FG/Labour before Banking Inquiry

Tánaiste outlines Labour's policies in run-up to collapse

Ciarán D'Arcy Thu, Jul 23
 
LIVE: FG/Labour before Banking Inquiry

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  • 09:00

    Hello and welcome to The Irish Times live blog of the banking inquiry. Ciarán D’Arcy here taking you through all of today’s developments as Taoiseach Enda Kenny gives his testimony alongside Tánaiste Joan Burton.

  • 09:00

    Having heard representations from members of the banking and financial regulatory sectors, as well as members of the government at the time, today’s hearings will focus on evidence from former opposition leaders Enda Kenny (Fine Gael) and Pat Rabbitte (Labour), as well as both of the parties’ then spokespersons for finance Richard Bruton and Joan Burton.

  • 09:01

    They are expected to be pressed on the Dáil’s overview of public finances prior to and during the crash. They will also face close scrutiny on their respective fiscal policies following assertions from Bertie Ahern and former Minister for Finance Charlie McCreevy that the opposition pushed for more generous government budgets before the economy hit the rocks.

  • 09:01

    By way of recap, yesterday’s inquiry schedule heard from developer Seán Mulryan, who denied that his Ballymore Properties company made any contribution to the property market crash from 2008 and spoke of the devastating impact the bursting bubble had on his business interests.

  • 09:02

    Former Irish Congress of Trade Unions general secretary David Begg labelled the EU/IMF/ECB troika as “uncaring zealots”, while former non-executive director of the Central Bank John Dunne blamed the banks for lax lending policies which he said was a large contributory factor in Ireland’s economic downfall.

  • 09:02

    There was also criticism of the inquiry’s terms of reference, with committee member and Fianna Fáil Senator Marc MacSharry saying false information had been given, and that investigators assisted some participants in securing favourable treatment. He has called for an independent investigation, and his claims will be examined by senior counsel Senan Allen.

  • 09:28
    Fine Gael colleagues Taoiseach Enda Kenny and the party's former finance spokesperson Richard Bruton are first up...
  • 09:32
    In his opening remarks, Enda Kenny says that he hopes the inquiry can generate new insights into the cause of the collapse to ensure that mistakes made at the time are never repeated.
  • 09:40
    A former minister for tourism and trade during the Fine Gael-led government of 1994 to 1997, he begins by reeling off what he deems to be that coalition's main achievements in securing "modest public expenditure growth", the first budget surplus "in a generation" and a reduction in government debt.
  • 09:40

    Enda Kenny: “By 2007 you had an uncompetitive, bloated, over-borrowed and distorted Irish economy [which] had been left at the mercy of subsequent international events without the safeguards, the institutions and the mindset that were needed to prosper as a small open economy within a changed euro area.”

  • 09:44
    Enda Kenny: “There were no measures taken either by the national or European authorities to impose... appropriate lending rules to protect economic stability.” "
  • 09:45
    Enda Kenny: "The then-government was abandoning the competitive, export-orientated, flexible economic model needed to prosper inside the economic and monetary union that had been bequeathed to it by the former Fine Gael-led government."
  • 09:53

    He says that in its 2007 election manifesto Fine Gael “adopted broadly similar assumptions as the then government about economic growth, about tax receipts, about public spending over the subsequent five-year Dáil term. These assumptions were drawn from the contemporaneous projections by the Department of Finance and by the ESRI and our assessment at the time was that these projections were credible” on the basis of a transition back to an export-orientated model similar to that adopted during the mid-1990s.

  • 09:54
    Enda Kenny: “For hundreds of thousands of families across this country, their dreams turned into a complete nightmare as stability was replaced by a policy of recklessness and regulatory failures.”
  • 09:56
    Although "design flaws in the euro architecture" contributed towards the downturn, he says the "lion's share of the damage" was caused by domestic economic and fiscal mismanagement.
  • 09:59
    Former Fine Gael spokesperson for finance and current Minister for Jobs, Enterprise and Innovation Richard Burton now talking about the "sluggish, wasteful and self-indulgent" spending and public service reform policies of former governments.
  • 10:00
    He says Fine Gael consistently opposed bad policy decisions during this period, adding that the approach to budgeting adopted by Fianna Fáil and the PDs was "wholly wrong".
  • 10:03
    Richard Bruton: Property boom "papered over" vulnerabilities and provided tax revenue that masked the fact that the cycle was "unsustainable".
  • 10:04
    Richard Bruton finished his opening remarks, Sinn Féin's Pearse Doherty now questioning the Taoiseach on Fine Gael's 2007 election manifesto.
  • 10:09
    In response to questions as to whether Fine Gael would have further eroded the tax base through more cuts, Enda Kenny says his party's policy commitments from 2007 were consistent with growth forecasts of four per cent between 2008 and 2012 as given by the Department of Finance and the ESRI.
  • 10:20
    Pearse Doherty now quizzing the Taoiseach on a meeting between Fine Gael front bench and senior executives of Anglo Irish Bank prior to the crash of 2008, and a phone call which was previously reported on by a Sunday newspaper between Mr Kenny and the bank's then chief financial officer Matt Moran.
  • 10:23
    Kenny says he was aware that Moran was from Castlebar, that he knew him to see "as a young person". He says Moran wanted to get in touch because he had "something to say" to the Taoiseach, but says he had no conversation "of any substance" with the Anglo official and that issues of bank recapitalisation or fiscal policy specific to that bank were not discussed.
  • 10:27
    He also denies claims that he conveyed to Anglo officials that the bank was to become "an offshoot of Bank of Ireland", as was allegedly relayed in a series of emails between senior bank officials reported on by the same newspaper.
  • 10:35
    Somewhat of a lull in proceedings now, Kenny and Bruton being questioned by their Fine Gael colleague Kieran O'Donnell on the party's fiscal policies prior to the crash.
  • 10:39

    Kenny: Having the Irish Banking Federation organise a retirement party for the then chairperson of the Financial Regulator “utterly inappropriate” and was “symptomatic of a relationship that lacked necessary bite and authority”.

  • 10:42
    Following tepid exchanges, Fine Gael's John Paul Phelan now returning to the subject of Kenny's meeting with Anglo Irish Bank and emails between senior bank officials concerning a possible merger with Bank of Ireland.
  • 10:44
    Kenny: Lenihan called Richard Bruton about bank guarantee before he contacted Fine Gael leader.
  • 10:47
    Kenny: My biggest regret politically is that we didn't win the 1997 election, then crisis might not have happened.
  • 10:49
  • 10:50
  • 10:51
    Strong social media reaction to line-up of questioners so far- 3 Fine Gael, 1 Sinn Féin.
  • 10:54
    Lots and lots of talk about the Taoiseach's old tourism ministry during the 1990s as focus shifts from the matters at hand.
  • 10:56
    Committee chairperson Ciarán Lynch intervenes in FG Senator Michael D'Arcy's line of questioning on the then government's tourism policy, says the purpose of witnesses is to account for their role prior to the crash rather than the government's policies.
  • 10:57
    Joe Higgins up now, may get a bit livelier...
  • 11:01
    The Socialist TD asks the Taoiseach about party fundraisers during the 1990s/2000s which allegedly raised sums of €150,000 "at a time" from high-profile businessmen, some of whom are now substantial Nama debtors.
  • 11:04

    Kenny: "To run a major party costs a considerable amount of money". Says relationship with businessmen and developers "certainly not" as close as alleged, adds that majority of party funding came from its national draw.

  • 11:05
    Difference between Fine Gael's golf outing fundraisers and Fianna Fáil's fundraising methods was that FG was a party "struggling in opposition" at the time according to the Taoiseach.
  • 11:11
  • 11:19

    To summarise the day so far, Enda Kenny says Fine Gael took a similar approach to the then government parties as regards the economy in its 2007 election manifesto because of generous growth projections from the Department of Finance and the ESRI.



    He denies ever having any conversations "of substance" with Anglo's chief financial officer Matt Moran prior to the crash, but admits meetings were held with senior officials at the bank.



    Responding to questions on the party's fundraising methods while in opposition, he says Fine Gael's status as a party "struggling in opposition" was the difference between their money-spinning events and those hosted by Fianna Fáil.

  • 11:24
    Labour Senator Susan O'Keeffe reverts back to Higgins' line of questioning on fundraisers...
  • 11:26
    Kenny: “From my time as leader, anybody who wanted to participate in any social fundraising activities, such as applied in those early years of golf classics or whatever could do so. I didn’t go on a campaign of asking developers or anybody else ‘please give me money’.”
  • 11:27
    Fianna Fáil's finance spokesman Michael McGrath asking questions now.
  • 11:28
    McGrath puts it to the Taoiseach that his party voted against government budgets headed by Fianna Fáil not because Fine Gael thought the government was spending too much money prior to the crash, but because it wasn't spending enough.
  • 11:29
    A charge which is denied by Kenny, predictably.
  • 11:32
    He says Fine Gael tabled private members bills concerning everything from road maintenance to greyhound doping, but never anything to do with bank regulation or public spending.
  • 11:32

    McGrath: “You had an opportunity to set the agenda and to challenge government and to hold government to account on these key areas... but you didn’t use that platform, I submit to you.”

  • 11:35
    Says Fine Gael contested the 2007 general election competing on the same ground as the outgoing parties by advocating policies such as an increase in hospital beds, increase in the old age pension, more gardaí and free universal health care for under 6s.
  • 11:38

    Kenny's reply: "Six months before the election, I said the budget continues the reckless expansion of government taxation and spending without the necessary public sector reforms."


    Adds that the growth figures from the Department of Finance and the ESRI could only apply to an economy which was "competitive, lean and focussed".

  • 11:40
    He says Fine Gael was an "opposition party labouring against a situation where the government held all the aces... all opportunities to make decisions were removed from scrutiny" from the opposition.
  • 11:48

    Having repeatedly stated that the financial regulatory mechanisms in place prior to the crash were inadequate, Richard Bruton gives somewhat of an unconvincing answer when asked by fellow Fine Gael TD Eoghan Murphy why the main opposition party of the time accepted the economic projections to hand at face value.

  • 11:49
  • 11:51
  • 11:55
    Fianna Fáil's Marc MacSharry up now, says he has some questions for the inquiry chairperson Ciarán Lynch towards the end of his allotted time, expect the lamented terms of reference to come up...
  • 11:56
    Duly accuses the Taoiseach of "political manoeuvring" during his previous answers amid heated exchanges: he's come out swinging.
  • 11:58
    Says there has been a "fabrication of facts of the day" within the Taoiseach's claims.
  • 12:00
    Committee lapses into raucous laughter as the Taoiseach responds to MacSharry's question as to whether he has ever accepted hospitality from a developer by way of transport by road or air: "What do you mean by road- do you mean by getting a lift from somebody?"
  • 12:02
    After an extended period of pedantic back and forths, Kenny says he has never sought hospitality from developers, adding that "the question is ridiculous". Not his finest five minutes in the hotseat this morning, and looked generally uncomfortable throughout the exchange.
  • 12:06
  • 12:08
  • 12:10
    Bruton: “We weren’t economic forecasters, so we accepted finance and ESRI forecasts that prevailed at the time...”
  • 12:12
    Back to Pearse Doherty to wrap up the morning session.
  • 12:14
    And that maligned 2007 manifesto duly makes a reappearance...
  • 12:15
    Doherty: Fine Gael wanted to increase current expenditure by €17 billion over a period of five years from 2007.
  • 12:18
    Says Fine Gael wanted to increase expenditure by 8 per cent even though growth projections of the time stood at just over 4 per cent.
  • 12:20
    Kenny: FG had a "vastly" different economic model than FF, understood those rates couldn't be achieved without a "lean and focussed" economy.
  • 12:23
    Kenny: "The people of the day made their choice".
  • 12:26
    That's it for the morning session, it's Joan Burton and Pat Rabbitte up next at 12.45.
  • 12:29
    An entertaining session in parts with tense exchanges and the occasional ripple of laughter. Towards the end, Enda Kenny reaffirms that his party's acceptance of the Department of Finance/ESRI growth projections prior to the crash came with the caveat that the economy would have to be run in a "lean and focussed manner", a feat he says Fine Gael could have achieved.
  • 12:31
    No real blockbuster contributions from Richard Bruton, says the former government's approach to budgeting was "wholly wrong".
  • 13:17
    We're back for the afternoon session with Pat Rabbitte and Joan Burton, former Labour leader Rabbitte up first
  • 13:18
    Rabbitte: "Whoever or whatever was responsible for the banking crisis, it was not the opposition."
  • 13:19
    Says Oireachtas was and still is ill-equipped to scrutinise the banking sector.
  • 13:22

    Rabbitte: “Most TDs have believed that regulation of the banks was in competent, well-paid, safe hands and that the job of the Minister for Finance was to keep an eye on them. On both scores that belief has taken something of a bashing.”

  • 13:23
    Says there is a belief abroad that bankers and developers have have exerted a considerable "formative influence" on Ireland's economic policies.
  • 13:27
    Former Labour leader says there is nothing wrong with government learning from outside expertise, but that the task of the government is to make the distinction "between the public interest... and vested interests".
  • 13:28
    Rabbitte: "The tug of war between the two government parties that gave birth to the hybrid regulatory structure in place at the time of the crisis did not help, and has facilitated the buck-passing that we have seen at the inquiry."
  • 13:29
    Goes on to insist that Labour did challenge the government, but that various proposed measures and bills were not adopted.
  • 13:32
    The south Dublin TD, who is due to retire from Dáil politics at the next general election, says that "speculation and building land" was the root cause of the explosion in house prices.
  • 13:32
    Rabbitte: "I did not make the connection between our alarm at what was happening in the housing market and a risk to the financial system. I must admit that it never occurred to me that our banks might fail. That fear did not surface in mainline debate until the autumn of 2008 despite Morgan Kelly’s article."
  • 13:38
    Joan Burton: Labour party opposed the bank guarantee "because we believed that the extent of the potential liability posed a real risk to the solvency of the State. I believe that this decision has been fully vindicated by subsequent events. The banking guarantee locked the country into a cycle which led to the bailout of 2010 and everything that flowed from that date."
  • 13:41
    Tánaiste says the continued use of certain tax incentives was tantamount to "stoking the building industry which was already overheated, and the bubble inland prices".
  • 13:42
    She continues: "The incentives were being used as a tax shelter rather than as a development tool, and they were being used by wealthy individuals to shelter income from revenue.”
  • 13:43
    Burton: Housing bubble was aided and abetted by “grossly irresponsible rezoning decisions in some parts of the country”.
  • 13:47
    "It’s no coincidence that the peaks in public spending occurred immedidatley before the 2002 and 2007 general elections," she says, adding that budget policy during that time was driven by the electoral cycle rather than by the needs of the economy.
  • 13:50
    Echoes her party colleague's reservations about the Government's capacity for oversight of the financial cycle: "I doubt if our current Oireachtas oversight could prevent a similar crisis happening again."
  • 13:53
    As is his want, Michael McGrath reintroduces that old kernel: election manifestos. Furnishes the document he says shows that Labour wanted to increase current expenditure by €17.4 billion from 2007.
  • 13:57

    Burton says Labour criticised a waste of public money and “vanity projects” floated by the Fianna Fáil-led governments including electronic voting, decentralisation and the ‘Bertie Bowl’.

  • 14:02
    Fianna Fáil's Michael McGrath getting quite flustered at the answers he's receiving: "I am utterly frustrated- the questions are not being answered and I’m sick of it."
  • 14:06
    The Labour leader is sticking to her guns, however, and is not at all concerned with brevity.
  • 14:09
    McGrath persisting with his line of inquiry as to "who would not have got paid" in relation to the State's creditors if the option of a bank guarantee had not been pursued.
  • 14:11

    Burton: “The guarantee was a disaster for the Irish people... The Irish taxpayer took sole responsibility for the debts of the banks.”

  • 14:15
    McGrath's focus shifts to Rabbitte, who comes up with a characteristic soundbite: “The [bank guarantee] was sprung on us shock and awe: it was the most extraordinary story in my lifetime that I woke up to that morning.

    “We didn’t have a refined alternative, we had to there and then react to the proposals which were being brought forward.”

  • 14:16
  • 14:20
  • 14:28
    Both coalition members now luxuriating in the minutiae of fiscal policy; and it's not making for riveting viewing.  
  • 14:34
    Rabbitte denies that Labour's approach towards lowering income tax rates constituted a populist policy. "If you mean that I ought to have gone to the last conference before a general election and announced things that would be manifestly unpopular with the electorate, I wasn’t minded to do that."
  • 14:41

    Committee adjourns for a break, so to summarise:


     



    • Tánaiste Joan Burton says Irish economy was like an "athlete on steroids" prior to the crash

    • Former Labour leader Pat Rabbitte says bank guarantee was "sprung" on the party "shock and awe"; admits they had no "refined alternative" to the move at the time

  • 14:44
    Inquiry resumes, Labour's Susan O'Keeffe on the buzzer...
  • 14:47
    Rabbitte says he and his fellow opposition frontbenchers "were  being assured by authorities... that we had a very sound and robust banking system, and I bought it”.
  • 14:48
    Burton says she was "filled with foreboding" following briefing on the banking sector in Easter 2008, prior to guarantee.
  • 14:50
    “I was very, very concerned.”
  • 14:55
    Former Minister for Finance Brian Lehinan sought advice from his constituency colleague Burton in relation to the banking crisis, according to the Labour leader.
  • 14:57
    Process of bank guarantee "kept under wraps" by government of the time, says Rabbitte.
  • 14:59
    Marc MacSharry now questioning, and immediately receives a jibe off Pat Rabbitte for Sligo's abject performance at the weekend's Connacht football final.
  • 15:01
    In keeping with the sporting theme, the Bertie Bowl gets a second mention soon after in relation to Labour's budget outlook.
  • 15:05
    Somewhat inevitably, 'that' Labour pre-election ad and the "isn't that what you tend to do during an election" line pop up, much to the former Labour leader's rancour.
  • 15:09
    After some tetchy exchanges (and not much substance), Senator MacSharry gets a reproach from committee chairman Ciarán Lynch for passing comment on witness' testimony.
  • 15:10
    Next up, the 'hospitality from developers' question regarding road and air transport makes a reappearance...
  • 15:11
    Rabbitte retorts with a straight face: "If I got a pint from a developer is that included?"
  • 15:13
    And then denies that he engaged any such overtures.
  • 15:14
    It's a no from Burton too.
  • 15:20
    MacSharry is reprimanded a second time for asking the Tánaiste whether or not it was appropriate to alter the initial membership of the committee, chairman Ciarán Lynch says the question lies outside the inquiry's terms of reference.
  • 15:22
  • 15:27
    Rabbitte: Brian Lenihan told me he had a two-hour meeting in the Department of Finance as to whether they should reply to my letter in The Irish Times about nationalising Anglo Irish Bank. They didn't.
  • 15:29
    Rabbitte: In opposition, we  didn’t resile from measures that needed to be taken to control property bubble.
  • 15:30

    Adds that he “doesn’t think the theatre of the Dáil chamber is particularly effective in terms of opposition holding government to account”.

  • 15:34
    Responding to Pearse Doherty, he says there is a "danger" that  some civil servants aren't as robust as they should be in informing governments of qualms they have over policies.
  • 15:39

    “I’m not sure what [Brian Lenihan] was doing driving around south Dublin eating garlic late after midnight shortly before the collapse.” Says he doesn’t necessarily hold it against former Minister for Finance for not being completely candid in relation to the dire economic outlook pre-crash.

  • 15:40
    Rabbitte: Some leading bank officials who behaved recklessly didn’t know depth of crisis themselves.
  • 15:43
    Says the Central Bank virtually ignored consumer issues when taking action during the crisis, and saw its role as being prudential in relation to large financial institutions rather than individual consumers.
  • 15:45

    Rabbitte: “The substantial conclusion I would like to see this inquiry draw is that we have a classic case of regulatory capture: we set up a regulator, and before you could say ‘Jack Robinson’ he was doing the bidding of the banks rather than the other way around, and a I think that is the genesis of the tragedy that has befallen us.”

  • 15:46
    Says the buck has been passed around by witnesses who were in positions of authority during the crisis over the course of the inquiry.
  • 15:55
    Rabbitte: "Principles-based regulation is one thing, but derelict regulation is another thing. It seems to me that we had derelict regulation."
  • 15:58
    Burton: Liquidity crisis turned into a solvency crisis.
  • 15:59

    “I’m just surprised that none of the institutions ever seemed to have queried or questioned the bubble.”

  • 16:08
    Burton: "It was never going to be possible to exit the problems cost free, but we could have done it in a more effective way, and we might have been in a position to rescue the two mainstream banks in a less costly way.”
  • 16:13
    Rabbitte says the installation of Patrick Honohan as governor of the Central Bank broke an "incestuous" cycle whereby the position was "automatically" inherited by the outgoing secretary general of the Department of Finance.
  • 16:17
    Commenting on Brian Cowen's inquiry appearance: "If he didn’t ask Mr Fitzpatrick when he was playing golf with him, why didn’t he? It seemed to me the whole purpose of the encounter was to ask Mr Fitzpatrick ‘what the hell is going on in your institution?’."
  • 16:19
    Burton: Dublin Stock Exchange became "casino for contracts for difference".
  • 16:21
    Commenting further on the sale of contracts for difference: "If they had to be recorded and paid tax, it might have just made some of the people who were gambling pause for thought. Would it have prevented [the crash]? I think it would have mitigated it."
  • 16:32
    Afternoon session comes to a close, and inquiry will resume in an hour. So here's what we heard:
  • 16:33
    Joan Burton said the Irish economy was like an "athlete on steroids prior to crash"; Labour was correct in its opposition to the bank guarantee in 2008 on the basis of the crisis which unfolded after.
  • 16:36
    Former party leader Pat Rabbitte admitted that Labour had no alternative to hand as to how the matter of the bank guarantee should have been dealt with; criticised a perceived cosiness between regulators and banks they were meant to be regulating; questioned high-ranking civil servants' willingness to contradict instructions from politicians within the Department of Finance.
  • 16:38
    Back at 5.30pm to hear from developer Joe O'Reilly.
  • 20:30
    Developer Joe O'Reilly appeared before the banking inquiry shortly before 6pm this evening.  
  • 20:30
    Mr O’Reilly told the inquiry he had personal and corporate loans totalling approximately €2 billion from the guaranteed banks in September 2008 and that he believed all of this money would be repaid.
  • 20:31
    He said he expected the principal of his personal and corporate loans to be fully repaid after they are sold as part of Nama’s so called project jewel sale, currently underway.
  • 20:31
    Mr O’Reilly, the founder of the Castlethorn group, of which he is one of three shareholders, and of Chartered Land, which he owns, said the groups’ loans were moved to Nama in 2010 and his businesses worked hard with the agency to maximise the value of the assets.
  • 20:31
    Joe  O’Reilly was the developer behind the Dundrum Town Centre, for which he is best known. He also had a hand in the Pavilions Shopping Centre in Swords, as well as the Bord Gáis  Energy Theatre and its adjoining office blocks in Dublin’s docklands.
  • 20:33
    That's all from today's coverage of the banking inquiry. Irishtimes.com will have analysis from today's hearings on the site from this evening.