Monday 16 December 2019

Brian Lenihan: 'We had no mandate for the bailout'

Pressure on Lenihan was immense but he made many mistakes, writes Daniel McConnell, Group Political Correspondent

Brian Lenihan was Finance Minister at the time of the bank rescue
Brian Lenihan was Finance Minister at the time of the bank rescue

Daniel McConnell

For Brian Lenihan, November 2010 was the month when the game he had been fighting so bitterly to win for two years was lost.

Isolated from many within his own Government and from his counterparts across Europe, he stood defeated as he led a battered and vulnerable Ireland into the claws of the IMF/ECB/EU Troika bailout.

"It was like being at the gates of hell," he famously concluded in his last ever interview.

Worse still he stood accused of lying to the Irish people by denying for so long that Ireland was even considering such an option, when actually detailed and intense negotiations were already ongoing.

Lenihan had desperately sought to avoid such a conclusion, but our own banking crisis which exploded in 2008 and our jerry-built economy which had been mismanaged by his predecessors Bertie Ahern and Brian Cowen combined to make the outcome inevitable.

And much of this was done, while he was battling terminal pancreatic cancer. By any standards, it was an awesome load of responsibility.

He assumed the role, often against the wishes or without the backing of his Cabinet colleagues, of trying to restore some order to the wrecked banking system and the public finances.

History will determine that Lenihan's actions on the public finances were groundbreaking and considerable in the teeth of public opinion.

However, history will not be as kind about his banking policies, which were completely inadequate and ultimately cost the taxpayer €64bn.

By far the most interesting essay contained in the book on Lenihan by many of his closest colleagues and friends is that by Central Bank Governor, Patrick Honohan.

At the heart of Honohan's account is how he came to defy Lenihan by blowing the whistle live on RTE's Morning Ireland on secret talks that had been taking place between Irish officials and the Troika about entering the bailout. That bailout would officially be announced three days later.

Honohan sets out in some considerable detail the chaos and turbulence that saw Ireland being "bounced" into the €85bn rescue package.

"Brian, rightly felt that all of the external actors were seeking to bounce him into formally making the application. He said he had no Government approval to do so, but did not at all suggest that he was having second thoughts about the course that he had embarked upon," Honohan wrote.

A central theme of Honohan's account is that because of the isolated position Lenihan increasingly found himself in, when such pressure came from countries like France and Germany, the ECB and others, he had nowhere to turn.

He captures well the immense pressure brought to bear on Lenihan by the ECB in particular if he defied them and refused to accept the bailout, even after Honohan's game-changing intervention on radio on the morning of November 18.

"Despite all this, the ECB - still not fully convinced that an application would be made - felt it necessary to write to Brian the following day warning that continued emergency lending by the Central Bank to the Irish banks could not be assured unless there were to be an application," Honohan wrote.

This, as we know, happened by way of a threatening letter from then ECB President, Jean Claude Trichet, to Lenihan.

The unravelling of Lenihan's efforts began in earnest in September when he announced that the cost of bailing out the banks would be at least €50bn. Labour's Joan Burton dubbed the announcement as "Lenihan's Black Thursday."

Very quickly Ireland would be priced out of the market, a run on deposits would begin and forces began conspiring into forcing us into a Troika bailout.

By early November, despite resisting it for as long as he could, Lenihan relented and consented to his officials beginning exploratory talks over a possible bailout programme.

However, he had one insistence. The talks could not happen in Dublin, they had to happen in Brussels.

It is clear at this stage that many within the Cabinet were completely oblivious to what was going on, clearly by Lenihan's design.

A well-known control freak, Lenihan didn't trust his political colleagues to keep a lid on such critical events. Such secrecy would blow up in his face when ministers Noel Dempsey and Dermot Ahern held the line that no talks were happening.

In their defence, their comments came from briefings from Lenihan himself minutes before they were made.

That same day, Sunday November 14, a 17-strong team of Irish officials travelled to Brussels for talks.

By the following Wednesday night, Honohan explains he was under great pressure from his ECB colleagues to tell the Government to enter a bailout.

His decision to ring into Morning Ireland the following morning, Thursday November 18, was prompted by a Financial Times editorial which said there was a bank run taking place in Ireland.

He felt he had to act and to Lenihan's deep annoyance, he revealed all and said a bailout programme was all but agreed. Lenihan's game strategy lay in tatters.

And, despite the pressure to try and get the best deal possible for the county, Lenihan also had other grave concerns. As revealed by Cathy Herbert, his special advisor, Lenihan felt he and his Government had no mandate from the people to enter into such a deal.

"He was deeply concerned that the Government had no mandate for the action that he feared would now need to be taken. Very early in September, he went to the Taoiseach to argue the case for calling an immediate general election, but Cowen was firmly of the view that it was the job of government to bring forward a budget and deal with the fallout," she wrote.

Other writers in the book, including former Attorney General Paul Gallagher, economist and special advisor Alan Ahearne and current IMF boss Christine Lagarde all give their perspective on Brian's handling of this crucial time.

From reading them all, you can conclude that Lenihan was a reluctant Finance Minister who was dealt a woeful hand by Brian Cowen and Bertie Ahern. Badly advised and overruled by Cowen on the night of the September 2008 Bank Guarantee, the decisions taken that night would ultimately lead the country into the bailout two years later.

His short tenure in Finance is the most controversial and most dramatic in the country's history and his premature death only adds to the allure of Lenihan's memory, which will be debated for many years to come.

Sunday Independent

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