How far is Ireland Inc going to fall?

WHEN the governor of the Central Bank starts sentences with the words: “I will say something reckless now...” you begin to wonder just how much further this country has yet to fall financially.

The chilling preamble, interspersed with bouts of inappropriate sniggering, was hardly the most reassuring of attempts to make it look as if someone was actually in charge of Ireland Inc.

But the rather rattled-sounding Patrick Honohan was clearly concerned about the sheer scale of the shockwaves emanating from the latest economic stun grenade to be lobbed into civil society by professor of economics at UCD Morgan Kelly, when he predicted debt levels would hit €250 billion by 2014 and thus officially bankrupt the nation unless we quit the EU/IMF deal now.

Prof Honohan’s self-confessed “reckless” sentence continued: “If it gets to a quarter of a trillion euro, [Kelly] is probably right, it would be unsustainable.”

Then Prof Honohan insisted Kelly had got his calculations wrong — someone in our notoriously bad-with- figures political-banking elite deriding other people’s adding-up methods, now there’s swank for you.

Enda Kenny then moved to pile on the pressure by effectively dubbing Kelly the “killer economist”, insisting that the UCD forecaster’s recommendation would effectively be a “lethal injection” for the Irish economy.

But unfortunately for the Taoiseach, while the political-banker elite was feeding those they saw as mere mortgage monkeys lies about “soft landings” four years ago, Mr Kelly was virtually alone in predicting the property crash — so when he starts talking national bankruptcy, the chattering classes prick up their ears and reach for their wallets.

Indeed, there is already anecdotal evidence of Mr Kelly’s intervention causing some to pull their cash out of their accounts — a move first noted by the New York Times last month when it reported on “a silent bank run in Ireland”.

But while Prof Honohan asserts bankruptcy will not happen, he agrees that “a lot” of Kelly’s analysis is correct. Though not surprisingly, Honohan disagrees with Kelly’s view that Honohan “made the costliest mistake ever made by an Irish person” when he under calculated the liabilities of state-aided banks and did not rip up the blanket guarantee when he took over the Central Bank in 2009.

Energy Minister Pat Rabbitte also bolsters Kelly’s standing, stating: “I agree with a great deal of his analysis. The piece is a powerful horror polemic... but I do dispute most of the prescription.”

So, most people in power seem to agree with much of what he says, just not his preferred solution, which is to slash €18bn off the budget in one go to get rid of the deficit as we exit the EU/IMF deal.

Such a move would see public sector wages and social welfare payments slashed by at least a third, but Kelly argues this will actually be less worse than the financial fallout from a messy and prolonged national bankruptcy.

Prof Honohan insisted, between sniggers, during a rather shaky-sounding RTÉ radio performance down the line from Switzerland, that none of that sort of thing would be necessary — and who are we to argue with the forecasts of a banker?

Honohan was also busy denying Kelly’s other incendiary charges that the Central Bank boss was not batting for Ireland in the bailout negotiations, and had deliberately “sliced the ankles” of then finance minister Brian Lenihan by going public about the IMF roll-over last November.

And meanwhile, in a parallel universe far, far away, the Dáil devoted the whole of yesterday’s special session to celebrating Europe Day.

A Killer Economist, a Reckless Banker and a Delusional Dáil — there really is a lot more trouble ahead.


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