It says something for the lack of transparency in public life in Irelandthat we still feel we are largely in the dark about the bailout negotiations last November 2010. So much in the dark in fact that the memoriam to the late Brian Lenihan on TV3 last Friday night which was presented by veteran journalist and broadcaster Vincent Browne might be less remembered for anecdotes of the late former Minister for Finance displaying his talent for playing the piano and more for the fact that we appear to have had the most insightful description of the bailout negotiations so far, from the governor of the Central Bank of Ireland, Patrick Honohan.
And Vincent then followed up that special programme by devoting his regular week-night programme on Monday last to the contribution from Patrick Honohan. He started out the programme by playing some 10 minutes of the previous Friday’s programme recording and he then chaired a discussion by commentators about the bailout. But I couldn’t believe my eyes and ears when he cut short the recording of the previous Friday’s programme at the VERY point when Patrick Honohan revealed the most noteworthy aspect of the whole negotiation : that we accepted the burden of paying back senior unguaranteed bondholders because of “influence” from “the people”. To be specific, this is the transcript of the end part of the main contribution from Patrick Honohan on last Friday’s programme with a marker at where Vincent cut the recording on Monday night (the bold highlighting which follows is my own where it seems that particularly important information is being imparted).
Patrick Honohan: 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.
Vincent Browne: 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. [MONDAY NIGHT RECORDING ENDS]
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]
Surely what is needed is an understanding of the “influence” that “the people” brought to bear on the negotiations. It probably won’t be very surprising and the betting is that the ECB stressed that Irish banks had some €182bn of ECB funding (€138bn from the ECB, most of which was non-standard liquidity and €44bn from the CBI, which of course operates within the Eurosystem under the auspices of the ECB – the €138bn would have been provided at around 1% and the €44bn at 3%, both are rates that the banks couldn’t possibly access in the open market if indeed they could access any funds at all). And the ECB’s influence therefore would presumably have revolved around the fact that this €182bn of liquidity at low interest rates was keeping Irish banks open. But presumably the “influence” went further than stating the obvious. In order for the reality of the ECB provision of liquidity to transform into “influence”, there would presumably have been some threat to withdraw it. Now such a threat would certainly bestow “influence” upon the ECB, but in the diplomatic world of international relations and negotiations, such a threat would have been impolite – just like it would be impolite forIrelandto openly threaten to veto any second Greek bailout today. So despite a 30-minute programme on Monday last, we are still no wiser as to the “influence” of “the people”. Mind you, the commentators on Monday were unlikely to know much about the “influence” either but maybe Vincent can corner some guest in the near future and wheedle that information out of them.
In addition to “the influence” we are still apparently in the dark as to the content of the secret side letter that accompanied the Memorandum of Understanding signed with the IMF and EU. The existence of the side letter was revealed in the media at the time – the Irish Times reported “the Government has withheld from publication a side letter agreed with the EU and IMF outlining confidential measures for the banks” – and there was an intimation that the content was secret as it had the ability to change share prices. But surely now in June 2011, now that the stress tests have been published and the liability management exercises (buying back subordinated bonds with an enforced haircut) are in full swing and share prices of the three quoted banks are on the floor anyway, we can now know the content of this secret side letter. Did it give effect to the “influence” quoted above, for example did it commit the ECB to providing non-standard liquidity in return forIreland not seeking burden-sharing on senior bondholders?
It might be some time before Governor Honohan takes the “pole” seat on the Vincent Browne show again, but hopefully this most dexterous of journalists can apply his immense skill to getting others to provide transparency on the negotiations last November, 2010 which, to quote from last Monday’s programme were probably the most significant negotiations since the Treaty in 1921/2.
NAMA Wine Lake 
@NWL
A most interesting post, thank you. But do you mind please if I step “behind” matters a little further ?
We need this bailout because we need to finance our deficit. If we could eliminate the deficit, the bailout becomes a matter of indifference.
To eliminate the deficit, since we are beyond the prudent limit of endurance in matters of taxation – though some measures in aid of fairness are still outstanding – we must cut expenditure.
The necessary scale of cuts cannot be achieved without reducing Public Service pay and pensions, Public Sector subventions and working life social protection measures.
Very largely, we are borrowing to pay too much to too many persons for doing too little. Until we effectively address these realities, we will remain in thrall to these ECB nitwits.
It is not irrelevant to note at this point that those responsible for addressing the salient issues on our behalf are those with most to lose in making the necessary re-alignment.
We need better poker players at the table, those whose stake derives from the proper application of democratic principles and is placed in aid of the greatest good for the greatest number of Irish people, everybody living in Ireland today. Pending such change, our representatives are merely moving deckchairs and in the process, expanding the tear using the nearby ice.
@Eric, delicately put. Or to put it another way, we need a competition authority that will take a stick to suppliers in this country to reduce their prices by 30-60%, we need a government that can give assurances to suppliers that if prices do reduce then wage levels will come down and we need legislation to deal with legacy debt (that is proper bankruptcy legislation and perhaps even emergency legislation to account for the particular problems in Ireland’s economy and society).
Just cut pay of the public sector today and you will see people barely surviving financially, finally go under. We need to tackle costs ruthlessly in a socially fair way (that means you engineer cuts in goods and services in tandem or before cuts in wages). And we need to deal with personal legacy debt because it’s not going away, you know.
@Eric,
Your spot on, but your second last paragraph is the reason your last paragraph won’t work. There are too many feeding at the trough. So many that Ireland’s ‘poker players’ were willing to give away anything to get a loan to fund the deficit. In countries like the UK and the US there’s enough of a right wing counter balance that every 10 or 12 years there’s a correction.
That right wing counter balance doesn’t exist in Ireland. I think it’s because so many entrepreneurial types have emigrated over the generations.
A correction has to happen, probably around 2013. Because of the void on the right, it will probably come from the far left.
I have never seen a journalist, on such a strong lead, with such a unprepared interviewee, and on a matter of such importance, take the pressure off as quickly and as inexplicably as Vincent Browne did from Prof. Honohan last Monday night. Frankly I was stunned when he simply switched the topic at the very moment that critical information was about to be proffered. It was like watching a cat put a mouse in its mouth, then letting it go afterwards.
I place a lot of blame for the woes on Ireland on its media and its journalists in particular. Monday night was a stark and clear example of how Irish journalists will actively avoid asking serious questions if they fear the answers will be too disruptive. They won’t open cans of worms that will upset the wrong people. It’s no mystery why so many scandals in this country go uncovered for so long.
Vincent Browne ceased his line of questioning because he was afraid of the potential fallout from it. That’s all there is to it.
@OMF, I think you’ve confused two VB programmes. One was last Friday 10th June where the governor of the CBI, Patrick Honohan appeared for the entire show and provided an unprecedented insight into the bailout negotiations. VB probed as much as he could on the night but eventually Patrick said he was there for a memoriam to the late Brian Lenigan.
The second VB show was on Monday 13th June where Vincent started the show by replaying part of the previous Friday’s show. The criticism in the entry above is at the fact that he cut the recording at the VERY moment that the Governor was providing information (rare information) on the reason bondholders were given special treatment. And in the ensuing discussion therefore there was nothing on the “influence” of “the people” which sees us paying out astronomical sums (€26bn in unguaranteed senior bondholders).
@NWL
Competition Authority &c; The general experience of those in business currently is that the nth portion of any surplus profit is well squeezed out of matters. The evidence is to be seen on our high streets. Our Commercial Property colleagues herein could doubtless provide ample expert commentary upon that question. Our markets, or many of them, are working quite effectively, I suggest.
Wages &c; This is a very vexed area. Private Sector earnings average about €31-32k pa. Public Sector earnings average about €47-48k. These comparisons, though they derive from arbitrary averages, nevertheless overlook the superior non-pay conditions afforded to the latter. Yes, cuts on the scale justified by our present economic condition would indeed leave many public sector workers struggling. I accept that. However, if we were currently to select five workers at random from our workforce, we would likely select one public sector worker earning perhaps €900 per week, three private sector workers earning €600 per week and one unemployed worker receiving an altogether inadequate stipend of perhaps €180 to €330 per week (much variation and many hard cases within the latter). Thinking for a moment of Minister Bruton’s current fixation with the JLC’s, the quiet reality is that the highest basic wage offered under the eleven JLC’s still operating is c.€443 per week. Public sector workers who, understandably, might grumble at the pending reality could reasonably expect a chorus of “Welcome To My World, Friend” from the 80% of us working (or not) otherwise.
Costs; You insert the Phillips neatly into the screw-head here. Sad fact is that most of our costs derive directly from government ineptitude and are tainted upwards. Electricity; Gas; Access to Air Travel; Public Transport; Health Costs; So-called Welfare expenditure; the Planning Process; Higher Education (that which is scandalously expensive of itself but which, in its organisation, serves to perpetuate professional monopolies in key areas); the running costs of the State expressed in terms of the taxation burden; I can pause there I think. Oh no, wait a minute, there is that State banking thingy.
Tandem cutting; I suggest there is plenty of evidence of private sector cost cutting. The fat has been shorn in most areas I think and we are now into flesh. Private sector pay has indeed fallen. Bonuses are a thing of the past. Pay rates have been frozen for years now. Overtime and so forth is curtailed. In short, much of the private sector is getting smaller and smaller in financial terms. But there is a bedrock of personal costs – for example insurance of various types – which cannot be cut to any extent, requiring that cuts otherwise, discretionary spending and even necessities, are all the more severe. In our village even the Chipper reports radically reduced turnover.
Still the State trundles on. Nonsense such as the pensioning-off of skilled workers will not cut the pay bill though it will cut magnificently into the standard and extent of services in many key areas including even Law Enforcement. Increments ! Dear God above is there no awareness of that private sector universe which must work to pay all ?
Therefore and if we are to have some measure of social fairness – and I agree we certainly should strive to do so – then many vested interests must be unwound.
@Frank
As a bit of an auld capitalist myself, I tend to agree with you at least to the extent that our Right Wing is a weak-limbed creature. But hold on a moment now. Where do you propose to find the Left Wing ? The Labour Party ? To bring clarity to our political spectrum they might usefully convene and go the whole hog towards changing their name to the Public Sector Labour Party. Sinn Féin ? Maybe we could re-caste them as the League Of The I’m Entitled ? There is not so much as a Left Feather between both groupings. I have no group title yet for Richard BB and the pals. Give me time.
We will not be well served by any version of socialism which has thus far visited itself upon Humanity. Similarly, we live quite close to at least one country which still recovers from the ravaging ideology of a “capitalist” Handbag Harriet.
Be assured we have many entrepreneurs. Most lack the opportunity to acquire the scale of a Jobbs or a Gates or a Buffet. But they can vote. And they can shift their support. Ask the General Secretary of Fianna Fáil.
2013 ? Both Fine Gael and Labour are subject to door-close-panic. Before too long, Ajai, Olie and the boys will call time on inaction. Neither of our Government parties wish to be in situ when that happens. Meanwhile, Labour will do all it can to preserve the support of our Public Sector fellow-citizens while Fine Gael will work to scrape out the old FF barrel and cobble enough seats to get past the magic 83 (not 60 as promised).
Can we change things ? Certainly ! NWL’s post above and – this opinionated scribe’s meanderings not included of course – the accompanying discourse is merely one fine example of appropriate exposure of the indignity of our position. We can seek to create an awareness of the actual fiscal position and to build acceptance for the necessary measures.
Herein yesterday, EK got what-for as to his NAMA meanderings and by suppertime was obliged to skip forward to our (if I may please refer to it thus) page. Now that the 100 days is passed, I humbly suggest we should plough on as before.
Agree with the thrust of your post I thought it odd and so did others. Don’t know whether the production crew on VB just didn’t fully understand just how strange PH’s phraseology was in the context of that last part or whether there was an editing for discussion-time issue.
@Eric,
I was referring to SF and I agree that socialism has not well served humanity. Unfortunately, there is a vacuum and vacuums are usually filled. That’s how the republic came about.
In the referenced TV show, PH seemed honest. His remark about “influence” was most telling. It makes sense. Obviously, bondholders have influence in the counties that are providing the bailout loans.
In 100 years, and assuming we’re still extant, that original VB/PH interview will be an integral part of all Irish History courses.
In 25 years in construction before crossing this great divide, I was involved in negotiations in various guises – sometimes representing the Main Contractor, sometimes the Client, sometimes the Sub-Contractor, sometimes (in the USA) the Inspection company. Always (and without ever having done a single lesson on how to approach a critical negotiating meeting), you went in a) knowing your own hand, b) having fully discussed with your own team the opposition’s possible hand, c) your defence/attack, d) your goals, e) – and this one most critical – your bottom line.
There are other elements, depending on circumstances, but the above are all basic, and usually the people you met on the other side of the table were similarly prepared.
In light of Honohan’s revelations, you have to ask – how prepared have our negotiating teams EVER been in these discussions? Did they ever have a bottom line? Does this ‘new’ government have any bottom line?
I agree with so much that’s been written above, so many problems across the board (and not least a public sector which AT THE TOP is obscenely overpaid and overpensioned) which, in sum, constrict our growth. All of us, however, the entire nation and those who now work and live here, are adversely affected by the bondholder burden so unjustly imposed on us. Removing that burden, in its entireity, has to be THE national priority.
Namawinelake – I heard this and I took it to be a reference to the fact that the Irish people were not out on the streets.
“the people” has a normal meaning in politics, as being the wider population. Lenihan himself made a couple of remarks about the fact that lack of action by the Irish population left him somewhat isolated.
There’s a price for silence.