Honohan and Lenihan were very much at odds
Published 26/06/2015 | 02:30
It's not really that surprising that outgoing Central Bank Governor Patrick Honohan realised several months before the ECB/IMF/EU bailout programme was introduced in November 2010 that it was coming.
But it is interesting that Mr Honahan in his role as Central Bank governor and the now deceased Finance Minister Brian Lenihan would appear to have such varying views on the perilous state of the Irish economy around that time.
Mr Honohan told the banking inquiry that he raised the prospect of a bailout programme with Mr Lenihan in April of 2010, seven months before it was introduced.
In that phone conversation, Mr Honohan said the then minister wanted to support a Greek bailout at the time believing that Ireland could have made some money out of such an arrangement.
He also told the inquiry that Mr Lenihan had told him that the talk in Brussels then was that Portugal would be the country needing a bailout and not Ireland.
In fairness to Mr Lenihan, Mr Honohan had an advantage in that he was in a better position to see the bigger picture as a board member at the European Central Bank.
And it is a shame that Mr Lenihan is not here to tell his side of the whole sorry saga.
But Mr Honohan also told the inquiry that he believed that later that year Mr Lenihan was buying political time to prepare the ground for such a "major fiscal adjustment" as the bailout programme represented.
But it was time we didn't have, as it happened.
The Department of Finance had already ruled out a "precautionary line of credit" following an offer from the IMF in May.
The following July, Central Bank officials warned Mr Honohan that the fiscal situation was very bad and he also had concerns that the Department of Finance's view of the situation was not as strong as his.
At that stage, the odds had already been stacked against us.
The cost of Irish-borrowing had skyrocketed and the banks were losing deposits - we were priced out of the market.
While bailout-proper negotiations were due to begin between Mr Lenihan and European representatives on November 11, they were delayed until November 14.
By then a 20-strong team of Irish officials was involved and we were well on the road to the €67.5bn bailout.
Mr Honohan then did his now-famous 'Morning Ireland' solo run.
In a radio interview on November 2010 he announced that bailout discussions had begun.
He had no political concerns, he said, adding that there had been a sense of panic about the place before news of the bailout programme broke.
His main aim was stability and he was also concerned about the credibility of the Central Bank.
Mr Honohan, who was appointed governor in 2009, conceded yesterday that some of the terms of the bailout programme could have suited us better.
He highlighted high interest rates and a lack of an insurance mechanism against tail risks in the banks. However, he added that an alternative could have been more economically damaging.
He also said that while many new systems are in place at the Central Bank in a bid to avoid another crisis, there are still problems.
One of the big issues that is affecting many families is the lack of urgency in dealing with mortgage arrears.
He also agreed yesterday that the poor ended up bearing the brunt of the economic crisis, as was recently highlighted by French economist Thomas Piketty.