The Central Bank headquarters in Dublin (File photo)
NEITHER THE DEPARTMENT of Finance nor the Central Bank will release the so-called ‘Black Book’, a crisis management manual intended to assist officials during financial crises, which was never used during the bank crisis five years ago.
The ‘Black Book’ is referred to in the Nyberg report into the causes of the banking crisis which led to the fateful guarantee of Irish banks in September 2008. The report notes: “In the actual crisis no use was made of the Black Book procedures.”
The manual lays out procedures for emergency funding from a Central Bank or emergency liquidity assistance (ELA), guidance on legal issues related to insolvency processes and providing state aid to industry, and information on how to contact the responsible persons in a crisis.
It has been in existence since 2001 when it was prepared by the Central Bank of Ireland to provide for a set of processes and procedures to refer to during the management of financial crises.
But it was never used when Ireland’s banks were plunged into crisis at the back end of the last decade resulting in the eventual guarantee of all liabilities of Irish banks at an eventual cost of €64 billion, a move which later resulted in Ireland needing an international bailout.
The manual was referenced in a parliamentary question from independent TD Stephen Donnelly this week.
Donnelly asked the Minister for Finance Michael Noonan if he would release a copy of the ‘Black Book’ as it existed at the end of 2006 or as it was redrafted in the crucial period leading up to the banking crisis between August 2007 and September 2008.
Noonan said the manual was passed to the Department of Finance “on the understanding it would be treated in strictest confidence given the nature of the matters treated in the document”.
He described the ‘Black Book’ as a document which lays out a “set of processes and procedures to assist it in the management of a financial crisis situation”.
“I do not therefore propose to provide a copy of the document,” Noonan said.
Contacted this week, the Central Bank declined to answer a series of questions about the document including the content in it, how many times it has been updated and when it was last updated.
A spokesperson said that the document laid out “the principles under which the Central Bank would operate during a crisis; operational procedures and terms and conditions for ELA; legal issues relating to insolvency laws and state aid to industry; and information and logistic issues such as arrangements for contacting the responsible persons in a crisis.”
The spokesperson declined to comment any further.
The Department of Finance tells us that the deficit is improving. DoF reports that the general government deficit fell from €22.4bn in 2009 to €12.4bn in 2012. But it is widely known that the impact of bailing out bank shareholders and bondholders has had a hugely distorting effect on public finances. Unfortunately, DoF does not show these effects in the same release as the overall government finances, and you need to go to a separate database to get these data.
Adding the two together produces a measure of the underlying deficit, excluding both costs and revenues from the bailout. It is regrettable DoF doesn’t do this itself.
The table below shows the deficit excluding the effects of the bank bailout.
|General Government Deficit||-22.4||-48.3||-21.3||-12.5|
|Bank bailout net expenditure/receipts||-3.8||-31.5||-5.7||+1.6|
|Underlying Deficit (excl. bank bailouts)||-18.6||-16.8||-15.6||-14.1|
Fig.1 – General Government Deficit Excluding Effects of Bailouts for Bank Shareholders and Bondholders, €bn. Source: Department of Finance
There is another factor to be taken into account. Hardly anyone suggests that the reduction in government investment is a welcome development. Even supporters of ‘austerity’ suggest it is nothing more than a temporary evil, or an unavoidable necessity. The government has pledged not to cut it further.
As a result, while it has a significant bearing on the economy, it is not strictly part of the ideological offensive supporting austerity at all. Therefore it is worth looking at the underlying deficit (excluding both bank bailouts and the effects of growth) after taking into account the government’s own reduction in investment (Gross Fixed Capital Formation). Without cutting investment sharply the deficit would not have been on much of an improving trend.
|a. Underlying Deficit (excl. Effect of bank bailouts & growth)||-18.6||-16.8||-15.6||-14.1|
|b. Govt. GFCF||6.1||5.5||4.0||3.3|
|c. Underlying deficit, (excluding investment & bank bailouts) (a-b)||-11.5||-11.3||-11.6||-10.8|
Fig. 2: Underlying Current Deficit (excluding bank bailouts), removing cuts in Government GFCF, €bn. Source: Author’s calculations, Department of Finance
On this measure the trend in the deficit is still downwards, but only marginally so. Once both the effect of the bank bailouts and the cuts in government capital investment are stripped out, the decline in the deficit is a paltry €700mn since 2009.
Unsurprisingly, while the economy has stagnated since the slump so has the underlying deficit. The chart below shows the trend in GNP and the underlying deficit since 2007. In effect, a slump has been followed by stagnation. The deficit is a mirror image of growth; a sharp rise has been followed by a flatlining deficit. The modest improvement in 2012 as whole reflected the moderate uptick in economic activity, which gave way to renewed recession at the end of 2012.
The underlying deficit is not really on an improving trend. It remains dependent on growth, which itself remains elusive.
Supporters of austerity in Ireland maintain that export-led growth will be the salvation of the economy. But recorded exports have already risen strongly without lifting the economy out of Depression and there is a question mark about the continued strength of exports in the period ahead.
There is also a larger question looming. Ireland is a capitalist economy and set to remain so for a considerable period. Yet its capitalists have stopped producing capital. The implications of that startling fact will be addressed in a further post.
The Department of Finance has said that is not the case, however.
He said the EU authorities have to be careful about the timing of any announcement on Irish debt restructuring, however.
Mr Mitchell said: “The problem is that anything that is done in terms of new timing for payments, they’re fearful that the Greeks and the Italians might say, you know: ‘Could we have some new arrangement as well?’.
“But I think there’s a very clear understanding, certainly in the Parliament and in the Commission, and I believe in the Central Bank as well, that it is untenable for Ireland to pay this money over such a short period.”
Minister Noonan has joined fellow EU Finance Ministers in Brussels again today for talks on the union’s new banking supervisor.
The Minister said that he still feels a deal for Ireland is likely before the next payment date in Marc, however.
“The first step is to have the supervisory system in place, and then we’d be in a position to start talking about it,” he said.
“But there is a commitment to Ireland and that commitment was reinforced in bilaterals between the Taoiseach and the German Chancellor and the French President.”
Government on target to take €3.5bn from economy in budget, cuts 2013 growth figure
THE Government remains on target to cut €3.5bn out of the economy in next month’s budget despite a cut to its Gross Domestic Product (GDP) growth target for 2013 to 1.5pc, down from 2.2pc, as expected.
However, the move should not impact the €3.5bn budget adjustment figure because when inflation is factored in the nominal growth figure is relatively unchanged.
The cut comes against the backdrop of the continuing crisis in the eurozone which is dampening growth at the country’s main trading partners both in the UK and Europe, according to the Government’s Medium Term Fiscal Statement published this afternoon.
Last week, the European Commission cut its growth target for next year to 1.1pc and the document recognises other sector specific risks to growth including that of the export sector which is weighted heavily towards pharmaceuticals with many of those made in Ireland coming off patent.
The GDP target for 2014 remains at 2.2pc while the target for this year has been increased from 0.7pc to 0.9pc.
Spending cuts and tax hikes worth €25bn since 2008, or the equivalent of15pc of annual output, have been made.
The Government believes another €8.6bn from 2013 to 2015 will be enough to get the economy back on track.
Focusing on the domestic economy, the Government expects unemployment of 14.5pc next year with an ongoing necessity for households and businesses to reduce down debt levels built up during the boom.
“Loans to the household sector in Ireland measured 207pc of household income in the year to second quarter with the private sector savings rate at over 12pc in the same period,” according to the document.
“Although household indebtedness is on a declining path, any further acceleration in deleveraging by households presents a downside risk,” it added.
Turning to GNP growth, which excludes multinationals, because of the export-led nature of the forecast economy, the prognosis is for lower domestic growth.
Another risk to the public finances is that tax revenues in the month of November – the key month of the year for revenue collection – do not perform in line with expectations.
According to the figures, €5.7bn or close to 16pc of total tax revenue for the year is profiled for collection this month.
While not expected, if revenues were to underperform, this could have negative implications not just for 2012 fiscal targets but also the base upon which the 2013 tax revenue forecast is built.
Finance Minister Michael Noonan will deliver Budget 2013 on December 5.
Last week, the Department of Finance has signalled it wants a tougher Budget next month to make up for lost tax revenues as a result of lower growth.
Department of Finance secretary general John Moran has said that while decisions were a matter for Cabinet, his view was the 2013 target deficit of 7.5pc of output should be met.
He warned that downward growth would lead to downward pressures on revenue and the “need to adjust accordingly”.
CHAIRMAN of the Public Accounts Committee (Pac) John McGuinness has said he finds it utterly inconceivable that there is no record of crucial notes or minutes of meetings where former Minister for Finance Brian Lenihan and ex-Taoiseach Brian Cowen delivered frank assessments of the Department of Finance whose failings helped bankrupt the country.
After an almost two-year Freedom of Information battle, department officials have claimed there are “no records” of meetings that went on for hours between Mr Cowen and Mr Lenihan and a panel led by Rob Wright — a former deputy minister for finance in Canada — into why the department failed to prevent Ireland’s financial Armageddon.
Kevin Cardiff, the department’s then secretary general who was in charge of banking during the boom, has claimed that he had “no formal meetings” with the Wright commission and he kept no notes of informal ones. The department admits its records show Mr Cardiff was due to meet Mr Wright on both August 9, 2010, and August 10, 2010, but has no records of what may have been said.
“It is totally beyond credibility that no records of these meetings exist,” Mr McGuinness said. “These were high-level meetings relating to the biggest decisions in the State’s history. We are expected to believe that Kevin Cardiff was the head of banking, and no notes. Brian Lenihan was the Minister for Finance and we’re told there are no notes.
“Brian Cowen was the Taoiseach and we are told there are no notes. Someone somewhere has a record of those meetings.
“When Kevin Cardiff was before the Pac, he was able to recall documents and emails instantly before our eyes to do with the €3.6bn error and redact sections. It is not credible that notes or records don’t exist, or at least did exist at some stage,” he said.