Another day, another step on the road to ruin. I was in a press room in Brussels waiting for Brian Cowen and Brian Lenihan to come on the radio for a joint press briefing in Dublin. My phone lit up: text in from a trusted European contact of high rank. "Taoiseach speaks in five minutes."
This was September 2010, the time Cowen declared on the steps of Government Buildings that he was not “on probation”. A week had passed since the devastating “Garglegate” interview. Feverish talk of a Lenihan-led coup followed. Irish borrowing costs were rocketing. As the then taoiseach put on an uncomfortable show of unity with his minister for finance, Lenihan said the only relevant rumbles were those on financial markets. They would battle on together.
In every drama there comes the moment when the truth dawns. For me it was that text message. It was past teatime in Brussels yet they were poring over the ructions in Leinster House. It did not matter whether they were tipped off about Cowen’s statement or whether they too were simply listening to Irish radio. What mattered was that they were watching very closely. Everything.
The next morning I ran into an affable frontiersman of the euro-zone crisis. “So?” I ventured speculatively of the performance in Dublin. The reply was unsparing. “So one guy says I’ll drink less – and the other says I’ll talk less.”
The abyss
Ireland lurched toward the abyss. Lenihan soon revealed that the rescue bill for banks was now €45 billion and might hit €50 billion. Finance ministers were in Brussels that day, followed as always by hundreds of reporters. At the main press conference I was surprised to have the microphone thrust into my hand for the first question. In its own way, this was a portent of distress.
Le Monde the next afternoon carried news of a nascent assault on the Irish corporate tax regime, setting in train many months of pressure on that front from France, Germany and their allies.
In the tense weeks that followed, a familiar sense of dread and discomfort returned. The situation was gripping, but appalling. Olli Rehn, the Finn who remains commissioner for economic and monetary affairs, emerged as a key figure in Irish debate.
Much as the collapse of bank shares in 2008 carried with it ever-deepening concern that there would be brutal consequences for all Irish people, the same sour feeling prevailed as Ireland entered the bailout zone. There was a palpable sense that something as precious as national sovereignty, which hitherto seemed immutable, had been lost.
The deal itself brought yet more turmoil. The Fianna Fáil-Green partnership collapsed in January, the first full month of the bailout. Events spun out of control as Cowen botched a cabinet reshuffle, thereby losing the party leadership. "Is there looting going on over there?" quipped a Brussels colleague as reports came through about the political chaos in Dublin. The rescue, Europe's second after Greece, was off to a very shaky start.
The election was brought forward to February, so an EU summit early that month would be Cowen’s last. There he faced a withering full-frontal attack on corporate tax from Nicolas Sarkozy, the gung-ho French president. That night a diplomatic source described the engagement as something of a “bloodbath”, with Sarkozy saying he had helped save Ireland. “Sarkozy criticised the Irish choice of the American model. Cowen made clear the toxic system was not due to the American model.”
In the circumstances, Cowen was said by non-Irish sources to have to have acquitted himself relatively well. But he was on the way out, a spent force. The threat to Ireland's corporate tax regime was ever present. This was as much a target for German chancellor Angela Merkel as it was for Sarkozy. The "Merkozy" alliance, then in its prime, was pressing strongly for a euro zone competitiveness pact with common business tax rules at its core.
'Gallic spat'
Ireland remained badly out of favour when Enda Kenny when he won the election. Two days after he took office, the new Taoiseach went to his first EU summit. Five weeks had passed since Cowen's clash with Sarkozy. While a cut in the interest rate on the rescue loans was under discussion, there was a push for a quid-pro-quo on tax. Unhappy at the refusal to bend to his will, Sarkozy took aim immediately at Kenny. This was the infamous "Gallic spat".
These were low points, demonstrating both the totality of the reputational hit and the daunting scale of the challenge to be overcome. If this was the very essence of diplomatic isolation, it was abject enough too. No one ever suggested to me that any other premier or president had spoken up in support of Cowen or Kenny when Sarkozy went for them.
But the volatile man from the Élysée palace was as mercurial as he was strident. At the next summit a couple of weeks later, he was transfixed by the situation in Libya and the necessity for military action to topple the Gadafy regime. At his midnight press conference, there wasn't a jot about Ireland. As Sarkozy left the room, I was waiting at the door to ask if he would be bringing up the Irish situation the next morning. "I don't think so, because they're waiting for the results of the stress test," he said.
True, the word on the official circuit was that the interest rate discussion was on hold pending a new examination of the Irish banks needed yet more money. The mood overall was grim. “I’ll be perfectly honest with you,” Merkel said. “I’d rather take care of Europe’s growing competitiveness than continually spend my time taking care of rescue programmes for other countries.”
While there was no little frustration at continual revisions to Dublin's bank bailout bill, Ireland was no longer the main event. The government of Portugal had collapsed. The country would soon need a bailout, Europe's third. The crisis was advancing steadily yet EU leaders could hardly agree on anything. Simply to stay afloat was a struggle. It was policymaking on the fly, exhausting, exasperating. Weeks turned into working weekends, working weekends turned into weeks. Everyone had bleary eyes.
With the Greek rescue in constant jeopardy, four more months of unrelenting turmoil would follow before a deal was done to cut the Irish interest rate. This was July 2011, six months after the election. Kenny committed Ireland to a “structured discussion” on tax issues, but there was no move to dilute the Irish system. While the concerns of France and Germany remained, Sarkozy had pulled back. “It’s over, c’est fini,” Kenny said of the conflict with Paris.
The reality was that an escalation of the crisis had played into Irish hands. Spain and Italy were under pressure, raising the spectre of doubt over the credit worthiness of major euro-zone countries. Action to pacify the situation was required. Still, the deal stood as the first substantial piece of good news for a very long time.
Looking back now, the end of the attack on the corporate tax front provided an opening to step up demands for bank debt relief. If this was a turning point, however, it didn't immediately feel like. Although EU leaders had already started to praise the Government's execution of bailout programme reforms, a renewed attempt to target senior bondholders ran straight into a reinforced brick wall at the European Central Bank.
It was not the first Irish effort on this front and not the ECB's first refusal. Having publicly expressed frustration at the frequency with which the issue was raised, the then ECB chief, Jean-Claude Trichet, was no more enthused when Michael Noonan first raised with him the possibility of a transaction to recast the Anglo Irish Bank promissory notes.
In the Minister for Finance's own account, Trichet was "pretty non-committal". This was September 2011, in Wroclaw, Poland. The deal was not done until February 2013, fully 17 months later. Trichet was long gone at that point, but his successor Mario Draghi didn't exactly rush into the new arrangement.
Competence
Attitudes had changed markedly by then, but it was an incremental process. Although Kenny and his crew developed a reputation for workmanlike competence, it is difficult to pinpoint when exactly the notion of Ireland as the euro zone's "success story" emerged. But the idea stuck nonetheless, even when action on the banking debt was not forthcoming. As Trichet slapped down Noonan on the senior bonds, he said Ireland was gaining credibility regularly. This was attributable in the main to the fact that the Kenny administration was more or less doing everything required of it under the programme, including the delivery of onerous budgets and the achievement of tough fiscal targets. The contrast with Greece's inability to execute major elements of its own plan was stark. Relations between Athens and its sponsors are in perpetual frenzy.
It helped immeasurably that the economy slowly began to turn around, and that notional borrowing rates on markets improved. Yet there was more. The October 2011 referendum on judicial pay impressed Merkel in particular. Of greater importance still was the resounding majority for the fiscal treaty referendum in May 2012, something cast by Kenny as a message to Europe from the people of Ireland that they wanted a settlement of the bank debt question.
The next month, it was amid fear Spain might need a full-blown bailout that a big breakthrough seemed to be come. At a summit the leaders resolved to give powers to the ESM bailout fund to directly rescue stricken banks. Kenny secured the promise of a review of the Irish bank bailout and a pledge that similar cases would be treated equally.
All of this was settled in the dead of night, an occasion that finally seemed to herald the prospect of a speedy deal to claw back some of the billions ploughed into the banks. In the days that followed, however, doubts soon set in. Before long, Germany, Finland the Netherlands said they would not allow the ESM to take on the "legacy" debts of other countries. Even now, this slippery question remains unresolved.
With the bailout at an end, recovery remains a work in progress and there is a long way to go yet. There is plenty of risk on the horizon too. But we push on. When the debacle was at its worst, an incident on Merrion Street was like an international incident. With luck that day is done.
