Thursday 8 December 2016

Lenihan's legacy . . . the good and bad

The deposit guarantee

Published 11/06/2011 | 05:00

With the benefit of hindsight Lenihan's decision to unconditionally guarantee the deposits and senior bonds of the Irish-owned banks in September 2008 was the single most calamitous decision ever taken in the history of the Irish State.

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By exposing the Exchequer to the bank's huge losses it led directly to last November's EU/IMF bailout.

NAMA

With the banks stuffed to the gills with bad loans to builders and property developers, it was vital to get them off their books and get credit flowing again to the economy. The result was NAMA. Unfortunately, by the time NAMA got up and running in April 2010, the banking crisis was almost two years old. This delay robbed NAMA of much of its hoped-for effectiveness.

The bailout

Until last November's bailout, Lenihan was a Finance Minister who was much more popular than his party.

When Ireland was forced to apply for an EU/IMF bailout, it destroyed his reputation for competence but left his popularity intact.

Universal Social Charge

Lenihan introduced the universal social charge, which hits all workers including those on very low incomes, in his December 2010 Budget. Despite its huge unpopularity it could well turn out to be Lenihan's most lasting legacy.

Bailing out the banks

At the time of the deposit guarantee, Lenihan boasted that it was the cheapest bank bailout in history. It quickly morphed into the most expensive and by March 2011 the total cost had risen to €70bn, almost half of our total annual economic output.

Croke Park deal

Nothing illustrated the unwillingness of Lenihan and his cabinet colleagues to fully confront the new economic realities than the May 2010 Croke Park deal when they guaranteed no further public sector pay cuts or compulsory redundancies until at least 2014.

The four-year plan

In return for last November's bailout Lenihan agreed to a four-year budget framework under which taxes would be increased and public spending reduced by a combined total of €15bn over the next four years.

Unfortunately the growth forecasts have already proven to be hopelessly optimistic meaning tax increases over the next few years will almost certainly exceed the €6bn projected.

Patrick Honohan

Lenihan appointed TCD economist Patrick Honohan as Central Bank governor in September 2009. It was an inspired choice with Honohan restoring much-needed credibility to the Central Bank.

Matthew Elderfield

Former financial regulator Paddy Neary was succeeded by Matthew Elderfield, who is cut from a very different cloth.

Lenihan deserves the credit for a belated but very necessary improvement in the standards of Irish financial regulation.

Cutting social welfare

Lenihan had no choice but to cut payments to most social welfare recipients in his 2009 and 2010 Budgets. This went against the grain of everything the Fianna Fail party had stood for since first coming to power in 1932.

Refusing to burn the bondholders

As a barrister, Lenihan adopted a curiously legalistic approach to the bondholders of the Irish banks, refusing to 'burn' them and leaving the Irish taxpayer to pick up the full tab instead.

Failure to challenge Cowen

By September 2010, when a "congested" Brian Cowen gave his disastrous radio interview, it was clear Fianna Fail needed a new leader if it was to avoid electoral meltdown. Lenihan was the obvious replacement. But maybe due to health concerns, he declined to do so. By the time Micheal Martin made his move in January 2011 it was too late to avoid Armageddon.

Irish Independent

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