Banking Inquiry: ‘Hardship was destined to happen’, says Honohan

Up to 90% of the “€100bn plus” debt and “hardship” heaped on Ireland after the economic crash was destined to happen, regardless of the bank guarantee.

Central Bank governor Patrick Honohan made the claim during an at-times confrontational follow-up meeting with the Oireachtas banking inquiry yesterday.

Speaking to the cross-party group two months after his initial appearance, Mr Honohan said the bank guarantee was, in hindsight, a “debacle”.

However, he insisted the September 30, 2008, blanket guarantee did not cause as much of the crisis as the public believes. “There has been a tendency to overstate the extent of the impact of that night’s decisions on the subsequent welfare of the nation,” Mr Honohan said.

“It would be hard to deny that most — I would hazard a figure of at least 80%-90% — of the overall hardship that followed the bursting of the bubble was already inescapably embedded.

“The damage had been made unavoidable by the unrestrained credit and property boom. The fiscal costs are only one aspect of the total damage.”

Socialist Party TD Joe Higgins, who quoted an African proverb that “the lions have a different view of the hunt than the hunter”, put it to him that “many would be shocked” by the claim.

Mr Honohan said the reality is that Ireland is paying for the “legacy” of “reckless lending”, “not just a snap decision in September”. He added that “the bank guarantee is not the story”.

Despite the comments, Mr Honohan admitted the guarantee has, in hindsight, caused problems.

He said the “failure to consult” with other countries “triggered immense pressure for guarantees all over Europe”, causing resentment and making it difficult for Ireland “to make its case for burden-sharing with Europe”.

Stressing the guarantee was not the only cause of the crisis, he said it should not have been done and that Anglo Irish Bank should have been nationalised “within a week”.

Mr Honohan met with the inquiry for a second time yesterday to clarify his January 15 comment that Anglo Irish should be allowed to fail — a view he said yesterday was a “senior moment” and not what he believes.

He also wanted to clarify that, despite the January impression, he did not speak with the then secretary general of the Department of Finance, David Doyle, about a note he sent to Mr Doyle’s former assistant secretary, Kevin Cardiff, in September 2008 saying Anglo Irish would need €8.5bn.

Asked by Sinn Féin finance spokesman Pearse Doherty how he could have “attributed direct quotes” to this non-conversation, Mr Honohan slammed the table in anger.

He said he was “not satisfied with this line of questioning”, adding that he is “here to help the inquiry”.

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