Saturday 17 March 2018

Truth emerges after straight-talker breaks ranks from Cabinet

Thomas Molloy and Siobhan Creaton

WHEN a marriage is breaking up, a responsible uncle or aunt is often left to explain things to the children.

Yesterday morning, Central Bank governor Professor Patrick Honohan played that role when the avuncular academic told the Irish people in simple words what is really happening -- just a few hours after Taoiseach Brian Cowen had denied it on the 'Six One News'.

After constant denials about a bailout from Mr Cowen and his cabinet colleagues, Mr Honohan made it clear that a bailout is coming and that it will be large. For good measure, he added that we don't know how much interest we will pay for the bailout and noted that the Irish banks are losing money as depositors shift their savings abroad.

"A loan will be made available and drawn down as necessary. It is my expectation that will happen, absolutely," Prof Honohan said.

"It will be a large loan because the purpose of the amount to be advanced, or to be made available, is to show Ireland has sufficient firepower to deal with any concerns of the market. We're talking about a substantial loan."

The intervention immediately sparked rumours of a deep rift between the Government and the central banker with the Taoiseach saying sniffily that the former IMF and World Bank official was entitled to his opinion. Stock markets were delighted, with exchanges around the world gaining as the markets showed relief that at least one Irish policy maker had swallowed a truth serum and begun describing the world as it really is. It is not the first time that the straight-talking 61-year-old has broken ranks to explain our problems to the public and the markets.

Last week, he astonished many by speculating openly about an IMF intervention when nobody yet knew that we were preparing to call in the IMF. In the same speech, which now seems like a clear warning of what was to come, Prof Honohan mused aloud that it wouldn't make a huge difference whether the IMF came in or not because the fund's policies would be much the same as the present Government's.

A month earlier the central banker -- who earns more than his counterparts in the US, UK or Germany -- admitted that he might be overpaid and called for a property tax to increase taxation and a higher tax rate for several years.

Prof Honohan's biggest contribution to blowing away the cant and deceit that has poured from the Government in recent months was the eponymous report into the banking crisis which laid much of the blame at the Government's feet.


While it is possible to carp at some conclusions, the outspoken document described a systemic and "major failure in terms of bank regulation and the maintenance of financial stability" and directly contradicted the Taoiseach's repeated assertions that the banking crisis was caused by the collapse of Lehman Brothers. He even went on Vincent Browne's show to explain his findings -- something that would have been simply inconceivable for any of his predecessors.

This may not sound revolutionary but it is safe to say that no other inhabitant of Sam Stephenson's monstrous office on Dame Street has ever been as accessible or as outspoken.

Indeed, many of his nine predecessors gave every indication of being afraid of their own shadows and reluctant to talk about anything relevant to the man on the street for fear of upsetting the government of the day.

The Central Bank's disastrous failure to regulate banks properly over the past two decades led to Prof Honohan's appointment last year despite his previous links to Fine Gael which included advising Garret FitzGerald during the last economic crisis. Lenihan made it clear that he wanted a governor who had real credibility with other ECB central bankers.

Irish Independent

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