Tuesday, 25 January 2011

A letter to President Barroso of the European Commission

The following is a letter I have sent to President Barroso of the European Commission.
I feel that many comments are being made  about the loans being extended to Ireland by the EU and the IMF, which suggest that Ireland alone has a responsibility for what has happened, and that Ireland alone,  is being bailed out by the generosity of others.
This is not the full story, and I try to put the other side of the story forward, in my letter below to President Barroso.

Dear Jose Manuel,

I read your response to questions in the European Parliament about the Irish fiscal situation, in which you seemed to be suggesting that this situation arose solely because of irresponsibility in Ireland.

I agree the main responsibility does rest with Irish institutions, the Irish Government, the Irish Central Bank , the Irish banks, and the Irish individuals who borrowed irresponsibly.
But you should know that this is not the whole story. British, German, Belgian, American, French banks, and banks of other EU countries, lent irresponsibly to the Irish banks in the hope that they too could profit from the Irish construction bubble.

They too had available to them all the information about  spiralling house prices in Ireland, but they still lent the money.  These banks, who lent to the Irish banks, were supervised by their  home Central banks, who seemingly raised no objection to this lending, which was so  ill advised.  Their  home Central Banks also had available to them  the same information, that everybody else had, about the imbalances in  the Irish  housing market and the disproportionate increase in house prices   relative to incomes in Ireland.

So these non Irish Central  Banks must take some share of responsibility for the mistakes that were made. Yet the non Irish banks, who so foolishly lent to the Irish banks,  are now being spared any share in the losses, because  the Irish taxpayer is bailing them out.
I feel you should acknowledge that. You did not do so in your statement in the European Parliament

I also believe the European  Commission was involved, under the Treaties, in some responsibility for supervising the Irish economy,  and that  it too had full information on the obvious imbalances I refer to above. You ought to have acknowledged that responsibility of your own institution, which the Commission shares with ECOFIN.

What did the Commission do at the time about the Irish housing bubble?

What did the ECB do?

Nothing very effective, it seems.

Some reflection on that would be appropriate to accompany your fully justified criticism of Irish failings.

The fact  also is that interest rates in Ireland were too low in the first years of the euro. They were kept low by the ECB, because of the needs of other EU countries, which were not booming in the 2002 to 2007 period as Ireland was. That is also, in part, a European responsibility, although, of course,  the Irish authorities should have found other measures to compensate for the fact that the ECB was pursuing interest rate policies that were  unsuitable to Ireland.

You were right in the European Parliament to remind the Irish people of their recent policy failings, but you should tell the whole story, not just one side of it
Ireland’s bank guarantee in 2008 may have prevented a  Europe wide banking collapse in 2008. You did not refer to that possibility at all.  Do not forget Credit Anstalt in 1931, or Lehman Brother in 2008.

I hope you will find an opportunity to redress the balance in a future statement.

Yours sincerely

John Bruton  (former Taoiseach and former  EU Ambassador)

Monday, 17 January 2011

Zell am See

Finola and I have just spent a very enjoyable winter holiday in Zell am See in Austria. It was the first time we had ever been on holiday in the Alps in the winter.
The scenery is breathtaking, especially from the top of the Scmittenhohe mountain.
I met the mayor( Burgomeister) of Zell am See, Hermann Kaufmann. His Town Hall was built in 1531
He is directly elected by the people and is a full time public representative and administrator. He has to work with an elected council, who are elected separately from him, and sometimes can be of a different party majority.
There are about 9000 people in the municipality, but it is responsible for a wide range of local services, including the provision of a hospital , school building , public housing and water and sewage services for a tourist population that is often much bigger than the resident population.
Hermann Kaufmann belongs to the OVP party, which is part of the European People Party and thus is allied with my own party, Fine Gael. He is the first OVP Burgomeister of Zell am See for many years. This is a tribute to his popularity and effectiveness.
Until he came along the office was almost always held by a Social Democrat, who are now the second biggest party on the town council after the OVP. The Greens have one seat, and the Freedom Party, a party combining secularist liberals and extreme nationalists, hold one seat too. The fact that such a diverse group could belong to one party is one of the peculiarities of Austrian politics.
Zell am See is in a part of the former Archbishopric of Salzburg, which did not become part of Austria proper until 1806. Previously its secular ruler was the Archbishop himself, although the Archbishop was often a member of the Habsburg Imperial family, which ruled in Austria proper.
Zell am See is a great place to visit in winter and summer. We met many tourists there from all over Europe, especially from Ireland and from Russia.

Sunday, 9 January 2011

Political Reform in Ireland.....Would it prevent a repetition of past errors?

There is a lot of discussion in Ireland at the moment about  what is loosely described as political reform. The assumption seems to be that the financial and banking problems the country faces are  due in part to a  failure of the” system “. The implication of this is that if the “system” were different,  different, or more timely,  decisions  might have been taken.
Reform should never be an end in itself. Bad reforms can make a bad situation worse.  Changes have costs as well as benefits. So it is important to define what one hopes to achieve by particular reform. One should define very clearly in advance the output one is looking for, not just the input.
Is the output hoped  from the reform simply to be  saving money?
Or is it more informed and careful decision making? Or, on the other hand, quicker decisions?
Is it having a different type of person in politics? If so, what kind of person?
Or is it tilting the power balance more in favour of elected (and therefore accountable) public servants , as against public servants who have not  had to stand for election?   Or is it to continue the trend of the last 50 years which has  moved power away from elected Ministers to  “expert” or “independent “ entities”?
Is it to give more power to the opposition and backbenchers relative to Government, or the reverse?
All changes have costs, as well as benefits. A reform should only be made if the benefits are greater than the costs.
More accountable or more informed decisions may also be slower decisions.  Safeguards do not always come for free.
Time spent giving an account of past failures, or answering parliamentary  questions or freedom of information  request ,is time that is not available for some other kind of work.  If every TD can ask lots of parliamentary questions, the quality of answers may suffer. It is often the boring questions that are the most important, but the media will not report them, and TDs need coverage in the media to convince their voters that they are working
All public servants, elected or not, are human. Requiring decision makers to account on a daily basis for what they are doing may make them more susceptible to short term pressures, and less careful about long term, or wider, interests.  
Giving more power to experts will mean less input from the general public.
Having fewer politicians will save money, but it will mean less public access to politicians.  Paying politicians less may mean having more part time politicians, as we had up to the 1960’s.
The big policy failure in Ireland took place between  2001 and 2007, when Irish banks were  allowed to borrow huge sums from abroad, which they lent on to people buying , selling or developing  buildings of all kinds here and abroad.  Would those mistakes have been avoided if we had a different political system?
I am not certain of this. There were warnings, as early as 2003, from the IMF about house prices in Ireland, but these were not pressed. Even the OECD said, as late as 2007,  believed the banks  problems were manageable.  Some who knew enough to be really worried may have kept quiet because they did not want to be personally accused of causing a collapse by spreading panic.  Some warned of problems in 2006, but by then it was really too late anyway.
We need are people who are willing to be unpopular, who are willing to say things that  the general public and the media  really do not want to hear, and which may damage the interests of  powerful people.
We need an ability not just to question decisions, but to question and examine all the assumptions on which decisions are made.
It was the unexamined assumption that excessively high house prices in Ireland would unwind gradually, and that there would be a soft landing, that was the central cause of Irelands financial  downfall. Why was that comfortable assumption not challenged in 2002, 2003, and 2004? 
Why was the Central Bank not challenged for being insufficiently conservative in those years?  Given that such a challenge would have been very unpopular at the time with house purchasers , builders, and media advertisers, what mechanism do  we now need to introduce into our political system to ensure that, in future, such a challenge will not only be made, and, more importantly,  will be heard?
A meaningful political reform must one in which the underlying  (often over optimistic ) assumptions of policy decisions  are made explicit , and then are rigorously questioned
It must provide time in the Dail and Senate, and space in the media, for such questioning, especially where such questioning runs counter to the prevailing consensus.    

Saturday, 1 January 2011


I wish all visitors to this site a very happy 2011.
2010 has been a worrying year for anyone living in Ireland, as I do. While Ireland is still, by any historical or comparative standard, a wealthy country, its confidence has been shaken.
Many individuals face catastrophic debt situations. Others are comfortably off, with savings, assets and falling living costs, but they worry about possible knock on effects on their savings of the vulnerable financial situation of the banks and of the Government .
In this, my first posting of 2011, I am not going to talk about the economy at all, but about some good books I read during 2010,

“The Force of Destiny” by Christopher Duggan (Penguin) is a history of Italy since 1796. When Italy was united in the mid 19th century, its new rulers tended to divorce the claims of the nation, as a sort of abstract ideal, from the claims of the actual people who lived in Italy. Provincial privileges were lost and the Italian state did not win the full loyalty of all the people for many years. This contributed to the growth of aggressive nationalism as a means of mobilizing support (imperialist adventures in Libya and Ethiopia) .
A prominent Italian nationalist wrote in 1911 “War, and war alone, arouses the highest the highest moral virtues” , a delusion unfortunately shared by some Irish nationalists of the same era. One eighth of the Libyan population died during the Italian war of conquest.
But the opposition of the Catholic church , because the unification of Italy meant the end of the Papal States, created a very different relationship between Catholicism and Italian nationalism to its relationship with Irish nationalism. The Pope declined to back the Italian war effort in 1917, condemning the useless slaughter.

I visited China in 2010, and while there I read “The Crippled Tree” by Han Suyin (Panther books). This is an autobiography of a Belgian/ Chinese woman who lived through the revolutionary times in China in the first half of the twentieth century. It shows how desperate times were then and explains how the Chinese came to be so very suspicious of foreign intervention in their country.
Foremost among the books I enjoyed last year was David McCullagh’s “The Reluctant Taoiseach”,(Gill and Macmillan) a masterly biography of John A Costello. Costello had two parallel careers, one as politician and the other as a barrister. In 1948,he won the trust of a very diverse coalition of parties and pioneered inter party Government in Ireland, something that flows healthily from our good proportional electoral system.
I read “Inside the Kingdom” by Robert Lacey,( Arrow Books) in preparation for a recent visit to Saudi Arabia. It shows how the religious fundamentalist trend in that country is a consequence of compromises made by the monarchy to get support to overcome the occupation of the Grand Mosque in Mecca in 1979. The current King is easing this somewhat. The physical development of Saudi Arabia today is remarkable, as is the sophistication of of many of its prominent administrators and business people

I was intrigued by the title of “Power, Where is it?” by Donald J Savoie ( McGill University Press). He shows that, in Canada at least, media generated popular distrust of elected politicians has led to a lot of power in modern societies being hived off to expert bodies of all kinds, which are far less accountable to the people than politicians are. This artificial diffusion of power has not improved democracy at all.
The multi level systems of administration that are inherent in Federal systems of Government of the king found in Canada, Northern Ireland, and even the European Union, separate power from responsibility. This sometimes makes it impossible to identify who ,if anyone , bears responsibility for a decision.
Freedom of Information legislation may produce mounds of paper, but if it means that people try to avoid its requirements by taking important decisions in oral conversation, rather than on paper, then it defeats its own purpose.
There are so many safeguards, impact assessments, and consultation requirements built into the formal decision making procedures of many Governments, that the only way to get anything done quickly is to find a way to by pass them.
One person who has a unique capacity to cut through the procedures is the Prime Minister ,because he controls the Cabinet agenda, and can use it to fast track urgent decisions that would otherwise be bogged down by consultations . In modern systems, the Prime Minister is increasingly being called upon to do just this. So the ironic result is that consultation procedures designed to spread power around, have led to its being concentrated even more than before.