‘It’s the economy, stupid,” has become one of the most famous political phrases of the past few decades. It is attributed to James Carville, the motor-mouthed political strategist who helped mastermind President Bill Clinton’s 1992 bid for the White House.
While it still has some considerable resonance, another famous quote from Carville seems even more relevant to our problems today. It comes from the period immediately after the 1992 election when Clinton signalled that he would abandon promised spending increases in favour of interest rate reductions.
Carville was appalled by this, saying: “When I die I want to come back as the bond market because apparently it’s more important than the Pope!”
As we discovered last week, it is also a lot more powerful than any one prime minister or government. The bond market showed its power in Greece and Italy, where democratically elected governments were changed not by the will of the people but rather by the demand of the bond market.
Now technocrats will be installed either to head up unity governments or as interim leaders until elections are called.
It just highlights how wrong we are to think that modern prime ministers or ministers have command and control powers they can exercise at will. If he didn’t discover this valuable lesson in the EU Council chamber over recent months, then the Taoiseach learned it the hard way last Wednesday.
The attempt to call in the two big pillar banks and give them their riding instructions clearly did not go as well as the Taoiseach and Tanaiste had expected.
Did Kenny and Gilmore seriously believe that guys who earn over twice or three times what they do would come in to Government Buildings and be so overawed by the surroundings and the trappings of office alone that they would agree to passing on the ECB rate cuts?
Having the bosses of two pillar banks that stand at the heart of the Government’s banking strategy come out after the meeting and flatly reject the entreaties of the Government was embarrassing. Remember, these are the banks that the Government thinks can be trusted with the decision-making over debt resolution and distressed mortgages.
While one of the banks has since seen sense and relented, surely it would have been wiser for the Taoiseach and Tanaiste to have consulted the Financial Regulator and got his advice and suggestions in advance of the encounter rather than after? Wouldn’t that have strengthened their hand? The banks’ instinctive position going into the meeting was going to be to say “No” unless the Government had a means there and then to persuade them otherwise.
Not only does the episode suggest that Kenny and Gilmore have not yet grasped that you do not govern by just issuing decrees, it highlights a deeper problem.
Don’t forget that the original purpose of this meeting was to ensure that the banks were doing as much as they should to provide the credit that businesses need to restore growth in the economy. That aim remains unfulfilled.
It is now over 10 months since Fine Gael launched its
banking policy document, Credit Where Credit Is Due. It is well worth downloading and reading it now, particularly to contrast what it promised with what it is delivering.
It says that in government Fine Gael would unilaterally restructure (ie default) on the private debts of the banks if they could not reach an agreed burden-sharing solution to the Irish bank debt issue with the ECB and EU partners. Strong words in February, meeker action in November.
The document goes on to say that Fine Gael would “direct any mortgage provider in receipt of State support to present it with a plan within 100 days of coming into office of how it intends to cut its wage bill and other costs — over and above existing plans — by a sufficient amount to forego a 25 basis point increase on their variable rate mortgages”.
We are approaching the 300-day mark, but still no sign of action on this. Is it any wonder the bank bosses left Government Buildings underwhelmed?