Cowen and Tsipras - different forms of ineptitude, both resulting in misery
Brian Cowen's sins of omission explain Ireland's crash. Alexis Tsipras's sins of commission are sending his country over the edge
Published 05/07/2015 | 02:30
What is the difference between Ireland and Greece? Last week gave the answer, quite beautifully, as to how the eurozone's first two countries to be bailed out differ in their respective forms of dysfunctionality.
On Wednesday, Brian Cowen, the man at the helm of the Irish economy during bubble and bust, appeared before the Banking Inquiry. His hours of testimony spoke volumes about how Ireland is poorly served by its system of government and many of those who people it.
All last week in Greece, the closure of the banking system and the holding of today's referendum say just as much about governance there.
Before looking in greater depth at the events of last week in the two countries, consider first some longer-term context for both countries.
The trough from which Ireland is emerging is not the first protracted economic disaster this State has suffered. While the rest of free Europe boomed in the 1980s, Ireland was locked in a decade-long slump. While almost all of Europe was rebuilding and rebounding in the 1950s after World War Two, the very existence of the relatively new Irish State was questioned. This history did not come about as a result of bad luck. Bad government was always a central factor.
Greece's history as an independent state is twice as long as Ireland's. That it has been in a state of sovereign default for half of the time since independence almost two centuries ago, says a great deal about its quality of governance.
But here is the central difference: Ireland's governance failings relate to sins of omission - what is not done, but should be done; Greece's failings are sins of commission - what those in power proactively do that lead to disaster.
Greece crashed in 2010 when it was discovered that governments had inflated a huge public sector bubble by spending surreptitiously borrowed money. Once that bubble burst, a huge crash was inevitable. Reasonable people can take different views on the degree to which the bailout programmes made matters worse, but even the writing off of every cent of debt in 2010 would not have averted massive austerity, to say nothing of the probability that it would have triggered another Lehman-like international crash.
And as for Greece's current predicament, the administration has managed to achieve a very rare thing among a large group of European governments - a cast-iron consensus. All other 18 members of the eurozone are adamant that they will not be dictated to by a country that needs their help.
The 18 other members have, to varying degrees, run out of patience with the Syriza-led government. Instead of understanding that it was never going to win a fight against so many others and from such a position of weakness, the prime minister Alexis Tsipras has ploughed ahead with his brinkmanship. To say that his government has overplayed a very weak hand does not even begin to describe actions that were always going to end in only one outcome. This has heaped yet more misery on the Greek people.
The causes of the misery that Irish people have suffered are different. Any discussion of the crash should always start by making clear that those most culpable for credit bubbles are the allocators of credit. Financiers are supposed to understand their own business better than anyone else. Instead, they showed how bad they were at their jobs, misallocating credit on a world-beating scale.
But the wider system of government also deserves a large amount of the blame. It was asleep at the wheel regarding not only banking, but also in terms of failing to protect the public finances and ignoring the economy's eroding competitiveness in the years up to the crash. As Brian Cowen was finance minister for most of the bubble years (2004-08) and Taoiseach during the worst of the years of bust (2008-11) no individual political figure deserves more blame for the 'do nothing' or 'do as little as possible' policy stance of those years.
Over the course of Wednesday, he showed how unquestioning, incurious and complacent he was. That such a man can make it to the very summit of political power epitomises so much that is wrong with how Ireland is governed. Rather than ministers proactively driving change, too often they are amateurs, bystanding in their departments.
Cowen as a passive onlooker was repeatedly reflected in his use of language last Wednesday - he constantly used the passive voice (it was believed) rather than the active (I believed). This was in evidence from his opening written statement - which was of mediocre quality compared to many others - on the biggest issues.
"There was a failure to adapt policy to reflect the realities of membership of the euro," he said, going on to observe that policy matters "do not appear to have received adequate attention over the period to 2006".
This is an admission that although the entire economic policy-making context changed in 1999 when Ireland adopted the euro, nothing changed, and this non-change is observed by Cowen almost in the manner of a vaguely interested bystander.
The same was to be seen on banking. "There was a view across the board that Ireland's banks were well capitalised and this view was shared with me, as minister of finance, throughout this period". (Note that he does not say that "I had a view".) Never was there any hint that he questioned or scrutinised what he was being told. Indeed, he suggested that probing was unwelcome when he said that the role of his department was not to "second guess" the Central Bank and the regulator.
In full bystander mode, he made this glorious observation: "There had been a gradual loss of competitiveness." Unlike many of the banking problems, which were not flagged, and which even a Patrick Honohan-type figure as finance minister would probably have missed, Cowen cannot claim he was not aware of the erosion of competitiveness. As finance minister, he would have read the frequent warnings of the National Competitiveness Council, yet he did nothing, and during his testimony, it did not appear that it ever even occurred to him to act.
His attempt to claim that he was proactive as finance minister was little short of pitiful. He cited four "important actions" taken. Almost laughably, two of his four "actions" were, in fact, non-actions: the non-abolition of stamp duty and the continued payment of 1pc of GNP into the National Pensions Reserve Fund from his department's coffers (he had inherited this practice from his predecessor and it was locked in legislatively, so "action" would have involved increasing or decreasing the amount. In the event, and quite characteristically, Cowen did neither).
The third measure Cowen cited to prove he was a man of action was one adopted by the financial regulator in 2007 to curb speculative property lending. Given how he was insistent on the independence of the regulator and was not behind the door in pointing out (justifiably) its failures, it is bizarre that he tried to have it both ways, taking credit for a positive thing it did, but disassociating himself from its cock-ups.
If Cowen's opening statement reflected an incuriosity bordering on the intellectually slovenly, plain laziness was often evident later.
When responding to charges of general economic mismanagement, he vacuously said that the economy was operating at full employment and lots of money was being spent on infrastructure. In other words: the party was in full swing, so why even think about it ending?
On his assumption of a "soft landing" for the economy, he said that lots of reports were pointing in that direction, and as such he didn't feel he needed his own people in the Department of Finance to do their own analysis (my hunch is that it probably never occurred to him).
On being questioned about the emerging bank weaknesses in early 2008, he responded: "It was felt at all times here that they had a situation that they could manage, that's basically the point, that the authorities were managing the situation". He sounded more like someone observing a foreign country than the man who was "the authorities".
In April 2008, when Anglo Irish Bank was already in real trouble and the failure of Northern Rock had demonstrated how serious bank problems could become, Cowen went to a dinner with executives of Anglo. Instead of taking the opportunity to get their views on what was happening, he preferred to enjoy the social occasion and didn't bother inquiring into the reason for the share-price collapse.
On the matter of supporting the banks as the crisis began to bite in 2008, he was asked about instructing the State's money manager - the National Treasury Management Agency (NTMA) - to reverse a decision to pull taxpayers' money out of Irish banks. When asked if he queried the NTMA's logic for its decision, he simply said: "No", adding a few further sentences of waffle.
One could add many more examples of lazy incuriosity from Cowen's appearance, but they are not needed to demonstrate the core point. Too often, holders of ministerial office in Ireland are passengers instead of drivers.
It is, as such, no wonder that Ireland has had such serious crashes. The crisis forced a greater amount of concentration and effort to steer the economy back from an even deeper recession. But it is hard to see that lasting. It is already easy to see examples pointing to a slump back towards the passenger seat. Sooner or later we will crash again.