IT is human nature to regard a calamity explained as more acceptable than one whose origins remain obscure or contentious. The financial calamity which struck this country in 2008 and which continues to haunt the economic outlook has gone unexplained.
This infects the public mood at every turn. The fall in economic output since the bubble burst is comparable to the impact of the Second World War in the early Forties. The State's finances have been devastated. Ireland has had to borrow from official lenders, the EU and IMF, for the first time in the history of the State. Emigration has soared and 300,000 jobs have been lost. Small businesses have vanished by the thousand; the banking system, despite a massive State rescue, limps along unrepaired; while 100,000 households have fallen into serious mortgage arrears. Yet the public narrative about what actually happened remains vague and incomplete. This failure of economic governance has been compounded by a failure of explanation and a systematic unwillingness to demand accountability. The result is weakening public support for policy measures which cannot be avoided and declining public faith in political institutions.
The election in February 2011 saw the outgoing government punished severely. Fianna Fail lost three-quarters of the party's Dail seats while the Green party lost the lot. But no grown-up believes that politicians alone were responsible for the mess or that all of their actions and inactions have been explained. Five years on from the financial crash there has been no proper inquiry into the failings at the banks, every single one of which needed rescue. Elected public officials must face the voters but appointed public officials, as distinct from elected ones, hide in the shadows. It is clear that there were regulatory failures and that poor policy decisions were taken. But neither regulators nor policy advisers have been required to take personal responsibility. It is telling that not one of the key participants in the events of the last decade has written a memoir.
There have been several valuable books and shorter studies on the Irish financial debacle written by journalists, economists and financial commentators. But there has been no comprehensive official inquiry matching the in-depth investigations conducted in other countries which suffered less damaging financial meltdowns.
It is dispiriting for Irish citizens to be able to access on the internet detailed and thorough reports on what went wrong in the United States, the United Kingdom and elsewhere when nothing comparable is available on the far greater mess created here.
The result is public cynicism that those responsible will be held to account and perceptions that there has been some kind of establishment cover-up.
Ireland has endured one of the largest banking system crashes (relative to the size of the country) that has ever occurred anywhere. The Irish banking bust was precipitated, but not caused, by the collapse of Lehman Brothers on September 15, 2008. The dud loans had already been made at that stage. The Irish banks went bust because of foolish lending in Ireland, a bubble which would have burst eventually whatever the trigger, and an entirely home-made disaster. Primary responsibility rests with the board and senior management of each individual bank, the first line of defence against a credit bubble. There has as yet been no explanation, from each bank, of what went wrong, not even to the shareholders who have been wiped out.
Banking is subject, in theory, to comprehensive regulation, including detailed licensing, capital adequacy and liquidity requirements as well as continuing inspections and supervision. The regulators failed to spot the emerging problems and appear to have believed in the solvency of the Irish banking system long after the financial markets had come to a different conclusion.
When a banking system gets into serious trouble, the bankers form an orderly queue at the offices of the Finance ministry, the third line of defence. The impact of the crash was exacerbated by inadequacies in the policymakers' response. The authorities failed to appreciate the extent of the banks' insolvency for two-and-a-half years after the balloon went up, having agreed to guarantee virtually all of the banks' liabilities in the meantime. It is not correct to say that the losses were created by the ill-fated guarantee: the losses had already occurred at that stage.
But the distribution of losses after a bank bust usually turns out to be a political decision and in Ireland the decision was to spare the bank creditors and burden the taxpayers. This decision was taken on advice from regulators and officials that the banks were illiquid rather than insolvent. There has yet to be a detailed account of the circumstances in which this fateful mistake was made.
The senior bankers, politicians and public officials have not been asked to explain the roles that each of them played in the genesis of the crisis and in the inadequacies of the policy response. Such inquiries as have been conducted have eschewed the allocation of responsibility to individuals or even to organisations. This encourages the narrative that the Irish banking collapse was some kind of natural disaster, unleashed from afar without human agency, an asteroid strike which unfortunately chose landfall in Ireland. An alternative and equally convenient notion is that it was a sociological phenomenon, a collective failure of the entire population for which all bear responsibility, which has the added advantage of justifying the liberal dispersal of the cost. Collateral damage from the failure to inquire into these events has been inflicted on those, bankers in particular, who played no role in the collapse.
As well as allocating responsibility, any proper inquiry also exonerates the blameless, an important task whose neglect ensures that all bankers are deemed equally negligent.
The handling of the financial crisis after it broke has magnified the costs, principally through the painfully slow acknowledgement of the true extent of bank loan losses. It was not until the early months of 2011, after the State itself had lost access to market finance, that credible estimates of bank insolvency emerged from the Central Bank.
The delay was due in part to the decision to establish Nama, initially proclaimed as the vehicle to restore bank solvency but which, after inordinate delay, merely crystallised the extent of the developer loan disaster.
The lethargy of the banks themselves, of Nama, and of the regulatory authorities in getting a fix on the extent of the system insolvency, needs to be explained – not least to those in political office who have taken all of whatever accountability hit has been delivered to date.
The behaviour of the European Central Bank (ECB) in the days surrounding the Irish denouement of September 2008 and in its subsequent dealings with the Irish authorities has been the subject of much speculation. The ECB's council and officials are not responsible for the limited accountability structures created back in 1999, but they are responsible for acting within the limitations contained in the ECB statute. Jean-Claude Trichet, during his tenure as president of the ECB, appears to have pressured the Irish government to persist with crippling payoffs to unsecured bondholders in bust Irish banks in pursuit of European rather than Irish interests.
The ECB does not enjoy any powers to impose arbitrary fiscal costs on member states and it is unfortunate that the Government has failed to hold the ECB to account for its actions at the European Court. This is a process for which explicit provision is made in the ECB statute, presumably in the expectation that it might have to be deployed.
Tanaiste Eamon Gilmore suggested last week that Monsieur Trichet might be prevailed upon to make himself available to the proposed Oireachtas inquiry into the Irish banking collapse. He would have little choice but to turn up for a European Court hearing and the Tanaiste might like to expand on his preference for an invitation likely to be declined.
Pat Leahy's recent book (The Price of Power, Penguin, €14.99) contains fresh evidence that Trichet engaged in improper pressure on a vulnerable member state in the matter of bailing out unsecured bank creditors.
Accountability goes for European public officials too.
Public resignation to inescapable further austerity will be encouraged when the Irish political leadership insists on full and proper accountability, not just for incompetence here in Ireland, but also for shabby treatment from our European 'partners'.