The noises coming from Dame Street last week indicate that not everyone in the Central Bank is happy with the Jesse James-style job the Minister for Finance has planned for its reserves. As befits an organisation that has made an art form out of innuendo, the Bank was saying nothing officially that would imply an incipient revolt, but somebody somewhere was casting a few straws to the wind. The Bank has gone to considerable lengths to "clarify" a few points: the most important one being that no decision has been made to hand over up to €240 million (£189 million) in "windfall profits" from the issuing of euro notes.
All the board of the Bank has done is to agree to look at the matter towards the middle of February. Because the so called windfall profit is essentially a paper one, the cash will actually come out of the Bank's reserves. Implicit in this clarification is the message that the Bank will only hand the money over if it feels it would be prudent to do so. We don't know what the board considers prudent, but it may not be what Mr McCreevy has in mind.
Similarly, the board will have to decide whether it is prudent to pay the 2003 dividend in 2002. This is another integral part of the minister's plan, because in the normal way any profits made in 2002 - as a result of the euro changeover or routine activities - would not be distributed by way of dividend until the spring of the following year.
Prepayment of the annual dividend is something that has only been done twice before; once in the dark days of the late 1980s under Ray MacSharry and once in the mid-1980s to stave off the collapse of AIB and the Insurance Corporation of Ireland.
Resorting to this desperate measure to camouflage a minuscule Budget deficit may not get in under the prudence bar. It is expected to raise a few eyebrows in Frankfurt, but the European Central Bank has no real role in what is quite rightly an internal matter.
The ECB does have a right to be consulted over the legislation needed for the second leg of Mr McCreevy's smash and grab. But it is not expected to have a problem with the move to transfer to the central exchequer the "seigniorage" or right to the profit made from issuing coins.
This change will actually bring Ireland in line with most other European countries. There is a slim possibility that they might question the wisdom of transferring some €370 million out of the Bank's reserves in respect of the notional profits that have been made on coinage since 1948.
The stage appears to be set then for a showdown between the Minister and the Bank in the early part of next year, but I would not hold my breath: the main reason being that the directors of the Central Bank are political appointees.
The only civil servants on the board are Mr Maurice O'Connell, the Governor of the Bank who is expected to step down once the euro changeover is complete, and the Secretary General of the Department of Finance, Mr John Hurley.
Four of the remaining eight directors have obvious links to the current administration. Dr Martin O'Donoghue is a former Fianna Fβil minister and Progressive Democrat supporter. Mr Roy Donovan is a former director of Lisney and a Fianna Fβil fundraiser. Mr Gerry Danaher is a lawyer and Fianna Fβil supporter. Mr Eoin Ryan is a former Fianna Fβil senator and the father of the junior minister of the same name.
Business is represented on the board by Mr Donal Byrne, the managing director of Cadburys and Mr Freidhelm Danz, the founder of the Agra Trading meat trading business, whose politics are not immediately obvious. The only clear Fine Gael supporter on the board is lawyer Mr Jim Nugent, while David Begg, the president of the Irish Congress of Trade Unions, would be assumed to be a Labour supporter. Presuming that Mr O'Connell and Mr Hurley go along with what Mr McCreevy is proposing, it is hard to see a vote by the board on the issue going against Mr McCreevy and the Government.
There are several other reasons to believe that the rumblings coming from the Bank at the moment will not amount to much. One is the comments of the Minister himself, made the day after the Budget. He suggested that both the "seigniorage" and euro note ideas had actually come from the Bank itself.
Dame Street appears to have come up with the two proposals, after Mr McCreevy inquired about dipping into the Bank's generous reserves in the wake of the introduction of the euro. What Mr McCreevy had his eye on was the Bank's General Reserve Fund, which it traditionally used to support the Irish pound. The rationale for the Bank holding these funds diminished with the transfer of responsibility for monetary policy to the ECB, and there was a good argument for transferring some of them to the Exchequer.
Central Bank sources were suggesting last week that a deal was done with Mr McCreevy under which the seigniorage and euro-note windfall were traded for the General Reserve being left untouched. Part of the deal will also see the Bank paying over all its profits as dividends in future years as against the current practice, where around 20 per cent of profit is added to the already bulging reserve. This would gradually bring the reserves down to a more appropriate level.
The final reason for which Mr McCreevy can expect the support of the Central Bank is that it owes him a big favour. He spent two years fighting a proposal from the Tβnaiste to strip the Bank of its regulatory functions and transfer them to a new independent single financial regulator. The compromise hammered out early this year - but not yet implemented - clearly favours the Bank and establishes its primacy in the new regulatory structure.
Not only does the Bank owe Mr McCreevy for this, it will also be relying on his goodwill and that of the Government to make sure the arrangement is copperfastened in legislation before they leave office this summer. There may be some more grumbling, but the Bank will go along with Mr McCreevy at the end of the day.
jmcmanus@irish-times.ie
