Government blunders cost Irish people billions more than was necessary

Brian Cowen and Brian Lenihan
Brian Cowen and Brian Lenihan

Blunders by the Government on the night of the infamous bank guarantee cost Irish people billions of euro more than was necessary, the country's banking chief has said.

Patrick Honohan, governor of the Central Bank, said despite the limited information available to them at the time, the Fianna Fail/Green coalition made costly mistakes in the September 2008 bailout.

Specifically, he insisted rogue lender Anglo Irish Bank should have been nationalised straight after the 440 billion euro (£321 billion) blanket guarantee.

"Control should have been taken, it should not have been left in the hands of management, it was very risky to leave it in the hands of management," he said.

Mr Honohan told the Oireachtas Banking Inquiry it should have been obvious to the then Taoiseach Brian Cowen and finance minister Brian Lenihan that if the bank's management had run out of money then they weren't the right people to leave in charge.

Patrick Honohan

It was four months later before Anglo was finally taken into State control.

Furthermore, government ministers should have brought in a smaller, more limited guarantee and should have bought some time for more negotiations over the crisis, the banking chief said.

Mr Honohan said the mistakes made on September 30 had cost citizens "more than a few billion".

Although acknowledging the scale of the savings that could have been made, he said the figure was a fraction of the overall damage.

It is expected the guarantee alone will cost Irish people 40 billion euro.

But Mr Honohan said most of the damage was already done and could not have been reversed or drastically reduced by decisions around the banking guarantee.

"The decisions on the night of the guarantee did of course have consequences for Ireland," he said.

"But there has been a tendency to overstate the extent of the impact of that night's decisions on the subsequent welfare of the nation.

"It would be hard to deny that most - I would hazard a figure of at least 80-90% - of the overall hardship that followed the bursting of the bubble, was already inescapably embedded in the situation."

Mr Honohan said the damage had been made unavoidable by unrestrained lending from banks and the property boom.

The Central Bank chief has already appeared before the inquiry but wanted to return to clarify some of his previous evidence.

During his last testimony in January, he said Mr Lenihan wanted to buy more time to resolve the crisis and was intent on nationalising Anglo on the night of the guarantee but was overruled.

The banking inquiry, which is investigating the events which led up to Ireland's banking crash, is expected to publish its findings later this year.