John Drennan: Ex-FF ministers lament 'rushed' bank guarantee
Plan 'based on celebrity economist's theories'
Published 06/11/2011 | 05:00
The legitimacy of the infamous bank guarantee of September 2008, which was the catalyst for Ireland's subsequent bailout by the IMF, has been called into question by two of the senior ministers in the cabinet on that fateful night.
And, in a further revelation, the former Green Party leader John Gormley openly admits that the bank guarantee, where the State took responsibility for more than €400bn of banking debt, was totally based on the theories of the celebrity economist David McWilliams.
Speaking to the Sunday Independent, one figure involved in the making of the documentary claimed the programme casts "real doubts on the validity of the decision taken by the cabinet on the guarantee".
They added that the testimony of the two former ministers certainly suggests the methodology by which the decision was taken "verged on the territories of being ultra vires" and that ministers were "bounced" into a decision in circumstances that resembled "an ultimatum" where they were effectively given "no choices or opportunities for debate".
In the documentary, both Ms Hanafin and Mr O'Dea say they were effectively given no alternative but to approve the decision to offer a blanket guarantee to all of Ireland's banks in the early hours of the morning.
According to Mr O'Dea, ministers who were phoned to approve an incorporeal cabinet decision in the early hours of September 30, 2008, were told that, "the markets were opening in the morning and there was the possibility of no money in the ATMs" and that "nothing short of this full absolute guarantee would save the situation".
Ms Hanafin, who in the programme is shown defending the Irish banking system on the night of the guarantee, said ministers were told that "it was the only option to protect people's money and it had to be done before the markets opened".
Both ministers are now critical of the way decisions were taken.
"It was probably the most far reaching decision I ever participated in my five years in cabinet and I would have liked to have sat around the table to discuss it," Mr O'Dea says.
Mr O'Dea openly admits that "the government did not have a mandate" to do the banking guarantee and says "in retrospect, it would have been better for the country if a fresh government" had come to power at that stage.
Mary Hanafin, who in the documentary says that she had been informed earlier that day that "there will be decisions'' taken on the banking crisis "before the night was over'' is openly critical of the shambolic nature of the decision making.
She claims "that decision shouldn't have been taken at a quarter to two in the morning. . . on the phone.''
The former minister also said that in a scenario where Finance "had known for some time that there was going to be a decision. . . all cabinet members should have been called to Dublin".
Ms Hanafin also notes that in spite of the serious level of disagreement within Finance over the best solution to the crisis, ministers were presented with a fait accompli.
The former minister is backed by Mr O'Dea, who says the cabinet were told "nothing short of the full, unequivocal guarantee would save the situation".
Current FF leader Micheal Martin will say that at the time of the guarantee "the solvency issue did not surface. Time and time again it was liquidity, liquidity, liquidity''.
Mr Martin, though, is implicitly contradicted by the former government minister Eamon Ryan, who admits that whilst everyone in the wake of the guarantee was talking about a liquidity crisis, "most of the people knew we had gone over the cliff".
In a stark display of the lack of faith that then Finance Minister Brian Lenihan had in his department officials, Mr Gormley tells the documentary of his "clear recollection'' of asking Mr Lenihan: "Are you going with the David McWilliams option?'' and of feeling "fairly satisfied" when Mr Lenihan said he was.
Though the decision was to ultimately play a central role in the IMF/ EU bailout; Mr McWilliams defends his advice on the grounds that whilst he advocated a guarantee, having done "the easy bit", the government had failed to follow his advice to "fire the top guys'', to "default on some of the bond-holders'' and close down bad banks in the manner that the Swedes did.
The programme also paints a poignant portrait of Mr Cowen as a Taoiseach "haunted by a sense of guilt'' over his failures as a finance minister.
In tomorrow's episode, Mary O'Rourke charitably observes of the allegations that surrounded Mr Cowen's relationship with alcohol that " Brian Cowen was very shy. . . maybe the few drinks helped him. . . loosened his tongue'' and "brought him back to a happier time, a space where life wasn't as difficult or humdrum as it had become".
But it is believed that in a subsequent episode, Ms Hanafin is scathing about the drinking culture that would ultimately drown the party.
The programme also reveals that PJ Mara and other senior Fianna Fail figures begged Mr Cowen to address the communications deficit in his performance.
Mr Mara says that he and several others tried to persuade Mr Cowen "at least four or five times over a period of nine months" but it was "drift, drift, drift".