Recap: Inside Ireland’s Financial Crisis
by Kevin Cardiff (The Liffey Press, €19.95)
Every person in Ireland was affected in one way or another by the banking and financial services meltdown in 2008-2011.
Kevin Cardiff, general secretary of the Department of Finance since 2010, was a key figure in the group charged with dealing with this grave challenge to the financial viability of the State.
In the summer of 2015 he provided a report to the Banking Inquiry in which he described how he and his colleagues identified the problem and facilitated a ‘bail-out’ to Ireland, financed among others by the International Monetary Fund and the European Central Bank. This book is based on Cardiff’s report and it is a fascinating insider’s account of the complex, intensive and tense negotiations which led to that successful outcome.
The first practical indication Cardiff and his colleagues had of how the worldwide economic downtown would impact on Ireland was when the Irish Nationwide Building Society requested assistance to cope with its liquidity difficulties.
There followed a concatenation of financial failures – at home and abroad. The most damaging of these was the filing for bankruptcy by Lehman Brothers and other mega financial institutions in the US. Trust in banks declined radically. As a consequence, the Allied Irish Bank, Bank of Ireland and other Irish financial institutions were finding it impossible to borrow at economically viable interest rates. Thus they urgently needed to be re-capitalised from other than the normal commercial sources.
Cardiff describes in detail the complex and intense negotiations in which he and his colleagues were engaged to rescue the Irish banks and other financial institutions. The complexity arose from the variety of financial institutions involved – each with its own priorities.
Then the representatives of the ECB and the IMF viewed Ireland’s problems from very different perspectives. There were the serious legal issues which any radical solution would involve. Grave financial crises in other Euro-zone countries loomed large over the discussions. Media presentations needed to be sensitive to the ‘reaction of the markets’. As regards intensity and tension, the enormity of the stakes at play and the appalling price of failure were clear to all.
Cardiff provides an insight into the personal relationship between the principals in the negotiations. Mostly friendly and at all times professional, they were essential to ensure a successful outcome. Two of the important members of the Irish negotiating team were gravely ill – Brian Lenihan, Minister for Finance and John Hurley, governor of the Central Bank. Yet, as Cardiff indicates, they did not shirk giving their all to solve the awesome problems facing their country. Lenihan was a cardinal figure in the negotiations and, although Cardiff does not mention it, his judgment must have been from time to time a cause of concern to his officials.
Cardiff could be more critical of those responsible for the banking disaster. Some examples of the arrogance, dishonesty and ignorance of those in charge of financial institutions were such as to take one’s breath away. Thus Cardiff and his colleagues were informed that the Irish Nationwide Building Society “would need some help but was probably solvent”. Eventually it needed a €5.4 billion bail-out!
Following the bail-out the most controversial aspect of it was failure to de-value (‘burn’) the largest investments (‘senior bond holders’). In the event, as Cardiff points out, such a de-valuing was never an option as it was ruled out by the ECB and IMF.
The author is to be congratulated for this lucid account of how a group of able and dedicated civil servants, mainly from the Department of Finance, rescued the country from financial ruin.