Last night, the Seanad debated renewing the Bank Guarantee Scheme. Although the Labour Party voted against it, it passed the house 26-19. I used the opportunity to raise the events of the past few days in my own speech…
I listened to the debate with some interest. Some of the points made were not without significance, especially one or two points made by Senator Boyle to which I will return. I was most struck by what Senator Quinn said. I understood him to say, essentially, that this debate, unfortunately, can be reduced to the proposition – these are not his words, I am paraphrasing what he said – that the Seanad has no choice but to support the motion.
I will not support it because there is a choice. This harks back to what happened in September 2008. On the question as to whether there was no choice on the fateful night in question, the Governor of the Central Bank, Professor Honohan, has never stated the Government was faced with only one option or that it could have taken only one course of action, namely, that of providing a blanket guarantee. Neither the Honohan report nor any of the other reports bears out the proposition that only one course of action was available. The central consequence of what took place on the night in question and subsequently when the Houses endorsed the Government’s approach was that options were closed off. The introduction to the heart of the Government’s banking policy of a guarantee of the nature and extent of the bank guarantee closed off all other options.
There has been much debate about burning bondholders and so forth. The Fine Gael Party took the perfectly legitimate view that the bondholders should have been required to share some of the pain. It was not possible, however, to achieve this outcome once the guarantee was in place. A number of the policies advocated, including the Labour Party policy of taking the banks into public ownership for a period and the policy of sharing the pain, as it were, the position taken by the Fine Gael Party, were recognised by Professor Honohan and others as legitimate options. However, it was not possible to achieve any of them once the guarantee was introduced.
Senators have argued that it is time to forget the banking crisis because it is not connected to the deficit of €19 billion and instead look to the future by focusing the debate on how we deal with the deficit. It is absurd to suggest the legacy of the banking crisis can somehow be divorced from what we need to do to address the budget deficit. The budgetary and banking crises may be different issues, but they are intimately bound up with one another.
Last night’s television and radio coverage featured a great deal of commentary. Stephanie Flanders of the BBC nailed the issue very well when she noted that bondholders who had looked at the Irish deficit of €19 billion and were advised that the Government planned to introduce a budget and four-year plan to slash the deficit only had to look a little deeper to see that the legacy of the banking crisis lay right beside the deficit problem that needed to be addressed. They do not only see that the current deficit must be reduced to below 10% next year, by a further margin in the subsequent year and to 3% by 2014, the reason being they do not see the issue in a mechanical way. While the Senator may want the House to debate the deficit and forget about the banks, the legacy of the banking crisis spooks the whole crisis, both in its economic and budgetary aspects. It forms part of the crisis and cannot be divorced from it. If anything, the events of recent days and the insistence by eurozone and ECOFIN Ministers that there cannot be a direct feed of aid to the banks, as Senator Boyle described it, indicate that the Government is on the line. The Irish sovereign has been infected by the banking crisis. The position of the sovereign and the financial position of the Government, as perceived internationally, are undershot by our banking problems. There is no point in wishing these problems away because they are at the heart of the crisis.