Honohan rejects Kelly criticism

Central Bank governor Patrick Honohan has said that there was “no miscalculation” or missed opportunity that could have resulted in Ireland pulling itself out of its debt problem.

Prof Honohan was responding to an article by UCD economics professor Morgan Kelly in The Irish Times which accused him of making the "costliest mistake ever made by an Irish person" .

The article also argued that Ireland is heading for bankruptcy unless it pulls out of the IMF-EU deal.

Speaking on RTE Radio's This Week programme, Prof Honohan said that while a lot of the economist's analysis was "absolutely spot on", there were some serious errors of fact in the piece. He also accused the economist of using "somewhat hyperbolic language".

“The story he spins is somewhat incomplete - maybe what I would like to start with is what is the most startling assertion that I, and he put it down to me rather than any institution, made a catastrophic error (on bank losses),” the governor said. “The answer is no.”

In particular, Prof Honohan disputed the suggestion that the bank guarantee could have been reversed. “I took a lot of legal advice on this. There was no way of the Government walking away from that very formal guarantee, endorsed by the Oireachtas,” he said. “The Government would have been treated as a bankrupt right away.”

Prof Honohan said his strategy has been to keep Ireland's options open in what is a difficult position, and not to undertake further costly engagements. "To a large extent we have been successful in doing that," he added.

He said the deal struck with the IMF and European authorities last November was agreed in a hurry and designed to be altered.

“It was not a final solution,” he said. “I would regard it as a holding operation, something to offer a window of time in which to get what could be sorted out within our own competence in Ireland sorted out.

“It’s not the end of the story. Negotiations, discussions will continue with Europe for a long time to come as we know there are already discussions about the interest rate and so forth.”

Prof Honohan said he wanted to nail the idea that there is a conflict of interest between heading the Central Bank and having a role on the governing council of the European Central Bank. “Everything that was done here by me and by colleagues on behalf of Ireland - I was playing for Ireland,” he said.

Prof Honohan also addressed his breaking rank last November in an early morning phonecall to RTÉ Radio from a meeting of European bank chiefs in Frankfurt to reveal that Ireland was on course for a bailout running to tens of billions.

“The facts of the matter are pretty clear, because the negotiators for the lenders were in Dublin with snow on their boots. They had been invited by the Minister for Finance,” he said. “What my purpose there was, and I said it at the time, was to provide reassurance and fact, what is going on.

“There was growing concern and even alarm both at home and abroad - it did not in any way affect the Government’s negotiating position.”

Prof Honohan reiterated that the sustainability of Ireland's debt depended on its economic growth prospects.

"If things don't go well in terms of economic growth it will be much more difficult ... in that case there will be a problem and in order to cope with that situation we need to think of better financial arrangements with Europe," he said.

"The fact of the heavy debt and the growth of that debt is a serious problem and needs to be managed in discussion and in negotiation with our European partners," he said. "We need to think of risk-sharing arrangements that would ensure that the growth will come right."

Prof Honohan, who has previously called for the creation of GNP-linked bonds or similar risk-sharing innovations to help restore Ireland's economy, said Ireland had options in discussions with European partners.

He referred to the bailout as a "holding operation".

"We are keeping our options open. We have a number of cards, we don't have many cards in these negotiations, there is the right time to play your most important cards."

Additional reporting: PA/Reuters