The Governor of Ireland’s Central Bank has been bravely waving the flag in London for further financial integration across Europe, despite the Euro zone hardships being felt by the people of Greece, Spain, and elsewhere, and in his own country, of course.
And Patrick Honohan even chanced a pop at the USA in his speech at the Cass Business School at the City University.
“Cheerleaders for financial integration are having a hard time these days,” Mr Honohan told his audience. “It can seem that the financial crisis was exported from the United States and that the waves of liquidity surging around the world ended up washing away several years of growth in the advanced economies.”
Indeed, the Central Bank Governor added that it could fairly be said that “without the complacent expansion of credit by the globally integrated financial market countries like the United States, then Ireland and Britain wouldn’t be in the trouble that they find themselves today”.
However, Mr Honohan said he favoured looking at the wider and longer term issue of the approach that Ireland and other countries should be adopting in relation to financial integration.
He said, “After all, international financial integration is as much a product of technology as of liberalising financial policy and, as such, is with us whether we like it or not.
“Mostly we can like it, but it can and has run amok, so it needs well designed and policed regulation.
“My overall message is that we in these islands of Ireland and Britain have much in common as we work within European structures to develop more effective regulatory and policy regimes that will do a better job of handling financial integration than was managed in the first decade of the new millennium.”
The Central Bank Governor told his audience that it was in Dublin in 1933 that the economist John Maynard Keynes “made one of his earliest, most widely quoted and most succinct expressions of doubt about international financial integration”.
Keynes asserted: ‘Ideas, knowledge, science, hospitality, travel – these are the things which should by their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.’
Mr Honohan said for the elite of a newly independent Ireland who valued the financial stability they had inherited and retained from the colonial era, this was not a welcome message. Indeed, the message was largely ignored.
“The one-for-one exchange rate parity for the Irish pound with sterling embodied first in a currency board arrangement and then with a limited-function central bank, survived for almost another half-century, as did the banking and stock exchange links.”
Asking whether Keynes was right in 1933, Mr Honohan reflected that “provision of banking and other financial services by foreign firms can convey lower costs and greater sophistication as well as better risk-sharing – but can leave the host country high and dry if the service-providers choose to withdraw”.
He continued, “Both Ireland and Britain have experienced the rough and the smooth of this. But the information technology revolution implies that international financial integration is not a question of whether, but of how.”
He noted now the English, Scottish, and Irish banking systems had long been intertwined, reminding his audience that it was the Kerryman Daniel O’Connell -‘the Emancipator’ - who set up the National Bank in London in 1835.
“It was one of the seven great clearing banks, whose English branches later formed part of Royal Bank of Scotland (and now presumably heading to Santander) – with the goal of providing banking services ‘across borders’ into Ireland to compete with the monopoly which had been granted there to the Bank of Ireland.”
Mr Honohan said that for much of the past 200 years, London was the centre of global finance as well as of international economic relations generally. But the system had been “shaken by the evolving crisis from which it will emerge in a reconfigured form”.
“What will the role of London be in the reconfigured system, how will Ireland fare?” he asked. “These are key issues preoccupying you and me respectively, and they are not unrelated.”
Mr Honohan spoke of the need for a banking union in Europe, one for the European Union as a whole, not just the euro area.
Speaking about the upcoming referendum on the fiscal stability treaty, the Central Bank Governor said he did not believe that it would be rejected.
The 'No' campaign are "not all that numerous" he told the audience, saying that most were speaking out against austerity measures instead of engaging in euro-scepticism.
He concluded, “Some have taken the message from the euro crisis that financial integration has gone too far in Europe. My read is different.
“Inasmuch as any country that did not adequately operate sustainable macro and financial policies would suffer greatly from the denouement of policy deficiencies, the euro embodied a strong commitment device. The costs of that policy failure are being felt now.
“But the answer is not to fall back on the more autarchic policies of the 1960s and 1970s, but to try again, try better.
“The markets – gullible as we know they can be – naively assumed that the commitment device would be effective so that they need no longer fear unsustainable policies.
“They know better now, and so do the governments. Next time around will (to this extent) be different: this particular lesson has been learnt.”
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Switch to the desktop site to post a comment.STEVENSTAR | May 17, 2012, 06:16 AM EDT
AT LAST SOME PROPER NEWS FROM IRELAND THATS NOT AMERICAN FICTION LIKE EVERYTHING ELSE IN THIS NEWSPAPER .. I TOTALLY AGREE WITH HE SAID .. BUT AMERICA IS IN AN EVEN BIGGER FINANCIAL MESS
BrianO | May 16, 2012, 04:13 PM EDT
The dodd frank bill you are referring to did come after, I believe frank and dodd changes were down with regulation to freddie and frannie mac.
EphraimKibbey | May 16, 2012, 11:43 AM EDT
BrianO - I believe that the Dodd-Frank legislation came after and in response to the morgage scam and Wall Street gambling with investor funds. It still has most of its rules unimplemented because congress is still arguing over them. The appointment of the regulators who would oversee it were, until recently, held up by GOP senators. It is hard to understand how something that is still waiting to be enforced, precipitated something that occured before its passage.
casualMBA | May 16, 2012, 10:18 AM EDT
To specify E.K.’s reference to “water fees” and “house fees,” they are one and the same. Europe’s and London’s bankers have already begun to discuss with Ireland the need to institute water utility fees. A charge per household will be incorporated, thus generating new Irish revenues. These revenues need to be tagged for not only “European Debt Service Fee,” but also a nominal “Fitzs’ Water Fee,” which will accumulate, and address the moral debt for southwest Ireland’s confiscated FitzGeralds’ lands.
BrianO | May 16, 2012, 09:49 AM EDT
EphraimKibbey your analysis is correct except for the cause isn't just Glass Steagall, the sub prime mortgage scam precipitated by Frank and Dodd was at the heart of the problem. Combine this with the community redevelopment act, you have what is at the bottom of the U.S. financial problem. It opened the door to commercial speculation and the lax lending standards encouraged everyday people to drain the equity out of their overinflated house evaluations. The resulting properties had negative valuations, people discarded their obligations leaving the keys to the banks. The foreclosures mounted, values dropped, and responsible people are left with the bill.
casualMBA | May 16, 2012, 09:37 AM EDT
Am I to conclude, E.K., the average writer is wealthy, and, therefore, a tax on (presumably) published novels will solve Ireland’s continuing, yet not comprehensive, problems of sovereign debt service; toxic assets; no educational and technological infrastructure projects that do not, wholesale, compromise its unique cultural wealth; or, lastly, but not “leastly,” the wholesale compromise of the integrity of its free, worship as they choose people in southwest Ireland?
IrelandNorth | May 16, 2012, 08:37 AM EDT
Mr Holohan also acknowledged that the Central Bank of Ireland failed in its responsibility to adequately regulate other banks in the Irish private banking sector and to moderate the excesses of Anglo Irish Bank - the bank that broke Ireland! His reference to Irish independence would more accurately be described as autonomy, not just because it involved just 26 (of 32) counties, but financial control systems remained largely in place up until quite recently - until hand-over to the EU. His reference to a privilege Irish political elite which benefited from colonialism/imperialism is telling, since political independence of any nation or state seems delimited by a highly privileged socio-economic minority in that nation/state. Seems economics trumps democracy every time.
IrelandNorth | May 16, 2012, 08:03 AM EDT
It is an insult to me and America for horohan to blame America for Ireland's problems. I note mr Kenny in response to an angry demonstrator said Ireland can stand on its own two feet. Ireland was more than willing to jump on the bandwagon and experience the benefits of the global expansion I.e. the celtic tiger. Mr horohan and his cohorts and brain trusts did not have to be part of that Be a man accept responsibility for your own missteps
EphraimKibbey | May 16, 2012, 12:22 AM EDT
casualMBA - you mention "well fees" and a previous article mentioned "house fees" both of which seem to be aimed at raising revenue from the most vulnerable in Irish society. Are there any plans for taxes on the wealthy? I have heard that book royalities are not taxed at all in Ireland.
Murph46 | May 15, 2012, 09:34 PM EDT
If ya haven't noticed-all your $ problems-since ye joined EURU,EURO excludes the US.Where is the story here!
casualMBA | May 15, 2012, 07:02 PM EDT
… Ireland’s, and Europe’s, economic woes are not, I further submit, an inevitable consequence of “financial integration.”…Ireland will “go to the well” of international finance again, soon, for its near term financial stability, and it will do so, in part, by generating (beyond austerity) new revenues through its “well (not oil, but water) fees,” - or whatever it is termed. This new revenue may enhance Ireland’s creditworthiness but it must be accompanied by the political will to address more than Ireland’s lateral, or horizontal, “financial integration” with Europe, or the U.S., or China; it must address the vertical, historical, “financial integration” of Ireland’s creditworthiness, of the creditworthiness of its people, by correcting (through a small water utility fee) the wholesale confiscation of Fitzgeralds’ lands (at least 574,645 acres) in southwest Ireland. With lateral and vertical “financial integration,” Ireland will continue to walk among its peer nations with its head erect, having learned its lessons.
Bythebay | May 15, 2012, 06:23 PM EDT
Tumbty, take some economics courses mates, that was 3 years ago! Economics is NOT static.
timbobdennehy | May 15, 2012, 05:49 PM EDT
ireland was better off when it had the ability to set its own rate on currency through bureau de change,with the euro it lost out on a lot of cash.since it cant set the exchange rate anymore on its currency.europe is in charge.
Tumbty | May 15, 2012, 04:56 PM EDT
Mr. Honohan new positon is a radical departure from his May 2009 paper for the World Bank on "What Went Wrong In Ireland". In his 2009 paper he cited the problems in Ireland as being caused from "a home grown banking crisis", a loss in wage competitivenss, EU membership which lulled policy makers into a false sense of security and a dysfuctional tax system the was premised upon the housing buble in Ireland. Ireland's issues have nothing to do with US Bansk or Dodd-Frank or the Volker rules. When looking at the man in the mirror, the truth is often the first victim. I have lost my respect for Mr. Honohan. Tis a sad day for Ireland and when the leader of the Irish Central Bank begins to play the blame game.
Bythebay | May 15, 2012, 02:58 PM EDT
ireland's banking system was most certainly affected by the collapsed US banks which created adverse economic effects on Ireland and led to the financial collapse of our banks.
EphraimKibbey | May 15, 2012, 12:54 PM EDT
Sorry, the GOP is fighting to NOT implement Dodd-Frank and the Volker rule. One little three letter word makes such a difference.
EphraimKibbey | May 15, 2012, 12:49 PM EDT
Continuing sirpeter's examination of facts that MIGHT lead someone in Europe to see the US as the cause of their woes: 1. US Congress gets rid of the Glass-Stigel (sp?) law and regular US banks are allowed do risky investments. 2. US Banks and Investment Firms come up with bundled mortgages and derivitives where a few goodies are wrapped around a bunch of loosers. 3. Morgage bundles are sold to unsuspecting investers worldwide (US morgages used to be one of the SAFEST investments.) 4. Those selling the bundles make side bets (hedges) that the mortgages will fail. 5. They do fail and take the world's economy (including Ireland's) with them. NOW in most countries this would be called FRAUD but we in the US are just now seeing some accountability and it is just to help the domestic market. There has been a constant fight by the GOP to impliment Dodd-Frank and the Volker rule here (10 Wall Street Lobbists per congressman) which would limit the future vulnerability to the nation of these frauds. Laisez-faire only works if the corporations involved are small enough for them to be allowed to fail. They won't make risky investments if they know that it might mean their distruction.
sirpeter | May 15, 2012, 12:15 PM EDT
In 2001 Goldman Sachs caused the Greek tragedy.The financial alchemists formulated a scheme to allow the Greek government to hide the extent of its rising debt from the public and the European Community's budget overseers.(The ones that were probably payed to look the other way)allowing Greece to join the Euro.Banking elite,whether from Goldman Sachs,the Federal Reserve,or the Central Bank of Greece,are all in it for one another.They will all pick a nation's carcass to the bones and then move on.Gullibility,ignorance and stupidity of the voters who stick like dried turd to a dead cow's arse propping up the banker-allied establishment parties of the world.
simplesandy | May 15, 2012, 11:09 AM EDT
OK EVERYONE FROM AROUND THE WORLD. DO NOT DO AS THE AMERICANS and you will stay out of problems with your country. Simple as that. You blame us for your money problems and you blame us for your getting fat. Look around you, do you see anyone holding a gun to your head. Enough said. Your country is in need of help because of the mismanagement of your money. The youth are leaving your country and the immigrants are moving in and working the jobs, then they send the money back to their own homeland. Please stop pointing fingers and stays away from USA. If you’re that blind you can’t see that we have our own problems then you get what you deserve. Put your hand in the hot pot and you get burned. Sorry.
greensod | May 15, 2012, 11:02 AM EDT
Now if that doesn't tear the rag off the bush.Incompetence by the banks and the Government coupled by sheer greed is now the fault of the USA.This bollocks is a waste of time and space.I suppose he gets paid,which makes matters even worse.Fire the bum,and have his head looked at,he would be a rare study in stupiduity.
Bythebay | May 15, 2012, 10:05 AM EDT
Seanmor, Honohan isn't the Governor of a "major bank in Ireland", he's Governor of THE Central Bank. Look at the website centralbank.ie to learn what it is.
jackinnj | May 15, 2012, 09:35 AM EDT
Time for the governor to take "Money and Banking 101" -- the US Federal Reserve can't create pound sterling, Euros, deutsche marks, shekels or bhat. That wave of liquidity sloshing around the world is owing to the largest mercantilist economy of the world hoarding reserves.
Seanmor | May 15, 2012, 09:32 AM EDT
Since the U.S. gets blamed for many of the problems in other countries, it shouldn't come as a complete surprise to us that the Gov. of a major bank in Ireland should claim that Uncle Sam is partially to blame for the Irish state's current economic woes, even though such a claim doesn't have a firm foundation.