Hell at the Gates: The Inside Story of Ireland’s Financial Downfall, by John Lee and Daniel McConnell, Mercier Press, 315 pp, €16.99, ISBN: 978 1781173947
Running a modern market economy involves a complex array of actors and agencies who are not omniscient and who can seldom achieve all of their stated objectives. In particular, while national governments may be sovereign and guard their sovereignty jealously, they are not autonomous. They function best when they act as careful strategic coordinators of all the forces that affect the economy rather than as self-interested micro-managers. Since the ship of state is often obliged to navigate in stormy waters, the least that one expects of the ship’s captain is that he plan for every reasonable contingency and ensure that he has a skilled and competent crew who collectively work to safeguard their vessel. Accidents tend to happen and mistakes are made if there is ambiguity or confusion in a chain of command. When everyone thinks that they are in charge, nobody is in charge.
In my lifetime there have been three occasions when serious systemic political failures in Ireland were the primary causes of catastrophic economic consequences. The first was the existential crisis of the 1950s when sclerotic and inward looking policies that had isolated Ireland from postwar reconstruction and international trade produced stagnation and massive outmigration. The second was the economic recession of the 1980s, when the reckless and extravagant public expenditure policies of the late 1970s left the economy naked and vulnerable to the global recession that followed the OPEC-2 oil crisis. The third, and by far the worst, was the financial and fiscal crisis of 2008, when complacent, negligent and incompetent government policies, actions and inactions during the preceding years blew away the gains of the solid growth achievements of the 1990s and sank the economy under a mountain of barely sustainable debt.
This book is to be welcomed in a slightly qualified way since it is a relatively rare example for Ireland that tells the inside story of how politicians handled a major crisis. Drawing on extensive interviews with the key political actors of the period 2008-2011, the authors set out a narrative of the monetary and fiscal collapse that reproduces many of the politicians’ own words, expletives included. They claim that the results provide “a deeply honest, deeply personal, revelation-strewn account of their experiences in the white heat of an economic meltdown”. The arresting title of the book is taken from an interview that the late Brian Lenihan gave to the BBC shortly before his tragic death on June 10th, 2011. In that interview, where he reflected on his time as minister of finance, he said: “I believed that I had fought the good fight and taken every measure possible to delay such an eventuality, and now hell was at the gates.” Such revealing frankness is novel and unexpected since we in Ireland are not exactly overburdened by first-hand accounts of what is going on in the minds of our politicians as they govern us. But unfortunately, if one may use a somewhat hackneyed metaphor, this book is like a tale of what happened to the Titanic after it struck the iceberg and ignores everything that preceded that unfortunate event. Hell was already hammering at the gate when the book opens in mid-2008 but we are asked to gloss over and ignore how it got to be there. This puzzling and short-sighted truncation and distortion of the crisis saga has serious implications both for this book and for any evaluation of political actions taken after the crisis broke in 2008. Attempting to clean up a mess that you yourself created is considerably less praiseworthy than cleaning up someone else’s mess for which you bore no responsibility.
Given this narrow perspective, we learn nothing about what the Fianna Fáil politicians and their coalition partners thought they were doing as the bubble economy churned up during the first seven years of the new millennium. We are given no insights into what degree of responsibility for the fiscal and monetary implosion they accepted might be theirs; nothing of their reflections on how the crisis might have been avoided or how the transmission of the impacts of the global recession into the Irish economy might have been attenuated by better policy choices; nothing about why such precautionary policy actions were never triggered when there was still time to do so. The book’s story effectively starts on May 7th, 2008 with the replacement as taoiseach of a seriously discredited Bertie Ahern by his long-serving minister of finance, Brian Cowen. It runs from then to the general election of February 27th, 2011, when the long-suffering and furious electorate reduced Fianna Fáil representation in the Dáil from seventy-seven to a rump of twenty.
There are three distinct periods in the book’s narrative. One might characterise them as “before the storm”, “during the storm” and “after the storm”. The “before the storm” period opens with the selection of Brian Cowen as leader of Fianna Fáil and his subsequent election as taoiseach by the Dáil. But from the very start there was a degree of ambiguity in assessments of Cowen’s suitability for the job. As the authors write: “Cowen, a former solicitor, had a soaring intelligence and a command of detail, and was an everyman who appeared to like a pint and a song.”
Unlike Lincoln, who made a point of surrounding himself with a team of talented and ambitious rivals who would continually probe and test his analysis and decisions, Cowen appears to have surrounded himself with friends and supporters with whom he socialised and among whom he felt comfortable and unthreatened. Trust and loyalty were the main criteria for membership of his inner circle, not least in his selection of Mary Coughlan as his deputy (or tánaiste). His selection of Brian Lenihan as minister of finance, a barrister and previously minister of justice under Ahern, deviated from that pattern. Lenihan’s obvious intelligence and his ability to articulate his ideas clearly made him a good choice. Later, as the storm took hold, the relations between taoiseach and minister of finance were to fracture and become dysfunctional, but by then the struggling government had lost control and was effectively in the hands of its creditors.
Just one month after he became taoiseach, Cowen’s government suffered the humiliation of losing the referendum on the Lisbon Treaty. As the country was to learn to its bitter cost over the coming months, this defeat was a sign of complacency and laziness, made more obvious when Cowen admitted in an interview that he had not even read the text of the treaty. In the words of Conor Lenihan: “Cowen and his government were simply ‘unprepared’ to properly contest the referendum.” And they were certainly unprepared to deal with the crisis that was about to explode in their faces.
By mid-2008 it was abundantly clear that the Irish property market had tanked, although the terrible consequences of extravagant bank lending to the soon-to-be-bankrupt developers had only started down the path of destruction of the state’s banking system. Earlier warnings about the links between tax revenue and the property market, conveyed by Ray MacSharry to Charlie McCreevy and Cowen – when they were both finance ministers under Ahern – had been ignored. This was an unfortunate and puzzling mistake since MacSharry had been the architect of the final stages of the previous recovery from the OPEC-2 recession of the 1980s. In a world of hubris and ignorance – a truly lethal combination in politics – there did not appear to be any room for wisdom and experience. In mid-2008, immediately after assuming the role of minister of finance, Brian Lenihan was the first to realise that drastic fiscal action was urgently needed, even if, as we now recognise with the benefit of hindsight, it was far too late to save the ship. Unfortunately, as Conor Lenihan tells:
The rest of the Cabinet, including the Taoiseach and the Tánaiste, did not grasp the gravity of the situation. They were inclined to think that [Brian] Lenihan’s dire warnings were part of the poker game that goes on in advance of budget negotiations.
The economic and financial storm clouds were gathering, but the government was in denial, at least in terms of its public statements and policy preparedness. In the colourful account of Eamon Ryan, a minister from the Green coalition partner:
The Revenue figures in that period [summer 2008] ... were shocking, they just showed the fall off the cliff. I remember coming out of a meeting around that time with a top civil servant who said, ‘the country’s fucked. It’s going down the tubes’, because he saw the Revenue figures.
As the Dáil closed and ministers headed off on their summer holidays, there must have been a distinct sense of summer 1939 about the place. By early September the Central Bank, the Financial Regulator and Finance were engaged in war games, preparing for financial Armageddon, while Fianna Fáil was preoccupied with doing a deal on social partnership. In the pithy language of Dara Calleary, a junior minister in the government:
And one thing that jarred me and jars me to this day was waking up on a Monday morning and Lehman’s was going, and on a Tuesday morning the various ministers left the parliamentary party meeting to go back and do a deal on social partnership. What the fuck!
As the state guarantee on bank savings was ramped up from €20,000 to €100,000 in an effort to stop a run on the Irish banks, the lack of urgency with which the crisis was being met is beautifully conveyed in an incident described by Brian Lenihan:
Mr Trichet [the ECB president] rang me and hadn’t been able to get through to me. I was at a racecourse in County Kilkenny at a Fianna Fáil event on the Saturday. So I caught up with Mr Trichet’s message the following day, which was that ‘you must save your banks at all costs’.
The “storm” was now truly upon them. Anglo Irish Bank was about to run out of cash. The other banks were tottering in various degrees. A midnight crisis unfolded in Merrion Street. The banks had to be saved. So they were, in a broad and generous manner that has been described in great detail elsewhere. An “incorporeal” cabinet meeting was convened and the decision approved. The chickens of ten years of poor fiscal and monetary governance came home to roost on that night of September 29th.
The only new aspect that this book brings to the bank bail-out saga is the extraordinary attitudes and language of some of the political actors as they reflected on the experience many years later. With respect to international pressure to save the Irish banks, and the pressure from the ECB specifically, Cowen said:
Why should we be expected to ask a fella who is not answerable to anyone over in Europe what I can and can’t do in a situation where my Central Bank governor, who is a member of the ECB board, is telling me ‘You have to make a big decision tonight’?
The degree of confusion and haste within the government with respect to the bail-out deal was described as follows by Willie O’Dea, a cabinet minister:
Well we had a rough agreement about the figures, [but] there was no agreement to my knowledge about a course of action, particularly about the guarantee … I mean if we’d agreed, in principle even, to something as big as that, sure that would have stuck in my mind.
The tendency in this book is for the authors to conclude that the men who made the frantic decisions on the night of September 29th had been faced by a situation of unimaginable gravity. They did their best to avoid a total breakdown of the economy and did what had to be done, quickly. Now we have to move on, face into the consequences, and avoid any distracting recriminations about the past. There is a certain element of logic and inevitability in such a view. When the ship has hit the iceberg and is sinking is not the time for reflection or recriminations. It is a time for action. But even if Lee and McConnell never asked the political principals to reflect on how the ship came to hit the iceberg, with such disastrous consequences, the failure on the part of these actors to do so proactively is both shocking and worrying. But their language, as reproduced in this book, assuming that it is fairly and accurately reported, suggests that few of the politicians that were interviewed ever thought deeply about the responsibilities and duties of prudence and good governance.
The period of “storm” extended from the bank guarantee in September 2008 to the bail-out, mainly by the IMF, ECB and EC, on November 28th, 2010. As the government struggled to keep the country from insolvency, they lurched from budget to budget and frantically tried to axe spending in ways that would not precipitate civil unrest of the kind that was taking place in Greece, Portugal and Spain. In the words of Pat Carey, the government chief whip: “It was as if there was an impression that they were making it up as they went along, there was no strategic thinking.”
Perhaps it is a measure of how bad things really were that this can be regarded as a description and not a criticism. Recriminations resonated throughout the struggling government, but not in any helpful way. The complete inability of the taoiseach to articulate the government’s approach to the crisis is well-described. There was to be no Churchillian realism and clarion call of “blood, toil, tears and sweat”. Charles Haughey’s infamous 1980 speech on “living beyond our means” still rankled. But the material presented in this book drives one inexorably to the realisation that taoiseach Cowen simply had no comprehension of the full extent of the crisis and consequently was unable to articulate his government’s policies in a way that would reconcile Irish people to the horrible implications of the massive policy-induced failure.
Perhaps the most disturbing quote in the book is one where Cowen ruminated about bank regulation:
It was appalling where it [banking] had gotten to. Looking back now, people say ‘Was he soft on them?’ … No, he wasn’t soft, he was just trying to manage the situation in the time period. He had to get as good a read as he could. He realised the regulatory system wasn’t as hands-on as it should have been. Here you are depending on people who were already getting defensive when the information was needed.
This was Cowen, who had been minister of finance from 2004 to 2008, a period when the failure to regulate banks properly had permitted them to engage in reckless lending and illegal practices, reflecting on how Brian Lenihan regarded bank regulation in a period when all the damage had already been done. By the time Lenihan took over the reins in Finance (May 2008) and Patrick Honohan took over as governor of the Central Bank of Ireland (September 2009), the banking system was already a basket case, largely due to politically influenced regulation failure that took place well before 2008.
The final stage of the saga played out as farce rather than just as tragedy. Willie O’Dea had to resign his ministry in circumstances that recalled the GUBU period of Charles Haughey. Mr Cowen became embroiled in what the authors call “garglegate”, when a tweet by Fine Gael TD Simon Coveney commented in unflattering terms on a less than impressive radio interview by the taoiseach. Even the immediate lead-in to the international support by the IMF, the ECB, the EC and others was played out as farce, when leading government ministers denied that Ireland was seeking financial support at the same time as Central Bank governor Honohan announced that it was. Eventually, Cowen himself was edged towards stepping down, precipitated by the much-delayed revelation on January 9th, 2011 that he had played golf and dined with Anglo boss Seán FitzPatrick back in 2008. But even this decision was chaotic, with Cowen stepping down as leader of Fianna Fáil, but remaining on as taoiseach until the general election that was called for February 25th, 2011.
Some politicians are willing to admit to making mistakes in an effort to reduce the probability that such mistakes risk being repeated. Other politicians have very limited understanding of the true nature of their mistakes and consider that having to deal with their consequences entitles them to be regarded as brave and insightful. Brian Cowen falls into the second category. The disturbing aspect of this book is that the authors go along with this self-serving evaluation. Speaking of Cowen, they say:
He believes that history will be kinder to him as the anger subsides. ‘But over time maybe people will see the nature of the difficulties we were dealing with’, he says, ‘and I think the most important duty of any person when they are in government is, you have to be prepared to make whatever decisions are necessary for the time you’re there. And I always felt that we certainly couldn’t be accused of taking the short-term view, we certainly couldn’t be accused of trying to save the party at the expense of the country.’
Unfortunately for the Irish economy, the “decisions necessary for the time you’re there” should have been taken in the years prior to 2008, when Brian Cowen was the most senior and influential member of Bertie Ahern’s government. The global financial crisis of 2008–2010 came about through no fault of Ireland, and enduring its consequences would have dented Ireland’s growth and development, but perhaps without us falling into recession. The failure to regulate the Irish banks and the extravagant spending of tax revenues that were driven by the building bubble created circumstances for a perfect social and economic storm. Avoiding responsibility for their actions and inactions during the period of Fianna Fáil-led governments that extended from 1997 to 2008 and for three further crisis-ridden years is shameful. This period was characterised by weak and self-serving institutions within government, within agencies (the Central Bank and the Financial Regulator), within business (IBEC) and within trade unions (ICTU). It was characterised by an insularity of view that ignored international lessons associated with property bubbles and their inevitable consequences. It derided expert opinions long before this became a characteristic of the Leave campaign in the UK Brexit debate earlier this year. It tolerated lax behaviour in the banking system, the true nature of which is now a matter for the courts. It bridled at having to bend to direction from foreign support institutions when the consequences of its own disastrous governance failures had to be addressed with external assistance.
The real heroes of this episode in our chequered history as a nation are not the politicians in the room in Merrion Street on the night of September 29th, 2008. Rather they are the citizens of the country for the measured and disciplined ways that they behaved when they were let down so badly by the egregious behaviour of their elected government. Hell had been at the gates for many years prior to 2008. The banging became ever louder, but nobody in government buildings was listening.
John Bradley was for many years a research professor at the ESRI and now works as an international consultant in the area of economic and industrial strategy. He regularly advises the European Commission, the World Bank and other international organisations and governments on policy issues related to promoting long-term economic growth and development.