Bruce Arnold

Critic of Public Affairs, writing about art, theatre, music and politics

This bankers' solution to a bankers' problem is flawed

The nonsense of depending on Europe has been exposed again. The move we made was unilateral and illegal

There are many questions coming out of the banks crisis that need to be confronted. The first important one is: In the deal done between the Government and the Irish banks, who won? The second is: Where was Europe? The third is: How will this crisis solution be regulated?

Briefly, the initial reaction to Monday's talks between the Government and the bankers, with the Financial Regulator and the Attorney General present, was that decisive leadership had been given by Brian Lenihan and Brian Cowen.

They certainly wanted it to be seen like that. Cowen, in his speech to businessmen in Trinity College, and Lenihan, in his presentation of the deal to the Dail and the Irish public. But it wasn't long before the absence of adequate safeguards and the weighting in favour of the banks emerged as the truer picture.

It would seem that the heads of the Irish banks went to Cowen and Lenihan on Monday night and told them that several Irish banks were going to go bust within a few days; then proposing the deal which was adopted as the only way out. It was a bankers' solution and it created the central issue that made it 'inevitable' that confidence had to be restored.

Equally briefly, it was seen internationally as 'dynamic' -- which it certainly was -- but also breathtaking in its scale and the judgment behind it.

As the 'Daily Telegraph' columnist, Ambrose Evans-Pritchard put it, Dublin had 'trumped' every other country.

But he also said that this blanket guarantee was the most radical since the Scandinavian rescue package in the early 1990s, but with the implication that we were less stable and more vulnerable. And the comment needed to be read in the context of other judgments, including that of the 'Financial Times', which had this to say:

"It is true that Ireland, like all EU member states, is responsible for the stability of its banking system. But this is not justification for a guarantee that, as the Irish finance minister himself acknowledges, amounts to economic nationalism. His defence, 'we're on our own here in Ireland', shows scant regard for Dublin's neighbours."

This meant the United Kingdom, but it could have been applied more widely to Europe as a whole. Which brings one to the second question, 'Where was Europe?' And where was the passionate espousal of European Union membership that so captivated elected representatives a few brief months ago when they were telling voters of the huge importance of greater closeness to the EU and the dire risks of Ireland going it alone.

Faced by the biggest financial crisis in our history, we did just that. We went it alone. And even if other things turn out to be defective, with too many burdens on the State and too few on the banks, which is the growing fear, at least the nonsense of depending on Europe has been exposed yet again.

The move we made was unilateral and illegal. It has now been copied by Greece under similar pressures. And it looks as though it will create an unstoppable stampede across Europe: either for an EU-wide bailout of the financial system, or for it to happen unilaterally, country by country.

That it should happen unilaterally is hardly surprising in view of the ponderous response of EU President Barroso, who was described by economic commentator Christina Speight in London this week as leading "an illiterate bunch of bureaucrats dabbling in vital subjects which they don't understand. It's ludicrous to suggest yet another bunch of bureaucrats taking two weeks to make decisions needed in five seconds."

If that is the measure on which European confidence is being rebuilt in the face of the crisis, then the actions of Cowen and Lenihan -- even if the banks won the debate -- is preferable to relying on Brussels. The 'No' voters were right. Europe wants more and more power but knows less and less how to use it. The sudden flight into unilateral nationalism by people who told us that closer union with Europe was an inescapable requirement has made more difficult any attempt to revisit Lisbon. Those who oppose greater integration will be strengthened by the EU adding another failure to its lengthening list.

The European Commission's plan for tougher bank capital rules, issued only last Wednesday, suggests that Europe's leaders are only in the wheelhouse, despite the crisis, on half-days or weekend visits. Their suggestion: that banks would be restricted in lending beyond a certain limit to one party, and 'colleges of supervisors' would be put in place for those banking groups that operate in several EU states. We have demonstrated that Ireland does not need nor want this European 'help' and is now operating outside the legal framework within which the regulations are proposed and is so operating to the satisfaction of the banks.

This brings us to the third question, of how this crisis solution will be operated. If one reposes trust in Patrick Neary, the Financial Regulator, dynamism is unlikely to be the word that jumps to mind.

His performance on 'Prime Time', last Thursday, was dismal in its limited and narrow focus. He seems not to see beyond the restoration of confidence, which has been achieved as best as possible already. His proposals on regulation are no more than that, and are made to the Government. Have his powers been greatly increased by the instant legislation? His answers to questions on Thursday would suggest that nothing has been done to strengthen his role; all is for the Government to judge on and act.

I have limited respect for any Fianna Fail-led administration introducing either legislation or regulations that are sufficient to the situation they are applied to. They will deal with the banking crisis in the same loose and sloppy way they have adopted towards corruption, ethics, tax loopholes and many other circumstances that favour the privileged and the elite.

Their laws are like colanders or sieves, deliberately made with holes in them. There are statutes needing to be patched up. And when we have the full details of the structure, designed to control the crisis and put it right, we will find the same flaws.