I’ve noted on a number of occasions that both Brian Lenihan and Brian Cowen are very fond of misleading analogies in which any proposals to nationalise the two main Irish banks are linked to events in Iceland. For example, I noted recently that in an interview with Business and Finance, Minister Lenihan linked Iceland’s banking system collapse to a decision to nationalise. Some of the Minister’s bigger fans on this site argued that he was merely citing the sequence of events rather than indicating any actual causation.
Well, on this evening’s edition of The Last Word on Today FM, Minister Lenihan was at it again (podcast here — the interview is during the first hour of the show). In addition, as is usually the case when Lenihan and Cowen discuss this issue, the principal point of the discussion appeared to be to link the Labour Party’s position on the banking crisis to that of the Icelandic government. About 53 minutes in, the Minister said:
We didn’t go off, again like Iceland, and nationalise the system overnight because that lead to a banking collapse in Iceland. That’s what some of the Labour Party people wanted us to do in the last year.
(Cue philosophical debates in the comments about the meaning of the word “because” or perhaps “lead”).
It is, of course, possible that the Brians really believe this stuff. So, on the off chance that these statements represent an honest misunderstanding, I have some reading suggestions which Department of Finance officials might consider distilling into a short report for the Minister for Finance and Taoiseach.
First, click here to read about the report on Iceland’s banking problems written prior to the collapse by (now sadly departed from blogging) Willem Buiter and Anne Sibert and for a link to the report itself. The key point here is that Iceland’s banks engaged in a strategy that had them doomed for collapse once the international financial crisis took hold. With enormous foreign currency liabilities and no access to ECB lender of last report facilities, there was simply no strategy that the Icelandic government could have adopted that would have saved their banks from collapse.
Second, click here for a House of Commons Treasury Committee report on the Icelandic banks and the UK government’s role in the crisis (Alastair Darling does not come out of it too well.) The report makes clear that any nationalisations that took place were in response to an ongoing and escalating crisis. The idea that Iceland’s current sovereign debt problems stem from a single misjudged decision to nationalise some banks is ridiculous.
Beyond the obvious conclusion that this stuff exposes the Brians as either clueless about what actually happened in Iceland or else willing to mislead the Irish public on a key issue in order to score a political point, there is a substantive point worth emphasising here.
If it turns out that, by May or whenever it is that the banking system finally has to be recapitalised, the two main banks do need to be mainly or fully nationalised, it simply will not be helpful that the Taoiseach and Minister for Finance have spent most of the previous year screaming “Iceland! Iceland! Collapse! Collapse!” whenever nationalisation came up.