Broke in just five months, where was the money to reopen schools?
Such was the dire financial crisis that, on a summer’s afternoon in 2012, plans were hatched in case the Euro collapsed
Published 01/11/2015 | 02:30
Early on the morning of March 10, 2011, was when we had to come to terms with the frightening scale of the economic crisis and the enormity of the job facing our new Government.
Different officials briefed us on the various problems. The State was now spending €10 for every €7 it was collecting in taxes. The State's debt had trebled in just three years, from €47bn in 2007 to €148bn in 2010. Unemployment was heading for half a million. Over €46bn of taxpayer's money had already been put into the banks, but it would not be enough. The banks were now in danger of collapse, and a collapse could cost the State €185bn in guaranteed liabilities, which we could no longer afford. How much money did the State actually have at this point?
One briefing added up everything in the State's reserves, including the National Pension Reserve Fund and borrowings already drawn down. I estimated we had enough money to last five months. That was all we had to keep the hospitals and schools open, to pay pensions, public servants and social welfare, and to pay for all the other obligations. We would be able to pay teachers until the summer, but was there enough money to reopen the schools in September?
"How long will it take to get the Punt back into circulation?" I ask. "Notes and coins could be produced within a week, maybe two," replies the Governor of the Central Bank, Dr Patrick Honohan. "But it will take a lot longer to reestablish a national currency."
It is a Friday afternoon in the summer of 2012. The euro is in crisis. The Irish Government's Economic Management Council (EMC) is meeting to consider what to do if the euro suddenly collapses. Ireland has no intention of leaving the euro. But what would happen if our shared European currency were to suddenly fall apart?
Here, in the Sycamore Room, the Economic Management Council is managing the worst economic crisis since Ireland's independence. We cannot afford to be caught unawares. We must be ready for every eventuality. That is our job. We function like a War Cabinet. Now we must prepare a Plan B, lest the euro fail.
The room is named for the impressive oval table, made from polished sycamore, which dominates the space. The table itself can seat meetings with over 20 participants, while another 30 or so can attend seated on chairs around the walls. At either end of the room are two electric clocks. One is permanently stopped. The other always fast! In one corner is a podium, occasionally used for technical presentations. And in another corner, a small table with cups, coffee, a tea dispenser and a small supply of sweetened oatmeal biscuits.
This summer day, as always, the Taoiseach sits in the middle on one side, with his back to the windows. As at Cabinet meetings, I sit directly opposite him.
To his right is Michael Noonan and his officials from the Department of Finance, including his Secretary General John Moran, and Second Secretary General Ann Nolan. To my left is Brendan Howlin, his Secretary General Robert Watt and advisor, Ronan O'Brien.
To my right is Dr Colm O'Reardon - my economic advisor - and David Cooney, the Secretary General of the Department of Foreign Affairs and Trade. To the Taoiseach's left sits Martin Fraser, Secretary General to the Government, Geraldine Byrne Nason, the Second Secretary General - who managed the EMC - and Andrew McDowell, the Taoiseach's economic advisor.
Today's meeting is no less urgent. No agenda has been circulated and the attendance is limited to ministers, along with a few officials and advisors on a 'need-to-know' basis. The Governor of the Central Bank, Dr Patrick Honohan, has been invited to attend, and he sits to my right just beyond Secretary General David Cooney. What would we do if the euro collapsed?
How exactly would the Government manage such an eventuality? What exactly would happen on the morning after? We would have to close the banks, but for how long? For how long would ATMs continue to dispense euros?
How long would it take to re-establish the punt? How many days would it take to print notes and mint coins? How quickly would they get into circulation? And what would they be worth?
What would shops do in the meantime? How would workers be paid? And people on social welfare? What if the value of the currency changed over days or weeks? Who would be at the loss in the commercial transactions that occurred in the interval?
This is no idle academic discussion. We have to make practical plans for the chaos of a currency collapse.
I have the feeling that this is not the first time that finance officials and the Central Bank have teased out the practical issues, but there are also wider social and political considerations - including the possibility of public panic and disorder - that we, as the Government, need to prepare for. Legislation will have to be prepared and contingency plans put in place. And we have to be very careful to keep all of this confidential. One leak and we could be fuelling panic, and ourselves contributing to a catastrophe.
Already, journalists are asking the awkward questions about the stability of the euro. Doorstepped at the EU Foreign Affairs Council in Brussels last Monday, I was asked if Ireland had a Plan B in the event of the euro failing. I dismissed the notion - to entertain the question was to give credence to the possibility that it might happen.
But how do we describe the legislation we are drafting, so as not to cause panic? We can hardly have drafts of a 'Bill to Relaunch The Punt' floating around government offices. We agree to say we were working on emergency legislation to deal with the possibility of a flu pandemic!