The Truth about David McWilliams & the Irish Bank Guarantee
“McWILLIAMS ONLY EVER INTENDED THE BANK GUARANTEE TO BE LIMITED AND SHORT-TERM”
I am not one for spending too much time looking into the past – particularly when Ireland finds itself in such an immediate crisis and when we should all be debating and planning what to do next.
But some comments this week, most particularly by Green Party leader and Cabinet Member John Gormley on the Vincent Browne show (see http://tinyurl.com/6yrxred) mean that we should clarify what exactly David McWilliams intended at the time he suggested the bank guarantee to the Irish government.
Why does this matter now? Because in moving forward to fix the mess that we are in, credibility matters. David McWilliams has joined with Kevin O’Rourke, Ronan Lyons and others to educate people on how we got ourselves in this mess – and more importantly on what we can do to fix it, and those who advocate a different path for Ireland are now using the events surrounding the guarantee to question the credibility of the McWilliams camp.
The incumbent government are set on a course that continues to keep the average Irish taxpayer on the hook for bankers’ gambling debts and will likely lead to a sovereign default. I think it is important to do anything in our power to set the record straight and to make it clear who really understands what we need to do in order to emerge from the current crisis in the best possible shape.
I have a further vested interest in that I was with McWilliams at a World Economic Forum event in Tianjin,China for much of the time that he was receiving phone calls from Ireland’s political leaders. It was at the time the guarantee was being readied by the Irish cabinet. We discussed at length what was happening back home. McWilliams was absolutely clear. “First, stop the bleeding” was his approach. A run on the Irish banks at that time, in the context of the global financial crisis, would have been catastrophic.
He explained to me at length the Swedish response to similar challenges that they had faced down in the 1990s. The Irish guarantee was meant to buy us some time. But it had to be followed up with a real plan that would include a complete change of banking leadership, a significant and immediate write-down of debt, a completely new approach to banking regulation and the creation of a “good bank” so that no Irish banking institution could be considered too systemically important to fail.
The government implemented the blanket guarantee, and completely ignored the requisite follow-up actions proposed to them. As McWilliams himself has said recently “it was probably a mistake to take a Scandinavian solution and expect it to work in the culture of Irish politics and Irish banking.”
So, it’s time to stop the “he-said, she-said” nonsense about the night of the guarantee. The government chose to take some of McWilliam’s advice, but not all of it. We need to look forward now to what happens on Saturday 26th February, when a new government is in power.
That government needs to take not only the best economists, but also the best deal makers that it can find and put them to work restructuring Ireland’s finances. It will mean decoupling the banks from the sovereign finances completely – and with it putting an end to the guarantee for all but depositors. For everyone else, there is a deal that needs to be made. Ireland won’t get what it “deserves”, it will get what it negotiates.
I, for one, hope that the next Irish government uses all the brainpower and experience of O’Rourke, McWilliams, Gurdgiev, Lyons and Kinsella to help right the ship. They also need to assemble a hard-nosed negotiating team. Who is the “Michael O’Leary equivalent” for that job?