[This subject has been covered on the irisheconomy.ie website. This entry adds the transcript of the programme to highlight the precise words spoken by the governor. Also part 2 of “Burning the bondholders” will now be published tomorrow]
The under-rated Vincent Browne broadcast a special edition of his week-night programme on Friday night last as a memoriam to former Minister for Finance, Brian Lenihan who died earlier on Friday after a 2-year battle with cancer. In the “pole” seat, that is the one nearest Vincent was Patrick Honohan, the governor of the Central Bank ofIreland. Other guests included Minister Joan Burton and journalist Fionnan Sheahan. Vincent started off gently discussing Brian Lenihan with the guests in the stall seats. And then about 17 minutes in he got to Governor Honohan. And Vincent gently probed the governor for his memories of his dealings with then-Minister Lenihan. And for about four minutes, Vincent tenderised the governor. And having covered the tittle-tattle about how nice Governor Honohan’s office was, we had the following:
Patrick Honohan: It was the end of August last year and I had to tell him [Brian Lenihan, BL] that the budgetary situation wasn’t going well. And I showed him a number of numbers that we had calculated and said that it is not going to come right unless the budget is tougher. And he said “Your numbers are wrong!” and we talked about it, but afterwards he told me that he had made up his mind at that point that the situation was quite serious and it had changed all his political calculations at that stage. That was at the end of August of last year.
VB: Tell us about how the EU/IMF thing emerged. There are two- as I understand it, there are two stories about this. One is that yourself, Kevin Cardiff who is the Secretary General at the Department of Finance and John Corrigan, Head of the National Treasury Management Agency simultaneously came to a view that we’re in desperate trouble and we’d better go an approach the EU and IMF for a rescue package and you went to Brian Lenihan and he agreed with you. The other [story] is that actually the initiative came from the ECB and Ireland/he was bounced into this thing by the ECB and he tried to resist it and didn’t want it, that’s why there were denials about the negotiations.
PH: Well there’s some truth in both these things and of course at the very end – At the very early stages we all saw “maybe this will get so bad that it has to be the IMF” and November the 4th [2010] was the date that I decided that the market situation had got so bad that we’d have to do it. And I talked to these officials and other people and it was clear that this was the way we’d have to be thinking –
VB: Did you go to BL at that time?
PH: I had talked to him about the possibility beforehand –
VB: Did the three of you go [presumably PH, John Corrigan and Kevin Cardiff to see BL]?
PH: No, no there was no set piece meeting.
VB: Was it made clear to him as far as you are aware, you made clear to him himself that a deal was necessary or rescue package was necessary – As far as you know did Kevin Cardiff or John Corrigan make –
PH: I’m sure they did, I’m sure they did, yes. No I’m sure that Kevin – I talked to Kevin all the time. So the momentum was there long before the famous arrival in the particular Thursday morning. I mean there had been very detailed conversations, very, very extensive –
VB: Did you contact the ECB and EU and IMF. Was it you, did contact come from you or was it them ringing up and saying “lads we’re coming and you better get ready”
PH: No, no contact came from our side, yeah, but there had been, I mean these organisations talk to each other all of the time, contact came from our side
VB: Did BL know of these contacts, did BL know that
PH: Oh yes
VB: Was it the three of you contacted – yourself, Kevin Cardiff and John Corrigan would have contacted the people?
PH: It doesn’t exactly work like that. I mean I meet with the ECB every two weeks. And I’m on the phone to the IMF people. Whats-his-name Olli Rehn was inDublinat a certain point. I was talking to all these people. So all these communications were – There were very intensive discussions going on. The weekend before they arrived, there were very intensive discussions involving lots of people. There was no ambiguity about this. This was, you know, a pre-negotiation phase. What I don’t know was exactly what BL in terms of domestic political management. I’m sure he had to talk to people to convince ministers, backbenchers. I’m sure that that was a process that was going on in parallel that I wouldn’t have any knowledge of.
VB: Morgan Kelly, the UCD economist who wrote that spectacular article in the Irish Times, a few weeks ago, giving an inside account of how that happened. It seemed that he had been talking to Brian Lenihan and BL had briefed him on this. That’s speculation on my part; but BL’s line seems to have been that he was bounced into this thing by the EU/IMF and maybe by you because you were in the pay of the ECB rather than ..
PH: Well I’m not in the pay of the ECB. The timing may not have been right for his domestic political thing. I am sure he was slightly annoyed by that, but I had my job to do. In terms of the relations with the IMF, the negotiations with the IMF, that was all over, already in full swing so that wasn’t influenced by this. That’s just a nonsense. (It was) all happening but for whatever reason this didn’t suit (for) domestic political reasons for Brian to have announced it at that point but it certainly didn’t suit the stability of the financial markets, the outflow of capital, the interest rate spreads, there had to be a response to stabilise the markets and that’s why I did it
VB: You, off your own bat, you intervened, you rang Morning Ireland
PH: Of course that’s my job. But you mentioned that article which caused a certain amount of controversy. But I got a phone- last time I spoke to Brian. He called me that day or the following day. He called me to see “should I go on the radio to put the record straight here. To say some supportive words that you were always working forIreland” So there was no .. that’s a misreading of the situation
VB: After you’d let the cat out of the bag, or the tiger
PH: [gesturing, pushing the tiger out of the bag]
VB: Was he [BL] annoyed that you had really gazumped him. You had come out and said “Lookit the negotiations are going on and the people including BL saying nothing is happening are not telling the truth”
PH: Well I didn’t say that
VB: I know you didn’t say that but you gave that indication
PH: Well I mean I can’t be responsible for what he told other people to say but I had to represent the facts of the matter, that I was also in discussion and that these people were on the ground. I think he was slightly inconvenienced by the timing of it in terms of communication of it to the Dail and that. But other than that, but not in terms of managing the negotiations
VB: Coming back to the negotiations themselves, was he much involved in the negotiations, I know he wasn’t personally – didn’t take part in the negotiations; it was yourself and your two comrades that I have been mentioning. And others that were involved in it.
PH: There were many people involved in it. Dozens! At crucial points the three people from the troika went and had lengthy conversations [presumably with BL] which I didn’t participate in. Because eventually government decisions with Brian in the late part of the negotiations. Some crucial issues [he] talked for a couple of hours. Lengthy conversations.
VB: Who signed off on, for instance on the interest rate? Was it he or you that signed off on the interest rate?
PH: There was no negotiation of interest rates. This was handed down from Brussels. All of these things- I’m not trying to dodge it. I signed the document as a counter signatory but all these things are decisions of government. I can’t take any decisions like that.
VB: But you could have said to him “No”
PH: I could have said “Don’t sign it” but I don’t think that would have been a good move and he didn’t think it was a good move. He didn’t understand interest rates same as anybody else. You can see how difficult-
VB: When you read the detail of this, did you have a sense that this is a really important and maybe shameful historic moment. That here we’re signing away a significant part of our sovereignty, giving these people the right-
PH: On the contrary, this was a step, a prompt step. Contrary to so many countries that wait until the last moment, they run out of every bit of cash. Brian was fond of saying “we’re fully funded for six months”. It was a matter of great strength, great political strength that he said “yes you are right, we must go and talk to these people, get a deal to ensure that we’re financed for much longer than six months” and not end up in the situation of most countries who are down to their last penny before they go to the IMF and have no negotiating position. Instead he got full sign-up by the IMF and the EU and the ECB to the entire budgetary programme for whatever it was, four years that he had laid out. Got that agreed and through government and published before, the IMF had any influence before this was- the deal, they said “this will work”. So that wasn’t something that was imposed. That was something- and I think it was to his credit, very much to his credit that as with very many other decisions, he did not shy away from the tough decisions even though he knew they would be politically difficult.
VB: You said this was done before, while we still had a negotiation position. But did you – Did we have a negotiation, what amelioration of the deal did we get in the negotiation, what were they proposing that we persuaded them not to impose on us?
PH: We gave them, or he produced the government’s proposal for spending and they said “okay, that will do” Now previously, of course there had been discussions at the European Union level because there’s a European Union obligation to [gestures karate chop] excessive deficit procedure, to get your deficit down. So the overall amount of the deficit reduction was already negotiated at European level before the IMF even arrived. So, in fact our sense at the negotiations was “they’ve come, they’ve said “yes you can have the money, you just carry on with what you’re doing, but only do it more intensively”” And then we discovered, and they said the interest rate will be the standard interest rate and since this is the first case, we have to do this technical work, we have to work how the spreads on the thing [gestures fluctuation] We didn’t like the interest rate, but you don’t discuss traditionally the interest rate in an IMF programme, you don’t discuss their interest rate, it’s written down on their website. And that was the interest rate.
VB: You said they said “carry on with what you are doing” but my understanding was that prior to then, there was some toing-and-froing over who’s going to decide what the budgetary strategy was going to be and the ECB, EU and IMF made it pretty clear what the budgetary strategy would have to be for them to agree. And whereas yes, the Department of Finance did the document, what was it
Joan Burton (waking up): The memorandum of understanding
VB: No, no the document they published before that, the budgetary document they published
Fionnan Sheahan: The four year plan
VB: The four year plan, yeah. Yes that was done by the Department of Finance, Brian Lenihan, and approved by the government I assume. But it was very much done- [smiling]
PH: Yeah, let me make that clear. It was, the magnitude of the cutbacks was negotiated inBrussels[beforehand], but not in the context of the programme. It was negotiated, I can’t remember precisely the date, it was sometime in September I would think, probably September. When they said “this will do it, this will allow you to be compliant with the excessive deficit procedure” It wasn’t in terms of the programme but that was negotiated. And by the time the EU/IMF discussions were held, there was a question “oh, well maybe it should be tougher” but the answer was “no, that’s what’s been agreed”. We just stay with that.
VB: He seemed to me that he was crestfallen after that thing had happened.
PH: Yes. I think he had expectations. I think we all had expectations that we would discuss this over a longer period of time, that we would come up with something more sophisticated in terms of a financing programme that would have more of a risk-sharing element. But instead it was a sort of plain vanilla, “yeah, continue what you’re doing, we’ll give you money for two years, and you’ll convince the market”
VB: And then of course that- On top of the EU/IMF deal they said to you that in addition to that you cannot default on even the unguaranteed debts of the banks.
PH: I think that’s the main reason he was crestfallen.
[moment of silence]
VB: And why did that –
PH: It wasn’t part of the negotiations as such. There was no deal. There was no agreement on that. But there was talk around, about that [gestures circular movement with hands] And eventually the decision was [resolute tone] “No”. I think he was quite discouraged by that.
VB: Was there no room for us to say “Well sorry, we’re not going to finance the unguaranteed debts”
PH: It’s not in the agreement. It’s not in the agreement. I mean you know the way the world works. There’s political room. There’s no political room. No political room was offered to him by the people.
VB: What political room did he need? The deal was there. The EU/IMF deal was there. You were guaranteed the funds for three years and that was it. And you could have said “No, this isn’t part of the deal, there was no legal or moral or any other obligation, political obligation on us to do this. We won’t do it”
PH: I think, well, I mean as I say that’s not really part of the deal. That’s part of the discussion, that’s the reason he was crestfallen. I think this is a matter that remains part of current policy discussion.
VB: But why was it agreed though?
PH: This was not an agreement which I was party to. This was not an agreement. It was influence [nods head] and I think definitely –
VB: Were you asked your own opinion on this?
PH: Aam, well I offered to [indistinct, put in?] a lot of opinion and my views here. I think we’ll- Let’s talk about the man.
VB: Did you advise?
PH: We’re talking now about all sorts of current policy issues and what’s my view on this and what’s my view on that.
VB: You’re a very confident and crucial person.
PH: Yeah [signalling he has no more to say]
The obvious question that will presumably now be raised in the Dail is what was the quid pro quo (or consideration) offered in return for the agreement not to impose burden-sharing on senior unguaranteed bondholders. Or to ask the question in a more loaded manner “What “influence” was Governor Honohan referring to. Did the ECB threaten to withdraw liquidity to Irish banks unless the sovereign agreed to repay unguaranteed senior bondholders in insolvent banks in full?” If the ECB did adopt that stance, or that threat, then presumably there are now valid grounds forIrelandto adopt a hostile position towards the terms of the Maastricht Treaty which introduced the euro system. This may be an interesting week, as this stray thread gets pulled.
NAMA Wine Lake 
At about 28:40, does PH not say “he CAN understand interest rates…” — forgetting that the past tense is now appropriate? It’s a bit mumbled, but that’s how it sounds to me, and PH’s demeanour suggests it too, at least to me.
@pleite, I’ve replayed the 28:40 section several times and I hear “He didn’t understand interest rates same as anybody else” There is definitely a “d” sound after “He” not a “k” or “can”. And I can’t see PH’s demeanor indicating anything. He is resting his hands and not gesticulating. So I think the transcript is correct.
Honestly NWL? After all these years, and the events we witnessed, before i believe a single word coming from a central banker, banker or politician, a lot has to happen, a helluva lot in deed.
It is not only these press highlights on Junckers who did not hesitate to admit to deliberately lie to the public, not the Wikileaks on Gilmore who deliberately lied to the public, it is the entire history of the events unfolding. Trust has to be earned where I am from, and if it is broken well….
Too often I heard them refer to themselves as the honorable people. Where there are lies, there is no honor, simple as that, and lies are the daily breakfast when it comes to this charade.
Question remains, why was it NOT part of negotiations with the troika? If it was no part, then I blame the irish negotiators, full stop. Ireland submissively agreed to a ECB policy dictate, not? I think so!
Personally, I think Mr. Honohan has integrity. He is a poor liar, I reckon, so he stops talking and changes the subject when he is unable to lie about something. This probably makes him a poor choice for a central banker. Luckily, he is also an economist and believes what the data are telling him, without needing to think of a behavioural aspect. The nest minds of NAMA, the banks, the DoF, the NTMA and the CB along with the projections were saying that the first round of stress tests was sufficient.
That they were all (opinions and data) based on sand is the common failure of economics. It doesn’t make economists liars, but it does make their ‘evidence’ based pronouncements suspect.
@ yoganmahew
Personally, I think Mr. Honohan has integrity.
Agreed.
Yes, he is also not willing to lie.
But he knows much, much more than he has so far spoken publicly about in relation to what the Irish banks have been up to.
Since the Bailout we have seen two newspaper reports suggesting the ECB threatened to pull the ELA, running at about €180b at that stage ( I think) and at 1% interest. Michael Clifford certainly had this story. They promised to transfer the liquidity to specifically protect the Continental banks that would have been hit if we thought to default or burn bondholders.
About a month ago, a similar threat was publicly reported as having been made to Greece. And this presumably is why, on the day of the stress tests, Noonan and Honohan were left twisting in the wind in their hope for “medium term financing”. Tony Soprano would have been proud of it.
So while we can theoretically burn the dwindling group of bondholders left, the return of serve threatened by the ECB is the collapse of the banking system. Quite a game of chicken.
Now of course if the reduction of the interest rate ( applied partly to debts that have nothing to do with us, having been fraudulently foisted on the State by the lies of the bankers), can be held up by a single vote of France, I wonder what approach should be taken when the vote on a revised Greek package comes up. Should Noonan intimate that it won’t be supported by Ireland unless bondholders get hit like Germany is suggesting ? It would be interesting to hear the ECB sabre rattling again.
My big concern is that, given the tension so far, when the Continental banks are secured, what will be left for and of Ireland ? This show has a long while to run yet..
On top of all the other nuggets, his line about August is very interesting. There seems to be a bit of conventional wisdom that Ireland was actually doing OK during Autumn 2010 and had a chance to get to the budget uninterrupted, and was only done in by renewed market uncertainties as the Greek program slipped. Yet PH thought the jig was up in August, and BL seems to have agreed with him.
A shame all the ministers were still in the middle of the holliers when that realization had sunk in.
VB: Who signed off on, for instance on the interest rate? Was it he or you that signed off on the interest rate?
PH: There was no negotiation of interest rates. This was handed down from Brussels. All of these things- I’m not trying to dodge it.
{and then comes… the dodge}
I signed the document as a counter signatory but all these things are decisions of government. I can’t take any decisions like that.
@ Frank Galton : It was end of August that ECB started pushing, if I recollect rightly, for a larger cut in the deficit, from €3b to €6b ? Leo Varadkar opined on the subject, suggesting an €8bn chop. BL tried to address this at the FF drink in, but it was somewhat overshadowed by the energetic activities of the Taoiseach and the resultant surreal media reportage.
Now recollect Lorenzo saying that the ECB had asked for the budget to be brought forward, and the pressure of the “independent” ECB comes back into focus.
Lenihan noted his huge concern about the effect of huge a huge cut on the growth potential of the economy, and the effect of such deflationary activities on the potential to borrow reasonably.
The prudence in building up the 6 month reserve ( allied to the contents of the NPRF, now raided to pay German and French banks mainly) allowed him breathing space as pressure built up elsewhere on the Continent, assisted by the loose talk of Merkel and Sarkozy which effectively cut the legs from under the country, and the subsequent debacle of the negotiations. From his hesitances, it’s clear Honohan also felt stitched up by the troika. So much for the “liberty of small nations”.
Had the line been held, it’s arguable we might still be out of the clutch of the troika and watching the Greek scenario in a much better position. As it is, we’ll do very well to avoid getting caught in the fallout to come. As for getting back to the markets, even though we’ll have borrowed heavily to pay off the bondholders, who will lend to us at a reasonable rate under the terms envisaged in 2013 ? That’ll be eaten bread, instantly forgotten.
Although PH says “I’s not in the agreement” , the policy of not burning senior debt is included in the IMF program mou in a slightly oblique fashion. Under Q1 2011 fin sector reforms, there is reference to upholding the recap policy of 30 sep 2010
http://www.finance.gov.ie/viewdoc.asp?DocID=6515
nb:
” The position is that senior debt obligations rank equally with deposits and other creditors under Irish law. I have no plans to change this position. There is, therefore, no question of seeking to impose losses on holders of such senior debt in Anglo or indeed in any other credit institution in the State through any legislative measures. Any alternative strategy as advocated by some creates a significant risk of jeopardising the banking system’s and indeed the State’s access to international debt markets and cannot be countenanced on that basis.”
I admire PH and BL greatly. I feel they did the best with what they had. The damage was done from 1997-2007 in an atmosphere of near unanimity between govt and opposition.
Why have Kenny and Gilmore been so lacking in balls as not even to ask their american counterparts aboout Geithner’s role. I’m going to call Samantha Power and ask if she has any idea what’s going on.
@Kirsten, if you have a line to Samantha Power, that suggestion of yours would be wonderful. And given that neither Enda Kenny nor Eamon Gilmore have been able to muster the courage to broach the subject, it would indeed be sparklingly funny if you might let us know what she says.
However, there is a post today here on Timothy Geithner and there is a claim in Britain’s Telegraph newspaper that he was simply acting to prevent an insurance event that might have seen €120bn paid out by US companies on credit default swaps. So the question of Timothy Geithner’s involvement has less to do with the reason, but more to do with the precise stance of the US on bondholders today.
https://namawinelake.wordpress.com/2011/06/13/there%e2%80%99s-no-mystery-to-us-treasury-secretary-timothy-geithner%e2%80%99s-intervention-in-the-irish-bailout-wikileaks-has-already-revealed-the-reason/
Here in Ireland we are reluctant to speak ill of the dead .and so with reluctance I say this.
Mr.Lenihan RIP, has for the last few day been canonized by his well placed pals in Irish society .Of course politicians from all sides are falling over themselves in praising this man presumably expecting to gain some brownie points .The airwaves are stuffed with praise for this man and it is becoming nauseating to say the least .I became sick last Friday when the Live line went into overdrive and one would have thought they were talking about Mahatma Gandhi or mother Theresa
Speaking of Gandhi may I take this opportunity in reminding everybody of one of his quotes?
“There is no God higher that truth” Now this been the case I am compelled to try and bring the truth back into the light of day.
Our country is the poorer because of the incompetence of Mr. Brian Lenihan. This man is responsible for the many, many years of austerity that is now been forced on to the shoulders of ordinary decent people because this man sold his country out the international bondholders, gangsters and gamblers. Mr .Lenihan chose to save his pals in the building industry and the corrupt bankers rather that stand up to them and make them responsible for their own gambling debts. Mr.Lenihan became dethatched from the ordinary people of Ireland and he became aloof and drunk with the effect of absolute power, His membership of a very select group of individuals (The Golden Circle) caused him to turn his back on the people of Ireland as he chased applause and honours from forging shores. His mind-boggling incompetence along with his former crew members has cost this nation, our independence and sovereignty and in other times he along with the other members of the previous government would have faced charges of treason and would have been shot!
Ironically he was accused of economic treason not so long ago by members of the current government and these same people are now enthusiastly carrying out the same measures as Lenihan and his band of misfits came up with
So I guess Lenihan wasn’t the only economic terrorist we had or have now. The central bank governor hasn’t exactly been the sharpest tool in the drawer
Well said Thomas Clarke. I agree fully.
@thomas clarke I fundamentally disagree with you. Lenihan can’t be faulted for intelligence. What he can be faulted for is courage. He can be faulted for failing to realise that the task set for him was beyond him, that “Europe” had dissolved as a concept and devolved into a morass of nakedly rather than merely nominally self interested parties (notably Finland, Germany and France but doubtless others in a less public fashion) and therefore he should find a way of forcing a democratic crisis.
Instead, the truth was hidden from the people and when that didn’t work they were lied to, all because of the desire of Fianna Fail to avoid the collapse of the government a year or more before it happened. In Iceland, the cards were put on the table and the people said “not in our name”.
I agree fully with Thomas Clarke. What chance have we as a country if we continue the stifling of reasoned analysis of what got us to this sorry state (State). The old oirish “sure wasn’t he only great now he’s dead” reflex is nonsensical. BL got sick and died relatively young. That is a personal tragedy for his loved ones. His death however does not retrospectively confer integrity, patriotism and ability on him. A man of integrity, a patriot, would not have colluded with the sack of our nation
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