One of the many curiosities about the now infamous letters sent by the European Central Bank (ECB) to the Irish Government is that they are letters. It's not so much that we would have expected emails; the real surprise is that such words were ever committed to paper, real or electronic.
There are lots of unwritten rules in corporate life, the rules they never tell you about in business school. One is that nothing important, relevant or interesting ever gets written down. Young executives are told never to commit anything to permanent record that they wouldn’t like to see appearing in a newspaper or on Twitter.
You know that if minutes are being taken at a meeting, nothing of the remotest significance is going to be said nor any big decisions taken. If the meeting comes to any conclusions, they are the ones that will have been agreed on a back staircase prior to the formal gathering.
Paper or electronic trails are to be avoided, with “only when strictly legally necessary” being the rule of thumb. The use by the ECB of letters is so old-fashioned as to be almost quaint. But their release has led to a classic bait-and-switch. Nobody is asking what was said rather than written down. Nobody seems to know or be interested in the events that led up to the letters being sent. The minutiae of the letters has absorbed all attention and deflected any criticism that could really be damaging.
There is a simple truth that is being ignored: no chairman of the Federal Reserve and no governor of the Bank of England would ever have written anything like those letters to their respective governments, even if all other circumstances had been the same.
If, at the time, we had our own Central Bank, the only communication being sent would have been loud instructions from Merrion Street to Dame Street to lend lots of liquidity to the Irish banks. The Department of Finance would have said “Jump” and Patrick Honohan’s only answer would have been: “How high, sir?”
No ECB governor, no matter what the circumstances, is ever going to write to a German finance minister in the terms dictated to Brian Lenihan.
Our response to the letters has been blind to the real lessons: how power really works in the European Union and how unequal countries are before the law (of the ECB).
It doesn’t really matter if what they demanded from us made any sense or not: we like to think that we are sovereign, that we are free to make our own decisions, good or bad. We now know, in the starkest terms, that this is not so. But we sort of knew that already. It is that point about weak and strong countries within the supposedly equal union of countries that is the EU: when you are one of the weak ones, the things demanded of you stand a good chance of being, for the most part, in somebody else’s interest.
It comes back to that refusal to burn Anglo Irish and Irish Nationwide bondholders: it always did and always will. That was a bad decision, taken against our interests and imposed upon us in the interests of others. It means we’re still one recession away from another debt crisis – which is true of one or two other countries, of course, if not the whole of the euro zone.
Basking in the glow of the fastest growth rate in Europe, we can ignore this risk – and long may it remain so. The gamble that is being taken on our behalf is that we are a decade or more away from another significant economic downturn. Good luck with that.
Our fatalism leads us to be more accepting of all of this than we should. Economic policy is not neutral. It always has consequences, usually big ones. The euro zone has turned Japanese because of economic policy choices, very deliberate ones made with knowledge of their consequences. It’s not just poor decision-making. The US and UK economies are growing, not turning Japanese, because of different choices. Our technocrats have let us down badly.
The passing of Brian Lenihan was a terrible tragedy. It also means we will never know what Jean-Claude Trichet said to him; all we have are those not terribly revealing letters.
