If the Taoiseach does not understand his own contribution to this crash, we are in greater difficulty than we think
IN A few years’ time, when asked how the Celtic Crash occurred and how Ireland, once a nation, became a province once again, a future taoiseach may reflect that the fiscal treaty of 2012 was a turning point.
A turning point not in the Celtic Crash, for that occurred much earlier, but in the surrender of sovereignty for an indefinite period that consigned Ireland to being a province once again. Yes, elements of that surrender were in the Maastricht Treaty of 1992. Yes, also, in the European Stability Fund Treaty, which, incidentally, has yet to be ratified by the Dáil. But the surrender has been made complete with this fiscal treaty, and I hope to return to that theme in these columns over the coming months.
I want to deal here with the Celtic Crash and Enda Kenny. For if our Taoiseach does not understand what caused the crash and, by the way, his own handsome contribution to it, then we are in even more trouble than we appreciated.
Last Thursday, Enda said in Davos: “What happened in our country was that people simply went mad borrowing. The extent of personal credit, personal wealth created on credit, was done between people and banks – a system that spawned greed to a point where it just went out of control completely with a spectacular crash.”
That is a crude caricature of the reality. It does not explain why people went “mad” borrowing; it mistakes the notion of wealth and mixes it up with credit. The only illuminating comment had to do with “a system that spawned greed”, but Enda Kenny and others rejoiced in that system and continue to do so. That system is called capitalism.
The Celtic Crash was caused in the first instance by being part of a monetary system that, in Ireland, created a dysfunction: an interest rate that was entirely inappropriate for us, although entirely appropriate for Germany, which profited enormously from it. It was that which caused the explosion of credit.
The effects of that explosion could have been ameliorated had politicians here not themselves been caught up in “a system that spawned greed”. They instead spawned a good deal of greed themselves by, among other measures, devastating the tax base and stoking the property bubble. The main culprits were members of the governments which were in office, but Enda himself played a significant role.
That “mad” borrowing, spawned by greed, caused the crisis in the banks, which need not have brought about the disaster that ensued. Seán FitzPatrick, David Drumm, Michael Fingleton and the other ogres of the crash are not the primary culprits. The primary culprits were Brian Cowen and Brian Lenihan, who instigated the blanket bank guarantee, along with those who egged them on and then supported them. These latter include the latters’ former cabinet colleagues, Enda and his party, and the European Central Bank, which had pressurised the Irish government not to let any bank fail. It was this bank guarantee that has really done us in.
But back to Enda’s part in “a system that spawned greed to a point where it just went out of control completely”.
In every one of his speeches on five budgets (from 2003 to 2007) as leader of Fine Gael, he complained about high tax and governments’ failure to spend even more. In the latter two of those speeches he urged changes to stamp duty that would have inflated the property bubble further.
On the 2003 budget, he criticised the failure to index tax bands and an increase in VAT. He said the budget was “a silent killer” because it put education out of reach for the disadvantaged, and criticised inadequate funding on health. Speaking on the 2004 budget, he denied defiantly he had ever complained the government was spending too much. He rejected an accusation Fine Gael would not pay for benchmarking of public service pay, and said: “I support the decentralisation concept,” criticising only some of the specifics of that plan.
On the 2005 budget, he said Fine Gael “completely understands the importance of a low personal tax regime”. Again he complained that there was not more public expenditure and less taxation. He went on to propose the abolition of stamp duty for first-time buyers of second-hand homes up to a limit of €400,000. He complained that Willie Walsh, then chief executive of Aer Lingus, was being shafted, and that if he were in the private sector he would be “properly” remunerated.
On the 2006 budget, he said the social welfare increases which were granted were overdue but went on to complain about not enough being spent in a variety of areas. On the 2007 budget he made a big point about the tax “burden” which he said was too high. Again, he wanted more cuts on stamp duty. It was only when signs that the Celtic Tiger was crumbling did he start (in his speech on the 2008 budget) to oppose the very measures he had urged on over the previous five budgets.
Enda had bought into the system that spawned greed and recklessness as much as anyone else. And to cap it all, Fine Gael backed the bank guarantee of September 2008, without reserve.