for the taxpayer? Would any protection be built in for the public? Would there be changes in the banks? What would happen to non-performing loans, particularly those related to property? None of this was clear from the Government statement that was issued.
From the outset, I was sceptical about the guarantee. I think I surprised Pat Rabbitte early that morning when I told him I wanted to oppose the guarantee. Even before consulting with colleagues, I issued a statement early that morning that said as much. I said the Government was effectively writing the biggest blank cheque in history, exposing the Irish taxpayer to enormous liabilities. While the USA’s rescue package for its banking system amounted to around 6 per cent of its GNP, estimates of the potential exposure for Ireland varied between two and three times its GNP, perhaps as much as €500 billion. Aside from this, there was also a worrying lack of detail being provided as to the terms and conditions attached to such a massive guarantee. Finally, it wasn’t clear what authority the Government had to even make such an offer to the banks.
Throughout the day, my colleagues and I tried to unearth more information. Joan Burton and I went to the Department of Finance, where we were briefed by its head of banking, Kevin Cardiff. He was understandably exhausted, having been up all night, and he left us none the wiser. Indeed, he seemed unsure of what he could or could not say to us. He left the room at one stage, presumably to get instructions on such matters. He also objected to the presence of Colm O’Reardon at the briefing, which he said was confidential and intended for members of the Oireachtas only. But Colm stayed for the full meeting, and as we walked back across the car park, I said that Labour would have to oppose the bank guarantee.
By 4 p.m., we still had no details about the proposed scheme and no sight of the legislation. Meanwhile, I pressed the Taoiseach, Brian Cowen, for information at Leaders’ Questions. ‘I can see what is in this guarantee for the banks and their shareholders, some of whom have already made gains today on the strength of it,’ I said in the Dáil. ‘I can see what is in it for the six bank chief executives who between them earn €13 million a year. However, I cannot see what is in it for the people or the taxpayers who may yet have to foot the bill. If the Taoiseach is proposing to hand over the deeds of the country to bail out the banks, what are we getting in return?’
As the day wore on, through several informal meetings of TDs and staff in my Leinster House office, my colleagues and I increasingly felt that such a broad guarantee was not the right course of action and that the Party should oppose it.
The Bill was supposed to appear at 4 p.m., then at 5.45 p.m., then at 6.30 p.m.. The actual printed document was eventually circulated at around 9 p.m., with the debate to start at 10 p.m. and presumably to go on all night. By this stage, I was concerned not only about the contents of the Bill, but also about how a possibly heated, late-night Dáil debate could do further damage to the country’s reputation. I wondered about the international reaction if the debate was still going on when markets re-opened in the morning. I suggested that, therefore, only the second stage of the Bill, that is, its overall content, should be debated that night, and that the other stages be left for the following day. This, of course, would have the added advantage of allowing Labour more time to deal with our concerns and to focus public attention, for a second day, on what we now considered a very bad deal for the taxpayer. The Taoiseach and the leader of Fine Gael, Enda Kenny, agreed to the suggestion.
No vote was called at the end of the debate at about 2 a.m., so I decided to make the Labour position crystal clear the following morning at Leaders’ Questions. I told the Tánaiste, Mary Coughlan, that if the fundamental objections raised by Labour were not dealt with to our satisfaction, we would not support the Bill. ‘That would be most unfortunate,’ she replied, ‘but it is a matter for the Labour Party.’
Throughout that next day, Joan Burton, Pat Rabbitte, Michael D. Higgins and Emmett Stagg battled the Labour case, but the necessary assurances were not forthcoming. It would be some days later before we learned that so-called ‘dated unsubordinated debt’ was covered by the guarantee, amounting to a windfall for those who had been speculating in this form of bonds in the months before the guarantee.
When the vote was eventually called, there were 124 TDs in favour of the guarantee and just 18 against, all Labour. Fine Gael, Sinn Féin and Independents, including Michael Lowry and Finian McGrath, all voted with the Government. An inviolable guarantee, effectively underwriting all kinds of private debt originating in our banks, was now in place – with almost total support from the country’s two Houses of Parliament.
Sinn Féin were enthusiastic supporters of the legislation. Arthur Morgan suggested that it would ‘prove to be a move that other states will seek to emulate’, and the voluble Senator Pearse Doherty announced that his party welcomed ‘this decisive move … in the national interest’. Even as more problematic details emerged in the immediate weeks after, Arthur Morgan elaborated on Sinn Féin’s reasons for supporting the scheme: ‘We did so because we believed it was necessary to stabilise the State’s banking system. Our judgement has been proved correct. Since its implementation, Ireland has not lost a bank or been forced to bail out a bank with cash.’
How wrong Sinn Féin and the other parties were! They all focused blindly on the fact that a blanket guarantee from the State would save the banks. But what about the State itself? Labour’s analysis of this was proven correct: the guarantee seriously damaged the country’s credit-worthiness, to the extent that the saved banks almost sank our entire economy. As a direct result of the guarantee, Ireland ended up committing up to €64 billion for bank recapitalisation, we were locked out of the financial markets, and we wound up in a bailout programme that deprived us of our hard-won fiscal sovereignty for three long years.
The bank guarantee did not by itself cause Ireland’s recession, but it certainly added to it. It led directly to the worst economic crisis Ireland had ever faced. The country was now stuck with it.
CHAPTER 2
IRELAND IN RECEIVERSHIP
At the time of the bank guarantee, Ireland was already in recession. By September 2008, the Irish economy had shrunk for two successive quarters and 80,000 jobs had been lost in the previous twelve months. The economy was collapsing. The complex international financial crisis, which had already taken down the Northern Rock bank in the UK and Lehman Brothers in the United States, played its part. But the main domestic cause of the collapse of Ireland’s ‘Celtic Tiger’ economy was more concrete – literally.
The ‘Rainbow’ Government of Fine Gael, Labour and Democratic Left was in power from 1994 to 1997, led respectively by John Bruton, Dick Spring and Proinsias de Rossa. I served as Minister of State for the Marine in that Government. With Ruairí Quinn as Minister for Finance, the public finances were back in surplus for the first time in decades; new jobs were being created at a rate of 1,000 per week and an era of economic prosperity was about to take off, led by export growth.
For most of the 1997 campaign, it was widely expected that the Rainbow Coalition would be re-elected. The three parties had agreed to run on prudent, steady policies. Opinion polls were in our favour, approval ratings were strong and the mood on the canvass was positive. Then, in the final week, in a desperate bid for support and power at any cost, Fianna Fáil promised tax reductions. The Independent Media Group weighed in to support Fianna Fáil, with an Irish Independent editorial proclaiming ‘It’s Pay Back Time.’
The Rainbow lost, and though no one would have predicted it at the time, Fianna Fáil went on to hold power for fourteen years, winning the next two general elections with further promises of tax breaks and increased spending. House prices had already begun to rise in 1997, but instead of managing an increased supply of new homes, Fianna Fáil drove a decade of frenzied speculative construction, which created the property bubble and, in turn, caused the economic crash in 2008. Developers were incentivised to build through a range of tax breaks. Local planning authorities, who were normally cautious and careful about their responsibility to the built environment and to communities, were incentivised to re-zone more land for building and to grant more planning permissions. Under a new Planning Act, both city and county councils could now generate additional income through new development levies attached to planning permissions.
To