its own address all those problems,’ he said. By the time he left office in March 2011, the institutional arrangements in Europe to address banking crises were still not fully in place. Things are still evolving in that regard. As the head of the European Stability Mechanism (Europe’s bailout fund), Klaus Regling, said in early 2014,the European-level responses to the crisis have evolved over time and that options that were not available to Ireland, Portugal or Greece have become available now, while new options may become available in the future.
CONCLUSION
Ireland’s property bubble was one of the largest on record internationally. For nearly three years as finance minister, Lenihan lived with the consequences of the bursting of that bubble. The international experience provides plenty of examples of banking crises less severe and less complicated than Ireland’s where bank depositors lost their life savings and businesses their working capital. Ireland did not suffer that fate.
Lenihan was the doctor on duty when the critically injured banks arrived at the A&E department. In working out the consequences of the property bubble, extraordinary measures were needed to meet extraordinary challenges. For sure, the Irish banks have not yet been restored to full health. History, however, will surely show that Brian Lenihan’s incredible hard work and courage during the most acute phase of the crisis put the banking system and the Irish economy on the road to recovery.
2 A MAN OF CHARACTER
JIM FLAHERTY
IN 1985, CANADIAN PRIME Minister Brian Mulroney and American President Ronald Reagan met in Quebec City for a bilateral summit. Because of their shared Irish heritage, the meeting was dubbed ‘the Shamrock Summit’ – an amusing title which reflected the good-natured relationship between Prime Minister Mulroney and President Reagan. Since Canada’s Confederation in 1867, Irish heritage has played a critical role in our history and our relationships. When I became Canada’s Finance Minister, I wanted to continue the tradition of strong Irish-Canadian relations. Upon meeting my Irish counterpart, the late Brian Lenihan, I could tell that we would share a good working relationship. What neither of us knew at the time was that we were about to embark on one of the most challenging periods of our lives: the global economic crisis. Although Brian did not survive to see his good work come to fruition, I can honestly say that his steadfast leadership and commitment to fiscal responsibility helped Ireland to stave off the worst effects of the recession. His commitment to his country and his resolute leadership stand as important reminders for future generations of the Irish people – at home and abroad – of what it means to be a good public servant.
I became the Minister of Finance for Canada on 6 February 2006. We were elected as a minority government. This meant that we always had two strategies: a short-term one should our government be defeated in the House of Commons and a longer-term strategy focusing on long-term economic growth, jobs, and prosperity. This government was re-elected in October 2008, but again as a minority government.
I mention all of this because Brian Lenihan became Minister for Finance in Ireland in May 2008. Ireland forms part of the constituency led by Canada at the IMF and World Bank, along with the English-speaking countries of the Caribbean. Brian became Minister at a time when the credit crisis was well underway having first surfaced in the sub-prime mortgage market in the USA in August 2007. The developed economies, including Ireland and Canada, were also entering the crisis in the real economy, now referred to as the Great Recession. So, I had to deal with a minority government at home and a deteriorating economy at home and abroad. Brian was confronted by an Irish economy which experienced one of the worst recessions among developed countries, with growing unemployment and government deficits.
In the autumn of 2008, banks were failing in the USA, UK, and some regional German banks. On 30 September 2008, the Government of Ireland extended a bank guarantee designed to cover all deposits, covered bonds, senior debt, and dated subordinate debt. This initiative sent shockwaves outside of Ireland. Then, in December 2008, the Irish Government announced a capital injection of US $7.6 billion into the country’s three main banks.
I discussed the bank situation and, of course, the housing bubble with Brian at the fall IMF/World Bank meetings in Washington in 2008 and at subsequent meetings. There was serious concern at the IMF that it was essential for Ireland to enter into a financial aid agreement with the IMF. Ireland resisted, knowing full well that many of the European governments that had accepted IMF ‘packages’ had been defeated in their next elections.
At one point, the IMF asked me to intervene as the leader of the Canadian constituency at the IMF to demand that Ireland raise its corporate tax rate as a condition of receiving IMF aid. Brian dismissed this suggestion. I did not press the point given not only that the lower corporate tax rate was a proven economic advantage for Ireland, but also the unemployment rate and public debt in Ireland were both rising dramatically. It was not the time to discourage investment in Ireland.
The Finance Minister took further steps, including the introduction of the National Asset Management Agency, which would buy roughly €81 billion worth of property development and commercial assets from participating banks at a significant discount, and stricter regulatory requirements.
We had many discussions about the IMF financial aid proposal. I learned about his family’s history in polictics, met his brother, and enjoyed his company. I knew of his illness, although Brian never mentioned it to me or made a word of complaint. We lamented from time to time that we had both been Minister of Justice (Ireland for Brian, Ontario for me) and barristers. I believe that we shared the feeling that our work in the justice systems had perhaps been more satisfying than dealing with banks, developers, audit agencies, and the rest.
On a later golf round in Ireland, after Brian’s death, with a few of my Canadian friends, the caddy commented on the diminished value of a property which he had visited in Dublin. He was not a young man. One of my golf partners (a Canadian Member of Parliament), who likes to create mischief, asked him what caused the housing price collapse. He replied that ‘it was the fucking politicians and the banks – and the lawyers too!’ I thought this covered my career (and a good part of Brian’s) comprehensively. It was a few holes later when another of my golf partners shared with the caddy that I was a lawyer, a politician, and Canada’s Minister of Finance. The caddy recovered quickly with ‘well, we could use you here now that Brian Lenihan is gone.’
Back to the IMF and Ireland. Not only were there continuing discussions of Ireland ‘taking a package,’ but also there was a voting quota question. Ireland, Luxembourg, Canada, and others accepted reductions in our voting shares. Each country, not each constituency, vote independently on voting quota issues. Brian felt that the larger European countries had not wanted to give up more quota than they did to emerging economies and therefore, in effect, capped the smaller European economies. He always fought to defend Irish interests.
At the end of many discussions, the Government of Ireland chose to accept the IMF package of financial aid. I had encouraged Brian frequently to do so, but, as an elected person, I knew also that the consequences at the polls would be dire. But these are the tests of character in political life, are they not? If it is only about getting re-elected regardless of the public good, one will not run short of willing politicians. Brian Lenihan had character. He took the essential steps for his country’s economic recovery. He has been proven right.
When Brian called to inform me that the Government of Ireland had taken the decision to accept the IMF financial aid package, I congratulated him on his courage and foresight. He sounded relieved and even a bit cheerful. I said that he seemed to be in good humour despite it all. He said: ‘Ah, Jim, we weren’t rich all that long!’
Brian, of course, was re-elected
