BACK AND NOT FORGOTTEN 1708(2) CV

BACK – AND NOT FORGOTTEN

Brian Cowen was back in the news in mid-July when he received an Honorary Doctorate from the National University of Ireland, an honour given to every ex Taoiseach since De Valera. Ireland has no official honours system and the public shows no enthusiasm for one. In reality Honorary Degrees are issued sparingly and are generally uncontroversial.

Not so on this occasion. One recipient of an Honorary degree, Ed Walsh – of University of Limerick fame – announced he would return his award in protest, attacking Cowen and his predecessor, Bertie Ahern, for having “through their inept stewardship, brought Ireland to its knees” from the perceived highs of 2000. Further criticism followed, though there were also media articles praising the courage and resolve of Cowen, after the 2008 crash, in introducing, in tandem with his Minister for Finance, the late Brian Lenihan, the harsh and brutal budgets which did much to set the country on a relatively early road to recovery.

Nine years later the economy is booming, with the highest growth rates in the EU, consumer confidence high, employment set to reach the 2008 record levels and all the indicators (Brexit implications apart) appearing positive. This despite serious legacy issues remaining, including those in negative equity and others with unsustainable private debt. To what degree the heavy lifting of the Cowen and Lenihan budgets laid the foundations for recovery is a matter for dispute. What is not in dispute is that Cowen stuck with the task, destroying his political career (and very nearly Fianna Fail) in the process. There is surely a comparison here, ceteris paribus, with Cameron walking away from British politics after the Brexit vote went against him.

Brian Cowen has become the convenient fall guy for the misfortunes of the last decade. Minister for Finance under Bertie Ahern for almost four years, he became Taoiseach in May 2008. For virtually all of the period to March 2011 he was in mega-crisis management, first dealing with the Lisbon Referendum defeat in June 2008 and then the economic and fiscal crisis which broke in earnest in September. The last months of his premiership were dogged by the EU and the IMF bailout intervention in November 2010 when the government’s international credit ran out.

Much has been written and spoken about the origins and aftermath of the 2008 Irish economic crisis. There have been numerous books, acres of journalistic comment and several Inquiries, and the events have been picked over exhaustively. Cowen himself gave lengthy contributions to the official Oireachtas Inquiry into the banking crisis, which pointed up the obvious failures in banking, regulation, and government, adding the EU for good measure. And everybody has an opinion.

Arguably Cowen was given a hospital pass at the outset, becoming Taoiseach when the slide into economic and fiscal crisis was unstoppable, and about to rendezvous with the burgeoning international economic cataclysm. Particular opprobrium centres on his performance as Finance Minister under Bertie Ahern when the components of that crisis were festering and when some remedial action might have been taken. His performance is contrasted with that of previous Finance Ministers, who reined in spending, raised taxes and controlled credit when required.

To what degree was it down to him? The issue is not simply black and white. Let’s take a slightly different tack and jog a few memories. Brian Cowen did not set out to destroy the Irish economy. He was a Minister in the Ahern government from 1997, becoming Minister for Finance in 2004, succeeding Charlie McCreevy, who had been seven years in the post and who, together with Ahern, had stamped an indelible mark on the economy. These were heady years of unprecedented prosperity, national self-confidence and self-belief. The Celtic Tiger was roaring, with investment flowing in, money cheaper than ever before and Peace in the North – as never before. The government seemed to have, if not the Midas Touch, then enough good fortune and surplus revenue to expand simultaneously spending, cut taxation and reduce the National Debt. All of which it did – in spades.

Some figures. From being down the league table of welfare payments Ireland rose rapidly, catching up and then passing Britain – an important psychological and political milestone, dispelling the image of Ireland the poor neighbour. Between 1997 and 2004 old age pensions and unemployment assistance doubled while child benefit quadrupled. Taxes were slashed. Some at least of Ireland’s infrastructural deficiencies, both physical and psychological, were tackled. It was a painting by numbers scenario, with everything seemingly achievable, given time. In 2002 Fianna Fail fought an election with the slogan “A lot done. More to Do.” The Ahern government was re-elected (the first since 1969 not to be kicked out by Ireland’s fickle electorate); the opposition routed.

Embracing the Euro in 2002 proved fateful. Not only was there a bountiful supply of ultra-cheap money available to borrow but crucially the government had yielded fiscal control to the ECB. The hubris of appearing the most enthusiastic Europeans overcame any reservations. Initially this didn’t matter. The government’s coffers remained stuffed, there was full employment, emigration had ended, economic growth was continuing, Indeed there was now net immigration, further bolstering the strong demand for housing where now there was cheap credit available to meet that demand. McCreevy, in his last budget, declared “our policies have ensured the end of the era of mass unemployment and emigration” and were “improving the living standards of both tax-payers and social welfare recipients alike.”

By 2005 there was clearly a housing bubble, yet the economy continued to expand and there was additional massive inward migration from the new EU Member States, further stoking the economy. By 2005 also the government was past the halfway mark and looking towards the next election. Moreover seven years of rising prosperity had generated a sense of entitlement for many, a sense of hubris for others, and a sense of trepidation and frustration for those who wanted in on this prosperity, all encapsulated by the property boom.

Some economists might deplore what was happening to house prices, but for those who owned them outright there was quiet and smug satisfaction as prices rose, for those who had just bought, a heartfelt wish not to see the market collapse (and with it their investment) and for those seeking to purchase, a desperate desire to clamber onto the ladder before it disappeared out of reach. A classic property bubble.

Employment was surging (to over two million), and with it buoyant tax revenues of every sort – not just stamp duty from property sales. There was money to put aside (1% of GNP) for the (rainy day) National Pensions Reserve Fund, money to subsidise further cuts in taxation, and money to be lavished on more social welfare increases. With an election pending the public appetite for more was fuelled by the Opposition Parties and the various lobby groups. Their message was simple: “You have the Money. Spend it!” In his Doctoral acceptance speech Cowen referred wryly to the 2007 election manifestos of the other main parties. They’re worth looking at, if only to show how widespread and entrenched that mindset was.

Most people knew it couldn’t last. But there was a general wish not to rock the boat. “Lord Make Me Pure but Net Yet.” From mid-2006 on there were pious hopes for a “soft landing,” that a combination of unsustainably high prices and rising interest rates would cool an already faltering property market. Another tax cut – ironically in stamp duty – proved the tipping point and the property bubble burst. The situation might still have been salvaged had not the worsening international economic situation intruded. The effects of the sub-prime crisis in the USA began to be felt in Ireland and elsewhere in what became a worldwide domino-effect downturn not seen since the Thirties. With the Irish banks in trouble, with the property market collapsing and with an international recession taking hold, for Ireland, and the new Taoiseach, it proved a perfect storm. The cruel logic of economics, that the multiplier effect applies in times of contraction as well as expansion, did the rest.

Hindsight is wonderful. We have learned since that property bubbles are toxic, that light touch regulation does not work, that banks and bankers need to be controlled and that we cannot remain unaffected by events in the world outside. In his acceptance speech Cowen admitted that the problems revealed “should have been identified earlier and policy should have changed prior to the crisis.” He did not go into specifics. Whether the public at the time would have bought the type of radical change necessary is another matter. Whether it would have worked, given what was coming down the tracks from outside, is also conjecture. 2008 was a crisis of a different magnitude to 2002, or even 1987. Brian Cowen proved to be an unlucky general; for him, for us.

He who rides a tiger will find it difficult to dismount. So it proved.

S.F.
16/8/17

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s