‘Honohan is the serene voice of reason amid hysteria of economic advice’

‘He believes there is a realisation that Eire saved the euro’

DEFAULT! Stuff the IMF! Burn the bondholders! There is no end to the level of high-energy, excitable advice for the incoming Government when it comes to sorting out Ireland’s economic woes. Most of that advice is simplistic and ill informed and tends to be offered in bombastic tones that makes for good sound bites but little sound sense.

Amid all of this white noise sits the serene, poised Patrick Honohan, governor of the Irish Central Bank and economic adviser to successive governments dating back to Garret FitzGerald’s time as taoiseach in the mid 1980s.

This time round he will be advising Enda Kenny and his team and, just in case they might think there are any quick fixes available, Honohan offers a sobering reality check.

Speaking this week on RTÉ’s Prime Time, he made it clear that whatever re-negotiation takes place with regard to the IMF bailout, it will be a long, drawn-out process. He also gives lie to the efficacy of default, stating bluntly it would not be in anyone’s interest in Ireland, least of all the Irish taxpayer.

While he accepts that, in retrospect, bailing out Anglo Irish Bank might now seem ferociously expensive and even foolhardy decision, he insists the information available at the time to those in Government was that it would have been disastrous not to do so. In any event, leaving Anglo go to the wall would have resulted in what he terms a Euro Lehman’s — an oblique reference to the collapse of the global financial services firm Lehman Brothers which, until it declared bankruptcy in 2008, enjoyed the prestige of being the fourth largest investment bank in the United States.

In fact, he puts the decision by Ireland to shoulder the fallout from Anglo in almost heroic terms and believes there is a growing realisation within the EU that Eire saved the euro.

His reflections give pause for thought:

SAVING ANGLO: While Professor Honohan acknowledges that, in hindsight, saving Anglo appeared to create as many problems as it sought to solve, without a guarantee for Anglo, there would still have been problems, although maybe not as severe.

“If the decision makers knew then what they know now, they might have questioned whether it was sensible to include Anglo in that guarantee, but if Anglo had not been included, there would have been a lot of problems. It would have been something like a European Lehman’s. Therefore, what Ireland did, which is now very costly for Ireland, had some benefit for Europe. That can change people’s thinking about how to deal with Ireland’s problems because ... what was done at the time is being recognised. ”

IMF/EU BAILOUT: Honohan is adamant this is not a handout or a bailout despite how we in Ireland and our EU partners see it.

“It is a programme which is quite tough in some respects in terms of interest rates. What it does is it buys time in which to show the world, the markets and our European partners that we can get our house in order. For those expecting a handout, there was a certain amount of disappointment because we got a strict programme. Many people find the interest rate we are paying high but the interest being paid by many European countries is high at present. I would like the rate to be lower.”

He points to a growing realisation among our EU neighbours that what is good for Ireland is good for Europe. But, he cautions that, in order to be taken seriously, Ireland has to display real commitment in getting our house in order to win over the sceptics on the Continent. “That has already been started and, from what I read in manifestos and what I know of the leading members of the prospective incoming Government, they are serious people and will continue to tackle our fiscal problems with vigour.”

However, he said the decision to defer drawing down a tranche of €10 billion from the bailout fund caused concern abroad and was even viewed with dismay by the European Central Bank.

“It caused a great deal of disappointment and was viewed with alarm at first because this was an important deadline.” Nevertheless, he believed the €10bn would be put into the banks, but that doing so after the election would ensure greater legitimacy and support from the public. He will be recommending the money is drawn down by the end of this month, a time he feels appropriate considering the forthcoming “stress tests” on Irish banks.

RE-NEGOTIATION: The Central Bank governor scotches any notion that we can re-negotiate a quick reduction in interest rates or other more favourable terms.

“This is something that will be with us for a decade or more. Negotiation will be conducted by the new Government. It will require a lot of careful thought, lot of ingenuity, skill and careful navigation in judging what is a shared interest for other European partners and world at large and in euro area for Irish economic growth recovery.

FINAL COST: Professor Honohan would not be drawn on the eventual cost of the guarantee and bailout to Ireland. Asked whether the additional capital needs of the banks would exceed €10bn, he said that it might not be enough. However, he was quick to dismiss the assessment by Alan Dukes, chairman of Anglo Irish, that billions more will be needed and the final tally would exceed even a worst case scenario set out in the bailout of €35bn.

Looking to the future, the Central Bank governor takes heart from the slowdown in the flight of foreign capital investment and insists default is not an option that could be attractive for Irish society.