'Kelly's way would have bankrupted the country'
Published 09/05/2011 | 05:00
THE governor of the Central Bank yesterday took an extraordinary step to counter claims by economist Morgan Kelly who accused him of making "the costliest mistake ever made by an Irish person".
Prof Patrick Honohan went on national radio to accuse Prof Kelly of "spinning" a story with errors in both facts and analysis of the economic crisis.
Mr Honohan was responding to a newspaper article by Mr Kelly in which he accused Mr Honohan of siding with the European Central Bank (ECB) during the bailout negotiations last year.
In response, Mr Honohan said: "I was playing for Ireland."
He added that if Ireland acted as Mr Kelly advocated, the country would have been declared bankrupt straightaway.
In the course of a lengthy RTE radio interview, he hit out at Mr Kelly's comments. He claimed:
- There was no missed opportunity in terms of the bank guarantee.
- He was on "Ireland's side" during bailout negotiations with the ECB.
- He made the decision to go on RTE radio's 'Morning Ireland' last November to confirm the IMF was in town to prevent a run on the banks.
- He agrees with Mr Kelly that if our debt gets to a quarter of a trillion euro, it would be unsustainable.
Mr Honohan said there were "errors of fact and one big error of analysis" in the piece Mr Kelly wrote for the 'Irish Times'.
"What I would like to start with is the most startling assertion that I, and he puts it down to me rather than to one institution, made a catastrophic error," he said yesterday.
"Was there some miscalculation that I, or someone else made, where we missed out on a point where we could have done something to put ourselves out of the debt problem? "And the answer is no."
He pointed out that if Ireland walked away from the banking guarantee last year, the government "would have been treated as bankrupt straightaway". He also referred to accusations by Mr Kelly that he sided with the ECB during bailout negotiations. As governor of the Central Bank, he is automatically a member of the governing council of the ECB.
"I was playing for Ireland," he said. "I was not involved in any of the discussions that the lenders would have had in their teams. I was never involved in the ECB side (of discussions). It's quite clear I was disagreeing with them on several points."
He also spoke about the decision to go on 'Morning Ireland' on the morning of November 18 last year and confirm that the IMF were in town.
Mr Kelly also had stated that, thanks to that radio interview, Mr Honohan had "deftly sliced off at the ankles" the former Finance Minister Brian Lenihan, and destroyed any negotiating power he had.
However, Mr Honohan said yesterday that negotiations had already been ongoing with the IMF behind the scenes, and the bailout interest rate had not been set at that stage. He said the Government remains committed to recapitalising the banks "whatever it took".
Mr Kelly had stated that we are now on track to owe a quarter of a trillion euro by 2014 -- and Mr Honohan agreed that this would be unsustainable.
But he did not agree that this doomsday prophecy will unfold.
"There are obviously a number of errors in the way he's put the numbers together. What we're working on is a plan that if things go well in terms of economic growth, it's clearly something that will bring our debt on to a sustainable path."