers with scepticism. These highly paid men – all with seven-figure annual incomes – had created their own crises, albeit under the indulgent eye of those with the responsibility for reining them in. Their immediate problem was the lack of international liquidity available to Ireland, but this stemmed from their own excessive borrowing on international money markets and the use of that money in overly optimistic property lending. AIB, in particular, did not have a good track record as a responsible corporate citizen, with its history of defrauding the state and its own customers, and requiring state assistance to get it out of trouble. Back in 1986 it sought government help after its disastrous purchase of Insurance Corporation of Ireland; it claimed to need £100 million – an enormous sum at the time, just when the country had mass unemployment and high exchequer deficits. The scale of the rescue it received may not actually have been necessary. So the government had reason to be wary of AIB’s requests.
Now, however, the government was not in a position to take a chance. It had information from a variety of other sources and had to assume that potential disaster was afoot.
There were various options. It could take its chances and allow Anglo to fall, on the assumption that the domino effect would not necessarily knock the other banks as well. However, the experience of Lehman’s fall in the US only a fortnight previously did not encourage that approach – and there was also the possibility that many powerful and wealthy owners of Anglo shares and borrowers from it might suffer enormous losses. It could take Anglo into public ownership, as the British had done with Northern Rock, but that would not be good for Ireland’s international image; there would be knock-on financial consequences; and Anglo’s stakeholders would be as upset by this as they would be by a decision to let the bank fall.
There seemed to be a third way. Just as success has many fathers and failure is an orphan, so those who first sought credit for the chosen idea have since been quiet in repeating their stake to the claim. Economist David McWilliams and solicitor-turned-property developer Noel Smyth both wrote newspaper articles advocating many aspects of this approach in the weeks before it was actually adopted. There were rumours, never confirmed and treated by departmental insiders as bizarre, that it came from Swiss tax resident and money-market speculator J. P. McManus. Regardless of where the idea came from, the government was about to make an extraordinary gamble: it was going to wager the reputation and finances of the state on a scheme to guarantee all of the deposits and liabilities of the major Irish-owned and regulated financial institutions.
AIB, Bank of Ireland, Irish Life & Permanent, Anglo Irish Bank, Irish Nationwide Building Society and EBS Building Society were all to be included (and other smaller institutions were added subsequently). The amount of money covered by the guarantee from the state was €440 billion.
Cowen had taken an enormous chance, but, in retrospect, it may have been the easiest of the available options and therefore in keeping with the character of the man. He did not want to allow a bank to fail and he did not want to take it into public ownership.
So what did everyone in the room that night make of Cowen, the man who ultimately had all the power and responsibility?
Brian Cowen had been a somewhat passive Minister for Finance during his four years in office, offering little real change, always cautious in his actions and careful not to rock the boat. He had developed a reputation for readily understanding what was going on, but his decisions were based on likely immediate political consequences rather than on long-term economic requirements. He was not known for making tough, brave and unpopular calls. He relied extensively on his civil servants. He followed the lead set down by his Taoiseach, Bertie Ahern.
However, he was struggling to adjust to the demands of being Taoiseach, a job he had held for less than five months, as the economic downturn gathered pace and as political events went against him.
The 48-year-old from Offaly, a qualified solicitor who was elected a TD for Laois-Offaly in 1984, after his father Ber (Bernard) died aged just fifty-one, had become leader of Fianna Fáil by acclamation. No one contested the election to the vacancy caused by Ahern’s sudden resignation because Cowen was regarded as unbeatable. He had been heir apparent for years, the logical successor to Ahern because of his popularity within Fianna Fáil, his reputation enhanced by his starring role in the successful 2007 general election campaign and his obvious devotion to the party.
His relative underachievement in ministerial office – at Labour, Transport, Energy and Communications, Health, and Foreign Affairs, where he had little or no track record of innovation or major accomplishments – was ignored. That he had been Minister for Finance at a time when the boom was in full flow was seen as enough. His leadership credentials were never really examined, just assumed. His appeal to the general public – rather than to just the Fianna Fáil family – was not considered a major flaw, given Ahern’s electoral appeal across party lines.
Cowen indulged Ahern by letting him have a four-week political wake before the handover of power was completed. Cowen got no honeymoon period, however. He was pitched immediately into the Lisbon Treaty referendum campaign, which had to be won if Ireland was to endorse the European Union structural reform agreed by the other twenty-six member states. He had the support of all the other main political parties, with the exception of Sinn Féin. While legislation required broadcasters to be neutral, the domestically owned print media campaigned enthusiastically for ratification. Endorsement from the farming organizations and trade unions was slow in coming but did arrive eventually.
Meanwhile, an apparently wealthy businessman called Declan Ganley, London-born of Irish parents and living in Galway but active in the US, Iraq and Eastern Europe, emerged to front a ‘vote no’ campaign, funding for which remained undisclosed. His rhetoric appealed to the increasingly nervous middle classes – as the economic slump threatened – and suddenly it looked as if his campaign might be successful in defeating the establishment powers, as it added to the impact of the traditional ‘no’ vote on the left. An opinion poll in the Irish Times a week before polling day suggested that the vote was going to be lost. Suddenly Cowen was under pressure to deliver.
Two days before the referendum, on 9 June 2008, Cowen joined me for an interview on The Last Word. He had a big sales pitch to make in what would be his penultimate radio interview of the campaign. He arrived in the studio with a minimum of fuss and fanfare, as is his way. As we waited during the news headlines before going live on air, I asked him how he was finding his new job, compared to how he had expected it to be.
I’d known Cowen fifteen years at this stage. When he puts his mind to it, he is one of the best interviewees in Irish politics, answering questions directly and intelligently and convincingly; when he doesn’t, his choice of words and delivery are leaden and cliché-ridden. You just hope you’ll catch him on a good day.
In response to my casual question, Cowen showed himself at his most likeable. He paused to gather his thoughts and then gave a straightforward answer. He said that it was different to what he had expected and that it had required getting used to, even though he had thought he was prepared because of his previous close proximity to the job.
It struck me as a sensible answer as well as an honest one. However well a politician prepares for taking office – and because of Ahern’s mounting credibility deficit, Cowen had known for some time that the job was almost certainly coming to him – the extent of the power and responsibility that comes with the job must dawn on the occupant only once it has been taken. And clearly it was becoming more difficult than he could have anticipated.
Cowen’s answers in the rest of the interview seemed more rehearsed and, even if logical and delivered with personal conviction, lacked that certain something that might have convinced a sceptical audience. It was much the same in other broadcast interviews. By 12 June the referendum had been lost, a savage blow not just to the establishment’s authority and possibly Ireland’s position in Europe, but to Cowen himself, calling his ability to lead into question at a very early stage.
Just a little over a year before, in late May 2007, Cowen had contributed enormously to a Fianna Fáil campaign that led to a third term for the party and government under Ahern’s leadership.
It had been an extraordinary and often exciting election campaign, overshadowed by revelations about Ahern’s personal, and apparently unethical, financial dealings from over a decade earlier, when he had been Minister for Finance and about to take over as leader of Fianna Fáil.
Many had wanted the election campaign to concentrate on threats to continued economic prosperity. The warning signs were flashing that the property bubble was deflating quickly and that there would be serious adverse consequences for the rest of the economy as jobs were lost and tax revenues fell.
In April 2007 RTÉ broadcast a brilliant but chilling documentary called Future Shock: Property Crash. Journalist Richard Curran forecast the consequences – lost jobs, falling incomes and a sudden large drop in tax revenue – if the property market were to fall by 10, 20 or 30 per cent. He was backed up by a range of articulate economists, such as UCD’s Professor Morgan Kelly, who were particularly worried that the concept of a ‘soft landing’, as often voiced by vested interests, had been shown to be a myth in other countries at various times in economic history.
The hype merchants in the property industry were appalled and rushed to condemn the documentary as alarmist and unduly pessimistic. Two days later I conducted the first of two lengthy pre-election interviews with Ahern for The Last Word. Ahern dismissed the RTÉ programme as ‘irresponsible and inaccurate’ and added that he ‘disagreed with almost everything in it’.
What else could he say? If he admitted there was anything of substance to the programme’s predictions, it would have been a repudiation of the policies he had espoused in the preceding years, when he had allowed his friends in the construction sector to let rip, encouraged by the availability of cheap money from the banks. No government goes into an election campaign rejecting its own economic performance.
Ahern called the election shortly after that programme was broadcast, but the campaign floundered under the weight of the unfolding allegations about his financial past. There was an extraordinary press conference at the Mansion House for the launch of the Fianna Fáil manifesto, where journalist Vincent Browne harangued Ahern into addressing those issues. A hunched Ahern visibly pulled back his shoulders and came out fighting, but it was clearly putting an enormous strain on him. This campaign was nothing like the previous two, in which an ebullient Ahern had bounded from street to street, smiling widely as he met people, never stopping for more than the briefest of chats before heading off again, allowing Fianna Fáil to feed off his enormous energy. Instead he went to ground and when he emerged he stayed silent when asked awkward questions, the silences then becoming even more awkward than the questions. The opinion polls suggested he was going to lose power. One of his ministerial colleagues subsequently told me: ‘We were being led by a broken man.’
The Monday after the party’s campaign launch, Ahern came into The Last Word studio for another lengthy interview, his only public appearance of the day and also the media’s only photo opportunity. The interview was to start just after the 5 p.m. news. Ahern arrived early, and, as an item that we had recorded earlier went out, Ahern and I settled into our seats, sitting alone together in the sound-proofed room. Outside the glass wall of the studio, photographers scrambled to take shots, flashes from their cameras repeating incessantly. We had a few minutes to wait before the red studio light went on to indicate that we were live on the air.
As I knew well from many encounters over the previous fifteen years, making small talk with Ahern is not easy. Despite his image, he is not particularly sociable, with journalists at least. As this wasn’t the time to ask about Manchester United or the Dubs, and he had few interests outside of politics, I asked him a bland question about how he was finding the campaign, just to get his tongue loosened. I expected the usual spin that it was all going well and how encouraged he was by the reaction he was getting from the people.
His reply was startling and disarming. He shrugged his shoulders forcibly, sighed loudly and said he was largely fed up with it, fed up with what he was going through, and wondered at times why he bothered.
He was just minutes away from a chance to defend his record in office publicly, to explain his public and private interactions with the Planning Tribunal that was investigating his financial history and to say why the people should re-elect him. Yet he was indicating that he’d reached a point where he no longer cared.
I was thrown momentarily. This was not the Ahern I had expected, although in retrospect it was in keeping with his dismal personal performance in the first week of the campaign.
I decided that it couldn’t be true that he didn’t want power any more. Ahern lived for holding and exercising power, both at local and national levels. Nationally Ahern had been leader of Fianna Fáil for almost thirteen years. He had been Taoiseach for ten years and had put it to excellent use in securing political settlements in the North of Ireland. He was still getting kudos for his stewardship of the economic boom, even if some of us were accusing him of not preparing sufficiently for the inevitable downturn. Bizarrely, he had spoken the previous week of wanting to step down before the next general election – giving a hostage to fortune that no politician should and repeating the mistake made by his good friend Tony Blair. But to do that, he had to win this one first.
Maybe he just wanted me to be a little bit more sympathetic during the interview. Ahern wore his power lightly, a wonderful talent for a politician. One of his greatest skills was an ability to make himself seem the same as everyone else, the common man, as if he were not really the leader at all. He had a reputation for making people feel as if they were close to him. By placing his trust in me it could have made me like him a little bit more. On the other hand Ahern had shown a personal weakness that I could have exploited during the interview. With Ahern you just never knew, which made him one of the most fascinating subjects I’ve ever interviewed for radio.
Once we were live, the professional Ahern kicked into gear. He performed. There was no doubt in his voice as he stood by his record. He wanted to be Taoiseach again and he wanted people to vote for him.
Ahern won the election, of course, his personal popularity essential to that success. Indeed, he received some sympathy because of the excessive pressure he was under from the media to explain his financial dealings from the distant past. Fianna Fáil’s loss of seats was minimal, because, although the economy was slowing, it was believed that Fianna Fáil always did better than others in handling such situations. He formed a new coalition government quickly by adding the six Green Party TDs to the existing combination with the Progressive Democrats, who were down to two TDs. It was a shrewd move that established a comfortable majority for the difficult times he must have sensed were coming, both for him personally and for the nation.
His supporters claimed that the election outcome was a ringing endorsement of Ahern’s suitability for office, as if some form of referendum had taken place. They said that nobody cared about the allegations of financial irregularities being investigated at the Planning Tribunal and that the electorate believed them to be unimportant. A feisty Ahern gave an interview to Mark Little on RTÉ the night of his victory that vacillated from justifiably satisfied to snarling, as he snapped at the journalists who had dogged him.
Further revelations from the Planning Tribunal over the coming months, which started shortly after the election, eroded his strength. Just as the country needed its Taoiseach to be focused, his attention kept getting diverted to the tribunal that stalked him. Senior figures in Fianna Fáil worried that his credibility – and, by extension, the government’s – was being damaged, but they continued to support him in public, although ever more reluctantly. He suddenly quit the following April, nearly four years ahead of the schedule he had set for himself.
During the month of his political wake Ahern was celebrated more than generously, giving lie to the criticism of the Irish that we are a fair race in that we all speak ill of each other. Ahern’s political sins were largely overlooked and his achievements lauded to the hilt. His long lap of honour, which included a speech to Congress in Washington, was a stunning final exercise of political theatre, which many took as the start of a bid to become President in 2011.
In retrospect, while the extended handover suited Ahern, it was an unwelcome distraction from the rapidly developing economic crisis and did nothing to further the Fianna Fáil campaign for the Lisbon Treaty referendum.
The political establishment was convinced that membership of the European Union was essential to our prosperity. Since 1973 the EU had given us much of the money we needed to develop as a modern economy but, perhaps as importantly, had changed our attitudes by requiring us to look at things differently. Whereas once Ireland looked to Rome, because of the adherence of the majority of the population to the Catholic Church, it now looked to Brussels. EU membership transformed the country economically and socially, and brought about an enormous shift in power.
It gave us trading opportunities that reached beyond our previously dominant partner, Britain. It forced us to abandon protectionism and to embrace competition. It provided us with money. It made us more attractive as a location for foreign investment and allowed for better-paid employment. Its institutions forced us to change many of our Church-dominated social laws. Our horizons broadened as our citizens travelled more widely in the countries of our fellow EU members, breaking the old obsession with the English-speaking nations of Britain and the United States of America.
The European Union had power over us but ironically that helped to liberate us and made us take more responsibility for ourselves. Yes, we were dependent, even more so after we abandoned our currency to become members of the Economic and Monetary Union – joining the new currency, the euro, in 1999, with the notes and coins arriving in 2002 – but the requirements of entry to membership imposed useful financial disciplines on our government. While the euro turned out to be a mixed blessing, overall the EU gave us more options and more opportunities, as we became an open economy and a more open society.
Indeed things went so well that we thought that we had it made, that we had become an example to the rest of Europe, even the world, in how to become prosperous in a short space of time.
And now, suddenly, unexpectedly, it had all gone wrong. It turned out that we had lost the run of ourselves, so much so that we decided we were going to stop the rest of the European Union from ratifying the Lisbon Treaty, because, really, we knew better.
As Ahern departed and Cowen took power, we faced a dizzying plunge, not just into economic recession but into depression and a return to something approaching the relative poverty of the recent decades.
In September 2008, just weeks before the introduction of the state guarantee for the banks, the famous naval training ship the Asgard II sank mysteriously in French waters. Its insurance was not enough to cover the cost of replacing it, and the government decided that it could not afford to raise it from its watery grave. It became something of a symbol of the new era.
Ahern had left Cowen to take the helm of a nation buffeted by the enormous waves of a near-perfect storm on the seas of international finance. The government, the banks, the property developers and the general population found themselves frantically trying to bail out losses that threatened to sink everyone. The government had blown the proceeds of the boom on ill-thought-out increases in public expenditure that did not deliver value for money. Businesses had wasted billions through bad investments, including buying their own shares at overly high prices, making excessive payments to top executives and overpaying for other companies using too much borrowed money. Some of the most prominent men in Irish business were humbled. Consumers had loaded up on debt, either to finance conspicuous consumption or to buy over-valued properties here and abroad. The banks had recklessly provided the money for all of this, undermining their own strength in the process. The property developers who, with their conspicuous consumption, had been the visible embodiment of new wealth suddenly had little or no cash left to play with; their assets were devalued and effectively taken into the ownership of the state.
The seductive power of excessively cheap money had ruined us. Membership of the euro had given us very low interest rates by historical standards and we binged on debt. While the last major recession, in the 1980s, was marked by excessive government debt, this time it is a generation of mainly younger people who find themselves massively stretched. Whereas once it was the national debt held by the state on our behalf that was a millstone (and soon will be again), loans that individuals and families hold have become an enormous problem as job losses mount and incomes fall sharply. Irish people are the most heavily borrowed in Europe. Per head of population Irish people have the highest levels of personal debt in the European Union. A decade ago we would have been nearer the bottom of such league tables.
The European Central Bank sets interest rates and the banks took advantage of this by lending large sums. This fuelled an investment surge, particularly in property. But the absolute amount of borrowing – heading for €400 billion – is extraordinary in a country of just over four million people and the pace of increase in extra borrowing has been far too fast. We thought we had wealth, but, really, all we had was leverage.
It needn’t have come to this. The warning signs were clear that economic growth from 2004 onwards was based on unsustainable construction activity. Unfortunately too many people bought into some extraordinary guff that this was somehow natural as well as desirable. We were told that our youthful demographics, and our need to compensate for a lack of infrastructural investment in the past, somehow made us immune to the normal cycles of economic history. When it became clear that this wishful thinking wouldn’t hold, we were peddled another myth, the comforting promise of a ‘soft landing’. Instead, we sailed at full speed on to the rocks and, as the economy capsized, assumptions about the possession of power, wealth and influence in the new order of Irish life were challenged and, in places, destroyed.
Ahern jumped ship at just the right time. His claim that it all went wrong for the economy after he left and that there had been no sign of a downturn before he did so beggared belief. Ahern had taken a conscious decision in 2004 to go for mad-cap growth as he sought to shore up failing political support. Coincidence or not, he did this when he realized that the Planning Tribunal was making sensitive inquiries about him, although the public was not to know that for another two years.
Cowen, unwittingly perhaps, had implemented Ahern’s policies for him. Now he was to reap the consequences. His decision to guarantee all the deposits and liabilities of the banks was taken in the early hours of 30 September 2008, and was ratified by sleepy ministers during a telephone conference-call meeting of the cabinet. They trusted that those on site that evening knew what they were doing. It wasn’t until the following day’s cabinet meeting that they started to ask questions. A drained Cowen muttered that ‘we came very close to the brink’ the previous night.
He was to discover subsequently that the government, and the country, would find it almost impossible to move away from the brink and would continue to totter there, as crisis after crisis emerged and the nation’s confidence, much like everything else, sank. The problems with the banks intensified, consumer spending plummeted and jobs were lost at the fastest rate in the history of the state. The exchequer finances, pride and joy of the resurgent Republic over the past decade and held up as an example to the other member states of the European Union, went into deficit at a speed that could scarcely be believed. Taxes on income had to be increased savagely – removing at a stroke all of the improvements of a decade – but the government couldn’t or wouldn’t make the required cuts in public spending.
It isn’t possible to kill an economy – because there will always be some trade, some activity – but it can be left in a state of near-paralysis. How the hell, why the hell, had we crashed? Why hadn’t we seen this coming and prepared earlier? Who was to blame? What could be done? Who would get us out of this? Who really runs the country?