Garret FitzGerald recently argued on these pages that one of the key elements in the creation of the Celtic Tiger was our "spirited defence of the Irish currency" in 1992, following sterling's ejection from the exchange rate mechanism, writes Chris Johns
That defence, which ultimately proved both costly and futile, apparently showed that we were "serious rather than opportunistic players on the international financial scene".
In the same article he takes a swipe at the Irish political system of the 1990s, which "became infected with the Reagan-Thatcher virus". He looks back fondly at the (extremely poor) Ireland of the 1980s when governments of all complexions "engaged in substantial redistribution".
All this in a piece which, bizarrely, hero worships the greatest currency speculator of all time, George Soros. At the time of the currency crises of the early 1990s the Irish establishment argued that devaluation would produce an economic nuclear winter. Politicians of all persuasions, RTÉ, board members of AIB, the Central Bank and most of the chattering classes argued that cripplingly high interest rates and a sudden huge loss of competitiveness with our largest trading partner were a small price to pay for maintaining the stability of the currency.
The rest, of course, is history. Inconveniently, the inevitable devaluation coincided with the start of the longest and most vigorous economic expansion in Irish history.
It was a difficult time to be the chief economist at Bank of Ireland. The purely pragmatic observations that a devaluation would be good for the economy, would be applauded by international financial markets and would do no damage to Irish candidacy for membership of the single currency all fell on hostile ground. Establishment Ireland had caught the European disease - still at epidemic levels today - of believing that the currency is a national virility symbol rather than a simple target of economic policy, one that should be manipulated solely for the economic good of the country.
Official defence of the currency started with the Central Bank informally instructing the banking system not to lend money to "speculators". This had the effect, contrary to FitzGerald's assertion, of severely damaging our reputation in global markets: it was seen as both stupid and arbitrary.
For example, shortly after sterling left the ERM some of the largest foreign holders of Irish government debt (an awful lot of it had been issued during Garret's halcyon 1980s) decided devaluation was inevitable.
They were faced with the choice of either selling or hedging. Several decided to hedge, which meant selling the Irish pound, in the jargon, "short". This is a standard financial transaction which involves borrowing from the banking system.
These foreign holders of Irish government debt, so assiduously courted by the authorities, were dumbfounded and furious to find that they were shut out of the domestic money market by the actions of the Central Bank. They had to take huge losses on their subsequently devalued debt and had to engage in very costly reversals of their thwarted sales of Irish pounds.
While the authorities mounted their futile defence of the pound most domestic economists, particularly those working at banks, stood up on RTÉ and cheered them on.
I could never figure out whether they believed the nonsense that they repeatedly came out with or whether they were acting under orders. I subsequently learned that at least one of them had been instructed by the board of his bank to support the authorities.
Following a furore over some remarks I made in a newspaper article, Bank of Ireland followed a slightly more enlightened approach, and suggested to me and my deputy, Jim Power, that we merely point out the consequences of devaluation rather than advocate one. Under the circumstances - huge political pressure - this was actually quite a brave stance for the bank to take.
The official gagging of large parts of the Irish economics community also contributed to a fall in the standing of Ireland in the eyes of the global financial community. Every working day I came across the reasons why devaluation was inevitable. They were called small and medium-sized Irish businesses. It was the nearest I have ever got to taking on a counselling role: one exporter was actually in tears when he told me that he would be out of business very soon if interest rates weren't lowered and the exchange rate devalued.
His comments were repeated by other business people every day. It was a long time ago, but people might remember that unemployment was staggeringly high and we were in no position to lose any jobs. Irish business people were as incredulous as the international financial community over the stance being taken by the authorities.
I have my suspicions about why most of the banks were so keen to agree with the official stance, no matter how idiotic it was. Somebody explained to me how the authorities could make life very difficult for the banks if they didn't play ball.
He didn't spell it out, but I guessed this involved the relationship with the Central Bank (this was very important) and taxation (nobody wanted a repeat of the infamous bank levies). Subsequently, with the various DIRT and other scandals that emerged, I began to wonder whether those banks most involved in dubious activities were not the ones who most loudly applauded the emperor's lack of clothes in 1992. To argue that all of this nonsense contributed to the creation of the Celtic Tiger is simply bad economics. The Irish economic miracle was a creation of many different factors, none of which had anything to do with the nuttiness of exchange rate policies.
In the financial sector, which took the early lead in the Tiger's birth, FitzGerald would be better off praising Charles Haughey and Dermot Desmond rather than George Soros. The "diseased" policies of the 1990s so derided by FitzGerald might also have had something to do with our economic success.