BUSINESS OPINION:Did the Department of Finance give bad advice to the Government and is it up to the job now?

THE PUBLICATION of two reports into the collapse of the banking industry has piqued public interest once again in how we got into this awful and expensive mess in which we find ourselves.

But despite the new outbreak of soul searching and recrimination there is one question that nobody seems very interested in finding out the answer to. It is: did the Department of Finance drop the ball as far as advising the Government on the economy and is it now up to the job required of it?

The issue was only touched upon in the two banking reports and has now been dropped almost entirely from the draft terms of reference of the proposed Commission of Investigation that will follow.

The terms of reference of the commission do call for further investigation of the interaction of the Department of Finance with the Central Bank and its failed satellite, the Financial Regulator.

This presumably reflects the incestuous nature of the Department’s relationship with the Central Bank, which was epitomised in the time-honoured tradition of appointing senior

epartment of Finance officials to the post of Governor of the Central Bank. A tradition broken only with the appointment of an outsider, Patrick Honohan, last September.

If this unhealthy relationship was part of the problem with the regulatory system – as seems to be the case – then it is surely worthwhile investigating what it was about the culture of the Department of Finance that gave rise to such a dysfunctional dynamic.

Equally, if the Department of Finance made such a mess of its responsibilities in this important aspect of its job, then what comfort do we have that they did a good job in other areas such as budgetary policy and macro-economic management?

The answer is none and neither is it an answer that is contradicted by the known facts, ie the catastrophic mismanagement of the economy over the last half decade or so.

In fact, most of what we know points in the other direction. There is really no basis for believing that the disastrous policies followed over the last five years was contrary to the views of the Department of Finance or the advice it gave to the Government.

Indeed, the Taoiseach’s stock defence of his record as Minister for Finance relies heavily on the line that he was following the best advice available to him. The prima facie case that the Department of Finance failed to do its job is strong. And more pertinently there is very little to engender confidence that the department is now fit for purpose.

The case for some sort of external review of the role of the Department of Finance in what went wrong in Ireland is every bit as compelling as the argument for an investigation of the Central Bank and the banking system.

In the same way that the Government’s opposition to such an inquiry has been shown up for the self-serving blather that it was by the two reports released earlier this month, any attempts to argue against a examination of the Department of Finance also ring hollow.

It is debatable, however, as to whether the Commission of Investigation into Banking is the correct vehicle. The obvious connection between macro-economic and budgetary policy and the banking collapse means that it certainly falls under the broad remit of the investigation.

But, as the Governor of the Central Bank has pointed out, the proposed commission lacks sufficient focus as things stand. Setting it the additional target of holding the Department of Finance to account could be counter-productive.

The issue is, however, of sufficient importance to merit its own tightly focused investigation along the lines favoured by Honohan. Indeed, his own report on the Central Bank is the model. Instead, it appears we are to be fobbed off with that most toothless of creatures, a hearing before an Oireachtas committee at which department officials will be called.

Anyone who has sat through such a committee hearing will realise the members generally have as much interest in getting to the truth as they do in having their expenses made public. A soundbite on the six o’clock news is the limit of the ambition of most Oireachtas committee members on these occasions.

The committees are dominated by Government representatives and it is implausible to suggest one would delve deeply into an area that is as likely to expose incompetence in equal measures among the ranks of the Government and the Department of Finance.

In any case, the committee’s remit will most likely only stretch to issues touched upon by the existing reports and fall far short of the sort of systematic review of the way the Department of Finance carries out its duties and interacts with its political masters.

And until we have looked at that and fixed what went wrong, then it is arguable that we have not really fixed anything.