Sins of the Father

by Conor McCabe

  However, that deal needed shareholder approval – a process that would take months. The NAMA transaction was put in place as a stop-gap measure. It was the payment from Bank of Ireland that was being deferred, not the IBRC/promissory note transaction. That was being covered by NAMA. All of this was hailed as somehow a victory for common sense. The Irish Times reported that, ‘the real benefit is that it frees up €3.1 billion of cash that can be beneficial elsewhere.’42 The Irish Independent chose to report the conversion of the promissory note payment into national sovereign debt as ‘the first major breakthrough on the issue of bank debt.’ 43 ‘In the staring match between Ireland and the EU and the ECB’, said the newspaper, ‘the other guys blinked first.’

  The ECB – ‘the other guys’ – released a statement regarding the deal which laid emphasis on the importance of the Irish State honouring ‘the full payment of the €3.06 billion promissory notes.’44 Four days later, Mario Draghi was asked to comment on the events at a press conference in Frankfurt. He said little except that he had taken note of the deal, and that it was ‘a completely Irish operation.’45 ‘The ECB is not part of it’, he said. It was a matter for IBRC and the Central Bank of Ireland regarding funding under the Emergency Liquidity Assistance scheme. In May the Irish Examiner asked for documents from the ECB relating to the deal. In response, the bank said that ‘having duly looked into this matter, we would like to inform you that the ECB did not receive any documents from the Irish Government on the renegotiation of the terms of the promissory notes.’46 In its mid-term fiscal statement of November 2012 the Department of Finance stated that the promissory note payment of March that year was settled with a government bond.47 It is easy to win a staring match when you’re the only one in the game.

  The deal was a very costly exercise in creative accounting. Sinn Féin finance spokesperson, Pearse Doherty, said that, ‘not only has the minister abjectly failed to seek a restructuring of the promissory notes, but that even the movement it claimed to have achieved is a jumbled-up mess of accountancy trickery and additional costs, with some crossed fingers thrown in.’48 Debt Justice Action highlighted the fact that only the Bank of Ireland would profit from the deal, as it was ‘lending to the Irish government to allow that government to repay a debt that was not of our making and which could easily have been suspended. This is what counts as a miracle in Ireland today – it’s called a scam in most other places.’49

  Those voices were drowned out, however, by a mainstream chorus of approval and acquiesce. In December 2012 the Minister for Communications, Pat Rabbitte, told the media with a straight face: ‘we didn’t pay the promissory note this year and, as far as I’m concerned, we’re not going to pay it next year. it’s as simple as that.’50 He was not challenged in any way, despite the fact that his speech was a complete contradiction of the Department of Finance’s November statement. Moral outrage, rather than cogent analysis, is the default position of Ireland’s media, and the lack of the former tends to blind them to the latter. Two months later the bank itself was gone, with the remaining promissory notes transferred into sovereign debt. Once again, it was declared a victory for common sense.

  On 6 February 2013 the government moved to liquidate IBRC. It was a move completely out of the blue, and one foisted upon an unprepared parliament. The Taoiseach tried to present the decision as a wiping of the slate, a clearing of the decks:

  The bailout of private bank creditors cost Irish taxpayers, in total, an astonishing €64 billion, which is more than 40 per cent of GDP or €35,000 for every household in the country – over ten times the cost of bank rescues in any other Eurozone country. At €35 billion, the cost to date of the bailout of Anglo Irish Bank and Irish Nationwide Building Society remains, even to this day, shocking. This is the equivalent of almost €20,000 for every household in the country … Were it not for the bailout of banks, Irish public debt levels would be now below those of Germany. This debt weighs heavily on the country as it seeks to re-enter the markets at sustainable interest rates.51

  Yet, none of this would be tackled by the bill before the Dáil. In fact, in the case of the promissory notes, what was internal EU debt – and open to an internal EU solution – would now be transformed into cold, hard sovereign debt, subject to the whims of speculators and rating agencies. As Richard Boyd Barrett TD pointed out, once the bill was passed as legislation,

  … the last bit of leverage with the ECB in terms of demanding a write-down will be gone. We were told that the winding up of the IBRC was part of the discussions as a prelude to any deal, but once this is done the ECB does not have to give the Government anything at all, despite any promises it may have made to the Government in the negotiations. That is because we will have fully taken on board the liability for the promissory note …52

  Finance Minister Noonan spoke after Deputy Barrett and outlined one of the key aspects of the legislation. ‘It allows me to appoint a special liquidator to liquidate the IBRC and part of that liquidator’s functions will be to sell existing assets’, he said, of which ‘the purchaser of last – and perhaps only – resort will be NAMA.’53 Among those who owed the bank money were the department store group Arnott and the fuel group Topaz. The billionaire Denis O’Brien, part-owner of Topaz, was reported to have corporate and personal loans of €833.3 million with Anglo prior to the government takeover in 2009.54 The funding of Topaz’s takeover of the Statoil and Shell networks in Ireland was undertaken with loans secured from Anglo.

  The Dáil was given fifteen minutes at committee stage to debate the legislation. It was signed by President Higgins at 7 a.m. on Wednesday morning, less than ten hours after its first reading. The President had been rushed back to Ireland that night from an official visit to Rome in order to ensure the smooth passage of the bill. The legislation was summed up by the Irish Times as offering ‘a much-needed psychological boost’ but little else to the Irish people.55

  Apart from the liquidation of IBRC, the legislation also tried to provide ‘for an immediate stay on all proceedings against IBRC’ with no further action to be taken against the bank without the consent of the High Court.56 The Department of Finance said that claimants who had issued proceedings against IBRC would now ‘have to pursue and prove their debt to the Special Liquidators’ and that those claimants would ‘rank as unsecured creditors in the liquidation.’57 The act also allowed for the suspension of a person’s constitutional rights regarding property. ‘In the achievement of the winding up of the IBRC’, it stated, ‘the common good may require permanent or temporary interference with the rights, including the property rights, of persons.’58

  About one-third of all cases before the commercial court involved IBRC.59 Although the legislation appeared to put a stay on all cases against IBRC, it allowed cases taken by IBRC to carry on, including that against Sean Quinn. The most prominent case against IBRC involved Patricia Quinn and her five children, who alleged that they were ‘not liable for €2.34 billion in loans to them by Anglo on grounds the loans were unlawfully made to prop up the bank’s share price.’60 On 15 March Justice Ryan ruled that the courts had the power to allow existing actions against IBRC to proceed, adding that any interpretation which saw existing cases blocked would involve ‘extensive and substantial interference with constitutional rights in modes that are discriminatory and unjustified and unnecessary in the circumstances.’61 It allowed the Quinn family to continue their case against former Anglo chairman Sean Fitzpatrick and two other senior Anglo executives. Justice Ryan noted that the act allowing the liquidation of IBRC was passed ‘with great urgency over the course of one night.’

  In the months leading up to the liquidation, there was a challenge to the legality of the promissory notes. It was undertaken by the campaigner David Hall, on the basis that the Minister for Finance was appropriating State funds without a Dáil vote. This was dismissed by the High Court in January 2013 on the grounds that Mr Hall was not a TD. On 7 February his application to appeal was heard by the Su
preme Court. This time he was supported by three TDs – Shane Ross, Stephen Donnelly and Joan Collins – who were applying to join Mr Hall’s original challenge. Chief Justice Susan Denham said that there may be an element of ‘mootness’ to the case given events the previous night.62

  The appeal went before the court but was dismissed on 20 February on the basis that ‘to allow the TDs substitute themselves for the original, but unsuccessful, appellant in an appeal so as to continue the case in the High Court to which they were previously not parties would be unprecedented’. By this stage the bank had been liquidated, its files protected from further court cases by legislation which had gone from first reading to legislation literally hours before the initial Supreme Court application was heard. The act also addressed Mr Hall’s challenge directly. Section seventeen of the act allowed the Minister for Finance, without prior Dáil approval, to ‘create and issue securities, bearing interest at such rate as the Minister thinks fit or bearing no interest, and subject to such conditions as to repayment, redemption or any other matter as the Minister thinks fit.63’ For a bill that was rushed before the Dáil supposedly to protect the remaining assets of IBRC, it was a happy coincidence that it contained a section relating to a Supreme Court challenge to the promissory notes that was to be heard in court the very next day.

  The president of the ECB, Mario Draghi, was asked at a press conference on 7 February for his opinion of the liquidation of IBRC. ‘I am going to refer you to the Irish government and the Irish central bank for the details of this operation, which was designed and undertaken by the Irish government and the Irish central bank,’ he said. ‘I can only say today we took note of this. We all took note of this.’64 It was put to Draghi by a journalist that the rushed nature of the legislation was a strange form of choreography between the Irish government and the ECB, and that it was not clear as to what was actually reached with the liquidation of IBRC. ‘Well, you are absolutely right about not being clear’, he said. ‘We took note of an action that has been undertaken by the government. And I would not actually speak about choreography. It has been Irish government and Irish central bank actions. And we took note of these actions.’

  One week later the president of the Bundesbank, Jens Weidmann, voiced his concern at the conversion of the promissory notes into sovereign bonds. In his opinion the deal set a dangerous precedent by blurring the ECB’s clear line between monetary and fiscal issues.’65 When IBRC was liquidated the Central Bank assumed €25 billion in Irish government debt, which put it in possible breach of ECB monetary financing rules. The news service Bloomberg reported that in order to circumvent the rules ‘the Irish Central Bank has been allowed to borrow unused capacity either from fellow central banks in the Euro area, or from the euro system as a whole.’66 The former ECB president, Jurgen Stark, entered the debate, saying that the arrangement contravened EU Treaty rules. One week later, Draghi said that the disposal policy was crucial to the future of the bonds, with the ECB insisting that they be transferred into market-bonds as soon as possible. These public pronouncements were hardly what one would expect from a decision-making process that included the ECB at all stages, as the Irish government insisted was the case.

  On 9 February the Irish Times wrote that, although the Irish State was obliged under the Eligible Liabilities Guarantee scheme to compensate the mainly corporate deposit holders in IBRC, it was by no means certain that it would be repaid these monies from the liquidation of the bank’s assets. The total bill for depositor compensation stood at between €900 million and €1.1 billion.67 It also emerged that certain IBRC tracker bonds sold to Irish credit unions were not covered by the Eligible Liabilities Guarantee. As a result of the liquidation a total of sixteen credit unions suffered losses of around €15 million.68

  Minister Noonan told the Dáil that the credit unions would have to join the queue for reimbursement. ‘Preferred creditors will be paid first and then the debt which NAMA will have purchased from the Central Bank will be paid,’ he said.69 ‘If there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors. This would include credit unions to the extent that their deposits are unguaranteed.’ The Chief Executive of the Irish League of Credit Unions, Kieron Brennan, said that ‘the Irish authorities are doing precisely what they said they would not do … this is a deposit-based instrument and it has been burned.’70 It was a stark reminder that in the world of Irish finance, community-based credit unions were of little concern to the State. It was also in stark contrast to the handling of the debts of SiteServ the previous year.

  SiteServ owed IBRC €150 million. It was sold in 2012 for €45 million to Millington, an Isle of Man registered company that was owned by Denis O’Brien. IBRC agreed to write down the debt by just over €100 million, while the company’s shareholders received a €5 million pay-out from the sale – incredible given that the company was effectively bust. SiteServ, via Sierra, would later emerge as one of the contractors for the installation of water meters. Dublin solicitors Arthur Cox acted for both SiteServ and Millington, confirming that there were procedures in place to deal with any conflicts of interest.

  Alongside the issue of IBRC stood the on-going investigation into possible criminal activity within Anglo in the months and years leading up to and after the 2008 bank guarantee. Five years on from the initial investigations, nobody had been put on trial. Indeed, as journalist Dearbhail McDonald put it in her publication, Bust, the initial arrests in March 2010 of Anglo’s Sean Fitzpatrick and Willie McAteer came fifteen months after the revelations about ‘the hiding of Fitzpatrick’s Anglo loans on the balance sheet of Irish Nationwide, and fourteen months after it emerged that Anglo had conspired with Irish Life and Permanent in a deposit swap intended to make Anglo’s balance sheet look healthier at its year end in September 2008.’71 In Ireland, justice comes dripping slowly.

  Although shocking in itself, there was nothing particularly unusual about the lack of commitment by the State to the investigation of financial crime. The default position is the establishment of an inquiry board, a process of bloated profundity but little conviction. The Irish Examiner reported that there were less than sixty State employees engaged in investigating white collar crime. ‘This figure includes all relevant Gardaí, Central Bank officials and the Office of the Director of Corporate Enforcement staff assigned to the problem,’ said the editor, adding that ‘we probably have more dog wardens’.72

  The story of IBRC revealed some of the tensions at play within Ireland’s financial class in the wake of the 2008 collapse. There is a Shakespearian quality to this drama, but, rather like Julius Caesar, the conflict is between members of the same class. Nobody is calling for a democratisation of economic power – for regardless of who wins, that aspect of the Irish State will remain in private hands and under private control. In many ways, that is what the fight is about: it is centred on who will have control, not where the control will reside. As with the cobbler of Rome, the citizenry of Ireland is called upon to enter the stage simply as ‘a mender of bad soles’.

  The liquidation of IBRC also revealed tensions between the Irish State and the ECB. Ireland, however, was very much the poster-boy for austerity. The country had not witnessed any riots; there had been no major strikes, nor any national counter-austerity protest of any real consequence outside of an anti-property tax campaign that ran out of steam in the early part of 2013. When it came to austerity, the ECB needed a success story, and Ireland was its best shot. The ECB’s need for an austerity fiction gave Ireland’s financial class a certain amount of leverage at EU level, and they used it to address some of the intra-class tensions and conflicts which surrounded the death throes of Anglo. They did not use it to counter the effects of austerity. This may have been because the policies of austerity are inextricably linked with the monetary policies of the EU and ECB.

  On 15 April 2013 the Political Economy Research Institute (PERI) at the University of Massa
chusetts published a paper which highlighted serious mathematical errors within one of the main economic justifications for austerity.73 The authors of the report conducted an analysis of the spreadsheets used in the influential 2010 publication, ‘Growth in a Time of Debt’ by Carmen Reinhart and Kenneth Rogoff, and found the results to be skewed by coding errors. Reinhart and Rogoff had argued that economic growth in advanced countries was significantly hindered by national debt when that debt exceeded 90 per cent of GDP.74 Once the spread sheet errors were corrected, however, the PERI researchers discovered that there was no evidence for a 90 per cent debt to GDP boundary above which growth is significantly reduced.

  Even though Reinhart and Rogoff did not explicitly argue for austerity, their paper was cited by central banks and governments already pursuing such policies and scrambling for proof. The European Economic and Monetary Affairs Commissioner, Olli Rehn, alluded to the now-discredited research in a letter to EU finance ministers in February 2013, when he told them that ‘it is widely acknowledged, based on serious academic research, that when public debt levels rise above 90 per cent they tend to have a negative impact on economic dynamism, which translates into low growth for many years.’75 Rehn had written the letter in response to an IMF research paper which concluded that the austerity model of government disinvestment was flawed to say the least.76 With just over 19 million people unemployed in the eurozone, the logic of austerity was, quite literally, not working. At the heart of the European project today is the idea that what is needed for a stable economy is tight monetary policy, low production costs and low debt. This has been proved to be wrong, yet the policies remain. There is an ideological battle at the heart of Europe today, and the Irish State is very clearly on the side of finance.