Analysis/Comment
Irish Economy: Ahern, Harney, McCreevy, Cowen and the other individuals/groups with responsibility for the economic crash
By Michael Hennigan, Founder and Editor of Finfacts
Apr 6, 2010 - 5:53 AM

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Irish Economy:In the aftermath of last week's revelations of the fallout from the economic crash, it is appropriate to rank the individuals and groups who share responsibility and in a democracy, the political leaders should have prime ranking with Bertie Ahern, followed by Mary Harney, Charlie McCreevy and Brian Cowen.

The Taoiseach was reported to have been stunned by last week's charge of economic treason from Labour Party leader Eamonn Gilmore, who accused Cowen of putting the interest of Anglo Irish Bank above the public interest. Just over a year ago, Minister Noel Dempsey accused the senior management of the bank, of engaging in economic treason.

We wrote in March 2009: "In a country with a governance system, we have repeatedly highlighted as one where the Buck Stops Nowhere, the former schoolteacher, true to form, accepts no responsibility for the monumental mismanagement of the economy but compares his erstwhile property developer and banking friends to Oliver Cromwell - - the most hated man in the long history of the Irish people.

Earlier last week, Dempsey said those accused of wrongdoing in Anglo Irish Bank, had engaged in 'economic treason'."

In contrast with the mendacious bankers, the brass-necked Dempsey acknowledged that "even Cromwell was motivated by reasons other than personal gain."

SEE; Finfacts article, March 2009; Economic traitor cries treason; Slow-motion Government hits panic button

The General Election of 1977 had marked the entry to Irish national politics of Bertie Ahern, Mary Harney and Charlie McCreevy. In 1978, a public spending fuelled boom in Ireland resulted in a budget deficit of 17.6% of GDP (gross domestic product) - - a record for developed countries according to the International Monetary Fund (IMF), for the period 1970-2008.

The payback for reckless economic mismanagement was a decade of misery and pain and in 1997, on the three assuming power, as Taoiseach (Prime Minister), Tánaiste (Deputy Prime Minister) and Minister for Finance, the words of Frenchman Prince Talleyrand about the Royal Bourbons, were apposite: "They have learned nothing and forgotten nothing.”

On June 05, 1997, the Irish Independent famously ran its front page editorial titled  - - "For years we have been bled white - now it's payback time" - - a day preceding the General Election.

Labour Party Finance Minister Ruairí Quinn, in January 1997, had introduced a budget, which provided for a surplus. The top rate of income tax was kept unchanged at 48% and the standard rate was reduced by 1% to 26%. Quinn had also negotiated with the European Commission on cutting the standard rate of corporation tax to 12.5%, to provide for the end of the zero rate on export profits, that had been introduced in 1956 by Fine Gael Finance Minister Gerard Sweetnam, in the first budget, which was was prepared with T.K. Whitaker as Secretary of the Department of Finance, and also the expiry of a tax of 10% on the manufacturing sector, which had been in force since the early 1980's.

Fianna Fáil's finance spokesperson Charlie McCreevy, in his response to Ruairí Quinn's 1997 Budget, acknowledged that the “favourable budgetary position” could only have been dreamt of by Quinn’s predecessors, from Bertie Ahern right back to the first Minister  for Finance, Michael Collins, in 1922. However, McCreevy warned the Budget “is an attempt to revive the electoral fortunes of the government by trying to purchase the votes of the electorate.”

“I predict the budgetary strategy adopted by this government over the past two years will do lasting damage. I have made that prediction for some time and reiterate it today,” McCreevy said.

“The problem is that when one has to take corrective measures, it is always the poor at the bottom of the scale who suffer most — the people whom those with bleeding hearts overtly say they are trying to protect...When changes and reversals of policy must come, whether a left or a right-wing government is in power, it is always the same unfortunate people who must suffer. That is what will happen again,” he added.

Finance Minister Ruairí Quinn got little thanks for his prudence. The new Fianna Fáil Finance Minister Charlie McCreevy with cheerleading from the junior coalition partner, the Progressive Democrats, poured oil on the property market by massively extending property tax incentive schemes and the capital gains tax rate was cut from 40% to 20%. At the same time, the throttle was opened on public spending, which grew at an annual 14% rate in the period 1997-2007.

Property-related taxes jumped from 4% of total revenues in 1995 to 17% in 2006. In November 2004, the then Finance Minister Brian Cowen, said 28% of the average price of a new housing unit was related to taxes and other public charges. So in the peak year of the boom, when 88,000 new housing units were built, the Government collected about €100,000 a pop. The Irish Housebuilders Association said in October 2006 that the Government tax take from new homes building industry was expected to reach €9.5bn in that year.

Harney had said in the Dáil Budget debate in 1998: "Cutting taxes has been the key to Ireland's tremendous economic performance.

We have cut taxes on labour, on capital, on companies. We have given huge tax breaks for investment in films, in urban renewal, in the development of tourism.

Socialists don't believe in low taxes; they believe in high taxes. Right now the biggest threat to our continued economic prosperity comes from Socialists, European Socialists who are envious of our low-tax regime and who want to foist on us the kind of punitive tax rates that have saddled them with massive unemployment. Socialism has never been very popular in this country and the last thing we want to do now is import it from Europe.

This Budget is another major step on the road to tax reduction and tax reform. As long we in Ireland keep on that road we will continue to prosper."

We now know, as some of us did forecast then, that the biggest threat to Ireland's prosperity, came not from Socialists but from Mary Harney and her colleagues, who brought the misery of "massive unemployment," to tens of thousands of people. Her  fairytale economy was built on a property boom and an exporting sector where mainly American firms were responsible for 90% of the total, while the derided Socialists, such as the Finns, Swedes and Danes, were building their own world-class exporting companies.

Last month, the World Economic Forum ranked Sweden the world's top technology nation while Ireland's ranking was 24th - -  behind the United Arab Emirates.

The property bubble has burst and the the jobs in the main growth engine of the economy - -  the foreign-owned sector  --  are back to 1998 levels of 118,000.

At 1.9 million, we now have 400,000 more in employment than in 1998 and 200,000 more in unemployment. Exports from the mainly US-owned chemical sector have boomed in recent years and while the trade figures have been flattered, employment in the sector has been almost static.

SEE: Irish times article by Michael Hennigan, March 2010; Spin cannot hide lack of new thinking on jobs

1. Bertie Ahern

Taoiseach 1997-2008: Ahern has major responsibility for the economic disaster.

The former hospital bookkeeper and consigliere to corrupt Fianna Fáil leader Charles Haughey, was a typical machine politician who saw public spending as a means to building a political base.

He was the principal booster of the property market and rubbished warnings of risk even though the economy was becoming increasingly reliant on the sector.

SEE: Finfacts article, Oct 2008; State bank guarantee tolls the death knell of the Celtic Tiger; Fairytale ends debunking the myths and exposing the reality of foundations built on quicksand

2. Mary Harney

Tánaiste 1997-2006

The Progressive Democrats had lost seats in the 1997 election and Bertie Ahern had agreed to have so-called "independent" TDs paid an extra tax-free lump sum of over €40,000 annually as part of a deal to win their support.

Harney appeared to be happy to take credit for cutting taxes and even after 2002 when the PDs had doubled the representation in the Dáil to 8, removing power from independents, she did not make any effort to rein in the out-of-control property market.

The PDs supported both sham benchmarking and the Tammany Hall style decentralisation plan to move public service offices from Dublin, with ministers getting the plum moves for their own constituencies.

The PDs made Fianna Fáil cronyism respectable.

Finfacts articles:

Sept 2004: Should Bertie Ahern Sack Minister Mary Harney from the Irish Cabinet?

Oct 2007:  Where is the Outrage? Gombeenism thrives at home while in Paris, OECD staff work on proposals for Irish public service reform

3. Charlie McCreevy

Minister for Finance 1997-2004

It was strange that the politician who stood up to Charles Haughey in the early 1980s, operated as if he had invented the permanent free lunch when he took charge of economic policy.

Finfacts articles:

May 2009: The 2001 economic consensus that paved the road to economic ruin;

In 2004, McCreevy was voted Ireland's Best Ever Minister for Finance, according to a poll conducted amongst the readers of Finance Magazine. Other former ministers who polled well included Ray MacSharry in second place and Civil War era minister Michael Collins in tenth.

In a separate sub-poll carried out amongst the leading Irish financial services economists, McCreevy was also voted as the best finance minister. One economist who gave McCreevy 9 points out of 10, said that he only missed the top mark, "because of lack of control of public spending in pre-election period. Otherwise brilliant."

March 2010: Could the Irish public sector benchmarking fiasco provide a case for the DPP?

4. Brian Cowen

Taoiseach 2008-

Minister for Finance 2004-2008

Minister for Health/Minister for Foreign Affairs 1997-2004

Cowen said in early May 2008, his role model as Taoiseach would be Seán Lemass.

We said at the time that he had no record in challenging conventional wisdom.

With an inept Central Bank and Financial Regulator, he was happy to await for the so-called "soft landing" after the 2007 General Election.

Trinity College economist Patrick Honohan, now governor of the Central Bank, had said in 2006 that Irish banks' borrowing from abroad to onlend to Irish residents soared from 10 to 41% of GDP between 2003 and 2005.

Did alarm bells ring anywhere?

5. Other Ministers

All the other ministers who served in the period 1997-2007, are also guilty of incompetence and cowardice.

6. Senior civil servants

They weren't responsible for policy but like Catholic Bishops, they did not risk their cushy positions.

They accepted sham benchmarking and much more without a squeak. Shame on them too.

7.  Central Bank and Financial Regulator

Abject failure to restrain the credit boom.

Finfacts articles:

Sept 2009: Irish Central Bank declared its impotence before launch of the euro; Why Spain's biggest banks survived huge housing boom

May 2009: Irish Financial Regulator’s failure to control property bubble contributed to economic crash and consumer wealth losses

8. Seán FitzPatrick

A chartered accountant, joined Anglo Irish Bank in 1980 and served as Chief Executive Officer from 1986 to January 2005. He resigned as Chairman of the bank on Dec 18, 2008 following the disclosure of hidden director loans.

FitzPatrick was on the council of the Institute of Chartered Accountants in Ireland and who would have said boo to him?

9. Chairmen and chief executives of AIB and Bank of Ireland

1997-2007

Both banks lacked robust risk management  from the start of the boom.

Again there were several chartered accountants who apparently believed that they had discovered the philosopher’s stone which would transmute the boom into a permanent prosperity.

10. Bank auditors

Had any Big 4 accounting firm reservations about bank risk?

11. Developers

While they were given plenty rope to hang themselves, some of the oldest firms did not go crazy.

12. Vested Interests

Trade unions grabbed what they could; ditto for business body IBEC and there was no pressure for reform.

13. Media

Property madness pervaded the broadcast and print media.

It was a good earner and it was easy to find some shill to pour cold water on party poopers like the Economist magazine, warning of the risk of a sharp correction.

14.  Dan McLaughlin

The chief economist of Bank of Ireland with his PhD was always available to give intellectual underpinning to the ignorant cheerleading of the likes of Bertie Ahern and the self-interest of the property sector.

McLaughlin declared a "Golden Age of Construction" in 2004 and as recently as 2007, expressed puzzlement with claims, that Irish growth was unbalanced.

There were other so-called economists who thought a booming population was sufficient for sustainable growth.

Finfacts articles:

Mar 2009: "Leading" "top" or idiot Irish economists glowing with wisdom in these challenging times

15: The People

A significant number of Irish people bought the yarn that the free lunch had been invented.

Finfacts article: Nov 2008; Greatest Bubble in History: Warnings ignored in US and Ireland; Vacant Irish housing units rise 150% to 350,000 in period 2002/08

Finally, back to the June 1997, Irish Independent front page editorial titled  - - "For years we have been bled white - now it's payback time"

Most of the payback for the current disaster, will not impact the people responsible for it.

For the rest, now it's time to be really bled white!


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