THE FORMER special adviser to late former minister for finance Brian Lenihan says the economic environment is so volatile and uncertain at present that it is too difficult to predict whether Ireland’s sovereign debt is sustainable.
Dr Alan Ahearne, an economics lecturer at NUI Galway, told The Irish Timesyesterday that with the euro-zone debt crisis not yet resolved, there was a large margin of error involved in predicting growth patterns in economics.
He said that unlike Greece, Ireland’s debt was sustainable as long as there was growth in the economy.
If the European debt crisis was resolved, there was no reason the Irish economy could not grow at a decent pace on the back of strong exports, he added. It was very hard to make forecasts in the present climate, however.
“If the euro crisis gets worse and the global economy has a double dip, then it weakens your forecast,” he said.
Dr Ahearne was speaking after the publication of an interview in the Sunday Independentthis weekend in which he compared his two-year stint as special adviser to the former minister for finance as akin to being in a war room.
He took leave of absence from NUIG to take up the position.
“I don’t miss it. I remember going in on the train thinking ‘what missiles will be fired at us today?’ It was awful,” he told the newspaper.
He said he and Cathy Herbert (Mr Lenihan’s political adviser) nicknamed the room they met in as the “war room”. “It was war, every day a new battle. We were a virtual war cabinet, with Mr Lenihan as the Churchillian leader.”
In the course of the interview he also said Mr Lenihan was furious when Central Bank governor Patrick Honohan gave a phone interview to Morning Irelandin November 2010 saying a bailout was inevitable.
“It made it politically more difficult. There was criticism because it wasn’t the taoiseach or minister for finance announcing it. It was somebody else. Lenihan was not happy. It made it much harder for him. . . . [he] was certainly wrong-footed politically.”
Dr Ahearne recalled Mr Lenihan’s description of a euro-zone meeting in Brussels about Ireland’s possible need for a bailout. Mr Lenihan had described the meeting as “a total circus”.
“None of the political leaders knew how it should or would work. It was farcical. For example, Ireland’s corporation tax rate came up at that meeting, one country wanted collateral for lending money, so people were looking for State assets.
“It was crazy stuff, Lenihan [was] coming back saying this was a free-for-all.”
Dr Ahearne supported the establishment of the National Asset Management Agency and is of the opinion that “most of the froth” has been removed from valuations.
He pointed out that property prices moved in cycles. There had been a property bust in the Netherlands in the 1970s, where valuation fell by more than 50 per cent. At a later stage the country experienced another rapid period of increases.
By contrast, in Finland, once property prices stabilised at low prices they stayed that way for a long time. He said it was unlikely prices would increase rapidly in Ireland for a long time.
He added there might have been a case at one stage to consider asking bondholders in AIB to share in the bank’s losses, given its bailout costs amounted to some €18 billion, but this argument was now moot given the organisation was now a pillar bank.
