Business Irish

Wednesday 22 November 2017

Brian Lenihan: Making his mark

He's not seen as a prophet in his own land, but the financial markets like his policies

Emmet Oliver

IT is not a good time to be a European citizen. Whether you are a teacher in Portugal, a postman in Spain or a police officer in the UK, you are either facing a pay cut, a pay freeze, an interest rate hike or a tax increase.

Whether in the private sector or the public sector, not a single worker in Europe is likely to remain immune to the great age of austerity sweeping the entire continent.

It is not a good time to be a European politician either. Previously cosseted politicians, who were rarely forced to take hard political decisions, are having their mettle tested for the first time.

In Germany, Angela Merkel is facing electoral disaster after bailing out Greece with billions of euro in soft loans; in France Nicolas Sarkozy is facing opprobrium for freezing current spending at present levels; while Spanish Prime Minister Jose Zapatero is facing seething union anger for cutting public sector salaries by 5pc.

The budgetary decisions and the political reaction all look very familiar to us here, with Ireland cutting 5pc of GDP from its budget this year alone.

The indignation and fierce public anger which has greeted such adjustments are very familiar to Brian Lenihan, the battle-scarred, but still resolute Finance Minister.

Tough decisions

Unlike Zapatero, Merkel, Sarkozy and now George Osborne, the new UK chancellor, Lenihan has been cutting and hiking and taking tough decisions since October 2008. Lenihan was taking such steps when it was neither profitable nor popular.

Now his European counterparts are introducing austerity programmes uncannily similar to those Lenihan has brought in since his first Budget, introduced just weeks after the collapse of Lehman Brothers.

It is reported that many of Lenihan's European counterparts have informally consulted him about how such programmes are best introduced, on the margins of European finance ministers meetings in Brussels.

Despite this, Lenihan's actions remain unpopular in many quarters, mainly at home. His domestic critics come in two guises -- one group claim the Lenihan cuts disproportionately fall upon the most vulnerable groups in Irish society, while the other group says his budgetary cuts are only making the downturn worse by reducing overall demand in the economy.

But Lenihan, who is working a full schedule despite his pre-Christmas cancer diagnosis, is viewed entirely differently overseas and on the financial markets, where Ireland's economic destiny will ultimately be decided.

The 'Financial Times', 'The Economist' and several leading German newspapers have written warmly about Lenihan's record and that of the Government. The 'Financial Times' in particular has heaped praise not only on Lenihan's budgetary strategy, but also the National Asset Management Agency (NAMA).

THE 'Financial Times' has not only praised Lenihan and the Government, it has blasted other commentators who have compared Ireland with other indebted eurozone members. "Ireland is no Greece,'' the paper said at the end of March. "After almost two years of unrelieved misery during which Ireland had sometimes appeared, in local parlance, to have lost the run of itself, a battered and moth-eaten Celtic Tiger may be picking itself up,'' the paper said in the same article.

The highly influential Lex column in the FT has also said Ireland has been unfairly treated by some bond traders. Bond spreads, which are an indication of how a country's economy is viewed, are improving for Ireland, but should be improving even more, according to Lex.

The recent crisis over the eurozone didn't help Ireland, Portugal, Spain or Greece, but things have settled down a little since then.

To the credit of Lenihan and his cabinet colleagues, Ireland in February/ March of 2009 was literally staring into an economic abyss with the effective interest rate facing it edging over 6pc.

The former IMF chief economist Simon Johnstone was quoted at the time saying that G7 leaders needed to "do something about Ireland'' before it infected the entire eurozone.

In the British papers, particularly those with a grudge against the euro, the phrase "Reykjavik on the Liffey'' started to emerge, suggesting that Ireland was about to follow Iceland into financial collapse.

But Lenihan, with government support, managed to turn around this sentiment by pushing through the pension levy, social welfare cuts, the income levy, the public sector recruitment embargo and, of course, NAMA. This last project was Lenihan's most controversial.

With a potential budget of €54bn it is, of course, a massive gamble, but it has the one advantage of vastly improving the balance sheets of the banks, which now have little excuse but to start lending.

NAMA was again despised at home, but toasted abroad. While a phalanx of economists from Ireland's universities assailed the plan, Lenihan found key support from the rating's agencies -- with Moody's describing the plan as "an ingenious mechanism''.

One of the common themes of international coverage of Lenihan's work, and that of the Government, has been that nobody is saying it's perfect. For example, 'The Wall Street Journal' has voiced concerns over NAMA, but has commented on Lenihan's ability to formulate and execute a plan.

"It's encouraging to see that Ireland -- unlike Spain -- is dealing with its banking problems head-on,'' the paper said in March in its marketbeat blog.

The irony is that Lenihan's work, while it desperately needs political endorsement at home, also needs intellectual support overseas and it is certainly getting that. For example, Deutsche Bank, a top three European bank, recently said Spain and Ireland were playing in a "different league'', in terms of turning around their fortunes, compared with Greece.

But the warmest endorsement of all came from best-selling author and FT columnist Gillian Tett who wrote earlier this month: "Thus far, Ireland has confounded the market doomsters by embarking on a draconian programme to tackle the debt."

SUCH praise must please the internationalist Lenihan, who was educated in part at Cambridge. But in many ways it is justified. Without Lenihan taking the steps he took, the underlying budget deficit would have been about 17pc of GDP in 2009 -- instead, it was 11.8pc of GDP, excluding Anglo Irish.


For Lenihan, praise overseas will not be enough -- he is, after all, from a very Irish political dynasty that stretches back decades. But it was Brian's relationship with his father, Brian Senior, which has most defined him, according to those who know him.

There is little doubt that Brian Lenihan junior was deeply affected by what happened to his father during the presidential election campaign of 1990, when Charles Haughey effectively ditched the elder Lenihan after public controversy over political interference and late-night phone calls.

This experience gives one a sense of why he now has a drive to make his mark in Finance.

Lenihan is clever and this is something former Taoiseach Bertie Ahern is believed to have resented.

After graduating, Lenihan qualified as a barrister, becoming a senior counsel in 1997, two years short of his 40th birthday. This legal background was ideal for Lenihan when he needed to pilot the highly contentious NAMA legislation through the Oireachtas. It also means that Lenihan is not easily intimidated by the occasional legal threats that emanate from some of the bankers who come to his department on Merrion Street for meetings.

As other European finance ministers, directly or indirectly, copy his handiwork, Lenihan can take some satisfaction from the fact that while he is not a prophet in his own land, he is something of a prophet in the land that matters at present -- the financial markets.

Irish Independent

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