Oireachtas Joint and Select Committees

Thursday, 16 July 2015

Committee of Inquiry into the Banking Crisis

Nexus Phase

Office of the Attorney General - Mr. Paul Gallagher

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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The Committee of Inquiry into the Banking Crisis is now in public session, and can I ask members and those in the public Gallery to ensure that their mobile devices are switched off? We begin today's hearings with Mr. Paul Gallagher, former Attorney General. I would like to welcome everyone to the public hearings of the Joint Committee of Inquiry into the Banking Crisis.

At this morning's sessions we'll focus upon the legal advice given to the Government during the crisis period. At our first session we will hear from former Attorney General, Mr. Paul Gallagher. Paul Gallagher was Attorney General of Ireland during the period of 2007 to 2011. Mr. Gallagher's appearance here today has been facilitated by a decision of the Government to waive legal privilege in respect of his oral evidence to this inquiry, having regard to the exceptional circumstances of the financial crisis and the important mandate of this committee to inquire into the financial crisis. This of course cannot be interpreted as encroaching on the confidentiality of Cabinet discussions, which cannot be waived by the Cabinet. In addition, the waiver does not extend to discussion of legal advice that could prejudice any litigation pending or anticipated regarding matters the committee may seek to inquire into. Mr. Gallagher, you're very welcome before the committee this morning.

Before hearing from the witness, I wish to advise the witness that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If you are directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given. I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right and members of the public and journalists are reminded that these are documents and that they are confidential and should not publish any of the documents so displayed.

The witness has been furnished with booklets of core documents. These are before the committee, will be relied upon in questioning and form part of the evidence of the inquiry. So with that said, if I can now ask the clerk to administer the oath to Mr. Gallagher please.

The following witness was sworn in by the Clerk to the Committee:

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Once again, thank you, Mr. Gallagher, for being here this morning, and if I can invite you to make your opening remarks to the committee please?

Mr. Paul Gallagher:

Thank you. Chairman and members of the committee, I am here to assist the committee in any way I can and to address any questions which the committee may have. The committee will be aware that as Attorney General, under Article 30 of the Constitution, my role was to advise the Government in matters of law and legal opinion and it may be helpful to the committee to know that prior to my appearance here today, I have spent some considerable time in preparing for the appearance and I have also reviewed the core documents which the committee has furnished to me. I don't intend reading my statement, which I prepared for the assistance of the committee unless of course the committee would like me to do so, it's admitted into evidence and the committee have it. There are, however, a number of matters which I mention in the statement and which, with the committee's permission, I would like to mention before commencing my evidence.

I served as Attorney General between June 2007 and March 2011.

During two and a half of those years, Ireland experienced an unprecedented financial and economic crisis. And one of the defining features of that crisis - and, of course, there were many - was that Ireland truly stood alone throughout that period. It had the sympathy and goodwill of other countries but, ultimately, it had to rely on its own resources to find its own solutions to the crisis. And I think that may be an obvious point but, I think, it is frequently overlooked and it is an important lesson of the crisis. My abiding memory, at critical times during those years, is the sense of Ireland's isolation. Much was expected of Ireland. It was required to save its banks and it was required to use its own resources to do so. Ireland had to make its own decisions and to do the best it could it the circumstances. On the night of the decision to avail of the bailout - the Cabinet meeting of 20 November 2010 - it was very apparent that Ireland, again, was very much on its own. Ireland's isolation was encapsulated in President Trichet's letter of 19 November and in Minister Lenihan's journey to Brussels on 21 November.

So far as the guarantee is concerned in the events of that night, I address that in my statement. Subsequent to the night of the guarantee, the Credit Institutions (Financial Support) Act 2008 - referred to as CIFS - which was initiated in the Houses of the Oireachtas on 30 September, was enacted by 2 October and this legislation empowered the Minister to provide the guarantee. The proposed guarantee scheme was notified to the European Commission in accordance with Ireland's state aid obligations under the EC treaty and the European Commission approved the guarantee, as being necessary to remedy a serious economic disturbance in Ireland, on 13 October 2008. On 15 October 2008 the guarantee scheme was published by the Government and it was formally approved by the Houses of the Oireachtas on 17 October. On 20 October it was introduced by way of statutory instrument and that set out the terms and conditions on which the participating institutions could benefit from the guarantee. On 29 October the Minister, by statutory instrument, specified the banks covered by the guarantee scheme. And the Act, and the statutory instruments made thereunder, provided the legal basis for the guarantee. On 8 December 2009 the eligible liabilities guarantee scheme was introduced, having been approved by the Oireachtas. This refined the instruments that were covered by the guarantee, it ... guarantee no longer covered asset-backed securities or dated subordinated debt. The ELG scheme was extended in 2010, 2011, and 2012, until 20 December 2013. It ended on 28 March 2013 for any new liabilities but, as I say, continued to cover liabilities until 30 December 2013. Any new liabilities, as and from December 2009, were covered under this eligible guarantee scheme rather than the earlier CIF scheme - that continued in existence to continue the guarantee in respect of instruments that were issued prior to the coming into force of the eligible guarantee ... liabilities guarantee scheme.

As I comment in my statement, I believe it may be of interest to the committee to note the response of other countries and the European institutions to the crisis as I think it provides both a legal context and an understanding of some of the difficulties which arose. I don't believe this has been addressed by any other witness in any detail - but I may be incorrect - but there were very significant developments, particularly at a European level, subsequent to October 2008, and the committee may consider those relevant to its inquiry, and, in particular, relevant to the issue which it has to consider as to the relevant structures and measures that might assist in avoiding a recurrence of a crisis of this nature.

In my statement to the committee I also touch on the fact that the European legal architecture, which was provided for in the Maastricht treaty and which set up the European Monetary Union, was significantly lacking in important respects. Control of money matters and, in particular, money supply rested with the ECB. However, the legal responsibility for each member state's financial system rested with that state. Interest rates were set by the ECB having regard to the overall situation in Europe and not by reference to the individual situation of any member state. The ECB, in discharging its function, was always very concerned and of course rightly concerned of its legal obligations and legal constraints and, in particular, to have a necessary legal base for its actions. Each state, however, was at the time individually in control of, and responsible for, its banking system. What is called supervision and resolution was the exclusive responsibility of member states and that position did not alter until 2013 when the ECB adopted a role provided for in Article 127 of the treaty, that is, the role of supervision of financial institutions. Article 127 empowered the ECB to contribute to the prudential supervision of financial institutions and the stability of the financial system and the delay in the introduction of this supervision and supervisory regime is partly explained by a concern on the part of many that combining monetary policy and supervision created unavoidable conflicts of interest.

It was not until 2014 that a single resolution mechanism and a single resolution fund was set up, and the delay there arose because of the concern of the lack of any explicit legal basis in the treaty for such a role. In between, the European Banking Authority was set up towards the end of 2010 and it was designed to increase the transparency of the financial system and also to identify weaknesses in banks' capital structures. And the European Systemic Risk Board was also set up in late 2010 and it had responsibility for the macro-surveillance of the financial sector in the EU. Perhaps of particular interest to the committee is the fact that it was not until 2014 that the banking recovery and resolution directive was introduced at a European level. The benefit of that directive is that it provided a sound legal footing for resolution actions which have very considerable and financial implications and which as a consequence can create uncertainties and systemic instability. An EU-wide structure for banking resolution provides an ex antestructure for dealing with troubled banks. This is important because it removes uncertainties and reduces the basis for legal challenge. Markets recognise and expect that these actions will be taken and that limits the contagion effects of actions that might be taken. And the introduction of that important measure, I think it's worth nothing, was six years after the commencement of the great recession. The recitals to that directive explicitly state and recognise that the financial crisis had shown that there was a significant lack of adequate tools at Union level to deal effectively with unsound or failing credit institutions. It says the financial crisis was of systemic dimensions in the sense that it affected areas ... or it affected access to funding of a large proportion of credit institutions. So that provides a very brief overview of the system as it was in 2008 and subsequently, and I am happy to address any questions if the committee thinks that that may be of help in its deliberations.

Before speaking on other topics, I wonder if I could be permitted by the committee because I think it is both important and fair to refer to it. And it's a matter I touch upon in my statement and that is the performance and commitment of the civil servants with whom I worked closely during the crisis. I think it is important because they are part of the institutions of the State and I think it's fair because so many of them worked so hard to find solutions to the crisis. In particular, I mentioned the people involved in the Department of Finance with whom I had much contact in relation to legal issues arising from the financial crisis and those people have given evidence, I think, before you, Chairman and members of the committee, and also the people in my own office, which includes the Chief State Solicitor's office. And coming from the private sector I had the opportunity, I suppose, of a look at their performance from a different perspective.

And I think it is important to say, in a context that was so difficult and created so many difficulties for everybody, that their performance was of an extremely high standard; that I never met people who wouldn't make decisions, who were afraid of making decisions, who said, "This isn't my job" and I didn't meet people who weren't prepared to do their very best for Ireland. And that was, for me, a remarkable feature and my abiding memory of my period in office.

As I understand the Government's waiver, Chairman and members of the committee, in relation to my evidence, it's been agreed, as you have said, that, having regard to the exceptional circumstances of the financial crisis and the very important mandate of the committee, that legal privilege should be waived, so far as my oral evidence goes, and that I am relieved from my professional duty to respect the confidentiality of the client which extends to confidential information entrusted to me by the client in the course of my ... in the discharge of my obligations and I'm also relieved from the obligation to protect legal privilege. That is subject to one qualification that you have identified and that relates to the continuing obligation not to prejudice any existing or anticipated litigation. Subject to that, my ... I just want to note that my written statement, as the committee will appreciate, respected the obligations of confidentiality and legal, professional privilege. I'm now released from those obligations in that way. I'm permitted to answer any question which the committee might like to pose to me and I will do so. Thank you very much, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. Gallagher, for your opening statement and if I can invite the first member this morning to engage in his line of questioning and that's Deputy Joe Higgins.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Good morning, Mr. Gallagher. Mr. Gallagher, you refer there to the Credit Institutions (Financial Support) Act 2008, enacted by the Oireachtas on 2 October 2008. Can you recall when work commenced in the Attorney General's office on the legal provisions which eventually became enshrined in that and, just to put it in context for you, I refer to a scoping document dated 24 January 2008 within the Department of Finance? The paper is called Financial Stability Issues - Scoping Paper, beginning to scope out the issues of crisis that are beginning to emerge and, under "Urgent Next Steps", it says, "Seek legal advice from the Office of the Attorney General as a matter of urgency on the legal issues highlighted in this paper."

Mr. Paul Gallagher:

Yes. I think, in fairness to the Department, Deputy, they contacted my office on 30 November 2007 and raised a number of legal issues that are then referred to in this scoping document which I believe, but subject to correction, was January 2008. I think the committee will also have seen what I might call ... not spreadsheets, but slides, where various issues were identified with regard to the challenges that existed and those slides, I'm not sure precisely what date they came into existence, but they noticed that there were legal challenges and legal issues but no legal impediments ultimately. Between 30 November 2007 and 29 September 2008, the Department was in constant contact with my office, looking at possibilities, identifying different options. I believe that it was on 16 June 2008 that there was a particular emphasis on producing the necessary legislation that would provide legal options that included, Deputy, in particular, nationalisation legislation and also the provision of a legislative basis for any guarantee that might have to be offered in respect of any institution.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Okay. And referring to those very slides, Mr. Gallagher, there were some from February '08 and then a further presentation - all this has been in evidence previously but we don't need to take the time to put it up. I just want to ask you one thing in relation to that ... in this ... that the February slide said, "open-ended [...] State guarantees [exposing] the Exchequer to the [...] the [...] significant [fiscal risk] are notregarded as part of the toolkit for successful crisis management and resolution". But then, come February, there is added ... or sorry, come April, there is added, "there are circumstances where such guarantees may be unavoidable to maintain confidence in the overall financial system." That's the first time that this is mentioned in this way. Can you throw any light on that development of thinking in the Department?

Mr. Paul Gallagher:

Well, my information came from the briefing documents from the Department and originally, it is true to say, Deputy, that the focus was on individual institutions. As 2008 progressed - and, particularly, I think, by April, 2008 - there was a concern with regard to systemic risks across the financial system. I think as and from that date but, more particularly, later and in August and September, there was a preparation for the possibility that a guarantee might have to extend beyond the individual institution.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Okay. And, Mr. Gallagher, can we fast forward then the night of the guarantee in September 2008? And the evidence from the senior bank executives, who were in and out of meetings in Government Buildings, is that they brought a draft guarantee on the night. And Mr. Gleeson's evidence is, to quote, "we furnished our draft guarantee [...] to the Government at [a] very early session." And Mr. Cardiff, who was a senior executive in the Department of Finance, recalls working on a draft guarantee. Can you throw any light on that?

Mr. Paul Gallagher:

My specific recollection, Deputy, and I want to be very careful in relation to this, is set out in my statement. I can't be certain of every detail. That, to the best of my recollection, is true in the sense that the instruments that might require to be covered by a guarantee were part of what the banks brought to the meeting. So, an identification of the particular instruments.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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And, Mr. Gleeson, or Mr. Gallagher, sorry, Mr. Gleeson, to quote him again, he makes that point but then ... and he says, "This formula was eventually adopted later in the night pretty well word for word". And what I want to put to you, Mr. Gallagher ... if it's extraordinary, or not, that you, perhaps, and the Government wouldn't be coming with written formulas in relation to what needed to be done rather than the banks coming in and presenting their agenda and that being then worked on by Government officials?

Mr. Paul Gallagher:

Well, Deputy, if I may answer that. Firstly, I was asked to come to a meeting that evening late in the afternoon ... that the banks were coming in to meet with the Government. Obviously, it was apparent something serious was going to occur but not what precisely occurred. Secondly, the Department of Finance had given very careful consideration to the guarantee. That had been carefully considered. What Mr. Gleeson is referring to are the specific instruments, the technical description of what needed to be covered. In relation to that, both the Department of Finance and the Governor had the specific expertise with regard to the type of instrument that need to be covered. The banks had their view on what needed to be covered. There was an interaction with the banks and their views were considered and taken into account. But I want to make one thing very clear. The interaction with the banks were that they were invited into the meeting, they were asked certain questions, they were given an opportunity to say certain things. Very appropriately, in my view, they were then asked to leave. And anything said by the banks was carefully and independently considered by what I might call "the Government team".

And any decision that was made with regard to what should be covered was made, as I set out in my statement, after very careful consideration as to what the Government thought was necessary to address what was described by Governor Hurley as the real possibility of a meltdown of the financial system.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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And, Mr. Gallagher, do you remember having sight of that document or having the document in your hand that the banks said they brought?

Mr. Paul Gallagher:

I don't precisely remember that. I'm sure I did see it but I certainly remember drafts that were prepared by Mr. Cardiff. And I think the Taoiseach drew the distinction between what's called the guarantee and the statement. What was being prepared was a statement, which was identifying the instruments that would be covered and the Government's position, and there were various drafts of that, and I certainly looked at that. And one of the things I was particularly concerned about, Deputy, was to ensure that that statement made clear to everybody when it was ... that this was going to be subject to terms and conditions, because that was a vital protection for the State that any guarantee of any instruments was to be subject to the terms and conditions, and those terms and conditions were, ultimately, set out in the scheme that was approved by the Oireachtas.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Thank you, Mr. Gallagher. We've also had evidence that there was a sentence, I think, at the initiative of the Government or Government officials stating that all banks in the State were solvent, and on the banks' request that was removed from the final version. Can you throw any light on that?

Mr. Paul Gallagher:

Yes, I believe that was so. I think there was ... the Government was in the difficult position that the statement it issued the following day before the markets opened had to be very careful and very precise and it had to achieve the objective which was desired to be met, namely to protect the banks. It, therefore, had to ... and you'll see it's a very measured statement, because it didn't want to create uncertainty; it didn't want to create a lack of confidence in the very banks that were being guaranteed. And, yet, there was a concern not to say anything that might have market implications and that was a very fine line that had to be tread and I think that the ultimate statement that was issued actually achieved that very difficult objective.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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But, Mr. Gallagher, does it suggest that there were people in the room that night who had very serious concerns that there were ... some banks were actually insolvent on that night?

Mr. Paul Gallagher:

That is, emphatically, not the case, Deputy Higgins. For all of the time that I was in the room, that was ... nobody suggested that, and I say in my statement that the Governor and the Financial Regulator made it clear the banks were solvent but illiquid. There were difficulties identified, as I say in my statement, with regard to three institutions-----

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Yes.

Mr. Paul Gallagher:

-----but it was that they were solvent. But one has to be very careful in sending out a statement to the market. And there is a responsibility in that regard and I think the view was taken at the end that the safer course was to remove that statement but it wasn't for any reason that somebody had said, "These banks are insolvent."

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Just to move on, Mr. Gallagher, because of time. You state in your opening statement that President Trichet of the European Central Bank "had evidently made it clear that the Government should stand behind its banks, and that the banks were the State's responsibility". Do you remember being advised of the rationale given to you to accept the position of Mr. Trichet?

Mr. Paul Gallagher:

Governor Hurley very clearly set that out and, of course, as I mentioned in my opening statement, that was the legal position. Under the treaties, the member states had the sole responsibility to protect their banks. The ECB had no function and couldn't legally step in to protect the banks, but I think the significance of what President Trichet was saying was it was unambiguous - "You are on your own; you must save your banks", and that is the position. I also make clear in my statement that the Taoiseach and, I believe, also Minister Lenihan questioned that and interrogated that and asked: "Is there any prospect of a European solution, a European measure?" And they were explicitly told that while ECOFIN was meeting, I think, two days later, that there were no proposals before ECOFIN to address it. Governor Hurley was also meeting with the governing body of the ECB in a few days and there were no proposals.

So one thing was clear: the ECB and Europe were not going to do anything to resolve the issues that faced the Government that night and the responsibility was solely on the Government to make the decision that it thought appropriate to address the crisis.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Mr. Gallagher, you outline in your statement that there was "no fundamental legal or constitutional impediment to introducing legislative measures for further burden sharing." Can you throw a little light then on what happened subsequently? We had evidence yesterday from Mr. Corrigan of the National ... formerly of the National Treasury Management Agency writing to the Minister for Finance in November 2010 at a later stage outlining €20 billion and €12 billion tranches of various kinds of debt which he felt that an aggressive approach should be taken to reducing that liability. So did the Government decide of its own volition not to introduce burden sharing or was there pressure from the European institutions?

Mr. Paul Gallagher:

The position, I think, has two stages, Deputy, so far as I'm concerned. On the basis of the information which I saw, as of 30 September 2010 when the guarantee expired, very careful and serious consideration was given at that stage by the Government to, if I may use the phrase, "burning" the unguaranteed senior bonds. And my recollection is, and I think evidence has been given to this effect, was the NTMA weighed up the consequences of doing that. This, as you know, coincided with the decision in October 2008 of the NTMA to step back from the bond market and cease to attempt to raise further funding for the State. The decision was taken that the benefits that might be achieved from burning those bondholders at that stage could well be outweighed, and would probably be outweighed, by the disadvantages in terms of the continued funding of the State. There was also obviously a continuing concern about contagion effects as to what it would mean for funding of the banks but it was really the funding of the State. That changed dramatically at the time of the bailout.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Supplementary, Deputy, to wrap up if you will?

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Yes. On the other hand then, Mr. Gallagher, you said it wasn't a legal or constitutional impediment. You had these other considerations and pressure from Europe. But what was your reflection on putting a €64 billion burden of bad bank debts onto the shoulders of the Irish people, taxpayers and the consequences of austerity and so forth that flow from that?

Mr. Paul Gallagher:

Well, of course, firstly might I say that was a terrible and unfortunate consequence of the events that happened and any reasonable person can only be horrified as to that occurring and be very sympathetic for all the difficulties that were caused. My role as a legal adviser was not to make a policy decision in that regard. But one thing just has to be understood, because I think it has become part of the narrative and I think it is fundamentally wrong. And that is that decisions were made to save the banks. Well in my interaction with Government, it wasn't about saving the banks, it was about saving the financial system. And the calculation had to be made as to what would have been the consequences for the people if the financial system collapsed - that was the decision.

And when it came to the bailout, the Government was determined to burn the bondholders. And, in fact, I wrote to Mr. Lenihan, Minister Lenihan, on 29 November when I was finalising what is called the Credit Institutions (Stabilisation) Act and I said, "We can include in that Act a provision to burn the senior bondholders but I understand that the troika have forbidden that." I said, "Nevertheless the position might change and we are dealing with the burning of the subordinated bondholders and one thing, if you would like I can include is I can emphasise in that Act the protection of the deposit holders." Because the idea was to burn the bondholders and protect the deposit holders. And in the recitals to that Act, or the preamble, we emphasised that, for Ireland, a core objective was to protect the deposit holders. And that was to begin the creation of legal structures that if the position changed with the troika, we could then introduce specific legislation to burn the bondholders.

Now, it would be foolish and misleading to suggest that that wouldn't give rise to legal difficulties; it would.

We considered those very carefully and, indeed, post the bailout, I had various meetings to look at that. I had meetings also with IMF representatives and specialist lawyers to consider that and we confirmed repeatedly that that could be done in legal terms, notwithstanding the legal difficulties, and it depended solely of the approval of the troika to doing that, and that as you know was prohibited and was a condition of the bailout.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, thank you. Just before I bring in Deputy O'Donnell, just on a related matter with the timeframe being earlier, Mr. Gallagher, you state in your own opening statement that "President Trichet had evidently made it clear that the Government should stand behind its banks, and that the banks were the State's responsibility." Can I ask you please to advise the rationale given to you to accept the position as, as said of Mr. Trichet?

Mr. Paul Gallagher:

Well, I ... a rationale wasn't articulated, I understood it and I think those in the room understood it, Chairman, that under the treaty, the ECB is forbidden to bail out any banks and the European institutions are forbidden to do so, and you may remember the controversy that arose when the ESM was introduced in 2010, and subsequently when the ESM was introduced, the present ESM, sorry, EFSM under 2010 and the ESM following the amendment to the treaties in 2013 and there was a challenge before the European Court on the basis it was said, "this is monetary financing and cannot be done". The European Court rejected that but the one thing the ECB could not do is bail out the banks and the provisions of the treaty were interpreted, actually as preventing other member states doing so. There was a change in perspective and further legal solutions were sought in 2010, precipitated by the Greek financial ... sovereign debt crisis.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Can I just ask you to further clarify the, the earlier part of your response there Mr. Gallagher, because you're making it ... I just want to get it understood, that it wasn't a position whether Mr. Trichet said this or not, it would appear to say what you're saying this morning, this was a fact anyway?

Mr. Paul Gallagher:

Absolutely, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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So can I ask you in, in your advice to the Government, did you believe the banks were the State's responsibility, and if so, what implications did that have for the sovereign?

Mr. Paul Gallagher:

Well the Government were aware and there was no misunderstanding that the whole interaction with the Department of Finance was premised on the basis the banks were the State's responsibility, and the Department of Finance and the Government were well aware of that, because that was the very clear position. So far as the consequences for the sovereign were concerned, that was a matter for the financial and economic experts in the NTMA to advise, the documents that I've seen recorded the realisation on the part of the Government that of course that had implications for the sovereign. Because, if you had to provide moneys to save the financial system, those moneys had to be either borrowed or raised and that had consequences.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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So just to clarify that statement that you made, that Mr. Trichet "had evidently made it clear that the Government should stand behind its banks, and that the banks were the State's responsibility", if Mr. Trichet had never articulated that position, was that a fact anyway?

Mr. Paul Gallagher:

That was a legal fact that there was no ... a legal reality, that there was no avoiding. I think the significance of what President Trichet said, is that he was making it clear that while it was a matter for the Government to do that, the Government shouldn't let any bank fail. I think that was the significance, that you shouldn't let a bank fail, the responsibility for saving is yours, that was something the Government already knew. But the emphasis was, don't let a bank fail because if a bank fails, nobody can predict the consequences and the contagion effect. I think that was the significance Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. Thank you very much, Mr. Gallagher. Deputy O'Donnell.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Welcome, Mr. Gallagher. Was the Government, in your opinion, bounced into the decision for the, on the night of the guarantee, given that the decision was taken incorporeally in terms of the Cabinet meeting and does the delay suggest a lack of preparedness by officials to the policy decision by Government?

Mr. Paul Gallagher:

I don't believe that's a correct characterisation, Deputy, in the sense that I'm very clear that from 30 November 2007 the interaction between the Department of Finance with my office was looking at a range of possibilities. In fact, I think the Merrill Lynch report, which identifies various possibilities, shows the work that was done and puts-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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What date, what date?

Mr. Paul Gallagher:

30 November 2007. Now, the possibilities were worked on, they were slightly varied, new ideas came in but there was constant interaction over that period.

I think what changed on the night of the guarantee was this; over the period, I believe probably until September 2007, there was a very considerable fear something might happen and people were preparing for it so they could address it. I think things began to change in September and I think-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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'07 or '08?

Mr. Paul Gallagher:

'08.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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So just to recap ... so from 30 November '07 on there was preparations taking place in the Department of Finance-----

Mr. Paul Gallagher:

Absolutely.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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-----across a range of measures?

Mr. Paul Gallagher:

Across a range of measures. And they were constantly being looked at, constantly being re-evaluated in the context of the changed conditions. They were constantly being raised and there was constant interaction. And that had been very carefully looked at. I think - and it's not for me, it's outside my area of expertise - but something that I did note and I think is fairly obvious to everybody, that things began to change in September, there were a number of bank failures-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Of '08?

Mr. Paul Gallagher:

Of '08. On 15 September Lehman's collapsed and that is said very frequently and sometimes perhaps its significance is overlooked. Its significance, so far as I could see, was this; that here you had a major bank collapsing and being allowed to collapse. You had in Ireland a series of banks we thought were big and were too big for us but were very small in international level. And there is no doubt that the funding dried up. The preparations intensified between that period and the-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Just before you go on there, could you tell us the measures that were being looked at from November '07 onwards?

Mr. Paul Gallagher:

Yes and I'll try and do it in chronological sequence and I hope I get this right. In November 2007 the concentration was ensuring that the Central Bank could give emergency liquidity assistance, that there was no legal prohibition and it had the powers under the Act and it had under-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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You were satisfied that was the case?

Mr. Paul Gallagher:

We were satisfied that was the case and we told them that. The other was could the Minister consult with the Central Bank to ensure that it provided it, if it wasn't going to provide it. The other matter that was looked at from an early stage was the possibility of nationalisation of a failing institution. The other matter that was referred to was a private sector solution. And I think one thing that does need to be clarified is the Department of Finance and the Government were very concerned, if at all possible, to get a private sector solution which meant getting somebody else to take over a weakened solution from the private sector so that the taxpayer would not be at risk. Those were critical issues that were looked at. In that context they had to look at the competition issues because if you had to take over an institution suddenly, you had to ensure that you got competition approval. That was being very carefully looked at.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Did you look at bank resolution? Because we had the Governor, former Governor of the Central Bank, Governor Hurley, in before us, John Hurley-----

Mr. Paul Gallagher:

Yes.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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-----he stated that the resolution legislation was looked at, referred to your office and that you as the AG had difficulties with it being put in place. Is that correct?

Mr. Paul Gallagher:

Well, no that's not correct in the strict sense and let me clarify, because the word "resolution" is used very loosely. Any resolution measure which means finding a solution to a failing bank and managing that was proposed by Finance, and they were extensive and I will outline them in a moment, each of those were sent to my office, were reviewed and there was no legal impediment.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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When was that roughly?

Mr. Paul Gallagher:

That was over that period. And, for example, one of the things that was looked at was secured lending - the Minister providing secure lending through the NTMA. The issue of transferring assets from banks was looked at and, indeed, was provided for in the draft Bill that was available that night - these are all methods of resolution. So any method of resolution that was furnished to my office was looked at, assessed and there was no legal impediment.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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But why wasn't our bank resolution ... the question ... you're telling us that for nearly a year prior to the guarantee being put in place in September, there was effectively crisis management under way-----

Mr. Paul Gallagher:

Yes.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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-----in the Department of Finance. So why did we get to the night of the guarantee and there wasn't resolution legalisation in place in terms of dealing with various issues? Why was a decision taken incorporeally in terms of the Cabinet? Why wasn't it taken on the two days before and a full Cabinet meeting, the day before a full Cabinet meeting, on 28 September? Why do we get to a point where, on the night of the guarantee, these issues were rushed?

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Allow a response now Deputy as well.

Mr. Paul Gallagher:

There are a number of questions there, if I can deal with them?

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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There are indeed. All interlinked.

Mr. Paul Gallagher:

All interlinked but still importantly separate. Every resolution measure that was put forward was available and we were ready to go with it.

So I don't think people have clarified what resolution solution they are talking about that should have been available and wasn't. The resolution measures that were available were: a guarantee, which is a form of resolution; secured lending; nationalisation; ELA; transfer of assets. All of those were available.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Burden-sharing for subordinated debt holders?

Mr. Paul Gallagher:

Burden-sharing was never put to us.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Never put to you?

Mr. Paul Gallagher:

Never put to us. But, Deputy, I make clear in my - and I think it's important to address this - I make clear in my statement burden-sharing was not a feature of the legal system of any of the European countries at that stage. The United Kingdom brought in burden-sharing in 2009, Germany in 2010, Spain in 2012, France in 2013, and, most importantly of all, Europe in 2014. Secondly, bailing in involves a failure of the bank, so you start bailing in because you say the bank is going to fail. That, of course, creates huge issues of contagion and systemic risk; it's not a thing that is lightly done, and, even now, it is an issue that creates difficulties.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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In the limited time I have, can you progress in terms of why we had this decision taken over six or eight ... on the night of the guarantee?

Mr. Paul Gallagher:

I was going to come to that and try to do that. On 26 September, we were asked to look at ... the issue had been broached generally, but very specifically, to look at the question of a guarantee across the system, and, obviously, concerns were heightening at that stage. I think concerns deepened over the weekend, and there was the meeting which I wasn't at, or invited to, on 28 September, with Merrill Lynch. And-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Separate from the Cabinet meeting.

Mr. Paul Gallagher:

That was separate from the Cabinet meeting and that document records the worsening situation and that's why I say Lehman was an important point in time because things got very bad after that with the failure of major institutions in the States. On the 29th, things worsened further, Bradford and Bingley was in difficulty; the banks came in. So what was a developing situation, the severity of which was increasing, turned into an immediate crisis on the 29th; the Government was left in the difficult position that it was then faced with a crisis. It was advised that the crisis was of systemic dimensions-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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By the Governor?

Mr. Paul Gallagher:

By the Governor and by the regulator, and also by the banks that came in. When they came in at 9.30 that evening, and I say it in my statement, they said the markets had turned against Ireland. They were saying no quote for Ireland, no lending to Ireland, they were differentiating between Ireland and elsewhere. So, as sometimes happens in banking crises, happened in the UK and happened in the US-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Did you give any advice at the Cabinet meeting on 28 September in terms or around the financial situation?

Mr. Paul Gallagher:

No particular legal issue arose; the legal issues were taken as read. Obviously, I can't talk about discussions at the Cabinet but, as I think has been said, the Cabinet were briefed on the developing situation, and there was no legal issue, or no lack of a legal response that in any way impeded what had to be done.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Did you maintain any notes on the night of the guarantee-----

Mr. Paul Gallagher:

I didn't-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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-----that didn't involve legal advice?

Mr. Paul Gallagher:

No, I didn't maintain notes, it's not my habit of doing so. I was focused in on the matters that were of concern to me, which were the legal issues. But what I did do, Deputy, and you've heard this, I recorded the relevant facts that were relevant, the legal issues, that I had to address. And I did so ... my letter is dated 1 October but I believe I dictated it on 29 October because I note in my letter that I said the opening ... sorry, that it was on 30 October, because I refer to "yesterday" being the 29th so I believe I did that on the 30th. The purpose of that was to provide legal advice to the Government on the state aid. My concern was to marshal all of the facts that needed to be provided to the Commission to get state aid, which was a very serious legal concern. And those facts involved the basis for the decision - what were the concerns the Government had to address, why this was necessary ... because remember, to get state aid approval, and none of this could have been brought into law, you had to satisfy the Commission that the decision and the measure was necessary. And that's ... so I have a very clear recollection of the evidence.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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In the limited time I have ... can I go back ... you referenced in your own statement on page 8 and 9, that the Government had a draft, a guarantee statement in place, which we ... William Beausang was in before us previously provided ... which provided for a six-month guarantee, which provided for just, in relation, purely deposits, not senior bondholders or dated subordinated debt.

What was the legal reason that ... why it was two years of a guarantee and did the issue come up that senior bondholders ranked pari passuwith depositors? How did we go from a situation where the Government's, we'll say, guarantee they brought to ... on the night of the 30th, which was for a six-month guarantee purely on deposits, went to a two-year guarantee which covered, as Mr. Somers, the former NTMA head stated, covered everything that moved in sight?

Mr. Paul Gallagher:

Firstly, Deputy, I don't mention Mr. Beausang's guarantee because I didn't see that. Secondly, the situation moved on as I think the-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Did you see ... did you see-----

Mr. Paul Gallagher:

There was no legal impediment and, I think, as the committee have heard, we had the legislation ready to go. That was the case and I think what was interesting and what was important is that the decision arrived at was made after considering the various options and everybody was listened to. I wasn't privy, as I make clear in my statement, to discussions that took place between the Taoiseach and Minister Lenihan privately. I remained in the Taoiseach's, I think, conference room or consultation room throughout. I went out for various bits and pieces but I never got involved in any of the political discussions. So, I can't enlighten the committee any more in relation to that. But Minister Lenihan never said to me that he was overruled and a decision was made after considering all of the options. Nationalisation was one of them and I think I outlined in my statement why it was considered that was not the route to go. Sorry, Chairman, thank you.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. Gallagher, and I'll bring Deputy O'Donnell back in as we wrap up. Just two matters before I move on to the other questioners. In earlier engagement with Deputy O'Donnell, you spoke about notes on the meeting of the night of the guarantee. If possible and if legally permissible, can you provide the inquiry with any contemporary notes of this meeting, which you did not record as legal advice sought or given to you?

Mr. Paul Gallagher:

I don't have any note that doesn't record the legal advice, Chairman, but what I have done is I have faithfully recorded in my statement to you the facts-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay.

Mr. Paul Gallagher:

-----in relation to it.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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So all those matters are addressed through your statement?

Mr. Paul Gallagher:

Exactly.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. Just one other item as well, Mr. Gallagher, earlier this morning when we were discussing matters with you, you stated that in June, the draft legislation - this is the nationalisation legislation - was redirected to cover more than one ailing bank.

Mr. Paul Gallagher:

Yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Yes. This would seem to coincide with the NTMA's refusal to put deposits into Irish banks and can I ask you to comment, was this cognisant of that fact or was that just a coincidence and what was your contact over this period directly or indirectly with the NTMA?

Mr. Paul Gallagher:

Okay. Firstly, what happened on 16 June was they said go ahead and draft. It was still focused on a particular bank because that's what you would do with nationalisation legislation. Secondly, I would have had no direct contact at any stage with the NTMA, their contact was with Finance, we get our instructions from Finance. Thirdly, the issue in relation to putting deposits in banks, I think, was somewhat earlier, if I recollect what Dr. Somers said. I think it was in late December 2007 and I think that then continued to that period, so far as I'm aware and certainly wasn't aware at the time there was any connection between the two, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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To your knowledge. Thank you very much. I'm going to invite Senator Susan O'Keeffe. Senator, you've seven minutes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Thank you, Chair. Mr. Gallagher, the memorandum from Merrill Lynch dated Sunday, 28 September - was your office requested or asked to assess the options that were outlined in that in terms of legal impediments or was it a piece of paper that just appeared along with other ones?

Mr. Paul Gallagher:

Firstly, I think I made clear in my statement I didn't see that document, Senator O'Keeffe. My office had already advised, which is the way it's done, that the various options are put forward to see if there is a legal impediment and we had advised there wasn't a legal impediment. So that wasn't furnished to me to advise in relation to that.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Had you ever been asked in the period, say, from November 2007 right up to that time? Had you been asked for legal advice in relation to any banks seeking ELA in that time?

Mr. Paul Gallagher:

Well, I had been asked in November 2007 as to whether there was any impediment to providing ELA. It wouldn't have been my concern as to which bank was asking for it and I wasn't involved. We said there is no legal impediment to the Central Bank providing ELA. Of course, in providing ELA, as you know, it is subject to the statute of the ECB. There are ... I think it's Article 14 ... imposes limitations under the circumstances which ELA ... but in principle, so far as the Irish legislation was concerned, this ... it would permit the Central Bank to provide ELA.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Okay. So, you were asked that, I'm sorry, in November '07, is that what...?

Mr. Paul Gallagher:

November '07.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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'07. And were you asked ever again or was it sufficient once you'd been asked, if you like?

Mr. Paul Gallagher:

No, that was ... well, the written advices were there-----

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Were they? That's fine.

Mr. Paul Gallagher:

-----and it was a constant, I suppose, issue that come up but it was there and that was unambiguous.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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And did any banks ... were you aware of whether any bank actually saw it?

Mr. Paul Gallagher:

No, that wouldn't be ever referred to me. Just tell them you can do it and then it's a matter for others to decide whether to do or not.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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On page 8 of your statement you say, "The Financial Regulator confirmed that none of the Banks were insolvent but stated that Anglo was illiquid and if that illiquidity were not immediately addressed Anglo would fail." Is that a direct quote from the Financial Regulator or is that your recall or-----

Mr. Paul Gallagher:

I suspect that's my recall of the ... what was said. I think the committee has had evidence that it had to make a repayment, I think on Tuesday and later in the week. And, of course, if you don't make the repayment, then somebody can ... you have defaulted and for a bank to default, that is the equivalent to failing.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Would that not suggest that the problem was more about insolvency than-----

Mr. Paul Gallagher:

Well, the problem was identified as being illiquidity and I think it's true to say that - this is a matter that has arisen before the committee - in normal company terms, you would say about normal businesses if you can't pay your debts you're insolvent. But of course, banks are different because ... that's why you have emergency liquidity. There are times when banks need liquidity to meet their obligations. Their assets at a balance sheet level make them solvent but that's why you have emergency liquidity for the very purpose and that is given to solvent banks.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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You have said that you were not party to the conversation that took place between Mr. Cowen and Mr. Lenihan. At any time in the night, did Mr. Cowen seek any private advice from you?

Mr. Paul Gallagher:

No, any advice I gave was in the presence of others.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Were you party to the conversation that Mr. Cowen had with Mr. Gray on the telephone?

Mr. Paul Gallagher:

No.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Did Mr. Cowen seek any advice having had that phone call? Did he come back and offer something that then required any legal assistance or discussion?

Mr. Paul Gallagher:

No.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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No. Were you involved, or were you asked to look at the advice that Mr. Gray had given in writing prior to that night, where he recommended various ... he laid out certain-----

Mr. Paul Gallagher:

Yes-----

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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-----things? Was that ever brought to your attention?

Mr. Paul Gallagher:

No, I never saw Mr. Gray's advice but, as I say, what happens is that that doesn't surprise me. I don't see the advice of the advisers to the Department. What the Department will do is it will prepare its own what I call, ''a briefing document'', setting out things that are under consideration. We are not concerned with the policy as to whether it's good or bad. But it says, ''Here are the issues, can we do this legally?'' So that's what I would have been concerned with, that's what I saw, that's all I saw.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Okay. At any point in the months leading up to September, was your advice sought in relation to the contracts for difference involving the Quinn Group and Anglo and, in particular, were you asked anything about the insurance component that had been taken from Quinn to pay-----

Mr. Paul Gallagher:

I ... a couple of ... just answering that particular question-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Certainly-----

Mr. Paul Gallagher:

The answer is "No" and I suspect that's a matter, I don't want to presume, that's a matter on which the Financial Regulator would have taken its own advice. I had no involvement whatsoever in it.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Okay, so no one ever sought your advice-----

Mr. Paul Gallagher:

No.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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-----just being clear, thank you. On 13 September, Anglo was in touch with the Department for Finance looking for ... to do a deal with the INBS. It talked about having a private funding and liquidity comfort part to that. I'm just wondering and if you haven't seen it, that's fine but, were you ever aware of that? Was it ever brought to your attention for legal advice?

Mr. Paul Gallagher:

I wasn't aware of any of those developments or the specifics that were being addressed at that time, Senator.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Mr. Corrigan gave advice, sorry, gave in his statement to this inquiry that, in December 2008, he and others were in conversation in a meeting particularly with the Department of Finance in December 2008; trying to persuade the Department that the point had come to nationalise Anglo. So this was seven weeks or eight weeks after the guarantee. Were you aware, were you ... was your advice sought at that point now, if you like, that a guarantee was in place, if nationalisation was to be sought, would that change the advices in relation to any nationalisation or were you aware of any of this?

Mr. Paul Gallagher:

I wasn't aware of it but it wouldn't change the advice. Nationalisation was an option. The legal structures were there and we were ready to implement them if called upon to do so.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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And then lastly, there was in ... on 24 April there was an e-mail sent in which advice was being sought by the Department of Finance in relation to amending the State Guarantees Act 1954-----

Mr. Paul Gallagher:

Yes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Again, was that part of your work?

Mr. Paul Gallagher:

Yes. That was raised at a very early stage, whether if a guarantee had to be given, it could be done under the State Guarantees Act 1954. The advice was unambiguous, it could not be done, so that enabled specific guarantees in respect of scheduled bodies and in any event, this was of a different nature than what was envisaged by the Act and it was made clear that would require a separate and independent legal basis. The Department accepted that, knew that and we had that ready to go on the night of the guarantee.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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And finally, Chair, can you recall when was the first time that you might have been asked for the legal advice specifically relating to a blanket guarantee?

Mr. Paul Gallagher:

Well, I certainly remember that the ... as of 26 September, getting an e-mail from the Department or a letter from the Department saying, "Would you please just look at the provision of a systemic guarantee", and we had looked at it and we were, as I say, in a position with the legislation for whatever was required to enable that to be done.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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So you were already in that place?

Mr. Paul Gallagher:

Well, when you say, "In that place", I had confirmed that there wasn't a legal impediment provided - and this was a big proviso - that the authorisation through legislation was obtained through the Oireachtas. That this could be done through legislation but legislation would be required.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. Next questioner is ... just a minute. Senator Sean Barrett.

Photo of Sean BarrettSean Barrett (Independent)
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Thank you, Chairman. Welcome, Mr. Gallagher and you made the point very strongly about Europe leaving Ireland on its own and so on and, indeed, a currency that had been circulated since 1999, only in 2013 was Article 127 of the treaty implemented. Did that propose particular legal challenges for Ireland in ... it was a dangerous area, certainly and that ... did we discard the policies and mechanisms and laws that had ensured there were no bank failures from 1783, Grattan's Parliament and Bank of Ireland, right up to 1999, when this new currency started?

Mr. Paul Gallagher:

I suppose and Senator, I will be completely guided by you in this but, I mean, one of the difficulties with monetary union is that because you don't any longer control the money supply, you are not in a position to have ... print money and put it into the banks in the case of a failure. So your options for resolving a crisis and a systemic crisis in particular are greatly reduced. That was a big deficit in the legal architecture. My understanding of the architecture was it was designed to address situations where Government deficits and Government profligacy in managing the economy would result in threats to the financial system and that was catered for under the excessive deficit procedure. But they hadn't addressed this and this is, as is now very apparent, was a very significant restriction in the legal architecture.

Photo of Sean BarrettSean Barrett (Independent)
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And we had representation on the board of the ECB and in ECOFIN, where we might have made some of those points that you were making.

Mr. Paul Gallagher:

Well, I think that was ... well, no, I think it was really the political matter. The countries were very ... and you have seen one of the reasons it took 'til 2013 for the single supervisory mechanism was that countries were reluctant to pass over the supervision of their financial system to an EU body, the ECB. And secondly, with regard to the resolution, there was very serious political concern. So I think it was known but I'm not sure there was the willingness to address it and I think that there may have been a failure of imagination because I don't believe that people really envisaged the sort of situation that did in fact arise here and throughout Europe and the United States in September 2008.

Photo of Sean BarrettSean Barrett (Independent)
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Well, after the guarantee, did you get reactions from Europe?

Mr. Paul Gallagher:

Yes, and-----

Photo of Sean BarrettSean Barrett (Independent)
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And can you tell us those?

Mr. Paul Gallagher:

I will. And I think those are very interesting. I think you have already heard that Prime Minister Brown was on and he was very annoyed, I think because they said this ... they were all worried about its effectiveness, in other words, that it would be so effective it would take deposits from their banks into Ireland. And this was said at a time when the UK, unknown to us at the time, put in I think something like £30 billion into RBS and was putting a huge amount of money into HBOS. So every country was taking steps and that wasn't announced at the time. So while they were complaining about Ireland taking steps to protect its financial system, they were busily off doing it and it wasn't announced. So there was a concern in relation to that.

The EU Commissioner, Ms Kroes, was concerned about its competition effects, and that for me was a real concern of ensuring that we could convince the Commission that this was consistent with the state aid provisions and wasn't anti-competitive. And fortunately we were able to do that within a very short period of time, by 13 October. So while other countries were giving out ... you'll remember that the G7 meeting, I think, took place in early October and following that there was an announcement that all countries were going to stand behind their banks. Chancellor Merkel announced it. They announced it in France and they announced it in Denmark.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Can I just come in on one aspect of that, if you don't mind, Senator?

Photo of Sean BarrettSean Barrett (Independent)
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Of course, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And I'll just hold over time for you. And that brings us to a particular area. They had given political guarantees. We had given a political guarantee on the night of the guarantee, but we were moving towards now a legislative-----

Mr. Paul Gallagher:

Yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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-----written guarantee that was going to enshrine this and make it a sovereign debt-----

Mr. Paul Gallagher:

Yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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-----through legislation. Was there any commentary with regard to maybe colloquially or seriously, says, "Listen, guys, you made a political guarantee, but we're not too sure whether you need to be going into this written guarantee"?

Mr. Paul Gallagher:

No, there wasn't any such commentary. And I think the view was taken in Ireland was that you needed, if you were going to try and save the system, you needed to have people certain that the guarantee means that it's a guarantee. These are ... these other countries are ... have enormous resources, the UK and Germany, and a political guarantee in those circumstances ... in fact, they also brought in various forms of guarantee that were ... but a political guarantee has a particular status. Ireland was concerned to ensure that what it did had credibility and the advice given was that you needed a guarantee that had legal effect, and that's what was done.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Senator Barrett, thank you.

Photo of Sean BarrettSean Barrett (Independent)
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Thank you, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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No, you've another minute or two.

Photo of Sean BarrettSean Barrett (Independent)
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And did that delay the implementation of the legislation, those kind of representations coming from abroad?

Mr. Paul Gallagher:

No, because we had the legislation. It was introduced in the Oireachtas on 30 October. We just went ahead and finalised that. One of the things that we were very concerned about was to ensure that it was watertight and in particular that it terminated as of the end of September 2010 and didn't extend beyond what was intended at that time. And that was prepared and went ahead, and we also went ahead with our submission to the European authorities.

Photo of Sean BarrettSean Barrett (Independent)
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On the night of the guarantee were stronger measures thought of, or would we think of them in the event of any recurrence, such as going into the banks and not allowing the same boards and management to go back? After all, if they're presenting the State with this huge burden, could the State not take it on on its terms? And I'd be concerned about how much the cost escalated from what we thought at the beginning to the eventual.

Mr. Paul Gallagher:

Yes. I suppose there's two things to bear in mind. Firstly, the guarantee did provide very significant conditions with regard to the commercial activities of the bank and for the public interest directors. And of course that ensured that other banks didn't regard - that didn't need help - didn't regard the guarantees as desirable. You heard evidence that various other banks were looking to be included in it, but the conditions were tough and they were stringent, which made it non-attractive.

Secondly, the issue as presented was that before the markets opened you had to have a solution. Thirdly, people talk about the €64 billion hole but, as the committee has heard, that no matter what investigation had been done by the banks, wouldn't have been apparent on 30 September. The extent of the losses increased over time, as I think some of the witnesses have said, because you not only had the liquidity issue but you had the great recession which continued far longer. The market disappeared. You then had the valuations in NAMA. And you had a series of attempts to get to the bottom of the hole but the hole was deepening the whole time. I think Mr. Corrigan graphically described it as a "falling knife". So at a point in time that wasn't the deficit.

Photo of Sean BarrettSean Barrett (Independent)
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Did the delay in any way result in the shortages of documentation which NAMA reported when they took over some of those loans? Were there never any documents or would they have been removed between the guarantee and the time that NAMA took them over?

Mr. Paul Gallagher:

Documents on the part of the bank, is it?

Photo of Sean BarrettSean Barrett (Independent)
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Yes, indeed?

Mr. Paul Gallagher:

No, in fairness, the documents were there. But, I mean, I think as NAMA said, one of the problems was a lot of the security documents were just never there. They weren't in place, they hadn't been properly signed off and that, of course, had a big impact on the value of the assets NAMA was purchasing. And that is part of the explanation for the larger haircut than was anticipated.

Photo of Sean BarrettSean Barrett (Independent)
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Thank you very much, Mr. Gallagher.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much.

Photo of Sean BarrettSean Barrett (Independent)
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Thank you, Chair.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Deputy Pearse Doherty.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat. Can I ask you were there any risks to the State if the Government materially changed the Government's decision or chose a different policy option during the period necessary to draft the legislation and the scheme?

Mr. Paul Gallagher:

I suspect those are ... really I'm not in a position to respond to that. That would be ... involve a financial assessment and an assessment of the financial advisers as to whether that would have had a significant effect, Deputy.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. Do you know if any financial institutions had concern or sought reassurance before signing up to the scheme on the ... I think on 24 October?

Mr. Paul Gallagher:

I wasn't involved in any interaction with the financial institutions, with one exception that I think I mentioned. I ... the Minister asked me one evening to come to a meeting with Ulster Bank, who were trying to be included, but they weren't. And one of the decisions the Government took, and it's provided for of course in the legislation, that if a bank had the basis of support from its parent, as Ulster Bank had, there was no way the Irish State was going to provide the guarantee.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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And in relation to ... you mention in your statement, on page 4 and page 5, that on 29 October the Minister, by statutory instrument, specified the banks covered by the guarantee scheme. You go back then on 20 October, the guarantee scheme was introduced by way of statutory instrument and three days before that the guarantee scheme was approved by the Houses of the Oireachtas, and prior to that the legislation that allowed for a scheme to be introduced was approved, about two weeks before that. So can you tell me, when the banks signed up to the scheme, the deed, the deeds, which was the 24th, which was in between the scheme being introduced by way of statutory instrument and the Government specifying the banks, was the assets of the banks and liabilities of the banks guaranteed at that stage?

Mr. Paul Gallagher:

Well, the ... it seems to me that, as a matter of law, until they became actually members of the scheme - it was the scheme that provided the financial support. The Act provided that provided that financial support could be provided individually or through a scheme. The Government opted for a scheme. That was approved. And to avail of the scheme you had to become a participating institution. And to be a participating institution you had to be designated. So that's when the legal effect of the scheme-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. So just to clarify that now, the ... we understand that the institutions signed the deed of acceptance on the 24th and returned it to the Department as such. Would that have been when they were legally covered by the guarantee? I know it took a ... it was backdated but that's the day that they were legally bound. Or was it 29 October when, by statutory instrument, the Minister specified the banks covered by the scheme?

Mr. Paul Gallagher:

It seems to me - I haven't thought about that closely - but it seems to me it's the designation by the Minister. The acceptance was a preliminary step to the designation.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay.

Mr. Paul Gallagher:

They had to accept and then they're designated.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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So 29 October?

Mr. Paul Gallagher:

I think that would be so, yes.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. And it's ... if you ... in terms of your thoughts, it would be either the 24th or the 29th?

Mr. Paul Gallagher:

Or the 29th, but I think it was the 29th.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay.

Mr. Paul Gallagher:

It's just something I haven't particularly focused on.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Can I ask you what would have happened ... so there's a lot of focus in terms of the night of the guarantee, 29 September, 30 October, and now we have that it was actually one month later where they were legally covered by the guarantee. So what possibly could happen in terms of law if the Minister decided in that four weeks that, "Look, I think this is a bad idea, there may be more loan losses", or whatever, and decided we're not proceeding with that? Would the banks have a call, given that the Government made a commitment, a political commitment to introduce this?

Mr. Paul Gallagher:

No, the guarantee was subject to terms and conditions. I suppose what you would have is you'd have people who lent money perhaps making claims against the Government on the basis they did so on foot of representations. But, more particularly, I think the issue always was what would be the effect on the financial system. And for a Government to renege on what was clearly a statement intended to quieten the markets would have had very serious consequences and presumably, though it's not a matter for me to say, the very consequences that were sought to be avoided on the night of the guarantee.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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There's been a lot of talk in the State about ... that senior bondholders couldn't be burned because they ranked pari passu, of equal nature, with depositors, and if you burnt senior bondholders you would burn depositors. How confident are you, given the earlier testimony, that we could have ... the State could have, under law, protected depositors while at the same time burning senior bondholders?

Mr. Paul Gallagher:

Firstly, and I'm sorry, it's a question that Deputy O'Donnell raised, there was no issue that night, nor was any legal advice sought, on the ranking of depositors and senior creditors. And the reason was that it wasn't a legal issue about burning, because of course they didn't want to burn the senior creditors, they wanted the senior creditors to provide liquidity to the banking system. So that wasn't an issue at all.

What was made clear, consistently, is that if you wanted to differentiate between and senior creditors and the depositors, you would have to change the law. That was not without complication, but I believed it could have been done. Interestingly, when the Europeans brought in what is now the legal obligation, in the 2004 directive, they don't distinguish between the depositors and senior creditors, as such. The eligible deposits are protected, but depositors and senior creditors, as such, are not differentiated against, and the critical limitation on burning there was that nobody should be worse off than they would be in a liquidation situation.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. Can I ask you, in relation to the night of the guarantee and your attendance at that meeting, you talk about, in your statement, in relation to, on page 8, "There was a basis for the concern that the fact that the six Irish domestic banks were perceived by the market as having a very significant and, in some cases, enormous property exposure and consequently were perceived to carry a very high bad debt risk." Was there any discussion during that meeting as to serious debts that would have materialised in the future in relation to the banks?

Mr. Paul Gallagher:

No, there was no, well ... sorry, there was no specific discussion about significant debtors. There was, of course, the realisation that if you give a guarantee, you have an exposure. But the belief was that these banks were solvent. It was hoped that this would solve the liquidity situation, and it was hoped that there wouldn't be a call on the guarantee. But, of course, that risk couldn't be excluded.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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But was there any discussion in relation to serious potential, losses in any of the institutions in ... for coming ... in the months that were to come? You know, while the Financial Regulator stated at this position they were solvent - and we've had a lot of discussion in relation to not being able to look at expected losses - was there any concern raised that some of these banks may have major losses in the future?

Mr. Paul Gallagher:

I don't remember a specific discussion, but, let me say, Deputy, I want to be very careful. The meeting started at 6.30 p.m. I think I must have arrived certainly no earlier than 8 o'clock. I had to go home for a personal family reason and came in at that stage, and my recollection is the Minister asked me to be there when the banks arrived in case some issue arose. So, there could well have been a discussion, I don't want to say there wasn't-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Just relay a supplementary to that and then we'll move on.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Yes. The last wee question I have is: was it possible, in your opinion, to wind down Anglo prior to the original guarantee terminating on the ... in 2010? Did the original guarantee prevent an effective wind-down of Anglo Irish Bank?

Mr. Paul Gallagher:

Well, the effect of the guarantee was that the debts that were guaranteed would have to be paid if there was a wind-down.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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So, just, it would cost us a lot more money.

Mr. Paul Gallagher:

Yes. It would cost ... yes, exactly.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. I'm going to bring in Senator MacSharry and then I'll deal with one issue and I propose we might take a break for a few moments at that ... after which. Senator MacSharry.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Thanks very much, and welcome, Mr. Gallagher. Thank you. What was your legal advice to the Government in the event of the guarantee not being successful in stemming the outflow of funds in the event of the European Commission not agreeing that the provision of the guarantee was compatible with the EC treaty?

Mr. Paul Gallagher:

Thankfully, that didn't raise a legal issue, but it raised a very, very serious issue, and, my concern was very focused on ensuring that so far as the legal issues were concerned, that we could deliver what was required, namely, the legal validity of the guarantee that had been decided upon by the Government. And, therefore, the focus was very much on ensuring that we got state aid approval, because this was absolutely vital. But it wasn't a legal issue, as such, that would have arisen if it hadn't been approved, but a very serious policy issue would have arisen at that stage.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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And, would the ... was there a plan B, or, was that, kind of, too much to countenance at that point, or-----

Mr. Paul Gallagher:

I think it was too much to countenance at that point. I think you'd have had to look at ... start looking at nationalisation of banks. I'm sure that others gave consideration to that, but I wasn't involved in that consideration. My focus was on delivering the legal implementation in the days following the announcement.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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In your statement you said, "Later in the night Governor Hurley indicated that a failure to act, or a decision to allow any bank to collapse would set Ireland back 25 years and that it could take that period to recover from the setback." Just, on this 25 years and we had heard it suggested on the ... did he elaborate on the setback of 25 years? What in particular ... can you tell us more about that?

Mr. Paul Gallagher:

Yes, I'm not sure he particularly elaborated, but I think it was very obvious to everybody in the room, the concern the following day, unambiguously stated, was that the financial system could break down. And, if the financial system of a developed economy like Ireland, so dependent on financial transactions and investment, collapsed, then you are back to the 1980s. That was how I understood it, and, I assume everybody else understood it in that way, but I remember it because it was such a bleak and unforgiving picture.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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And, you know, did you have a sense ... was this, in any way, an exaggeration on the basis that, I mean, surely, you know, we have technology now that isn't in the 1980s? I mean, was it just a figure of speech, this 25 years, or, in real tangible terms, you know, were we going back 25 years?

Mr. Paul Gallagher:

I'm sure there's always an element of a figure of speech, but Governor Hurley is very measured, and, I think what he was really saying is, "If this doesn't work, recovering your position, because of the damage that will be done, is going to be so difficult." That's what it conveyed to me, and in my mind, whether accurately or not, I had the picture of the 1980s and a different Ireland because, without a financial system ... and also, I think ... I don't think it was explicitly said, but I think everybody had a very serious image in their mind of social cohesion. If the financial system were to break down, was society going to survive this? And, I don't think anybody stated that; I don't think it needed to be stated. You had very experienced people there. That's, I think, the image that people had.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Very good. Can I ask, you said also that, on one occasion, I'm quoting from your statement, "Having been requested to ascertain the identify of the subsidiaries which were to be considered for inclusion in the proposed guarantee. I was not present [for] the discussion." Can I just ask, on, on the ... what was your opinion of the including of subsidiaries? Or can you tell us more about that? Was there consensus on it?

Mr. Paul Gallagher:

Yes, I think that wasn't problematic, because once you gave the guarantee, you had to make sure that all companies within the group were covered. Otherwise, if any one of those defaulted, the group couldn't let a subsidiary default because that would ultimately ... might well result in a default for the group, but, certainly, would pose an enormous risk for the group. So, I think that followed.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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And so there was no ... or, is it fair to say that there was no contrarians that consensus was arrived at reasonably easily that night?

Mr. Paul Gallagher:

Absolutely. I think the concern was to identify where the subsidiaries were located, and the numbers of them, so that we had some picture of that.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Just from a legal perspective, can you advise - we, obviously, have the letter of 19 November from Jean-Claude Trichet, threatening to turn off ELA. Do you believe it was legally possible for the ECB to do that?

Mr. Paul Gallagher:

Absolutely, the ... and, in fact, it was a really serious concern, because the ... it's written into the statutes and, in fact, on their website, you'll see with their explanation of ELA, that, if they think it involves monetary financing, then they are prohibited. And, therefore, if they are effectively supporting banks that should have been supported by the State, that is equivalent to monetary financing. That was a very big issue in relation to Anglo and the whole resolution of the promissory note issue, and the very beneficial deal that was, ultimately, achieved by this Government in relation to the promissory notes and the replacement with the government bonds. So, legally, he was absolutely correct.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Governor Honohan, who I questioned, and we all questioned, about these issues, posed the question to me, when I asked him would they have turned off ELA, and he said, "But would they?", so as to suggest, perhaps, that his view was, arguably, that they may not.

Mr. Paul Gallagher:

And, that is absolutely so. I suppose it's the huge question ... it's a matter for Government, but, I suspect most governments would say, "We don't actually gamble with our country's fortunes", and it would have been an extraordinary step, I would have thought, but that's for others to judge, it's not a legal matter, to say, "We'll call your bluff". And, the difficulty - and I do mention this ... I mentioned it today - the ECB was concerned, and very understandably and rightly concerned, of the legal constraints. And, if it took a legal view it couldn't do it, and we see an example in relation to Greece at the moment, whether they could continue ELA no matter what the consequences. So, I think the Government decided that's a bluff, if it is a bluff, that we won't call. But, that's what was at stake.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Was it reasonable to take that view or would it have been equally reasonable to say, "Let's call the bluff"?

Mr. Paul Gallagher:

Well, that's a matter for others, but I would have thought a responsible government, looking at it from a lawyer's point of view, that's only my view. I don't see how responsible----

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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It is your view that I am interested in.

Mr. Paul Gallagher:

I do not see how a responsible government would do that. I mean, if ELA was withdrawn, all of the banks were gone so you were back to the same situation. So it's a very big bet and my experience of dealing with the institutions - and I dealt with them in the Lisbon treaty and the guarantees - they take a very legalistic view and the other countries ... and this is why I said you have countries sympathetic to Ireland saying Ireland is a great country and you've done very well, but every one of them will, ultimately, look after their own interests and they are not people that can be easily beaten down in negotiations. Every country is looking after its own interest. There is the Community spirit and the Union spirit and that will be adhered to. And I think that's all very positive but, at the end of the day, in critical matters, they will look after their own interests and that is certainly the position with the ESB because I had a subsequent involvement for another client in relation to dealing with ECB - and I do not want to say anything for client confidentiality - and my experience of the ECB is they took the legal situation enormously seriously, as they were bound to do, no matter what the consequences.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Thank you very much.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you, Senator. Can I just deal with one or two matters and then we will go for a break? Earlier you were talking in regard to the shelf life of the guarantee and why not four years, five years in others because I think this relates to the conversation you just had with Senator McSharry. Why was a different timeframe not put on it?

Mr. Paul Gallagher:

Deputy O'Donnell asked me that as one of his questions and, sorry, Deputy, I didn't respond to it. That was teased out very, very carefully. There was considerable concern in giving a guarantee for two years and six months was mooted, a year was mooted. And, as I explain in my statement, a judgment call was made because they were told and the banks were also ... about this said, "We have to reassure the money markets and we're not sure a shorter guarantee will do." In the event, it transpired, even when the position was known with much better clarity regarding the losses in the banks, this guarantee was, ultimately, extended to December 2013, albeit with a narrower focus with regard to the instruments to be covered.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And in that regard because it was two years, Dermot McCarthy when he was in before us yesterday afternoon suggested that the duration of two years contributed towards the funding cliff that led to a bailout.

Mr. Paul Gallagher:

Yes, I think he also said ... and you have raised that ... I'm not sure I would agree with that, Chairman, in the sense that that seems to me ... whenever you stop the guarantee, if you just leave it there, you will have a funding cliff, unless everything has righted itself. Everything hadn't righted itself but, as of middle of 2009, as you know, legislation was brought in to enable the period to be extended. As of December 2009, you had the ELG; 2010 they extended the period; 2011; 2013. So the fact that the funding would stop as of September 2010 was anticipated far in advance and measures were put in place to ensure a continuation of funding. And, in fact, the CIFS scheme itself, as you heard, was extended I think until December, and the application for that was made in good time, so measures were taken to avoid the funding cliff.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Can I just ask one other final question? If Anglo was just left to go bust on the night and was kept outside of the guarantee, what would the legal considerations have been? Would this have been very, very complex, very, very messy or would it have been, "Here's a legislation; let's make it happen"?

Mr. Paul Gallagher:

No, you could have let Anglo go on its own, you didn't have to do anything, but the judgment was made that leaving a bank that, I think Governor Honohan in his report says was "of systemic importance", systemic not that we needed this bank but systemic importance in terms of the consequences. And one of the things that was apparent from the information given to the Government by the other banks was the other banks were distinguishing between Anglo and INBS and themselves and understandably so. But the report that they gave us of the reactions from the money markets was Ireland was untouchable. And if you have one bank go, given what was known as the overexposure to property, the ready consequence I assume - and others are better positioned to advise on this - was they'd say, "These other banks have huge exposure to property. There may be distinctions but we're not convinced and the whole lot goes." And that was the calculation made with regard to Lehman Brothers and it went so badly wrong and I think there was a huge fear that if that gamble is taken, that things would just be out of control. And those are the judgments that have to be made and were made.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. I now propose that, as it is 11.15 a.m., that we will suspend until 11.30 a.m. to return at that time to continue our engagement with Mr. Gallagher. Before members leave, I just need to deal with the formalities of that and to remind Mr. Gallagher that he remains under oath. He can deal with his own legal people if he has them with him here this morning and so forth, and to now propose that we return at 11.30 a.m. Is that agreed? Agreed. Thank you.

Sitting suspended at 11.16 a.m. and resumed at 11.38 a.m.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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We're still in private session. Okay, we now ... sorry ... the monitors. My apologies, Deputy. We're actually in public session. Sorry, continue.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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My question is: over the course of the evening was any reference made to correspondence that had been sent a few days earlier, on 25 September, from Alan Gray to Kevin Cardiff? Did any issue around that come up, to your recollection on the night?

Mr. Paul Gallagher:

Yes, not to my recollection I couldn't-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Yes.

Mr. Paul Gallagher:

-----swear because I couldn't pretend to remember every detail and even if something was said, it mightn't have impact, but I don't remember that-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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You don't believe Alan Gray was mentioned?

Mr. Paul Gallagher:

I don't believe so.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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You don't? Okay. That's fine.

Mr. Paul Gallagher:

Yes.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Yes. Can I just clarify one thing? The ... it's often stated that the guarantee was a €440 billion guarantee. The Nyberg report, on page 77, gives a breakdown of the guarantee. The guarantee was €375 billion. Is that your understanding as well?

Mr. Paul Gallagher:

I think that is so, yes.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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That was the actual-----

Mr. Paul Gallagher:

Those are the figures I've seen subsequently, yes.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Okay. Thank you very much. You refer to the issue of dated subordinated debt being included, and you state that some concerns were raised on the night of the guarantee by Governor Hurley and by some officials in the Department, but the overall view taken was that sub debt should be included.

Mr. Paul Gallagher:

Yes.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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How strong were those concerns that were raised? Can you recall the nature of them?

Mr. Paul Gallagher:

Well, strong in the sense that, I think, the banks mentioned this. There was a very careful consideration as to whether that was appropriate. There would have been a desire not to include it, if that were possible. And in the end a judgment was made if we omit that, is that going to impair the effectiveness of the guarantee? There's also, I've seen subsequently but I didn't see it, the e-mail which the committee has seen from Mr. McDonagh, I think on 6 October, explaining why it was important to have that included. But I don't remember that particular consideration being raised that night. My recollection is it went more to the effectiveness of the guarantee and people understanding what was included, and also this was a method of providing funding for the banks. That's my understanding.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Do you recall why the Governor was possibly against it or raised some concern?

Mr. Paul Gallagher:

Well, because normally people say ... well, you know, subordinated debt is in a different category-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Yes.

Mr. Paul Gallagher:

-----so you wouldn't, ideally, include it if you had a choice, if you thought that you could get away without doing it, but the judgment was made that it was better to err on that side by including it rather than omitting it and taking the risk.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Okay. The issue of the promissory notes for Anglo Irish Bank. To what extent was the sovereign fully standing behind those promissory notes? Would they have had the same legal standing as sovereign bonds, for example? Can you just give us a legal perspective on the status of those promissory notes?

Mr. Paul Gallagher:

Yes. The State was the obligor under the promissory notes and, therefore, they were the equivalent, in my view, as bonds. I think the reason why they were chosen was - and I think the committee have heard this - it enabled capital to be put in, on a staged basis, to the banks. It provided the banks with the necessary injection of capital but the cost would be met on a staged basis and that was what was behind it.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Okay. If, on the night of the guarantee, there was knowledge that ... that a bank had essentially failed and the decision was made to just let it go, in the absence of specific legislation, a bank would just then have been liquidated under the Companies Acts in the normal way.

Mr. Paul Gallagher:

Yes. And that, remember, is the position as of now - under the 2013 Act, the bank is liquidated in the normal way under the Companies Act. The Central Bank has to be informed in advance of an application.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Okay. And in that normal liquidation scenario then, senior bondholders and depositors would rank equally.

Mr. Paul Gallagher:

Yes.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Okay. So just going back to that issue of special resolution legislation and, as you said, there are different types of resolutions and some resolution-type options were available on the night of the guarantee. But the scenario I want to raise is if ... if a decision had been reached that a bank had essentially failed and instead of having a disorderly wind-up of a bank ... just collapsing the following day, that the decision was to have an orderly wind-down of that bank, what legislation would have been used in that scenario - that if you wanted to, let's say, let Anglo go, but in an orderly way and in a way in which we will seek to separate the depositors from the senior bondholders, to give preference to depositors and bail in other creditors such as senior bondholders?

Mr. Paul Gallagher:

I think that would have been a very difficult thing to do. The law at that stage was they ranked equally but I don't think that was even impinging on people's consideration because the view was taken - and governor Trichet had said "Save the banks" - and the view was taken that any wind-down, orderly or otherwise, would have a contagion effect that might not be capable of being controlled.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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So in the months leading up to September 2008, was any serious consideration given to having legislation in place for the orderly wind-down of a bank?

Mr. Paul Gallagher:

No consideration ... or no proposal was put to my office for any form of liquidation that would be done under the Companies Act. They were ... the measures that were put forward were those that I've identified that would hopefully address the situation.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Okay. So you were never asked - just to clarify - to prepare any such legislation for ... for winding up a bank in an orderly fashion-----

Mr. Paul Gallagher:

No.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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-----and seeking to prioritise certain-----

Mr. Paul Gallagher:

Yes.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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-----creditors over others.

Mr. Paul Gallagher:

Yes, that's correct.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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That was not requested. So, we have heard in evidence over the last number of weeks that there were potential constitutional issues, that there were legal difficulties around the whole area of property rights and that that's why that option was not pursued.

Mr. Paul Gallagher:

I think there's a confusion of perhaps-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Yes, types of resolutions.

Mr. Paul Gallagher:

-----the fact that there are, of course ... and the Department is very experienced ... would know that there are legal issues. But that was never put as a proposal and they were never told that there was a legal impediment to doing so and, as I say, even as of today there are legal issues surrounding that. I believe, ultimately, those legal issues can be overcome but, in fact, the 2014 directive explicitly refers to the legal issues and refers ... because the charter, the European Charter and the European Convention of Human Rights create similar problems to our Constitution. So the constitutional issues, if I can put it that way, are recognised at a European level.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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And just to clarify - the bailing in of subordinated bondholders, what legislation provided for that?

Mr. Paul Gallagher:

The Credit Institutions (Stabilisation) Act and the effect of-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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2010?

Mr. Paul Gallagher:

2010. And the effect of that, if I can just clarify, because, I think, Mr. Corrigan said correctly that, in fact, most of them were bailed in through liquidity management exercises, but it was the fact that the legislation was there which enabled the State to bail them in, that encouraged them to accept voluntarily, as part of the liquidity management exercise, a very substantial writing down of their entitlements. There was only one case where the Act had to be used. That was in the case of AIB. There was a legal challenge. That was compromised -I don't want to say the detail of it - but on a very satisfactory basis for the State. So it was the existence of the powers and the tools that were critical.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Yes. And, very finally, you said that the ECB had the power and the right to withdraw ELA support for the Irish banks. But when you saw the letter of 19 November 2010 to Minister Lenihan, when the ECB linked the continuation of ELA to the introduction of fiscal consolidation, structural reforms, financial sector restructuring, did you have any concern that in making that link between ELA and issues that would be perhaps outside the mandate of the ECB, that it had extended its reach too far?

Mr. Paul Gallagher:

I think that's an important question. I don't believe so for this reason: as you know, when the ECB subsequently introduced the outright monetary transactions, in ... I think it was 2013, which had a great effect on stabilising the markets, what saved them from legal challenge - and the European Court has pronounced on it recently - is the conditionality that is involved. So, in other words, the ECB said "We will continue to lend to you but you must put your house in order and you must agree to fiscal conditions to set the legal basis, otherwise it'll be monetary financing". And that has been the consistent position of the ECB and ... from day 1-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Thank you.

Mr. Paul Gallagher:

-----and its position as of today.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Thank you.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. Deputy John Paul Phelan.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you, Chairman. Good morning still, Mr. Gallagher. I've a few brief questions. Most of what I wish to ask has been asked already. In response to Senator Barrett earlier you said that because Ireland didn't have huge resources, it needed to give a legal guarantee to make it credible. Do you accept the view that some people would hold that, ultimately, perhaps because of the nature of the guarantee, that the markets passed a judgment on it that it ultimately was incredible?

Mr. Paul Gallagher:

I think that ... I think it lost its credibility over a period of time. I think it did and I think - this has already been identified by other witnesses - as problems emerged in the banks and as it was clear that it was difficult to get to the bottom of what the deficit was ... so while there's uncertainty as to what the deficit is, there is uncertainty in the markets and they became very concerned about the contingent liability of the State on foot of the guarantee. But the point I wanted to make was, it seems to me ... and, again, it's the financial experts whose views on this matter but if you are Germany, you have enormous resources, you can pout €50 billion into the banks. And I think it announced - Germany - a €500 billion package for its banks very shortly afterwards. The UK did the same in terms of its support of its banks and it was in a different position, it was outside the euro. Ireland wasn't in that position.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Well, isn't ... doesn't that really go to the heart of, ultimately, the weakness that some would argue ... I can't ask, perhaps, a leading question ... but ... of the guarantee, that the nature of it was such ... and the failure on the night to have full information as to the possible exposures in most of the institutions, or certainly a couple of them, meant that the liability opened on the sovereign was such that the markets deemed that it was incredible? Did you ... what I really want to ask is, did you offer, on the night, a view as to an investigation that should be carried out immediately into the exposure that possibly the sovereign was being opened up to by the nature of the terms of the guarantee, as agreed?

Mr. Paul Gallagher:

Firstly, I think the Merrill Lynch report, which you have seen, made it clear to everybody that there was the exposure of the sovereign. So that was well known. Secondly, the Government was in the position ... it had to make a decision on the basis of the information that was available and the advice was "You can't postpone this decision." And, as I say, the Taoiseach repeatedly asked "Is it possible to defer this - not to make a decision?", and was told "No." But it's not just the guarantee. Anything that I've read subsequently ... and, indeed, the whole structures that have now been introduced for bank resolution are to deal with the fact that even those countries that didn't give a guarantee, because they ultimately had to save their banks and put the money in, the whole banking crisis is regarded as a strain on the sovereign.

So, even if you haven't given a guarantee, if you have a banking crisis, the markets know you must solve that because I may be wrong in this and the committee will know better but I'm not aware of any country that allowed, in this period, a systemic bank to fail and, therefore, so far as the markets are concerned, you're behind your banks. If your banks are in trouble - that's what happened in Spain - that impinges on the sovereign and then the cost of borrowing goes up. So unfortunately, you're presented with a difficulty that the banks are in a mess. It has to be addressed and ultimately the cost to the sovereign is unavoidable.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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On the night in question did you offer an opinion as to the absence of direct input from the NTMA at the meeting as to the possible implications on the sovereign? They have given ... several members of the NTMA have given evidence to the inquiry that they had serious concerns and wouldn't have gone down the route of the guarantee which was ultimately chosen. Did you inform the meeting that perhaps that evidence should be directly given rather than through a third party?

Mr. Paul Gallagher:

I didn't, and I didn't know that Mr. McDonagh was there but ... sorry, I didn't see the Merrill Lynch but it was obvious to me that the room understood that. Governor Hurley understood it, the Taoiseach was a very experienced Minister, Minister for Finance, he could not but have known it. I think it was obvious to everybody that that was a risk and I think the judgment was made, whether right or wrong, that this is the best ... I think somebody has said the least worst option.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Briefly, I want to turn to a book that was published by former Green Party Member of the Oireachtas, Dan Boyle, where he issued ... levelled a number of criticisms at ... indirectly, I suppose, and perhaps directly at yourself in your role in the Government which you were Attorney General. The book was called Without Power or Glory: The Greens in Government (2007-2011). One of the quotes I want to put to you-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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First of all, Mr. Gallagher, are you familiar with the publication?

Mr. Paul Gallagher:

I'm afraid I am because it was drawn to my attention when Senator Boyle thought it appropriate to make it. I'm happy to answer it and deal with it.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. Okay, thank you very much, Mr. Gallagher.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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One of the quotes that he said was "At cabinet level we were coming up against a further obstacle in the form of the attorney general Paul Gallagher." Were you aware at the time that you were viewed by a component part of the Government as an obstacle?

Mr. Paul Gallagher:

Well, I'm certain, and you'll have Minister Gormley here and you can ask him, that I was not so viewed either by Minister Gormley or by Minister Ryan and they both told me so. When I was alerted by a member of the press that Mr. Boyle was going to say this, I contacted Mr. ... Minister ... Mr. Ryan, as he was then, to say that I was very surprised by that and he assured me it was not so. In the publication in The Irish Timescommenting on the book, it specifically said that senior Green Party sources said this was not the case. I take the greatest of exception to that, because I prided, above all, my independence. I had no political connection and have no political connection. I've never been a member of the party and I didn't know what constituency any member of the Government was from. So I took the gravest exception and I gave, I believe equally, but I'm happy to be judged by Minister Gormley when he came in, whatever assistance I could to every party to try and assist them with the legal solution to problems that arose.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Briefly then, finally, I want to ... I won't go any more into that particular publication. Paragraph 58 was referred to by Deputy Higgins earlier, of your opening statement, where you said that there was no "constitutional impediment to introducing [further] legislative measures to provide for further burden-sharing". Was your opinion ever sought on the introduction of legislation to impose burden-sharing on senior bondholders and if so, when was it first sought and by whom?

Mr. Paul Gallagher:

Well, the issue was considered as soon as the guarantee expired in September 2010 by Minister Lenihan and we discussed it, it was absolutely clear, and I made clear you couldn't do it under the existing legislation and you'd have to do it under new legislation. It came to the fore again, as I said, at the time of the bailout and on 29 November 2010 I confirmed in writing it could be done. It wasn't done in the meantime, I think, because of the NTMA view. I had meetings with IMF people and I think that I should make clear to the committee my understanding of the IMF, and certainly the people I met, they were very much in favour of it and thought it was appropriate. That is, the people at the lower lever, there were obviously people, different people, but they were very supportive and took the view Ireland needed to do this because of the debt burden. I had meetings again in February before I left office and we went through what could be done. Doing that, of course, is a very specialist exercise and we had our own ideas but we also had the benefit of a specialist lawyer, whose name I cannot remember, that the IMF very helpfully sent over to meet me, who had done a lot of debt restructuring and his services were available to us as to how that might best be done so as to avoid legal challenge.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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And it just fell because-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Final question, Deputy.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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-----because the Government changed and it was at that-----

Mr. Paul Gallagher:

The Government changed and the new Government was under the same stricture, that the troika would not allow it to be done. That was very much a decision of the troika.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you. Senator Michael D'Arcy. Senator, seven minutes.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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Thank you, Chairman. Mr. Gallagher, you're welcome. Who were the most experienced, most capable people dealing with the markets and finance in the State from the public sector side?

Mr. Paul Gallagher:

I wouldn't have had direct interaction with them but one of the obligations on the NTMA is not only to invest the money on behalf of the State but they also have a duty in relation to advising on financial markets. So the NTMA, certainly, and their reputation is such that they would have had a very great understanding of that. Whether anybody else had a better understanding, I don't know. People in Finance who would have been interacting with them and who would have been involved in this would have had a good knowledge, as would of course Governor Hurley, because one of the functions of the ECB was financial stability so they would all have an understanding of these matters.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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Why do you think the representatives from the NTMA were called to Government Buildings and then left outside the room?

Mr. Paul Gallagher:

I didn't know they were called, I think you heard Secretary General Cardiff. It wouldn't surprise me and it was a prudent thing. If an issue arose on which assistance was required that hadn't already been addressed, then they were readily available to Government. That frequently arises, people are asked to be available so if some unexpected issue arises. So far as the issue of their opposition to our preference for nationalisation was concerned, and concern about the sovereign rating, that, I believe, was well known and is recorded in the Merrill Lynch report. So I assume, but this is only an assumption because I didn't know they were out there, that people believed they had the information, understood that, that was clearly inputted into the decision that was made, taken account of, and as I said, had to be balanced and a judgment made.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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Okay. Thank you. The markets had come to a position in relation to the liquidity in relation to Irish banks. The Morgan Kelly theory is that it wasn't anything to do with the US sub-prime, or the freezing of the liquidity markets, that it was a matter that the markets had decided that the exposure to property, in particular commercial real estate, that the Irish balance sheets of financial institutions were compromised.

Mr. Paul Gallagher:

Well I wouldn't pretend to be in a position to second-guess anything Professor Kelly said but I don't think the two are incompatible. What is a documented fact in anything that I've read is that the money markets froze after Lehman. Nobody was prepared to invest. So you look at Ireland and you say "There is a problem there, they are overexposed to property." So you're not going to invest anywhere and you're certainly not going to invest in Ireland so I don't think they're incompatible.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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Can I ask, Mr. Gallagher, you've quoted the term "one shot at it".

Mr. Paul Gallagher:

Yes.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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This was said on the night. The deposit guarantee scheme went from €20,000 to €100,000, a fivefold increase. Was there over-exuberance in terms of the attempts to deal with matters? Very few deposit guarantee schemes were increased by fivefold internationally. And then, just to follow on from that is, was there an over-exuberance in relation to banking, in relation to guaranteeing everything: bonds, deposits, etc.?

Mr. Paul Gallagher:

Firstly, I don't remember being involved because obviously it was a policy decision in raising the guarantee. But I do know that one of the concerns following Northern Rock was that the existing scheme went to €20,000 and 90% of your deposit, and I think it may be in some of the documents. When depositors see that they're going to get 90% not 100%, well somebody says it's rational to queue outside banks. So you don't want to lose your 10%, so you queue. So one of the things was the guarantee was increased from 90% to 100% of the limit. The other view that was taken and in fact, if anything, it seems to me to show foresight, because as of 2009 the EU brought in a directive, and I mentioned this, increasing the cover to €100,000 throughout Europe. Admittedly, that wasn't to take effect for a while because it's the form of directives that they don't take effect for a while, 2010. The view was taken that, because there had been some queues outside banks, I think it's been mentioned there was a media issue and queues had been forming and I think there was a real concern. Even Dr. Somers said the one thing you don't want to see is a queue outside the bank, so you try and stop that.

I certainly, going on to the night of the guarantee, didn't witness exuberance of any sort over ... or any type whatsoever. They were people, so far as I could see looking on, that were being faced with a decision that nobody wanted to be there to have to make and the options were explored, very careful consideration was given to those options, and so far as I could see, a judgment was made on what is the least worst option, on the basis of a fear of what might happen the following day. They may have been right or wrong, but that was what they face. And, in a sense, we'll never know, because nothing happened the following day, but if the guarantee hadn't been given, who can predict what was said, and what I say in my notice, we were told that New York Stock Exchange was expecting the markets in Dublin wouldn't open. Now, if there's a run on the shares of the banks, that effects the shareholders, but as soon as anybody sees that run, it's all over the media and nobody is going to do anything other than queue outside a bank and try and pull their money out because if the shares are tanking, then the bank is about to collapse. So that's what was at issue, but there was certainly no sign of exuberance that I saw; far from it. I think what was impressive was people remained calm in what was a crisis situation and worked through the options.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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To your knowledge, did any other jurisdiction guarantee every bank within its boundaries?

Mr. Paul Gallagher:

No other jurisdiction gave as extensive a guarantee; others gave very extensive guarantees. I think there were two issues there. Some people said, "You shouldn't have guaranteed existing indebtedness", and a view can be taken in relation to that, but I'm not sure where that gets you because even if you don't guarantee it, when that indebtedness - and these were all short term, as I understand it, in any event - so if you didn't guarantee the existing indebtedness and next Friday, the debt accrued and became due and had to be paid, well then the bank had to pay it. And if it didn't, that was the problem. And can I just say as well, I'm not clear, but I would defer to experts, that any other country had to deal with a challenge to its entire domestic financial system.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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The "no quote for Ireland" was being said by the domestic banks.

Mr. Paul Gallagher:

Yes.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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The two domestic banks were trying to differentiate between their request for a guarantee and nationalising Anglo and INBS, risking further contagion for the whole industry. Could you comment upon that please? Why exclusively were the two main banks, when there was no quote for any Irish bank, why do you think they were attempting-----

Mr. Paul Gallagher:

Well, the two main banks, understandably from their perspective, said they were very different from Anglo and INBS and they were causing the problem. A view had to be taken as to whether that was-----

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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Were they causing the problem?

Mr. Paul Gallagher:

Sorry?

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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Were they causing the problem?

Mr. Paul Gallagher:

Anglo and INBS were the ones that were mentioned by the Governor, they were the ones that were mentioned in Merrill Lynch, and the banks said, "These are the ones you should deal with." A view had to be taken as to whether that level of differentiation was being made by the markets, and, as I say, from what they told us, that wasn't the case. That's a judgment call.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thanks, Senator. Okay. Deputy Eoghan Murphy.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chairman, and thank you, Mr. Gallagher, you're very welcome. You were involved in the bailout negotiations in 2010?

Mr. Paul Gallagher:

Yes, I suppose that would be to elevate my role too greatly but their were some legal issues arising and I've some knowledge of some of the issues that arose and I'll help if I can.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Thank you. Did the ECB get its own legal advice on whether it was constitutional for Ireland to impose burden-sharing with the banks?

Mr. Paul Gallagher:

I have no idea of that and that was never communicated, but it was never raised as being a legal impediment, and it was never communicated the me that the ECB felt it couldn't legally be done.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay, Mr. Cardiff in his written evidence to us, on page 88, or 188 - it was a long statement - said that the ECB informed him that under Irish law it would be unconstitutional, and his response was to effectively threaten a referendum. Were you made aware of any of these discussions during your time?

Mr. Paul Gallagher:

No, and I don't know how the ... that may have, sorry I don't want to impute anything to the ECB, that would be quite improper. I would be surprised if the ECB were purporting to advise us on what was or was not constitutional. It was quite clear to me from any interaction I had with Minister Lenihan that the objection was not a legal objection, that the objection was that they were afraid of the contagion of the markets. And I think it was mentioned that ... Secretary ... Geithner in the US was totally against it, and I think he acknowledges that in his book, The Stress Test,on the crisis.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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So if the ECB would have had this discussion with Mr. Cardiff, as he alleges, that would have been improper on their part from a-----

Mr. Paul Gallagher:

Well, I don't want to say "improper" because ... they may have had some view, I just don't know. But I certainly wouldn't have agreed with it, and that certainly wasn't given to me as the basis.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay, that was never communicated to you. Okay, thank you. You talk then about your concern, in your opening statement on paragraph 55, about protecting "Ireland's legal autonomy pursuing to the European Union Treaties, in relation to its corporation tax rate". What was the concern?

Mr. Paul Gallagher:

Well, as far as I know, that was a very real concern, and I think it affected the way the matter was handled. That was a matter for the politicians as to whether they said they were in negotiations or not. But I know there was a concern to protect whatever leverage there was. It was felt that if we said, "We're in negotiations", then you're just there for the taking, you can't negotiate anymore, you've said you're going in and they set the conditions. And Minister Lenihan told me that there was very considerable pressure for Ireland to forego its tax rate, and the view was taken that, not only was this wrong but the economic revival that the package or the bailout was meant to encourage would itself be undermined, if Ireland had to forego it's autonomy over that. That was a very real issue, as I understood it.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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What was the legal position? I mean, surely-----

Mr. Paul Gallagher:

We were absolutely entitled to maintain it under the treaty. They couldn't affect it but people saw this as an opportunity, "You want a bailout, you need a bailout, and we're going to impose this as a condition." So, they could have said, "You will now agree to do this." And that would then have become a term of the bailout.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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And were you aware of which countries, in particular, were looking for this quid pro quo?

Mr. Paul Gallagher:

It would be unfair of me to say. I think some of the major countries that have been giving out, if I could say about that, for a long time. And if you go back to the record, I think quite a number of countries, including, I believe, Germany ... but I don't want to say because I can't remember now which countries, and I don't want to create any storm that anybody had any particular animus. But, certainly, people that were competing with us saw this as something very important, and as a quid pro quofor giving us the bailout.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay. And does this explain, perhaps, the delay in willing to agree to enter negotiations?

Mr. Paul Gallagher:

Absolutely. My understanding was the view was taken by Minister Lenihan and the Taoiseach that if you say, "Yes, we're now entering negotiations for a bailout.", whatever little leverage - and you've very little leverage in that situation - was gone. And then they start imposing the conditions.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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So once the Cabinet made the decision on 21 November to enter negotiations, that was off the table?

Mr. Paul Gallagher:

As I understood it, we had made it clear. And I think I remember, and I could be wrong in this because things fuse in your mind, I was certainly present when Minister Lenihan spoke to Commissioner Rehn that night, after I think I went over to his office. It may have been mentioned, but there was also some other mention about the IMF were looking for some legal priority that ... I didn't understand how they had it and I wanted to try and understand that, and I spoke with the IMF later that night, and it may have been mentioned then but it was quite clear that was not on the table and that was not something Ireland was going to agree to.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay, and just in terms of the memorandum of understanding that was agreed, the legal position of that, in terms of if a country fails to meet an objective under-----

Mr. Paul Gallagher:

You don't get your money, you don't get any more money.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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And that was a legal watertight ... So when it comes to then ... January-February 2011, and the agreement that was already in place for the capital injections in the banks, is it a straightforward thing for the Minister to say, "I'm going to wait until the new Government comes in", or did that have to be renegotiated under the MOU?

Mr. Paul Gallagher:

I don't want to get involved in a political issue. My understanding is the Minister spoke to the troika, and indicated that it was appropriate that a new Government should have the opportunity of making a determination on that in democratic terms. That's my understanding.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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So the MOU allowed us to-----

Mr. Paul Gallagher:

Well, there was some flexibility, and I think that's clear. You could talk to them and, indeed, changes were subsequently made. I think the important thing was: you communicated with them, you maintained their trust and support which was vital. And I distinctly remember Minister Lenihan communicating that to the troika, and he did so on the basis that he felt, democratically, it was appropriate that the new Government would have the opportunity of considering that and addressing that.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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But, in terms of the legal position, are we to understand the MOU, like a contract in a domestic law, that if there is to be a renegotiation, it has to be agreed by both sides?

Mr. Paul Gallagher:

Exactly, yes, exactly.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay, thank you. And just a final question I wanted to ask in relation to the details of what's contained in the MOUs. I mean, I think we're aware with the higher level details, like, for example, that ... sale of State assets, half the proceeds would be used to pay off the debt, you know, trying to find lower costs in the legal services, for example, but one requirement I was interested in - was the requirement in the programme for "an economic analysis of the potential impact on competition and consumer prices, of eliminating or relaxing the floor space cap on retail premises".? Do you remember that? That-----

Mr. Paul Gallagher:

I remember that being an issue, yes. I have to say I didn't focus, but I knew that, I think ... certainly, it rings a bell as an issue, Deputy.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Do you remember where it was coming from? Was it coming from a particular country?

Mr. Paul Gallagher:

It might have been, and, again, it would be unfair for me to say it, but, certainly I think they thought that that was a restriction and, of course, at the end of the day, the Commission had to be satisfied that that was a restriction. That's where it was coming from. Whether it was being influenced by another country or not, I would only be speculating.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Did they think it was restriction on certain companies outside of Ireland doing business in Ireland?

Mr. Paul Gallagher:

That would be, presumably, one of the ... and just generally in terms of fostering competition, bringing down prices, so the bigger, presumably, the operations, the better opportunity there was for competition. There was a serious concern, of course, that Ireland over the years had lost its competitiveness and this was one of many measures, I think, designed to restore it, so I assume it was in that context but I wouldn't have been involved in that level.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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And did anyone raise anything about the ability of Irish companies to compete domestically against foreign competitors coming in at such a large size seeing as how we were going to lift the cap on the floor space?

Mr. Paul Gallagher:

Well, I suppose if you're ... believe in competition, as people did, they had to compete. I'm sure there were negotiations on a lot of those things. I wasn't privy to that or what issues were raised or whether issues ... everybody ... I assume the Department was dealing with the detail of that and was doing the best it could.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Are you aware of any other requirements-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Final question now, Deputy.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Thank you ... any other requirements in the programme for assistance that were being driven by the concerns of countries who wanted their own companies to be able to get into Ireland or benefit from the situation?

Mr. Paul Gallagher:

I'm not aware of that but I wouldn't have looked at the detail of all of the conditions which were economic matters or what, so that could be true, Deputy, but I just don't know. I wasn't involved in those negotiations nor did I have to regard to the, sort of, detail of what needed to be done to comply with the troika's terms.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay, thank you.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much, Deputy. I'm just going to move to wrap things up. Just a couple of questions for yourself and then I'll invite the two leads back in again, Mr. Gallagher. The first one is: did at any time did you advise on the bond redemption schedule by NAMA?

Mr. Paul Gallagher:

No, I didn't.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay and the other thing: is it your memory that there were two sides in Government Buildings on the night of the guarantee - one nationalisation, the other one, full guarantee?

Mr. Paul Gallagher:

That's my memory. A lot of that was done before I arrived but it continued after. It was clear that it was so, that it was being considered.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, did you have a position on that?

Mr. Paul Gallagher:

I didn't offer any position. I don't think it's my role to do so and I think it would interfere with my independence.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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All right. Mr. McCarthy gave evidence yesterday that it was the Financial Regulator who wanted to remove the term "solvency" or that part of the official statement when it went out. Is that ... concur with your own recollection?

Mr. Paul Gallagher:

That may be so. I genuinely can't remember that, I'm sorry, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. Also, if I can return to the Credit Institution (Financial Support) Scheme, the Bill of 2008-----

Mr. Paul Gallagher:

Yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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-----and in section 8, this allowed for a review of the scheme which allowed the Minister to consider, and ... then the Bill goes on to state "... the continued requirement for the provision of financial support". Did the section allow the Minister to bring an end to the guarantee after six months?

Mr. Paul Gallagher:

The EU requirement was that the guarantee always be reviewed and if the EU thought it was no longer necessary, it would have to be brought to an end.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, so whose prerogative, or whose call was it, was it the EU's or the Minister's call ultimately? I just-----

Mr. Paul Gallagher:

There's a power to revoke it in the guarantee scheme if, for example, the conditions of the guarantee weren't being complied with, otherwise it was intended to last for two years, subject to a review. And it was conditional on the basis which ... or, sorry, it was conditional on the circumstances which required the giving of the guarantee continued, and if they didn't continue, then the Minister was entitled to bring it to an end and would be required to do so by the EU.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And was that ever considered?

Mr. Paul Gallagher:

It was but, I mean, the ... I'm sorry, I assume it was but, as I said already, rather than being shortened, it was actually continued and continued post-2010 through the eligible liquidity guarantee scheme, so I assume the decision was taken that even with all of the support of the banks and even with the situation of all the money in the banks, it was still required.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And were you privy to any consideration that ... you've stated the factual aspect about what happened but were you privy to any consideration of a review on any six-pack option?

Mr. Paul Gallagher:

I wasn't, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. Just two final questions there, Mr. Gallagher. Were you required to advise the Government on the legal impact of positions taken or representations made from either the Commission or of the ECB in the negotiation of the troika programme?

Mr. Paul Gallagher:

No, I wasn't.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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There was no negotiation or consideration at that time, no?

Mr. Paul Gallagher:

There was ... well, there was negotiation of the ... there were no legal issues there were ... sorry, two legal issues that arose. One was I was told IMF was insisting on a priority. I couldn't see that in the IMF rules. We had a conversation late on that Saturday night, on 20 November, about 2 o'clock, with the chief counsel of the IMF, a Mr. O'Hagan, and he explained it wasn't anywhere explicit but that's how the IMF dealt with the matter. And the other issue that I did raise was whether there should be included, or whether there would be agreement to include, what's called a "most favoured nation clause" dealing with interest. Because there was concern the interest rates were high. A most favoured nation clause would mean that if anybody else got a lower interest rate, because the Portugal bailout was something that night happen, we would automatically benefit from that. That had been explored, it was refused but I think you've already been told that there was, at least, an expectation that an improvement would be achieved on the interest rates but they were ... wouldn't put that clause in.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, and, just finally, if I could maybe ask you to comment upon whether you or the Government were examining the legal rationale under European law for specific actions taken by the ECB or the Commission or whether queries were raised concerning the basis, under European law for specific actions taken by the Commission or the ECB? And an example of such would be what legal action could the ECB or Commission have taken against Ireland if we had decided to burn bondholders or let a bank like Anglo go bust?

Mr. Paul Gallagher:

They couldn't have taken legal action. They may have complained under, I think, it's title 8 of the treaty where each member state is obliged to contribute to financial stability, but, ultimately, they couldn't, in my view, have taken legal action. Certainly it wasn't an issue that was raised for me to advise on, but my best understanding is they couldn't have.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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So, on the position that people should be protecting banks and so forth there was no ... and whatever was coming from Europe in that regard, there was no legal clout behind that. Is that what you're saying this morning?

Mr. Paul Gallagher:

Exactly, what Europe said is, "Don't allow a bank to fail, because of the financial consequence to your system, but not that you are legally obliged to prevent that happening".

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And likewise with burnt senior bondholders, yes?

Mr. Paul Gallagher:

Exactly.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, thank you. Deputy Joe Higgins, three minutes.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Mr. Gallagher, you said earlier that you felt Ireland was isolated as the crisis broke but did you, as Attorney General, were you a regular attendee at international Bilderberg Group conferences during the crisis?

Mr. Paul Gallagher:

No, I attended my first Bilderberg conference, Deputy, as you may know, in 2008. I didn't attend in 2009; I attended in 2010 and I attended in 2011 after my term of office expired.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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And were you there as an official representative?

Mr. Paul Gallagher:

No, I was there in a private capacity.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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And were you asked to contribute in relation to the Irish crisis or to give a paper?

Mr. Paul Gallagher:

No, I didn't, no I didn't.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Or did discussions take place on the Irish crisis?

Mr. Paul Gallagher:

Discussions took place ... I think it's a matter of record. As you know there's a confidentiality with the proceedings, but I think the published record shows that, obviously, the continuing financial crisis, and, ultimately, the sovereign crisis, were matters of discussion, I think, wherever people met that had concerns about these matters.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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The Bilderberg Group, Mr. Gallagher, is regarded as being highly secretive. Some say it's also representing the global capitalist elites, if you like. Do you think it's appropriate that the chief law officer of the State would be involved with it?

Mr. Paul Gallagher:

Well, that's a matter for others to judge, Deputy Higgins. I wouldn't have gone unless I thought it was so. I informed the Government that I had been invited. I went because this was an opportunity of hearing views on many matters of interest to me and also of interest to the country. I didn't believe that it, in any way, compromised me and I wouldn't have gone if I did. There is a view about Bilderberg and its proceedings - I don't want to get involved in an argument at this hearing about that - but I certainly am quite satisfied that there was no issue.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Why do you think they would be interested in getting a member of the Irish Government, even if you're not in official capacity?

Mr. Paul Gallagher:

I don't believe they were particularly interested in that. I was ... went with Mr. Sutherland and nobody was demanding, I think, that they have a representative of the Irish Government, I suspect least of all somebody of me ... like me, who didn't have the, sort of, positions many people have in that organisation.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Mr. Gallagher, finally ... like Mr. McCarthy yesterday, who was a chief in the Taoiseach's Department previously, you explained the red line issue that corporation tax was for the Government in dealing with the troika, etc. But can I ask you: do you think it's a moral and defendable position that a Government would take that, you know, highly profitable corporate entities should be protected during austerity but, at the same time, €1 per hour can be wiped off the poorest workers' minimum wage?

Mr. Paul Gallagher:

Firstly, I didn't get involved in moral issues, neither did I get involved in political issues. The concern of the Government was quite clear to me. It had nothing to do with protecting the industries.

The view was taken, whether rightly or wrongly - and it's for others to judge - that this was a very important aspect of Ireland's economic recovery. That's how it was expressed to me ... that if you do anything to interfere with foreign direct investment, you are postponing the recovery for everybody's benefit. And that was the only consideration I was aware of and no moral issue arose that I knew.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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But did they express-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Final question now, Deputy.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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-----qualms to you about interfering with the wages of the poorest workers at the same time?

Mr. Paul Gallagher:

Well, I won't talk about Cabinet but ... my interaction with members of the Government, I never saw anything throughout the period but a concern about the impact this was having on people. That was all I ever heard. So there was a very real concern about the impact of this on people and an attempt - history will judge whether they achieved success or not - to do the best they could for the people. That's all I ever witnessed.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Thank you, Mr. Gallagher.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Deputy Kieran O'Donnell.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Mr. Gallagher, just a quick question. You spoke about Ireland standing alone.

Mr. Paul Gallagher:

Yes.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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And, two quick questions. Do you believe it's a good idea to make monumental decisions in the middle of the night?

Mr. Paul Gallagher:

I think the simple answer to that is nobody wants to make a monumental decision in the middle of the night. The possibility and alternative of not making that decision was explored fully by the Taoiseach on a number of occasions and the advice was, it wasn't possible to delay the decision. I heard what Dr. Somers said in that regard. I mean, that's correct in so far as it goes. Nobody does want to make those decisions but there are times - and I've experienced it in other, far less significant situations - where the decision has to be made. That was the position.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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If a decision had been taken ... I notice there was a meeting of the ECB the following day, on 1 October - in your statement, page 6 - if €10 billion was being provided by the banks effectively to fund a liquidity position of Anglo, if the decision had been taken to basically cover that liquidity position, and Governor Honohan had brought up the issue in the ECB meeting the following day, was there any legal impediment to the ECB assisting Ireland in a solution to deal with Anglo and the banking crisis?

Mr. Paul Gallagher:

Well, as I indicated, the ECB took the view it had no role in saving the banks. ELA was a matter for the national central bank, subject, of course, to the compliance with the ECB rules-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Once the blanket guarantee was put in place on 30 September-----

Mr. Paul Gallagher:

Yes.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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-----by default, basically, the ECB were completely entirely left off the hook in terms of coming up with a solution. So the question-----

Mr. Paul Gallagher:

It was made clear that the ECB were not going to address this at the meeting, that the ECB took the view - and, as I said, that was the legal position - that these were matters for the member states. The ECB not only took that position at that time, that continued to be its position right up to the bailout, where the ECB was again saying "You need to solve the problem with your banks, and this time do it through a bailout".

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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In hindsight, if resolution legislation was available in terms of providing an orderly wind-down of an institution, would it have made a difference on the night?

Mr. Paul Gallagher:

The answer to that is no. I think Governor Hurley said that. But I do want to make things clear: resolution legislation was available. When you talk about an orderly wind-down, an orderly wind-down involves a liquidation. It was quite clear to everybody that you couldn't take the risk of winding down a bank in whatever fashion. That was absolutely clear. And nobody was prepared to take that risk because of the consequences for other banks. It was as simple as that. And all of the banks were regarded as being exposed to property ... you see one bank winding down and the concern was that, within a matter of hours if not days, that would be the position of all of the banks. And, as I said, the unique position was you had the six domestic banks - our whole domestic financial system - under threat. That, to my knowledge, was quite unique and certainly that demanded an approach that addressed the threat to the financial system. And that's the decision that was taken.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Final question, Deputy.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Final question. Was there a letter from yourself to Taoiseach Cowen on 1 October 2008 around the whole situation?

Mr. Paul Gallagher:

Yes, and I've already mentioned that. That was the letter in which I provided advice with regard to how we addressed what was, for me, a very pressing issue and that was getting state aid approval. That was my responsibility. I was asking for help in relation to it, the expert was setting out what the position was and I was very concerned that if that ... if I failed in that task, then the consequences would have been very serious, because you'd have had an announcement of a guarantee, then it being held you couldn't legally do it ... and what was to happen then?

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Thank you.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I'm going to bring matters to conclusion. Is there anything else you'd like to add, Mr. Gallagher, before I close the session-----

Mr. Paul Gallagher:

No ... could I just say something that has been on my mind and it's not ... it's just something I think people should know, the public should know, because it was something that I was impressed by. I did mention, in an article that I wrote for the book on Minister Lenihan, that, as of 23 December 2010, we went over to the Merrion Hotel, and it is something remarkable ... I was constrained in what I could say in the book because of the obligation of confidentiality, but here was a man under the stress and the clear knowledge of what the future had for him, and there was only one thing that concerned him: and that was making sure that the legislation that was required to meet the bailout obligations was enacted before the Government fell. And, in a sense, it's relevant to what Deputy Murphy said, there was that conscious ... that was the only thing that was on his mind. And subsequent to that, I wrote to the Taoiseach and copied it to the Cabinet, and asked that I get every assistance from all of the Departments to prepare for the incoming Government the legislation that was required to make sure that there was no breach of those obligations because of the consequences Deputy Murphy has identified. And I got full support from the Taoiseach and the Ministers in getting that prepared. And I think that was something that was very important.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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In that regard, given the earliness of those deliberations and the matters you relate to ... by the former Finance Minister, Brian Lenihan, would it be an accurate assumption to say that we were actually bounced into a bailout programme or did it mean that we were inevitably heading in that direction? Or maybe timing was an issue, but we were ... that bouncing wouldn't be a fair reflection of what actually happened?

Mr. Paul Gallagher:

Again, I suppose that it's outside my brief but, from what I understood then, and perhaps what I've learned since, both been fused together, I think once Greece went into the bailout, you had then the spread and the sovereign bonds, you had, undoubtedly, the Deauville declaration. And when we're talking about burning bondholders, it's important to remember that they were talking about burning bondholders in the future and the effect on the cost of borrowing rocketed. I think that set the seal for the bailout. I think it was probably then a matter of time. I think the Government was trying not to be bounced into it by saying, "Yes, we're applying for it" because then, as I said, you're locked in but that was the situation. But, so far as I could see, that was what was of concern at the time and those are the matters that immediately precipitated ... of course, you can't isolate, Chairman, as the committee will know far better than I do, any one factor. There was all of these factors coming together.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, thank you very much, Mr. Gallagher. I'm going to now take a suspension. Before I do, I'd like to thank you for your participation before the inquiry here today and your engagement with it. It is unprecedented, it is the first time, I think, a former Attorney General has ever spoken before a committee in this House and I'd like to thank you for your co-operation and assisting in making that actually happen. So with that said, the witness is now excused, and I propose that we return at 12.45 p.m. Is that agreed?

Mr. Paul Gallagher:

Thank you, Chairman, and thank you members of the committee. I wish you well. Thank you.

Sitting suspended at 12.28 p.m. and resumed at 1 p.m.

Arthur Cox - Mr. Pádraig Ó Ríordáin and Mr. Eugene McCague

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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We now will return into public session, if that's agreed, and we ... with our next hearing with Mr. Pádraig Ó Ríordáin and Mr. Eugene McCague of Arthur Cox law firm, legal advisers to the Department of Finance. The Committee of Inquiry into the Banking Crisis now resuming in public session, and can I ask members and those in the public Gallery to ensure that their mobile devices are switched off.

At this session we will focus again on the legal advice given to the Government during the crisis period. I would like to welcome two witnesses from Arthur Cox limited firm, Mr. Pádraig Ó Ríordáin and Mr. Eugene McCague. Pádraig Ó Ríordáin is ... was managing partner of Arthur Cox from 2003 to 2011. He led the Arthur Cox team which advised the Irish Government on the Irish banking crisis. Eugene McCague is a partner with Arthur Cox since 1988, he served as managing partner from 1999 to 2003, and served as chairman of the board of Arthur Cox from 2006 to 2013. The witnesses' appearance here today has been facilitated by a decision of the Government to waive legal privilege in respect of their oral evidence to this inquiry, having regard to the exceptional circumstances of the financial crisis and the important mandate of this committee to inquire into the financial crisis. The waiver is limited to advices relating to the bank guarantee provided to the Government during September and October '08. In addition, the waiver does not extend to discussion of legal advice that could prejudice any litigation pending or anticipated regarding matters the committee may seek to inquire into.

Before hearing from the witnesses, I wish to advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If you are directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given. And I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry, which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right and members of the public and journalists are reminded that these documents are confidential and they should not publish any of the documents so displayed.

The witnesses have been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee, will be relied upon in questioning, and form part of the evidence of the inquiry. If I can now ask the clerk to administer the oath to both Mr. McCague and Mr. Ó Ríordáin.

The following witnesses were sworn in by the Clerk to the Committee:

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Once again, welcome Mr. Ó Ríordáin and Mr. McCague to the committee this afternoon, and, in whatever sequence you wish, I'd like you ... to invite you to make your opening remarks, please.

Mr. Pádraig Ó Ríordáin:

Thank you, Mr. Chairman, and, I'm pleased to be here with my colleague, Mr. McCague, to assist the committee in its work today. I would like to start by giving an overview of Arthur Cox's role in addressing the issues which arose in the banking sector.

Arthur Cox was engaged by the Department of Finance on the morning of Wednesday, 24 September 2008, to advise in respect of the emerging banking crisis. Prior to that I had no involvement in the banking crisis and was not aware of its depth. I understand that the Department contacted me as it was familiar with my role ... with my work, through my role as chairman of the financial legislation advisory forum, which I had undertaken at the Department's request on a pro bonobasis from 2007. I led the Arthur Cox team throughout this period. Arthur Cox was engaged to act as external corporate legal adviser to the Department and its agencies. In executing our role we worked closely with the Department, the NTMA, the Office of the Attorney General, as well as other Department advisers, including Merrill Lynch, PwC, and later, Rothschild.

Over the seven years since the onset of the crisis, Arthur Cox's role has included advising on and helping manage legal risks relating to the State following the guarantee, assisting the Department of Finance and its agencies to map out the legal landscape applicable to the banking sector, undertaking legal due diligence exercises in respect of a number of the banks which the State was supporting, identifying legal obstacles and risks, as well as potential solutions to them in policy under development by the Department, contributing to the design of legislation being prepared by the Office of the Attorney General, helping execute policy decisions by legally implementing banking sector transactions and undertaking the High Court applications required to effect Government policy, working with the Department to satisfy the requirements of external agencies such as EC Directorate General for Competition, and finally, defending the State in litigation taken against it arising out of the execution of its policy. The legal work required to perform this role was uniquely complex and extensive, with each legal action or solution integrally connected with all others over the years of the crisis. In summary, Arthur Cox's job was to help design the legal architecture required to support policy decisions made by Government, and then help provide the legal engineering required to implement those decisions.

At the beginning of the crisis, in 2008, in common with many European countries, the Irish Government had available to it no specifically designed legal infrastructure or powers currently in law to intervene in, or resolve, banks in financial difficulty. Indeed, EU-wide legislation dealing with bank recovery and resolution has only been implemented this year, in 2015. As a consequence, this legal infrastructure had to be built, often under intense time pressure, from the ground up, as the crisis progressed. This was a very extensive and complicated exercise, combining statutory, contractual and judicial avenues with the major milestones being the Credit Institutions (Financial Support) Act 2008, the Anglo Irish Bank Corporation Act 2009, the National Asset Management Agency Act 2009, the Credit Institutions (Stabilisation) Act 2010 and the Irish Bank Resolution Corporation Act 2013.

The common threads running through all of the work in the design and implementation of the required legal infrastructure were to enable the Government to take the actions it deemed necessary to ensure financial stability, while observing the legal integrity of the banks and their stakeholders, and ensuring the central objective that there be no default by any of the banks in relation to any of their obligations which could impact the guarantee. Any default by the banks, even inadvertent, could have triggered cross-defaults on their financial instruments, leading to a failure of a bank and a call on the guarantee. This risk became most pronounced in the first half of 2011, when the banking sector was substantially reorganised in accordance with the troika programme. Each action taken by the State, therefore, had to be robustly designed to implement policy measures, legally and effectively, while ensuring banker sector ... banking sector stability. This was legally challenging in circumstances in which the State was required to intervene strongly to maintain financial stability, even where that required the alteration of other stakeholders' rights. The legal solutions adopted by the State in response to issues caused by the banking crisis navigated a narrow path demarcated by the Constitution, European law, IFSRA, which was later the Central Bank, and banking regulation generally, ECB requirements, stock exchange rules and the EU Commission's Directorate General for Competition, as well, of course, as the legal rights of depositors, bondholders, shareholders, derivative counterparties, bank boards and employees. These solutions had to legally optimise the position of the State, comply with the requirements of the troika programme from 2011 onwards and take into account the responses of rating agencies and sovereign bond markets. Over the period of our engagement, more than 120 Arthur Cox lawyers in total worked for the Department and its agencies on this crisis, with specialist teams required in corporate, litigation, capital markets, finance, financial regulation and insolvency-restructuring.

The direction I've received from the committee directs me to provide evidence on 13 lines of inquiry relating to themes of crisis management system and policy response and regulatory, supervisory and Government. I look forward to answering your questions on these themes, following Mr. McCague's opening statement. Thank you, Mr. Chairman,

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. Okay, with that said, if I ... Mr. McCague, please.

Mr. Eugene McCague:

Chairman, members of the joint committee, I have been asked to assist the joint committee in relation to one specific line of inquiry, namely, the appropriateness of the bank guarantee decision. I provide you with a written statement setting out my recollection of relevant events between Wednesday, 24 September 2008, which, as Pádraig said, was the date in which Arthur Cox was appointed to advise the Department of Finance, up to and including the night of the guarantee. I don't propose to go through the statement here. I'm here to answer any questions on the bank guarantee decision you might ... may wish to ask.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. McCague. So, with both opening remarks made, I now invite Senator Marc MacSharry to open the questioning today. Senator, you have 25 minutes.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Thanks very much, and welcome, gentlemen. Thanks for being here today. Can I ask, first of all, as former chairman, this is Mr. Ó Ríordáin, of the legislative advisory forum, can you comment on the extent to which Irish financial regulation policy was geared towards the development of the IFSC and do you believe this in any way compromised the regulation that would otherwise have been put in place in respect of domestic banks?

Mr. Pádraig Ó Ríordáin:

Senator, I think the role of the financial legislation advisory forum was very much just to consolidate legislation that was already there, because what had happened in Irish financial legislation is that it had built up over a period of time in a relatively sedimentary way and it was quite difficult to find your way through it, so the purpose of that committee was just to consolidate. We didn't really look at that ... in fact, we didn't have any brief to look at the policy or the direction of any of that; it was actually just nearly an administrative exercise to consolidate what was already there so it would be hard for me to comment on the bigger picture in terms of the overall policy and direction.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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And in undertaking the consolidation of existing legislation and while policy was not your role in terms of determining it, was it your observation at the time that policy was in any way being put together or geared towards the development of the IFSC and do you believe this may or may not have compromised the regulation that would otherwise have been in place in respect of the banks?

Mr. Pádraig Ó Ríordáin:

I think probably the best way of answering that is to contrast now versus then, and, undoubtedly, then there was much lighter touch regulation, you know, at a macro level. In terms of the purpose of that, whether that was just directed at IFSC I would say that ... just as an observer. I would say that was an element of the regulatory response at the time but how much it was a core or essential feature of policy as that was communicated to the Central Bank, I don't know, but, certainly, if you look at the contrast between then, which is light touch, and now, which is quite different from that, I think you do see that contrast.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Okay, so principles-based versus rules-based as we now see and bearing in mind that you are only there as a consolidator and you are witnessing the policy as determined by others, but were you left with a clear view or not that really the piper was calling a tune to facilitate the IFSC regulation rather than the domestic banks?

Mr. Pádraig Ó Ríordáin:

No, I have to say I didn't have that particular perception but that could just have been because of the focus of the group but I didn't have that perception.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Can I ask Mr. McCague, can you outline who had concerns regarding the solvency position of Anglo and Irish Nationwide Building Society as outlined in your witness statement?

Mr. Eugene McCague:

Yes, I think ... yes, in my witness statement, I said there had been a number of discussions throughout the night on liquidity and also on solvency of those two institutions and if I could maybe just run you through those briefly. As I think I explained in my written statement, I only arrived to the meeting shortly before the representatives of Bank of Ireland and AIB came into the room. So I suppose the first people I heard expressing their concerns were those representatives, and it was absolutely evident from them, and you've heard this evidence yourselves, that they were extremely concerned about Anglo and the contagion effect of Anglo.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Sorry, to interrupt you. They being who just for the record?

Mr. Eugene McCague:

The representatives of Bank of Ireland and AIB, sorry. Sequentially, they were the first people I heard expressing concerns. They were extremely concerned. They had ... I recall Mr. Gleeson of AIB making the point that if the share price in Anglo the following day when the markets opened fell anything like it had fallen that day, that there was a serious risk that people would take that as a proxy for deposits and that there would be people queuing outside the Irish banks so they had a very serious concern about that. They wanted the nationalisation of those two institutions. I think they used the phrase, "taken out", or some such phrase but it was clear that it was nationalisation they were talking about. I don't recall them actually using the words,"These institutions are insolvent", but my sense was that that was certainly the view that Mr. Gleeson was putting across in what he had to say and the liquidity issue was speaking for itself. And, indeed, they had their own concerns in relation to their own positions as a result.

When they left the room there was then a further discussion among the Government side, if you like, to call it that. What was evident to me was that I was coming at the end of a long meeting, near the end of a long meeting, rather than at the beginning of a meeting, because it was quite clear that the Government representatives had been thrashing this out for a number of hours. I mean, I was told the meeting had been going on for some hours beforehand and, therefore, this was ... the main focus was whether anything new had been learned from Bank of Ireland and AIB and I suppose what those banks had done was reaffirmed a position that was already known that it was a very serious crisis.

And I don't recall ... so the issue then really became do you nationalise Anglo and Irish Nationwide or don't you? By the time I was there, that had become the crux of the issue. I don't recall anyone arguing the case that they were insolvent on the night. I do recall Mr. Cardiff strongly argued the case for nationalisation. I've read his statement, which you kindly sent me, and I recall that. I don't know whether he based that on solvency but there was clearly concerns in relation to it. And I recall that the most significant event of that next session was that the Taoiseach pulled the discussion together and said that he felt a decision needed to be made and he turned to the Governor of the Central Bank, Mr. Hurley. In quite a formal fashion, he said, "Governor, as Taoiseach, I am entitled to rely on you for advice. Is Anglo Irish Bank [I think probably also Nationwide, I remember Anglo] is it a liquidity issue or a solvency issue?" and the Governor was quite unequivocal that it was a liquidity issue. And to some extent from that point on, the direction which the rest of the evening took, which I'm sure we will get to in due course, took its shape. So I don't remember anyone making an assertion that either of the banks were insolvent but, certainly, the nationalisation of the argument was implying that to me.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Very good. Again yourself, if it's okay, what was the practice of the Department of Finance during September 2008, and subsequently, regarding the seeking of legal advice? Did they seek legal opinion on all policy opinions being considered or on a specific policy option selected by them?

Mr. Eugene McCague:

Sorry, I could deal with that for September and if you need, I'm sure Pádraig could deal with it for subsequently. In relation to September, I suppose the policy issues that were being considered were the ones that Merrill Lynch had laid out and they're in the document you sent. And of those, we were asked to look at two of them. We were looking clearly at the option of the legislation for the nationalisation of Anglo and Irish Nationwide. That was what my main, if not sole, focus over those days was, so we were certainly asked what were the legal issues in relation to that one. And the other one was a lending scheme, an emergency liquidity scheme, a collateralised lending scheme. It was called a secured lending scheme, I think, in the Merrill Lynch paper. There were colleagues in Arthur Cox were asked to look at that and what were the legal issues on drafting on that.

In relation to the other issues on the Merrill Lynch paper, if I recall correctly, there was a good bank-bad bank option. We were never asked to look at that but I think the Merrill Lynch paper itself specifies that that was a second-stage solution, if you like. And liquidation, we were certainly never asked to look at because it was a second-stage one. So that leaves the one, the option that was, ultimately, followed, which was the guarantee of the six institutions. We weren't asked to give any advice on that prior to the decision being taken on the 30th. I know Pádraig and some of his colleagues did some work in relation to legislation after it. We weren't asked for advice on that. I should say that the Bill which we were drafting in relation to nationalisation did have a section in it which was giving the Minister very wide powers ... a wide power to give financial support to a credit institution and financial support included the word "guarantee" but that section would not have been adequate to deal with the type of blanket guarantee that was introduced on 30 September. I just mention that because I think I saw when I was reading that either Mr. Beausang or Mr. Cardiff or one of those gentlemen had mentioned that there was a section in the legislation. And there was, but it was dealing with just a broad power for the Minister to give financial support to institutions; it wasn't in relation to the guarantee. So the short answer to that is we were asked to give advice on nationalisation and on a CLS scheme and we were not asked to give advice on any of the others.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Very good. To your knowledge ... well you said it wasn't and you were not asked to consider it, so I will rephrase it: Would it have been legally possible to let Anglo and INBS fail and create a State bank by nationalising the other four?

Mr. Eugene McCague:

I'm sure it would have been legally possible. I mean, the issue with nationalising institutions which are solvent ... I mean, it happens in countries like Venezuela and various other places but if you are in a constitutional democracy with a written constitution and with property rights and by nationalising, you're taking people's property rights away, you would face extraordinarily significant legal challenges but, in legal principle, you could introduce legislation to nationalise banks.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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So on the night, it was the view of the Governor that everybody was solvent, but yet you were being asked to look at nationalisation legislation, which you're saying of solvent banks really that's a matter for Venezuela and other countries.

Mr. Eugene McCague:

Well, that's just an opinion. I mean-----

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Okay, yes.

Mr. Eugene McCague:

-----the State could ... yes, I mean the legislation that we were looking at was legislation which had been in ... around since about May or June. I think you probably know that. It was based on the Northern Rock legislation, we were working on it over those days. It was always said to us, from the first day we arrived, that this was contingency planning. We were never given a date or we were never said, "This must be done." It was contingency planning but that was what we were working on. I don't think the legislation, of itself, to take your point, Senator, would have required a declaration that the bank was insolvent. I'm merely making the point of the practical challenges of nationalising a solvent institution.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Again, just a slight add-on to that one, for whichever of you feel is most appropriate to answer. So, on the 24th, when you came in, it was about contingency planing. I know we spoke briefly there about the night of the guarantee. But did you have any sense when you were engaged on the 24th that, "Look, things are in a very, very grave situation and we expect to need to do something within a week, two weeks, a month, a year"?

Mr. Eugene McCague:

Well, I'll take that first.

Mr. Pádraig Ó Ríordáin:

Sure.

Mr. Eugene McCague:

I mean, yes, we had a sense it was in a grave situation but we certainly had no sense of the timeline and we certainly didn't have a sense coming in on Wednesday that the big decision would be made in less than a week. But yes, we had a sense that this was, I think, a matter of weeks and that it was something that ... it was a very grave situation.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Okay. Do you want-----

Mr. Pádraig Ó Ríordáin:

I would echo that entirely, Senator. I think that, on the morning, certainly, when we came in, we were asked to come in that morning at relatively short notice and we were briefed at the same time as Merrill Lynch was briefed. And I have to say that I ... the briefing was quite shocking in relation to the position particularly of Anglo and INBS. And therefore the potential knock-on impacts on the rest of the system, you know, were clear, but particularly on Anglo and INBS. But at that stage again, as Eugene said, the timing as to how that would play out all depended on things like liquidity flows and all of that. And obviously the Central Bank would have had all of the information in respect of that and that was being monitored on a daily basis. So it was very hard, when you saw the initial briefing, to predict exactly where this would go.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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For yourself this time, what was your understanding of the communications between the Governor of the Central Bank and ECB officials in the period to the night of the guarantee with regard to the deteriorating liquidity crisis?

Mr. Pádraig Ó Ríordáin:

Senator, we didn't have any visibility of that. So we were advising the Department of Finance and that would have been happening at a very different level and perhaps at a policy level as well. So I wouldn't have had any visibility of that.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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So to the extent that you can comment, you were unaware of any communications with the European authorities? Is that fair or-----

Mr. Pádraig Ó Ríordáin:

I think that I would have had a sort of broad understanding of the fact that those communications were happening but, as to the detail of them, I wouldn't have had any knowledge.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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And yourself again, if it's appropriate, on the night of 29 September, did the banks bring a written version of a draft guarantee to the meeting? And, if so, do you have a copy of that draft and, if so, can you provide it to the inquiry?

Mr. Pádraig Ó Ríordáin:

I'm unaware of any draft from the banks and I don't have a copy.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Okay. Just another series of questions and just I want to be cautious here, so if you feel that I'm straying into a territory that you're uncomfortable, or the Chair, I'm prepared to be corrected. For the period 2008, is it in order for you to tell the inquiry how many banks you acted for?

Mr. Pádraig Ó Ríordáin:

You mean as a firm that we acted for?

Mr. Pádraig Ó Ríordáin:

Sure. We acted for one other bank in relation to these issues, which was Bank of Ireland, and we started acting for Bank of Ireland in relation to these issues late in October of 2008.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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But in a general, commercial sense, are you-----

Mr. Pádraig Ó Ríordáin:

In a general, commercial sense, probably more. So, in other words, in terms of normal, sort of, loan advice and those types of things-----

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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I understand.

Mr. Pádraig Ó Ríordáin:

-----probably more. I don't have the numbers, Senator.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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But apart from, say, purchases of buildings and property and conveyancing and that kind of stuff, I mean, in terms of what a layman like me might describe as high-level legal advice-----

Mr. Pádraig Ó Ríordáin:

Yes.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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-----were you acting for many banks, or how many, in 2008?

Mr. Pádraig Ó Ríordáin:

Before the ... before September or-----

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Well, assuming that-----

Mr. Pádraig Ó Ríordáin:

Okay.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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-----you weren't disengaged in the month of September, or hired in the month of September?

Mr. Pádraig Ó Ríordáin:

Sure. The banks, Senator, that we would have traditionally done most of that level were ... so let's call it board-level work, would have been Bank of Ireland. From time to time, we would have done some work for EBS as well, I think, at the same type of level. But I'm not that conscious that we had done that much in 2008. So I think Bank of Ireland really would have been the bank.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Very good. How do legal firms, and indeed Arthur Cox, reconcile any potential for conflict of acting for the banks and, say, in the context of what we're talking about here, then also advising the Government on guarantee and other related issues?

Mr. Pádraig Ó Ríordáin:

Well, the very first thing that we do is to see whether we're advising on the same issue, because if it's not on the same issue, then the issue doesn't arise so much. And then the priority always, obviously, is to inform both clients. So, what you would do in those circumstances, you'd go to both clients - so in this case the Government, or the Department of Finance at least, and the Bank of Ireland - and explain to each of them what you're doing, how you're acting in relation to that and what the client actually wants of you. And then if both clients, in those circumstances, agree that actually each of them is happy with that arrangement and the arrangements that are put in place to, you know, separate teams completely and preserve confidentiality and all those types of things, it's the client's decision then, or the client's choice, to go ahead on that basis. I think, in the type of crisis that we had, Senator, every firm would have acted ... would have been acting for other banks, it's just the nature of it. Because it would have been very difficult to provide the type of legal advice and expertise that the Department required if you'd never acted for any banks. So the inevitability would have been that any law firm would have been in a similar position. Therefore the key is, well, how do you handle that conflict and the very first thing in relation to handling a conflict is, obviously, informing fully your clients and making sure that they're aware and letting them choose.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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And just for the people that would be listening in and for the benefit of the committee, if you are acting for Bank A and you're acting for the Government on the guarantee, who may or may not be a beneficiary of this guarantee, you could advise both parties that, "Look, this is what's going on; are both sets of people happy?" And are you saying that it is the practice then that, if both parties are happy, everybody proceeds? Is that-----

Mr. Pádraig Ó Ríordáin:

Well, Senator, I should clarify one thing, that we gave absolutely no advice to Bank of Ireland in relation to the guarantee or anything like that prior to the guarantee being given.

Mr. Pádraig Ó Ríordáin:

So we weren't engaged in anything like that. And, as I said, actually I was quite unaware and, as a firm, we were quite unaware of the depth of, you know, the problems at the time in September. So just to be very clear on that. The only time that we started acting for Bank of Ireland was later in October 2008 and that was having consulted both the Department and Bank of Ireland in relation to that and getting their-----

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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So, at the time there was none?

Mr. Pádraig Ó Ríordáin:

At the time, there was none, no.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Okay, that's grand. How would, again, a legal firm - or Arthur Cox in this instance - manage a conflict of interest in circumstances where ... no, that's actually not relevant, so I'll move on. How much of your income as a firm was derived from the banking sector?

Mr. Pádraig Ó Ríordáin:

I ... we don't publish our figures, Senator, and I actually don't even have that number. I don't know.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Okay. As a percentage-----

Mr. Pádraig Ó Ríordáin:

Well, as a sector-----

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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-----as opposed to the amount, I mean?

Mr. Pádraig Ó Ríordáin:

I don't even have the percentage. But as a sector, undoubtedly the financial sector as a whole would be a significant part of our practice. But I really don't know what percentage that would be. And I think in many ways, it was essential for us to have that or else we wouldn't have had the expertise in terms of advising the Department.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Was the firm, Arthur Cox, qualified to advise on the guarantee?

Mr. Pádraig Ó Ríordáin:

Well, we weren't asked to advise on the guarantee, just to clarify that. I think that, in general terms, if we had been advised to ... asked to advise on the guarantee, we certainly would have been qualified to act on the legal aspects of the guarantee. And, you know, for example in the implementation of the guarantee afterwards, Senator, which happened in the first three weeks of October, where the statutory instrument that was ... that brought the guarantee into law was created, we were very involved in that. So I think that bears out that, on the legal side, yes. But I think there's ... and this comes back to a question you asked Eugene earlier as well, I think there's a very important distinction - certainly in terms of our role - between what the policy is, in terms of what you choose to do in terms of supporting the banking sector, and then the legal implementation of that. And they're actually two fairly distinct points.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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I understand.

In the issues that you were asked to consider, and you talked specifically about the nationalisation legislation and then a specialised lending scheme, I think you referred to it as, did Arthur Cox have the necessary expertise to advise on these or did you yourselves interline or source any external other legal firm from other sovereigns, perhaps, who have dealt with that issue before? Or was it-----

Mr. Pádraig Ó Ríordáin:

I think that we very much had the legal expertise in relation to those and ... so what we were asked to do in respect to them, for example, I'll give you some examples of that week. So on that week we ... we gave some advices in relation to the legislation itself because that was continually in development. We did things like prepare step plans, for example, in relation to what ... how do you practically ... what practical steps do you take if you do nationalise? So what are the things you do on day one? And that's actually quite an extensive list. We also did things like helped, you know, draft the explanatory memorandum. All those types of things and also, as I said, contributed to the Act itself. On the collateralised lending scheme, we certainly had the expertise and, again, we were advising how that could be constructed to provide liquidity to the banks on a general basis.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Were ye ever retained to - and again I don't know if this is appropriate, you can tell me if it's not - to advise other sovereigns on nationalisation of banks or similar schemes?

Mr. Pádraig Ó Ríordáin:

No. Well, we practise only Irish law so it would be unusual if we were to advise another sovereign in relation to that.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Okay. Very finally, did you take any contemporaneous notes of the meetings held on the night of the bank guarantee?

Mr. Pádraig Ó Ríordáin:

Was this, sorry ... I ... just to be clear, I wasn't actually at the-----

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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No, absolutely-----

Mr. Pádraig Ó Ríordáin:

-----the meeting itself. So I didn't take notes. Eugene?

Mr. Eugene McCague:

No, I didn't.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. Thank you very much.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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That's very good. Thank you, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Deputy John Paul Phelan.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you ... thank you, Chairman. And good afternoon, gentlemen. I've a little less questions now because some of them have been dealt with already.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Apologies.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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You're all right. Firstly, actually, is it Mr. Ó Ríordáin or O'Riordan?

Mr. Pádraig Ó Ríordáin:

Ó Ríordáin.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Ó Ríordáin. Because it was written as "O'Riordan" earlier. In relation to the 120 lawyers who you said were working in the firm on the business that you've referenced in your opening statement, how many of them would be ... would've been of a partner level in the firm can you recall?

Mr. Pádraig Ó Ríordáin:

I don't have those numbers, Deputy. It would have depended a lot, from time to time, on what precisely the work was. There would have been quite a few partners involved but I don't have the numbers to hand. It's important ... that 120 were not always ... were not working at one given time or another. So that was over a period of seven years where we needed specialist teams to do specialist things. So, for example - very clear example - we'd a ... we had a litigation team that had to do some of the High Court applications in relation to direction orders, those types of things, and then we'd have corporate and capital finance teams dealing with, for example, recapitalisations of the banks or the reconstruction of the banks in 2011. So the 120 lawyers is over that period of time in total.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Was there any point during the seven-year period where the Department of Finance would have been your biggest client or one of your ... one of your biggest, I should say?

Mr. Pádraig Ó Ríordáin:

Well, again, we don't give that information usually but, certainly, the ... with the level of complexity and work that was ... that was in the task that we were assigned, it would have been one of our bigger clients.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. I want to reference your opening statement, Mr. Ó Ríordáin. Paragraph 13.1 and quote it directly, where you said in the middle of that paragraph that "we had a limited interaction with the IMF in respect of the legal manner in which senior bondholders could participate in burden sharing." Can you, within the parameters that were operating in here today, outline to the inquiry the nature of that interaction that you had?

Mr. Pádraig Ó Ríordáin:

I think I can, Deputy, on a factual basis, so I'll avoid giving our advices in relation to the matter. But on ... basically, when the IMF came in at the beginning, they very much were focused on burden-sharing with senior bondholders and I think that they saw that - at least the teams that I interacted with - saw that as being an integral part in the overall approach in solving the problem. So we did have some meetings with the IMF in relation to that and the ... there was an IMF ... a lawyer that the IMF had used previously in relation to exactly this work called Lee Buchheit, from Cleary Gottleib, who was brought in and, actually, he gave advice over a day or two, in respect of, you know, how this had been done elsewhere, for example, in Latin America and various other places. So, certainly at that stage, it was quite a focus of the IMF. From my perspective then, that disappeared back into a policy discussion and then it came back from the troika on the basis that there wouldn't be any burden-sharing with the ... with senior bondholders.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Was your interaction lawyer to lawyer then rather than you to somebody or, we'll say, Arthur Cox in general to somebody operating directly on behalf of the IMF?

Mr. Eugene McCague:

No.

Mr. Pádraig Ó Ríordáin:

No. Some of the conversations would have been directly with the IMF and others that they ... the IMF representatives would have been in the room when some of these things were discussed. And, for example-----

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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And they would've been the people who we all know and are familiar with in terms of names who were dealing with the IMF matters here in this-----

Mr. Pádraig Ó Ríordáin:

I think in general terms, yes. Yes.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Can I turn now, actually, perhaps to Mr. McCague? What was your views - in relation to the night of the guarantee itself - on the responsibility that the State had legally for the banking system or the position of individual banks within that system?

Mr. Eugene McCague:

Do you mean Deputy, sorry, before the decision was taken or after?

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Well, during ... while the decision was being discussed even, I suppose-----

Mr. Eugene McCague:

Okay-----

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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-----yes.

Mr. Eugene McCague:

-----well, before the decision was taken - and let's say the decision had been taken - I suppose, if we're looking at responsibility in the sense of responsibility for liabilities, I mean, clearly there's ... in the broader sense, if you take the Central Bank as a part of the State, there was a responsibility for regulation. But if we're talking really about the liabilities, I suppose, until the decision was taken, the responsibility ... or the potential liability on the State would have arisen potentially in relation to the deposit guarantee scheme, where the increases had gone from €20,000 to €100,000. And so if a bank had defaulted on deposits, to the extent there's intended to be a fund to cover that - I don't know what state the fund was in - but to the extent that that fund wasn't able to meet it, then the State I think would have had to step in. So, until the final decision was taken, that would have been the extent of the State's liability. Once the decision on the guarantee was taken, I think it's, again, fairly straightforward which is that for all of the categories of liabilities which are mentioned in the guarantee in relation to the six institutions and for the two-year period of the guarantee, the State was basically saying that they would pay up to creditors to the extent that an individual bank failed to do so.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. In reference to a comment that you made in answer to Senator MacSharry earlier, you said that you - and I think I'm quoting you correctly - you don't remember anyone making an assertion that on ... banks were insolvent on the night of the guarantee in the meetings that you attended. Was there an extensive discussion around the matter of insolvency or the potential for insolvency or that the illiquidity which everybody has acknowledged existed could ultimately lead to insolvency?

Mr. Eugene McCague:

There was ... I wouldn't say there was an extensive discussion by the time I had arrived but bear in mind that this was getting quite late now - the banks had come in, they'd gone out and so on. I had the clear sense there had been an extensive discussion and there certainly was, to take your last point, a discussion on the fact that, you know, in some ways, it isn't quite binary liquidity versus solvency. I know people have set up the debate, if you like, as such. And, you know, serious illiquidity will ultimately lead to insolvency. So there was a view that if the liquidity issue wasn't dealt with, then obviously it would lead to insolvency. But I don't recall anyone calling it directly and saying, "I believe this bank is insolvent as of tonight."

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Can I ... I just want to rewind, there's one point that I forgot to ask Mr. Ó Ríordáin earlier. In relation to the full extent of the seven years that were ... that you're referencing in your opening statement - and you spoke about the 120 lawyers who were employed over that seven-year period, or were working on these matters within the firm - can you inform the inquiry how you were instructed for each of those engagements? Like was there a tendering process for each of them and which of them there were not ... was there not, potentially, a tendering process?

Mr. Pádraig Ó Ríordáin:

Sure, Deputy. There was no tendering process at the very beginning because it clearly was an emergency when this happened. The ... over the period of this time I think we did about 19 different tenders, some ... many of which we won, some of which we lost. That would include, for example, tenders in relation to work for NAMA and those types of things as well. So there was ... there was quite a bit of tendering.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I want to turn to paragraph 5.5, which is quite a long paragraph, if I remember, because its got a number of subsections. If I can find it myself. Yes, subsection (e) of your statement, you say that the legal consequences of a failure of a bank could have included the capacity of the ECB to seize the bank's collateral. Can you, maybe, briefly outline what that would have entailed?

Mr. Pádraig Ó Ríordáin:

Absolutely. So this is just one of the consequences of a bank becoming insolvent.

So what would have happened ... and the ECB would have been in no different position, really, from other types of ... well, actually, sorry, it had priority ... would have been in a similar position to other types of derivative counterparties whereby, in order to get liquidity, what the banks would have done is that they would have repoed some of their assets to the ECB. And what happens in that case is that if there's an insolvency event or a bank becomes illiquid, the ECB or, indeed, other derivative parties, would actually then seize that collateral so that they own it, essentially, as collateral for the lending that they'd given.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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So, in theory at least, the ECB could have become a ... almost a direct lender to people who held loans.

Mr. Pádraig Ó Ríordáin:

Not really, because what would have happened ... no, because all the ECB would have taken at that stage in terms of collateral would have been publicly-traded instruments so as ... rather than packaged loans, for example. And that was one of the issues that the banks faced in relation to liquidity because they couldn't just package loans and give them to the ECB. So that was the position in respect of that.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Have you heard of any examples of where that actually happened? Maybe in other jurisdictions or other examples of that.

Mr. Pádraig Ó Ríordáin:

Well, I suppose, that actually happened here to a certain extent in relation ... once IBRC was liquidated. The promissory notes, for example, that were held at the Central Bank of Ireland at the time ... the Central Bank would have become the owner of the promissory notes and then they were restructured from there. So that's probably the primary example.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. At paragraph 6.3 of your statement you say "Anglo posed the greatest risk to the guarantee and the stability of the banking sector". Again, can you maybe elaborate on that particular statement?

Mr. Pádraig Ó Ríordáin:

Certainly, Deputy. I think ... and, again, I'd need to be a little bit circumscribed because I'm conscious that there's litigation ongoing in relation to Anglo. But, essentially, once the State guaranteed each of the banks, then the State was, obviously, vulnerable to any default by any of the banks. And, therefore, when it came to Anglo, once confidence started to erode in relation to, you know, the manner in which Anglo was being run, that obviously had quite an impact in relation to whether the guarantee could be triggered. And, you know, a guarantee could be triggered if there was any default in any of the covenants, for example, for ... in any of the financial instruments that the bank held. So when you guarantee like that, you ultimately are responsible for the bank and that, therefore, once the confidence in a corporate governance began to really erode in terms of Anglo, then that really was a trigger, I think, for the State to say "This is really is our obligation, our liability, ultimately, in terms of the guarantee and, therefore, we need to take more extensive control than we have taken in relation to the other banks." And then that's when you nationalise. So you become the owner. You control the board - at least, you appoint the board. And, therefore, you regularise the governance of it to a much greater extent.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Was it your advice to the Department that Anglo was of such systemic importance that the consequences of its failure would have impacted on the industry in the manner that you've outlined?

Mr. Pádraig Ó Ríordáin:

No, Deputy, because it would be beyond my expertise, frankly, to do that. So that judgment would be made by ... from the financial perspective. So that would be Department of Finance, I suppose the Central Bank. My lens in terms of all of this would be much more just the legal perspective.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. In evidence to the inquiry, Professor Honohan, Governor of the Central Bank, spoke about the merger of EBS and AIB and the merger of Anglo and INBS and he said it "seemed a largely pointless cosmetic exercise". That's from page 7 of his statement that he gave to the inquiry. He also said that the exercise was "pressed on the Irish authorities by the Troika". You would have been involved, obviously, at the time in advising the Department. Were you aware of those pressures that Professor Honohan ... external pressures that he alleges to have been coming from outside?

Mr. Pádraig Ó Ríordáin:

Yes, Deputy, and in general terms, yes. So what happened was when the troika came in, the troika required that the banking sector would be reorganised in a sustainable manner. And at that stage, INBS, for example, was still out on its own as an entity and it needed to be resolved. It needed to be put on a footing that actually was sustainable in the longer term. And the decision was made to roll that into Anglo to form IBRC and that combined essentially perhaps the two most troubled banks. So the purpose of that at the time, certainly as I understood it and as, I suppose, we executed it or helped execute it, was that the ... that the idea was to reform the Irish banking sector into the two pillar banks, Bank of Ireland and AIB. And then EBS ... then ILP as a third bank, which actually had a potentially sustainable future. So I have to say that I would see logic in that because clearly something had to be done with INBS and EBS too was a very, very small institution at that stage and clearly also was troubled.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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So would I be correct ... I'm not trying to put words in your mouth, but you have a difference of opinion as to what Professor Honohan said? His quote again was that it "seemed a largely pointless [and] cosmetic exercise".

Mr. Pádraig Ó Ríordáin:

Well, I wouldn't contradict Professor Honohan for one second because he clearly has a very different lens on this than I would have. So he has a lens of the ... you know, financial stability and finance generally in terms of the country's economy. My view is just I would say that there's a logic in saying that if you have a number of banks that seem unsustainable in the longer period of time, you do need to consolidate them or you need to take them off the pitch in some way. This was just the way that it was decided to do that.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Again, just to rewind to maybe one of my earlier points in relation to burden sharing, paragraph 12.3, you refer to ... of your statement, you refer to the burden-sharing of deposit holders. Again, within the narrow constraints in which we're operating, were you ever asked to provide advices in that particular window, if you like, as to the possibility of burden-sharing with deposit holders?

Mr. Pádraig Ó Ríordáin:

No, I wasn't.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. All right. Thank you very much.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. Our next questioner is Senator O'Keeffe. Senator, you've ten minutes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Thank you, Chair. What was your ... sorry, gentlemen, thank you. What was your advice to the Department on the actual legal position regarding the deposit guarantee scheme? Now, I appreciate you may not have had, so if ... that's fair enough. That was approved by Government on 20 September, which I appreciate was prior to your coming on-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Phone interference there, Senator.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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I'm sorry. But wasn't enacted until ... in legislation until next ... until the following year. So did you have any hand, act or part in that?

Mr. Pádraig Ó Ríordáin:

No, Senator, we didn't. So that was already a decision that had been taken before we came in.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Okay. So if we go back then to your appointment, were ... how did it come about that you were appointed on 24 September? Had you been forewarned, maybe earlier on in the month, that such a ... or was it an out-of-the-blue moment? And could you just tell us how that happened?

Mr. Pádraig Ó Ríordáin:

Well, it was quite out of the blue, Senator. So I got a call that morning, quite early that morning, and I was asked to come down to attend a meeting at the Department of Finance which I did. So, as I said earlier once I got down to the Department of Finance we were then briefed on what the position was generally.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Right. And was that described to you then as an emergency or a crisis or what were the words that were used to explain how you'd got a call out of the blue?

Mr. Pádraig Ó Ríordáin:

Well, I'm not sure that that was ... those words were used in the call ... the original call to me, but certainly it was quite evident when we got down and were briefed, that this was very urgent, as a situation, a very dangerous situation.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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And, forgive me, well ... perhaps people don't understand ... maybe watching ... the public at large, but why the State would need to, if you like, employ outside lawyers to work, if you like, effectively with the Attorney General's office in order to produce legislation that, in fact, we're supposed to be able to do ourselves. So why was that that you were brought in at that point?

Mr. Pádraig Ó Ríordáin:

Well, Senator, it's a very good question. The reason is this. The Department of Finance ... we advise the Department of Finance. So if you take the Attorney General's office which did a really great job in respect of the entirety of the crisis, their job is to provide the legislation on the infrastructure. But in a crisis like this, there's a lot more to be done, essentially. So, for example, in terms of understanding, you know, banks' capital, their financial instruments, transacting with banks - so a lot of this is contractual as well - there's a lot of other legal work that needs to be done which the Attorney General's office wouldn't generally do.

In terms of our input in terms of the legislation that the Attorney General's office was producing, our job really was to say "Well, how does this work, you know, out in the banking world?" So, in other words, that we would bring the experience of how this would actually legally impact the banks, how ... you know, how the legislation could be drafted in a way that actually effected in practical ways, in the actual banks themselves and the banking sector, what it was that the policy needed to achieve.

There's also a question of resource. I mean, for example, you know creating that step plan in the ... and this was only the first week, but creating that step plan for nationalisation, what do you actually do, you know, when the legislation is brought in? Those types of tasks would not be tasks that the Attorney General's office would, generally speaking, do.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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I think you said that you weren't given a timeline ... you weren't told, I don't think, that "We need this by Friday," or "We need this by Monday." Am I correct? Did I understand that correctly?

Mr. Pádraig Ó Ríordáin:

Yes, you are, yes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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However, you have observed that it was clearly a very serious situation, so-----

Mr. Pádraig Ó Ríordáin:

Yes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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-----what sort of sense did you have - and your team - about when you were meant to be delivering something, even if there wasn't a specific date given?

Mr. Pádraig Ó Ríordáin:

No, absolutely. There was absolutely a general urgency that everything needed to get done and the preparation that needed to get done, that it needed to get done as soon as possible so, you know, over those days we all worked as a team, not just our firm but, as a team, worked extremely hard over those days. We didn't know precisely when, you know, the work that we were doing would be needed, but we knew that there was a decent chance it would be needed imminently. And obviously the function of the Department of Finance at the time, who we were advising, was to make sure, I suppose, that they had the options in place in terms of any Government decisions that might be made and we were working to that.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Just to be completely clear: in the end, if you hadn't come in, if you hadn't been called was there already in existence sufficient legislative capacity for either nationalisation or a guarantee?

Mr. Pádraig Ó Ríordáin:

Yes, I think there certainly was. So there was ... when we came in there was already a very advanced Bill that had been prepared by the Attorney General's office, which dealt with nationalisation and which also had sections in there enabling the Minister to provide financial assistance to individual banks. So that was all very much in train. So the work that we did, essentially, over those couple of days was just to maybe help, you know, perfect that and give our views in relation to it so the Attorney General's office could take that on board. But that legal infrastructure was already prepared.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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You say, I think perhaps it's Mr. McCague, you say you attended a meeting on Sunday, 28 September:

in the offices of [the] NTMA with representatives of the Department of Finance, NTMA, the Financial Regulator's office ... other advisers. There was further discussion on the loan books of the banks, particularly of Anglo. Following that meeting, we continued to progress the draft Bill.

So how did that meeting inform or change the way in which you were working or did it? What was the purpose of the meeting?

Mr. Eugene McCague:

Well, if I take this, it didn't change the way we were working because we went back to drafting the Bill. The purpose of the meeting, I think, was, in fact I've now learned, although I didn't know earlier, that the purpose of the meeting was a follow-up from a meeting on the Friday, which we hadn't been at. But it was essentially, as I say, a series ... there had been a series of meetings, of briefings as to how ... what the loan books were like, the first one being on Wednesday, the 24th which was our first day. It's in the core documents. It's dated Thursday, 25th but I think our view is, as others have, that it was the 24th. So the general discussion that day was a further update on what was happening. Merrill Lynch had produced the paper, the slideshow if you like, on the 26th I think and then they had the narrative paper that morning and I think the ... they didn't go through it in detail but they went through the options, which were the same options that had been discussed before.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Given that several days, as in banking days, had passed between you being appointed and that meeting, was there any reflection on activity during those banking days that changed the situation? Made it worse, made it better, status quofor the actual banks, do you remember?

Mr. Eugene McCague:

Well things weren't getting better, I can certainly say that to you and I think the general sense was that things were getting worse but the difference is there was so much catch-up for the likes of the advisers like Merrill Lynch who, in fairness to them, had only come in on the Wednesday and what was happening was a detailed analysis of loan books and no matter what resources you put into that, that's a slow and painstaking process. I don't recall at that meeting, maybe I'm ... not to mix up two stories. I don't recall at that meeting there being updates on liquidity, I mean, we weren't necessarily being told about liquidity. But to the extent that there was a theme or a tone around the meeting, it certainly was that things were getting worse and not better.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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The NTMA made clear to us in evidence that they were of the view that the model, so to speak, for Anglo and INBS was broken, it was a broken model that they were functioning under and that effectively they were insolvent. Did they make that view known to you, not necessarily in the succinct way they've done it here, but in the conversations were they making that clear? Because obviously you were at a meeting with them, more than one possibly.

Mr. Pádraig Ó Ríordáin:

Will I take that? Senator, I certainly recall that view. I don't recall whether that was at that particular meeting because of course there were so many meetings afterwards but certainly I recall that view. And the view was a very straightforward one and, of course, in hindsight it was absolutely correct, which is that, you know, both INBS and Anglo funded their book with short-term debt to a certain extent and, in fact, to quite a material extent. And that meant that they were relying on the international capital markets being open to them at any given time. So, put very simply, they would borrow money for three months and lend it to you for seven years, and therefore they had to keep renewing that money. Once the international capital markets closed, then obviously they ran out of funding. And that was why it was quite broken and also, of course, both Anglo and INBS were just pure property lenders, so they were monoline lenders. So the combination of those two things, I think, is exactly what the NTMA was pointing to and certainly that was a theme from early on but whether it was at that meeting or not, I can't recall.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Okay, so as monoline lenders with broken models, so to speak, were you in a position where you had to satisfy yourselves as lawyers with offering legal advice that the banks were all solvent? Did you have to stand back yourselves and go, okay these banks are solvent or they're not solvent, or were you just able to rely on, as it turned out, the Central Bank and the Financial Regulator's observation?

Mr. Pádraig Ó Ríordáin:

Well, we had to rely on that observation because working out whether a bank is solvent or insolvent is very much a financial task, Senator.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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But you'd heard the NTMA tell you that the models were broken and that they were in a bad state. And now you heard the Central Bank telling you they were solvent so were you, in your own mind going, okay I have to make a judgment call here or would it have made any difference to your advice?

Mr. Pádraig Ó Ríordáin:

Well it certainly wouldn't have been part of our role to make a judgment in relation to solvency-----

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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No, but I'm asking ... I'm sorry maybe I'm misplacing the question-----

Mr. Pádraig Ó Ríordáin:

Excuse me, yes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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As lawyers offering legal advice on the legislation, did you have to satisfy yourselves that banks that you were offering advice about were solvent, or not?

Mr. Pádraig Ó Ríordáin:

No.

Mr. Pádraig Ó Ríordáin:

No.

Mr. Pádraig Ó Ríordáin:

Because ultimately the policy that was adopted was a policy that was adopted, so our role was very much to effect that and to work out what legal infrastructure was required, whether the bank was solvent or insolvent.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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So your advice wouldn't change if ... let's say if you knew bank A was insolvent-----

Mr. Pádraig Ó Ríordáin:

Yes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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-----would you have offered different advice?

Mr. Pádraig Ó Ríordáin:

Well if bank A was insolvent then we would have been asked to advise, well, now that the bank is insolvent, what do you do? And we were never asked to advise in relation to that. Until of course, INBS was ultimately liquidated. But certainly in those days, we weren't asked to do that because again the policy of the State was very much to stand behind each of the banks and keep them solvent.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Can I just ask for one clarification?

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Quickly.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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And that is just, the NTMA was saying to you that the ... those two were monoline banks?

Mr. Pádraig Ó Ríordáin:

Well, my recollection was that that was certainly a part of the discussion and I think it was probably part ... in fact, it was part of the view of the NTMA, yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Senator Barrett.

Photo of Sean BarrettSean Barrett (Independent)
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Thank you, Chairman, and welcome to our two visitors. Just taking up Senator O'Keeffe's point and it's covered in paragraph 9.8 of Mr. McCague's presentation and it says that "the Taoiseach asked Mr. Hurley on a number of occasions for his advice as to whether, in the Central Bank's view, Anglo was insolvent". Didn't the Taoiseach ask the wrong person? That was Mr. Neary's responsibility, he was micro and Mr. Hurley was macro.

Mr. Eugene McCague:

Well, my recollection was he asked Mr. Hurley first, but my recollection as I go on to say is that I believe that Mr. Neary then came into the room and that the Taoiseach asked him that as well. But I'm fairly sure that it was Mr. Hurley was asked first. He asked both of them and they both gave the same answer.

Photo of Sean BarrettSean Barrett (Independent)
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But he did ask Mr. Hurley first, isn't that-----

Mr. Eugene McCague:

He did, yes. Well, that was because Mr. Neary wasn't there. My recollection is, and I think actually this is borne out in their own evidence, that Mr. Hurley left at some stage and then Mr. Neary came in at some stage. I can't remember the exact details.

Photo of Sean BarrettSean Barrett (Independent)
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Because, as you know, we've changed those arrangements since. It was an issue at the time, as to whether that division was ... ever made any sense. And Senator O'Keeffe has spoken with you about the issue of whether it was liquidity, as Mr. Hurley said, or in fact it was the wrong business model, insolvency, and the NTMA believed that and they were in the building. And certainly the other ... the major banks believed it and they were in the building so unfortunately, it was ... it may have been a minority view, the one that prevailed, that it was liquidity and not solvency that ... the business model being unsustainable.

In Mr. Ó Ríordáin's presentation, and I thank him for it also, at 6.1, "the State ... formally accepted responsibility for most of Anglo's liabilities when it issued the guarantee in September 2008". Didn't the State believe, and everybody believe, that was for €1.5 billion and not a bill for €30 billion? Could anything have been done to say, we understand, as of now we're accepting €1.5 billion and not any higher number and certainly not €30 billion?

Mr. Pádraig Ó Ríordáin:

Well, Senator, the point I'm making in relation to the €6.1 billion, is just the legal impact that nationalisation had, so the legal impact that nationalisation had, all that that did essentially was the State took ownership of Anglo at the time. But the point I was making is that actually the State was already on the hook for Anglo, from the time of the guarantee, essentially, so therefore in, in nationalising Anglo, it wasn't taking on any more liability. But, certainly, I mean, my recollection of the early days was clearly it wasn't known that there was going to be a €30 billion gap.

Photo of Sean BarrettSean Barrett (Independent)
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Would it be possible to design contracts which would specify the amounts so that that, kind of, cost escalation, or, indeed, moral hazard problem wouldn't occur afterwards?

Mr. Pádraig Ó Ríordáin:

Well, I think you'd have had to do that before the guarantee was given, and, you know, with any guarantee, you can put conditions on it and you can limit it, but I think in the circumstances that would have voided the guarantee of its effect really, which was to give people confidence in effect, depositors, for example, and other people confidence so they could continue to do business with the bank.

Photo of Sean BarrettSean Barrett (Independent)
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But that leaves the taxpayer completely exposed to a massive escalation in the bill.

Mr. Pádraig Ó Ríordáin:

Well, yes, I mean, the guarantee, that's exactly what happened. So, you know, the guarantee and the overall the ... financial sector generally did leave the taxpayer with that bill. I think too it's very important in that analysis, Senator, to remember that the losses that had occurred in the system, you know, predated the guarantee and were there in any case, so they had to fall at some stage.

Photo of Sean BarrettSean Barrett (Independent)
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But we didn't really know what we were guaranteeing, that there was hidden losses in there.

Mr. Pádraig Ó Ríordáin:

Yes, certainly. That was my understanding at the time, yes.

Photo of Sean BarrettSean Barrett (Independent)
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Could due diligence have a different interpretation in case we have this repeated in the future? Could people have actually gone in and provided the estimate back to those in Government Buildings on 29 September, "This is what you're really getting into, not what you've been told"?

Mr. Pádraig Ó Ríordáin:

I think, theoretically, yes, Senator, but that's a very, very long and very extensive exercise. That was, ultimately, done by the Central Bank, for example, in its PCAR and it's PLAR exercises, and that is a very, very extensive exercise. The other thing to remember at the time is that things were moving very quickly, so I suspect, and this is more of a financial question rather than a legal question, but if you had gone into the banks at the time and assessed the assets, you'd have been assessing them against probably the conditions over the previous number of months, as opposed to the conditions that were to come. So, again it's hard to say, I would say, whether that would have ... even if you had had the months that it would have taken to do that job, whether it could have been benchmarked correctly in the circumstances.

Photo of Sean BarrettSean Barrett (Independent)
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And finally, your point on, on page five, there was no bank resolution available to the Government to resolve it in a controlled manner. Has that been rectified?

Mr. Pádraig Ó Ríordáin:

It has now. I mean, it's been rectified. Firstly. we brought in ... well, the country brought in, in 2011, a domestic resolution scheme and the troika had required us to do that. But more fundamentally, just this year, from 1 January, the European Union has brought in the BRRD, the banking resolution and recovery directive, which actually does that in a comprehensive way. And it took the European Union, you know, five or six years just to formulate that. So that is a resolution regime that involves bail-ins, for example, that involves bad banks, that gives all the tools that are required. In 2008, Senator, across Europe, most countries were actually without banking resolution legislation, and it's important to remember that no retail bank in the eurozone had ever been liquidated, so that's why at the time there wasn't, in any country, for example, in the UK as well, that there wasn't a pre-existing resolution legislation. But that is there now on the basis primarily of the new directive but also of our domestic legislation.

Photo of Sean BarrettSean Barrett (Independent)
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Thank you very much gentlemen. Thank you, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. The next questioner is Deputy Kieran O'Donnell. Deputy O'Donnell.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Thank you, Chairman. Welcome, gentlemen. Was there any reference to the advice given by Mr. Alan Gray earlier to the Department of Finance or by him again when requested to by the Taoiseach during the break in the meeting on the night of the guarantee?

Mr. Eugene McCague:

No.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Okay, can I ... Mr. McCague, can I take you to your statement and, more particularly, point 6 ... and you state: "On Sunday, 28 September, I attended a meeting in the offices of the NTMA". Who were you employed by? Were you employed by the Department or the National Treasury Management Agency?

Mr. Eugene McCague:

No, we were employed by the Department at the time. I think the NTMA were ... provided the room, so to speak. In fact, I think I read some other witness gave evidence that it was to ... there were too many photographers and various other people gathered around the Department, so the meeting was held in the NTMA, but we were retained by the Department.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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And at that particular meeting ... you finish off by saying that there was:

representatives of the Department of Finance, NTMA, the Financial Regulator's office and other advisers. There was further discussion on the loan books of the banks, particularly of Anglo. Following that meeting we continued to progress the draft [nationalisation] Bill.

So, at that meeting, what views were given by the National Treasury Management Agency, what views were given by the Financial Regulator, the Department of Finance as regards doing legislation around the nationalisation of Anglo and Irish Nationwide Building Society?

Mr. Eugene McCague:

To be honest, Deputy, I can't remember the details of that meeting or what views were expressed by individual people, but the draft legislation for nationalisation was an ongoing piece of work and, you know I, I think we were still on alert, if I could use that word, that the legislation needed to be ready, if it was needed.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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So was there discussion around that time, and, more particularly, you had discussions on the loan books of the banks, particularly Anglo. Was there a discussion around that time ... two aspects: No. 1, around the solvency of the banks, more particularly Anglo, and was the discussion around that ... were you under the impression that it was still policy to look at putting in place legislation to nationalise Anglo?

Mr. Eugene McCague:

Yes, I believe that still at that stage the, the view of the financial advisers was that Anglo was solvent. That was the information that was coming through. There was some, you know, concern that the advisers hadn't been in place that long. This was all very, very much-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Merrill Lynch were the advisers for-----

Mr. Eugene McCague:

Merrill Lynch, but I think at that stage there certainly wasn't any sense that they were saying that it was insolvent. But, perhaps, to come back to a point that somebody else asked me that might explain it, even if it had have been declared, let's state, objectively everybody had agreed it was solvent that day, I don't think, logically, they would have stopped the legislation being prepared because, as I think we said earlier, illiquidity can lead to insolvency, so even if their balance sheets were very strong, and even if their assets greatly exceeded their liability, if the liquidity crisis continued and if it wasn't addressed in some way, they could have ended up being insolvent and therefore having to be nationalised. So I think that probably explains why the work was being continued-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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But, at that particular meeting, were all the parties working on the basis that you were putting legislation in place to give effect to the nationalisation of Anglo and Irish Nationwide?

Mr. Eugene McCague:

They were all aware that we were putting ... getting drafts ready in case they were required, absolutely.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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And there was no question of a discussion around the guarantee at that meeting----

Mr. Eugene McCague:

The guarantee was discussed as one of the options but it certainly wasn't discussed in any detail in terms of the shape or size or form of it, and it wasn't, if I could call it, certainly in my presence, it wasn't at that stage, if I could call it, the primary option.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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What was the primary option?

Mr. Eugene McCague:

Well, I don't know whether there was a primary option, because all the information was coming in together, and I suppose maybe because I had been solely dealing with the nationalisation Bill, my brain was hard-wired towards the fact that I'd better get it ready in case that's what was needed. But in terms of the guarantee, it was still in the mix as one of the Merrill Lynch options, but it wasn't ... in fact, an awful lot of that meeting, Deputy, was really about the loan books and what was going on. And the discussion on the actual options, certainly when-----

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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What was generally the discussion on the loan books? What was the general tenor of the discussion on the loan books, particularly in Anglo, at that meeting?

Mr. Eugene McCague:

I think that the ... I can't remember what the sample, if you like, had been and how large a scale it was. I mean, certainly, the view was that they were stressed. That goes without saying, but I thought the general ... my recollection of the general tenor of that meeting, which was similar to the ones beforehand, was still the view that the assets would exceed the liabilities if they had to be called on. I think that would have been the view.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Mr. Ó Ríordáin, in your statement ... page 3 you say about, paragraph 5.5, and you say ... you speak about giving a perspective, and you say, "Had a bank failed in 2008, there was no bank resolution legislation available to the Government to step in to resolve it in a controlled manner." So the question I suppose I want to ask you, is No. 1, you were brought in a week before the guarantee took place, you were brought in the 24 September. Was there in any way a discussion around putting in place a mechanism to allow an orderly wind-down of an insolvent institution? Obviously, I'm speaking specifically about Anglo and Irish Nationwide.

Mr. Pádraig Ó Ríordáin:

Sure. No there wasn't, Senator, because the ... I think the ... the policy the entire time was to stand behind the banks and I think that the feeling at the time, and you'll see it actually in the rest of 5.5, if you go through what actually would happened at the time, seeing an insolvency, even for example the €100,000 guarantee scheme, there was two things; firstly those depositors would not have got their money for three months and in addition, there was a question of funding that, that scheme, so the Government would have had to come up with the cash to fund that immediately. So I think ... and that's only ... and that's the least of the problems. You then see how that would impact the other banks and depositors in other banks. It would have complicated the problem very significantly I would have thought. So as a result that ... that week it was not ... that was not part of the ... of the discussion.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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So, so it ... could it be said or not that the mechanism wasn't in place to allow the option of a bank being allowed to fail, that that particular legal measure hadn't been put in place and wasn't an option for consideration?

Mr. Pádraig Ó Ríordáin:

Well there was no special regime so it would have fallen back just on the normal bankruptcy rules. But as I said that was true throughout Europe and also bank resolution regimes are very complex things to put into place and as I said, the European Union took five years to do it, which is just in place now. So I think two things to be clear; firstly there wasn't ... the resolution mechanism, that wasn't part of the policy and the direction was more a nationalisation and with the supporting liquidity scheme, the CLS scheme that we've been discussing.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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And can I just finish up on the point, for either of you ... if Anglo was nationalised, what would have been the practical procedures in terms of nationalising? Could it have been nationalised in a night? Would it have been required that, you just ... you would have put the liquidity funding in place to fund Anglo in terms of over the next number of days? What's the practical procedures in terms of nationalising?

Mr. Pádraig Ó Ríordáin:

Well I think, Senator, the probably the easiest way ... or sorry, sorry, Deputy, excuse me ... the easiest way to look at that is actually when Anglo was nationalised in 15 January 2009 and that was done overnight. So in terms of ... of nationalising a bank it's very important always to make sure that you retain confidence and certainty in the sector generally speaking. So you would tend to pass the legislation that was there on the night of the guarantee and was there that week, and ultimately, a version of that was enacted in January 2009. So essentially what you do is you ... you remove the ... you go in, you take the shares, so the shares transfer from the shareholders to the State. You then change the board, which means that ... that there's new controls in relation to it and you just take ownership of the bank.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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So there was no reason we'll say if ... if the Government wanted to make a decision on the night, that the following morning of the 30th, that Anglo wouldn't have been nationalised?

Mr. Pádraig Ó Ríordáin:

That ... that's correct and it wouldn't have affected liquidity, so for example the liquidity issues would have been the same I think pretty much either way.

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael)
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Okay, thank you.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I'll just move to wrap things up and then I'll invite Senator MacSharry and Deputy Phelan back in and then Mr. Ó Ríordáin and Mr. McCague. If I can just deal with one issue, and either or both of you or just one of you might be able to answer this for me, and that relates to the issue of: did the draft legislation provide for a blanket guarantee at the time of engagement?

Mr. Pádraig Ó Ríordáin:

This is on 24 September Chairman?

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Yes.

Mr. Pádraig Ó Ríordáin:

The, the what was called the XXS Bill at the time which was the nationalisation Bill, it provided for the Minister to provide financial support to any credit institution and certainly from our perspective, the way we would have read that is, if you're nationalising one bank - it was in the nationalisation legislation - if you're nationalising one bank, the Minister may need to intervene in various ways to support other banks. But there was no discussion that we were party to, at least throughout that time, that there would be a blanket guarantee.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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That would be ... it wasn't explicit or implied to you at that time it was going to be a blanket guarantee, no?

Mr. Pádraig Ó Ríordáin:

No, I mean ... no.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay thank you. Also then to ask, and it just comes back to Mr. McCague's opening statement of today where he talks about representatives of AIB and Bank of Ireland were invited back in and informed of the position. If I could ask you Mr. McCague, is it your view that both AIB and Bank of Ireland were made aware that there was a decision to guarantee the banks prior to them leaving Government Buildings that night?

Mr. Eugene McCague:

Yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Explicitly?

Mr. Eugene McCague:

Yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, and was that a blanket, all-inclusive guarantee that they were informed of or was it a general concept?

Mr. Eugene McCague:

No, I would have ... I believe they were informed of the ... of the nature of the ... of the nature of the guarantee.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And its full architecture?

Mr. Eugene McCague:

And it full ... its full architecture as known then, yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. All right, thank you. And can I also ask you Mr. McCague is ... are you aware of the evidence of Mr. Beausang to the inquiry in which he states that he was ... it was his understanding that a draft press release had been authored in the Central Bank many hours earlier than the decision?

Mr. Eugene McCague:

Yes, I am, yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay and what is your recollection of the origin of the draft press release?

Mr. Eugene McCague:

I do remember that there was a draft press release or draft announcement in the room when I came in, I didn't know who had drafted it and ... subsequent I have seen it was drafted by the Central Bank. I remember it specifically because somebody there, I can't remember who it was, had the task of collecting all the copies of it because Bank of Ireland and AIB were coming in, so there was definitely, as far as I was concerned, there was a draft in existence at that time. I can't remember whether I knew it ... who it was drafted by.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And there seems to have been a number of drafts over the course of the evening-----

Mr. Eugene McCague:

Correct.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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-----I think 12, maybe, inclusive. Were you there at the first draft or did you come in during the drafting process when there was still more to be done but some done already?

Mr. Eugene McCague:

I honestly don't know, but ... but there was one there before I arrived.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And on your first sight of that draft was that statement an all-inclusive guarantee?

Mr. Eugene McCague:

I honestly can't remember.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, thank you. Senator MacSharry.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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Nothing further Chair.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, Deputy Phelan.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Briefly Mr. McCague, in relation to paragraph 6 of your opening statement, the meeting on the Sunday 28th, in the NTMA building with Department officials where further discussions on loan books, in particular Anglo, took place. Did you form a view, I suppose on the night of the meeting in question, we've had evidence that the NTMA weren't directly present in the room, as to why they weren't there or did you have a view as to whether they should have been physically in the room giving their opinion or ... rather than having it filtered though a third party?

Mr. Eugene McCague:

I didn't form any view, I didn't ... I mean, obviously now that I'm seeing the evidence of Mr. McDonagh and so on, it didn't ... it didn't actually cross my mind that they were or weren't there-----

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Do you think that they should have been?

Mr. Eugene McCague:

I don't think there was a need for them to be in the room but I assume they were available, if required.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Mr. Ó Ríordáin, in relation to my earlier question, did you say ... I didn't pick you up properly, you might clarify that Cleary Gottlieb were employed by the IMF in relation to the issue of burden-sharing?

Mr. Pádraig Ó Ríordáin:

No the ... the Cleary Gottlieb were ... Lee Buchheit of Cleary Gottlieb had worked quite a bit with the IMF over the years in various countries that the IMF had done work in, so they simply introduced Lee to ... to the team over, I think of a weekend, it was a two-day period, so that he could just talk about how this had been done in other, in other jurisdictions.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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So did you have direct contact with Mr. Buchheit?

Mr. Pádraig Ó Ríordáin:

Yes.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Was he ... was he in Ireland?

Mr. Pádraig Ó Ríordáin:

He was in Ireland yes but for ... for a very brief period, I would say over ... my recollection is that it was over a weekend.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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When would that have been roughly in your recollection?

Mr. Pádraig Ó Ríordáin:

I ... to be ... I can't tell you Deputy, I couldn't put that in a particular timeframe.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Yes, the reason I suppose I'm asking is that he is somebody who is extensively involved in other countries, particularly Greece and I wasn't aware until now that he had any involvement in the Irish context. But in relation to the discussions that took place, were there discussions on restructuring with respect to the sovereign or was it specifically on the issue of the possibility of burden-sharing? And was he specifically employed by the IMF on the ... on this ... on the Irish matter or was it just that he was on retainer?

Mr. Pádraig Ó Ríordáin:

Well I'm ... I'm not sure in what exact capacity he was there. He was there as simply somebody who had done this in other countries. He was there I would say quite briefly in relation to this, so we, we had, we had worked out - and I don't want to get into advices for example here - but certainly in terms of burden-sharing the legal structures would have been available in Ireland to do that. And then a lot of ... a lot of it was actually about well, how do you deal with the bond markets in respect of this and, you know, those types of issues. And Mr. Buchheit advised on those but, as I say, over a relatively brief period and that was the period that I mentioned earlier where the IMF were still focusing, at least to my ... in my experience were quite focusing on burden-sharing with senior bondholders.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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In light of his views and he's a man who's been commented on a lot in the media, particularly in relation to Greece but also Iceland and a lot of financial crises that have emerged in the last 20 or 30 years, was his presence a matter of secrecy or discretion, the fact that he was here, in light of the fact that it might have caused difficulties or issues within the market?

Mr. Pádraig Ó Ríordáin:

Yes absolutely it was, so it wasn't publicised at all that ... that he had, that he had come.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay, and can I ask when were you first informed that the matter of burden-sharing was off the agenda so to speak? And who did that? Who informed you?

Mr. Pádraig Ó Ríordáin:

Again, I can't remember distinctly, Deputy, in relation to that. I would expect it was just at the start of 2011 because at that stage the IMF were in, so clearly it must have happened in late December or January or February of 2011, is my expectation, but I don't have a distinct recollection of precisely when.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Finally, are you at liberty to divulge the categories of bondholders that were being discussed in those meetings with Mr. Buchheit or, indeed, the institutions that might have been ... been discussed? I don't want to walk you into-----

Mr. Pádraig Ó Ríordáin:

Well, no, it wouldn't have been ... I mean, this was just part ... I think, I wouldn't overestimate the discussions with Mr. Buchheit in truth. This was just part of the discussions in relation to would senior ... could senior bondholders contribute to the outcome? And that was just one part of the conversation. That conversation obviously went on for a much longer period than that.

Photo of John Paul PhelanJohn Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay, thank you.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much. With that said, I'll just invite Mr. Ó Ríordáin and Mr. McCague ... if there's anything further you'd like to add or by closing comment or anything else.

Mr. Pádraig Ó Ríordáin:

I don't think there's anything that we would like to add, Mr. Chairman, except to thank you for inviting us here today.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Mr. McCague?

Mr. Eugene McCague:

No, thank you.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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With that said, I now propose so that we actually suspend. In doing so, I'd like to thank Mr. Ó Ríordáin and Mr. McCague for their engagement and participation with the inquiry today and to formally excuse the witnesses. I propose that we come back at 3.10 p.m. to commence our next session this afternoon, just to facilitate matters in between now and then. Is that agreed? Agreed.

Sitting suspended at 2.21 p.m. and resumed in private session at 3.18 p.m. Sitting suspended at 3.21 p.m. and resumed in public session at 3.27 p.m.

Department of the Taoiseach - Mr. Bertie Ahern

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I will now call the committee back into session, is that agreed? Agreed. In our public hearing this afternoon is with Mr. Bertie Ahern, former Taoiseach. The Committee of Inquiry into the Banking Crisis is now resuming in public session and can I ask members and those in the public Gallery to ensure that their mobile devices are switched off please?

Today we continue our hearings with senior members of the Government who had key roles during the crisis period. This afternoon, we will hear from former Taoiseach, Mr. Bertie Ahern. Bertie Ahern was a TD from 1977 until February 2011. He held several senior positions in Government, including that of Minister for Finance. He succeeded John Bruton as Taoiseach in June 1997 and continued to serve as Taoiseach until his resignation in May 2008. Mr. Ahern, you are very welcome before the committee this afternoon.

Mr. Bertie Ahern:

Thank you.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Before hearing from the witness, I wish to advise the witness that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If you are directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to do so, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given. I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings.

Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right. Members of the public and journalists are reminded that these documents are confidential and they should not publish any of the documents so displayed.

The witness has been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee, will be relied upon in questioning and form part of the evidence of the inquiry. So, with that said, welcome again, Mr. Ahern, and if I can ask the clerk now to administer the oath to Mr. Ahern and we will commence proceedings.

The following witness was sworn in by the Clerk to the Committee:

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Once again, Mr. Ahern, thank you for being before the committee this afternoon. If I can invite you to make your opening statement to the committee, please.

Mr. Bertie Ahern:

Thank you, Chairman. Chairman, I make this statement on foot of your request to assist you and your colleagues in your deliberations inquiring into the banking crisis. You requested that I address certain issues from my position as Taoiseach during the 28th, 29th and 30th Dáileanna. For my record, my tenure as Taoiseach over the time extended over three Governments: from 16 June 1997 to 6 June 2002; from 6 June 2002 to 14 June 2007; and 14 June 2007 to 7 May 2008.

You requested I address a number of specific topics in my evidence which are of interest to the inquiry. The first one is the nature and effectiveness of the operational implementation of macroeconomic and prudential policy. The available evidence supports a strongly positive conclusion under this heading. The main economic problems facing Ireland in the mid-90s were high unemployment, net emigration, relatively low incomes and the need for increased productivity. A decade later these problems were substantially solved. GDP growth in real terms averaged about 7.25% in the decade or so to 2006, and the corresponding rate of growth in GNP was nearly 6.4%. Such rates of growth were substantially above those experienced in other EU member states, and indeed throughout the OECD area of the time.

The 2005 annual report of the National Competitiveness Council reported that Ireland’s rate of growth in this period was more than double that of the US and triple the average rate achieved by other eurozone countries. They also noted that labour productivity had been growing by 5% per annum and that the taxation and regulatory systems had developed to become key competitive strengths of the economy. Furthermore, with Government investment in infrastructure being significantly higher than in other developed economies and countries, a previously important and long-standing weaknesses was being addressed. As a result of these developments, employment in Ireland increased from 1.38 million in 1997 to over 2 million by 2006, and the unemployment rate declined from 10.3% to 4.3%. Net inward migration accelerated from 19,000 per annum in 1997 to 70,000 per annum a decade later.

A key indicator of the progress that was achieved in this period was that by 2007 the National Competitiveness Council would report that Ireland was ranked fourth in the world in the UN’s human development index, based on strong improvements in income per capita, life expectancy and educational levels. These achievements were made against an international background of a slowdown in growth in Ireland’s main export markets from 2001 to 2003, and ongoing fears of a steep decline developing in the United States.

Furthermore, at home the aggregate fiscal position was managed in a highly conservative, prudential way. Thus, total Government expenditure as a percentage of GNP actually declined from 39.8% in 1997 to 39.2% in 2007. Government gross current expenditure as a percentage of GNP fell from 36% to under 33%, facilitating expansion in capital spending from 3.6% to 6.3% of GNP in that decade. The overall Government balance rose to a surplus of over 6% of GNP, from 1.3% a decade earlier in 1997. And finally, to seal this point in relation to prudential financial management, it should be emphasised that the Exchequer debt/GDP ratio fell from 63.6% in 1997 to 25.1% in 2006.

Budgetary policy was successful also in addressing social inequality. For example, in the quarterly economic commentary of December 2004 the ESRI concluded:

In terms of income redistribution, Budget 2005 has been strongly progressive in terms of the direction of tax measures, social welfare payments and the absence of indirect tax increases. As regards the Budget's overall fiscal stance. The most appropriate indicator of the budgetary position is the general government balance (GGB), which we forecast to move from a surplus of 1.1 per cent of GDP this year to a deficit of 0.6 per cent of GDP in 2005. This expansionary fiscal stance may not be inappropriate given that there are potential downside risks to our forecasts over the next few years.

A year later, writing in the quarterly economic report of December 2005, in an article entitled Future Irish Growth: Opportunities, Catalysts, Constraints, Professor Frank Barry of UCD concluded as follows, "It is suggested here that if Ireland can continue to attract substantial [foreign direct investment] and the labour pool necessary to man it, further convergence on US income per head – which remains well above that of the EU 15 – should be [available]."

Clearly, Chairman, Ireland has been extremely effective in attracting FDI. At the heart of that success is the operational effectiveness of IDA Ireland, the agency responsible for implementing Government policy in this area. And, for example, the IMD World Competitiveness Yearbook 2008 ranks direct investment flows to Ireland at $10.79 billion and 4.22% of GDP as the two most significant improvements in competitiveness of Ireland in that year.

On the second question, Chairman, the appropriateness of expert advice: when it comes to expert advice and high-quality economic analysis, the Government have a wide range of sources available - international organisations - including the European Commission, the IMF, the OECD and financial ratings agencies like Standard and Poor's and Moody’s. Each carry out independent assessments of macroeconomic and prudential conditions in Ireland, and for the most part these are undertaken about annually and usually highlight what, in their view, are the prospects facing the economy, and the policy initiatives that were required to prioritise to optimise economic performance on a sustainable basis. These organisations have the advantage of having international perspectives, and the insights they provide are especially valuable when considering economic conditions and prospects in a comparative context. In other words, they enable us to judge performance relative to countries with whom we compete. This comparative perspective is obviously very useful from the point of view of assessing if Government policy is on the right track.

At national level there are several organisation, funded or part-funded by the Exchequer, such as the ESRI, NESC, Forfás and the Central Bank, which through their regular publications and studies on particular aspects of the economy, provide valuable and continual monitoring of economic performance at macro and sectoral level, and with respect to individual policy initiatives undertaken or proposed by Government. Increasingly, in recent times, domestic financial and professional services providers have also devoted increased resources to economic analysis, policy evaluation, commentary and economic forecasts. And while the research of these organisations focus primarily for the benefit of their own clients' bases, it can provide useful insights for policy development and evaluation in public policy terms.

I would like to also mention under this heading - which is in my report, but I won't read it, but it's in the report - the elaborate annual process of soliciting and evaluating pre-budget submissions from interested parties and individuals by the Department of Finance. This process provides a broad platform from which Government can elicit ideas, potential initiatives and amendments to existing schemes to improve budgetary formation. In addition, it's always open to Ministers, on the advice of their Departments, to solicit interest from external consultants with respect to particular issues or problems which are foreseen developing. Furthermore, there is well-developed public tendering processes in place to facilitate the public service in procuring the most appropriate level of expertise at fair value for taxpayers.

In overall terms, therefore, I hope the committee of inquiry can see from my remarks that aside from economic advice available from the permanent Civil Service, in particular the Department of Finance, there is a very wide range of sources of advice, both from an international and domestic focus, which allows Government to draw a synthesis which one hopes of course is balanced and gives due consideration to the very wide range of views that is inevitably brought forward in such a process.

Obviously I am not going to present a comprehensive review of the policy decisions that were made in this period, nor the inputs to those decisions. However, I think it's important that the committee takes due recognition of the information that was available when the decisions were being made to counteract the retrospective narrative that has developed with the benefit of hindsight over the years since the crisis first began to manifest in 2008. To this end, the table included summarises IMF forecasts and results for real GDP percentage growth in Ireland as published in the World Economic Outlookover the period 2004 to 2009. The WEO is published in spring and autumn and data from successive publications are shown in my statement.

It can be readily seen, Chairman, that the crash was not foreseen by the IMF, who only realised their outlook when the slowdown was well and truly at hand. For example, as late as autumn 2007 the IMF was forecasting that the Irish economy would grow at 3% in 2008 after inflation is deducted. Even when it became clear that there was a severe global downturn, the IMF forecast in late 2008 that there would be no more than a marginal fall of 0.6% in real GDP in Ireland in 2009. This data indicate the information that was available to decision makers at this time, and the conclusions are clear: even an organisation such as the IMF remained convinced that Ireland’s economic expansion was sustainable.

Inevitably, of course, there were stresses and strains associated with rapid expansion in economic activity.

The most noted and commented upon at the time was the growing importance of the construction sector in the Irish economy. At some stage, this growth would inevitably ease. For example, the ESRI medium-term review of 2003 noted that, and I quote, "At some stage over the coming decade, when the demand for housing has been largely met, it is likely that prices will fall to levels closer to the European Union average, and this will be the signal for a winding down of capacity in the sector ... the inevitable process of adjustment to lower demand [for building and construction output], which is still some way off, will prove painful for the sector". In other words, market forces, which had driven up prices, had led to increased economic activity. However, as supply rose, some of the increase in prices and activity would be expected to be reversed and this was expected to occur at some stage during the years 2003 to 2013. In its subsequent medium-term review in 2005, the ESRI noted that no slowdown was seen and there were ... there was "a growing aura of invincibility about the Irish economy", with consumers showing a "high degree of certainly about the future". And, while, with the benefit of hindsight, this can be interpreted as unwarranted complacency, the ESRI went on to conclude that the "fundamental factors driving the Irish economy ... remain quite favourable". A note of caution was sounded but the subsequent analysis, which comprised a high-growth and a low-growth scenario, was based on alternative assumptions regarding the impact on Ireland of what were described as "global economic imbalances" which could lead to the US economy slowing considerably and experience a painful adjustment. Chairman, to an extent, this is what subsequently transpired. The forecast based on this scenario was that Irish growth would slow to 3.5% per annum in the years 2005 to 2010 and 3.1% from 2010 to 2015. Unemployment would rise to about 7% in the early years of the slowdown before falling back to the 2005 level of 4%, while the public finances would remain broadly in balance. Of course, if the US economy did not suffer this painful adjustment, then Irish growth rates were forecast to be higher. The implication is that no homegrown crisis was foreseen and even an imported one would have relatively mild effects due to the fundamental sound nature of the Irish economy.

These examples are provided here, Chairman, simply to illustrate what was available to policy makers and it's not my purpose to critique these organisations. However, the research and conclusions of these organisations constitutes a major input to policy decisions. Of course, having this research available does not mean that the most appropriate course for policy was always clear. Some divergences of opinion are to be expected, indeed, contrasting views and opinions were encountered. The range of views was always taken into account in reaching policy decisions during my time in office but the synthesis of opinions leading to policy decisions inevitably reflects the conclusions of the vast majority of the research. I believe that this is the correct basis on which decisions should be made. In this respect, it must be noted that the overwhelming and virtually ... consensus during this time was that Irish policy was moving the economy in the right direction, that the economy was on a sustainable growth path that could be expected to slow somewhat in response to changes in fundamental drivers, that the main risk would be traced to developments in external economies and that the dangers posed by domestic factors represented challenges to be managed rather than the first indicators of a crisis, as subsequently developed.

Chairman, I'm ... for time reasons, I'm ... I'm skipping some of the sections.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I ... yes, I can certainly ... yes.

Mr. Bertie Ahern:

So, to ... to my section with ... on the statement ... the "Context of Budgetary Policy": In terms of wider budgetary policy and also, maybe, to give proper context to the issues under discussion, I think it's worthwhile to emphasise that during my period as Taoiseach, Ireland finally caught up with and then surpassed average EU living standards. It was a sizeable national achievement to raise our living standards from a historically low base of two thirds of the EU average. The downturn did have a very hard impact on individuals and families, especially those who lost their jobs and, of course, that saddened me and I wish the recession did not happen. However, it is disingenuous to suggest that all the gains this country made have been wiped away. Between 1997 and 2008 this country thrived, and, not only did Ireland enjoy record economic growth but living standards were raised across the board and this drove social progress. This rising tide was essential in lifting hundreds of thousands of our people out of poverty, to reversing forced emigration, to significantly increasing pensions and child benefit, to modernising schools, health facilities, roads and communications infrastructure around our country and creating well-paid jobs for young people at home. This represented a positive change to the lives of many people and, despite the recession, a lot of this progress is still there, benefiting thousands of our citizens.

I am glad that Government allocated - that I led - huge amounts of money in this period into regenerating traditional areas of poverty, such as Ballymun and Fatima Mansions in inner-city areas, and parts of Limerick, Cork, Waterford and other cities. I am glad we put money into the islands, improving electricity, sewage and building infrastructure and piers and ... in rural areas. Throughout the country, people now drive on better and safer roads. The motorway network that Government supported during my tenure has cut journey times and is a vital economic and social artery of our people. People also travel on better trains, our school and hospitals have more staff working in better buildings. All the time as Taoiseach, what I wanted to do, Chairman, was ... with budgets, was to improve the quality of life for ordinary people and to provide services that our country did not have before. Those who say we squandered the boom forget that in my time as Taoiseach we actually recorded budget surpluses in ten of our 11 budgets. We balanced sustained increases in spending with the need to reduce our national debt. As a result, Ireland paid a billion euro less every year in ... in interest payments.

I want to remind members of this committee that when I first came to the House, in '77, and for ... right through the 80s, our national debt was an unsustainable milestone around the neck of taxpayers. It was a barrier to national progress, as huge sums of revenue had to service interest payments. In 1997, the year I became Taoiseach, 20% of all taxes raised in the State were used to service the national debt. In 2007, my last full year as Taoiseach, that figure stood at 4.3%. During my time as Taoiseach, we continued to pay into the National Pensions Reserve Fund, so that, when the downturn came, we had €20 billion saved which provided some protection when the recession came.

There is zero credibility in suggesting that an open economy like ours could withstand the global recession and the collapse of the global investment banking system. This was not just an Irish experience, it was a worldwide recession that affected America, Japan, Britain and China, and most of the developed economies in the world. In 2007 the International Monetary Fund maintained that Ireland's economic growth would be strong over the medium term. The IMF directors said our economic performance was robust and was supported by sound economic policies. When I left office a year later, the IMF and other financial organisations, such as the OECD, along with national ones, such as the ESRI, were all predicting growth in the Irish economy in the region of 3% for 2009. In June 2009, a little more than a year on from my resignation, they were predicting contraction of between 8% and 10%. That illustrates how unprecedented and unforeseen this global crisis had been and how quickly it took shape.

It is true that we had some warnings about over-reliance on ... on property. But it is important to be clear about the record. In October 2004 the IMF alluded to a possible overheating in the housing market, even though, subsequently, they themselves, and other economic commentators, implied there was no bubble. In the budget two months later, Brian Cowen, the Minister for Finance, announced a review of tax incentive schemes. In the next budget we announced a termination date for all existing property-related tax incentive schemes, with the exception of private hospitals, registered nursing homes and child care facilities. Our stamp duty was already the largest transaction tax on property in the European Union and despite a concerted campaign by some to get rid of the tax, or to reduce it substantially, we refused to go down this route and we listened ... we'd ... if we had listened to those calls, this would have added fuel to the housing market and we would have experienced a far greater difficulties than we ultimately experienced. We were, Chairman, able gradually to remove incentives from the property market but membership of the euro meant that we were unable to raise interest rates. Accordingly ... according to the IMF report in the summer of 2009, the housing boom was caused mainly by cheap credit due to low interest rates, along with rising incomes and a strong demand for housing. There is no doubt that this created a structural weakness in the economy and the international downturn ensured this has turned from a soft landing into a very hard one. I wish this didn't happen and, with hindsight, of course, I would have done things differently.

I did make mistakes, Chairman, I admit that. But, so does everyone who governs. I know that during my time as Taoiseach, while I did not get everything right, I can honestly put my hand on my heart and say I did try my best - my very best - to do the right thing by the Irish people. Of course, I apologise for my mistakes but I am also pleased that I did get a lot of things right.

The winds of the greatest international recession since 1929 did batter our country after my departure but now, as that storm abates, it will become increasingly clear that a lot of the progress the Irish people made in the first decade of the 21st century, such as modernising infrastructure, investing in our roads, schools and hospitals has not been washed away. I make these points not to take away from the fact that Government has had to do Trojan work in recent times and that the Irish people have endured many sacrifices in a national battle for economic and social stability. I want to conclude by saying I respect the work done by my successor, Brian Cowen, and the late Brian Lenihan. I also admire the efforts of the current Government and I think the Taoiseach, Minister Noonan and Minister Howlin have shown a lot of commitment and courage in tackling the financial crisis. I think one of the lessons we should all take from the crisis is that, maybe, our politics needs to be less partisan and that, as a small island, we should pull together. The last few years have been extremely tough on many ordinary families and that breaks my heart, but the work of our democratic political system must prevail and the problems we faced on a massive scale of unemployment, emigration and the banking crisis are on track to being resolved. Thank you, Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. Ahern, and just before I bring in the lead questioners, if I can just can deal with a couple of matters with you first. At the time of handing over to Mr. Cowen as Taoiseach, did you believe that the fundamentals of the Irish economy was sound at that time?

Mr. Bertie Ahern:

Definitely, and I believed that all of the indicators from the Department of Finance economic review of 2008 to 2010, from the IMF, the ESRI and all of the others were indicating that we would grow between something from 3% to 5% over the years immediately ahead.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And, at any time in the lead-up to that transition, were you aware of any discussions of proposals to guarantee Irish banks?

Mr. Bertie Ahern:

Absolutely none.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Following your departure as Taoiseach, and in the months preceding the five months between you departing as Taoiseach and the bank guarantee put in place, did you have any discussions with individuals about concerns about the banks or matters relating to any potential guarantee?

Mr. Bertie Ahern:

No, I had no discussions. The only one in Government that I would have spoke to in that period of time was ... I did keep in touch with the late Brian Lenihan. I'd a number of general discussions with him but none about the guarantee.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, thank you. Mr. Ahern, can I just invite you to look at a table that I'm going to bring up? It comes back to your own testimony with regard to indicators and this shows a huge increase in public service allocations between the years 2000 and 2008, a plus 141% in total expenditure, which was precisely double the growth in GDP over the same period. So what you see there is under the headings of social welfare, education, health, capital investment, total expenditure and GDP, the measurements are there and the figures are as outlined. Can I also bring to your attention another graph that will come up, where when you combine it with the statistics on the parallel major growth in construction-related lending, the bottom, kind of, amber-beige line is standard lending or other lending and the blue line is property lending? And you can see there on the graph it increased quite significantly from, sort of, '01 period peaking into '07-'08 quite significantly. When you look at these two sets of figures alone, were these not enough to warn the Government that a bubble was being created?

Mr. Bertie Ahern:

Well, if I could just take the first position - the GNP on the expenditure side - I always, Chairman, looked at what our spending to GNP was and GDP. I tended in my political life, as Minister for Finance and as Taoiseach, to look at GNP more so because of the repatriation of profits but, as you know, in the European Council or in ECOFIN, which I attended for many, many years, it was always GDP. We always had to make the adjustment but, either way, while our revenues were growing, I was always conscious that we should keep our percentage right and if I recall, even on the highest year 2006 or 2007, I think only Estonia had a lower expenditure than us so ... I'd like to go on with, maybe, what a lot of people have said to this committee and say, "Well, expenditure was out of control", but I have to say, Chairman, at the time, I did not see that view because only Estonia had a higher ... and we were way lower than everywhere else. Now, on the other chart, it was quite clear, Chairman, that the property markets - I'm sure it will come up after - but it was quite clear that the level of indebtedness and the lending to the property section was growing dangerously.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. Can I just bring another document to your attention and this, I requested, would be furnished in your own evidence book. It is in office of the Minister for Finance, top secret memorandum for Government, Economic and Budgetary Strategy for the 2004 to 2006 period, dated 19 June 2003. It will just come on the screen there now. If I can move on to page 5 of this and right at the bottom of the page, on item 8 there, it says:

The 2004 Budget will be prepared against the continuation of the more difficult international and domestic economic climate which has been present since the second half of 2001. The period of exceptional economic growth enjoyed by Ireland is over.

Given the expenditure that continued after that period, were you cognisant and aware of this document by the Department of Finance in the decisions that you were making as Taoiseach of this country?

Mr. Bertie Ahern:

Well, I would have ... any of the documents that came to Government from the Department of Finance I would have read.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Did you read that document at that time?

Mr. Bertie Ahern:

That document came to Government. What was the title of that document?

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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The title of the document - this was furnished to you about two weeks ago so I asked for it to be provided before you came in today - it is a top secret memorandum for Government, Economic and Budgetary Strategy 2004 to 2006, 19 June 2003.

Mr. Bertie Ahern:

I did, yes.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. Reading that line, which is quite significant, it says, "The period of exceptional economic growth enjoyed by Ireland is over." Was that an indication to you that budgetary policy and budgetary expenditure would have to take a change of course?

Mr. Bertie Ahern:

Well, Chairman, we did, in my period as Taoiseach ... and I'm sure if we went back to the documents of 1999, we would have seen those comments as well or at least 2000, when we hit the dotcom bubble. I think it was 2001 we started ... or 2002 we were growing at 12% in the first month of the year and we ended up growing by 1% so, in my political career, the ups and down were all the time there. I went through many crises. I went through currency crises when I was Finance Minister, I went through the dotcom ... and the Department of Finance - if we were to take lots of years 2001, 2003 were quite difficult because we had to make several adjustments so that one comment would not of indicated to me that it was at the end.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I assume that a lot of people have regular lives, Mr. Ahern, and yourself is no different and you're not watching this inquiry every day of the week, even though it is a bad summer, but the people who have come in and testified here such as Mr. Nyberg and Mr. Wright, Mr. Regling and so forth have stated that the difficulty had grown beyond return in and around 2005 or so, which would, kind of, maybe be in line with what was being pointed out in this document. Would you concur with their view or would you have an alternative view to that?

Mr. Bertie Ahern:

If we are talking about the level of indebtedness by the bank-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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And citizens.

Mr. Bertie Ahern:

But on public expenditure, if you ask me what my view now is or what my view was then-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Well, do you concur with their view because they have looked at it and you can then give us your view then?

Mr. Bertie Ahern:

Well, if I can take it first-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Yes, you can, indeed, yes.

Mr. Bertie Ahern:

-----my view then was that if I was keeping public expenditure at effectively the lowest of not only the EU countries but certainly far lower than the OECD's countries because it was that chart and we were lower in GNP terms and GDP; I think only Estonia were lower. I felt that we were safe enough, that we were taking, as I said in my statement, a conservative view. I did not see that as a dangerous view.

I did ... I've the different view on the level ... in the level of indebtedness, I'd a different view on that. If you ask me what my view now is, it ... I probably would have battened down the hatches in 1997 and said no to everything, so, therefore, we would have had such a big surplus we would have been like Germany, we would have been able to take the whole hit. But, I'm afraid, Chairman, I wasn't blessed with that view any time while I was in office.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay, thank you very much, Mr. Ahern. Deputy Pearse Doherty, you've 25 minutes.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat, a Chathaoirligh, agus fáilte roimh an tUasal Ahern.

Mr. Bertie Ahern:

Go raibh maith agat.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Mr. Ahern, it's the second time I've listened and read some of the testimony and maybe you'll start by explaining why parts of your opening statement to the banking inquiry are taken directly, word for word, from your autobiography?

Mr. Bertie Ahern:

Because that was my position when I did my autobiography and I haven't changed the position. I'm consistent.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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And the years haven't ... you haven't reflected on those positions here? You're happy with what ... as time passed, you haven't changed your position on it?

Mr. Bertie Ahern:

I haven't changed my position.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. In 2004, very soon after coming into office, the Minister for Finance commissioned two reports on ... to review property-based tax incentives, which had already been extended from 2002 to 2004 by his predecessor. Who decided to commission these reports, Mr. Ahern, and did you support the decision or did you argue for the abolition of these tax incentives in 2004, as was originally planned but never actually happened?

Mr. Bertie Ahern:

Minister Cowen suggested them and I supported them.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Did you argue ... did you argue for the abolition of the-----

Mr. Bertie Ahern:

No, I don't ... I don't think I argued for the abolition. Remember, there were about 24, was it, 24 different taxes. Some of them were expensive; some of them were not. Some of them were very beneficial; some of them were dubious whether they were or they weren't. And the view, when Minister Cowen, and I remember him well, he was very anxious to deal with them. It had been a departmental view, I think Mr. McNally has informed you of that, and that was the view of the Department. But I think, as you know, Deputy, from the time a lot of the incentives came in, in the urban renewal in 1986 by the Garret FitzGerald ... the late Garret FitzGerald's Government, they were for ever being extended.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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But they were supposed to cease in 2004-----

Mr. Bertie Ahern:

They were-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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-----they were extended to 2006. Did you support the extension-----

Mr. Bertie Ahern:

I think, Deputy, I-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Sorry-----

Mr. Bertie Ahern:

Sorry.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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-----did you support the extension of the reliefs from 2004 to 2006, even the ones that you say today that may have been dubious?

Mr. Bertie Ahern:

Oh, I support them. I support them.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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And you were aware that-----

Mr. Bertie Ahern:

But can I point out-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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-----the Department-----

Mr. Bertie Ahern:

-----I was just going to say that I think I was meant to end some of them back in 1993.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. Do you believe that they had any effect on creating or sustaining a property bubble?

Mr. Bertie Ahern:

If we had the chance again, I think they probably had lived most of their usefulness. I mean, they did a tremendous job. They had ... they did a fantastic job in rejuvenating both the cities and towns of this country, but there probably was a time where they could cut off, but I think it is important, if I can say, Chairman, because I-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Sorry, Mr. Ahern, we're on a time limit here and I appreciate-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I'll ... I'll afford you a bit of time.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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If just maybe you could answer the question first, I would appreciate that there-----

Mr. Bertie Ahern:

Yes, sure.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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-----which the question is, is do you believe that the extension of these property reliefs to the construction sector sustained and helped create a property bubble?

Mr. Bertie Ahern:

Yes, I do.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay, and when did you become of that view?

Mr. Bertie Ahern:

It probably would be about 2009.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. When did you believe that a property bubble was in existence?

Mr. Bertie Ahern:

Well, there's a good few definitions of a property bubble but I went with what was the advice all the way through; that if ... our whole focus was on supply all the way. The Central Bank, I should say, had warned us in the first quarter of 1998, that was the first and only time, I think, it was strongly put to me that we were heading for a property bubble.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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So when did you believe personally? We've heard from Central Bank and other agencies over the last number of months in this inquiry; when did you believe personally, as Taoiseach or as ... whenever, that there was a property bubble in existence in this State?

Mr. Bertie Ahern:

I don't believe I ever believed it as Taoiseach. I thought we could manage our way through because I knew when we were building 88,000 houses in 2006 and '07, I went with the view that we would get back the 55,000 and, if you take the most conservative view, which is usually the Department of Finance's, which I normally followed, that ... well, can I answer you, please?

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Yes, sorry.

Mr. Bertie Ahern:

I believed that that was about 55,000 houses and I believed we could get back to 55,000 houses without doing too much. That was the sustainable level, so ... and we were getting there and I thought, if we got there, then we were ... we were okay.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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So-----

Mr. Bertie Ahern:

And I thought that even when I left as Taoiseach.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. Okay, so in 2006, when you say the boom is getting boomier, what did you mean by that?

Mr. Bertie Ahern:

Well, obviously it just ... we were ... we were going up in terms of the number of houses that we were producing, rather than where we wanted to be, stabilising. And the economy was still growing at 6% or 7%, so it was not easing up, which is what we wanted to see happen, particularly on the property side, but I was happy on the other side. There were other sectors of the economy growing very strongly, even to the end, and if you look at 2008, my last period, 28,000 jobs were created. We lost 20,000 in construction and still, just at the time I was leaving, there was a speech, I think, one of the papers, where I was talking about that, that we were actually managing still to create jobs and managing to see it slow down, the construction, and still manage it, so I still thought we could manage it through.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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So you didn't believe that there was a property bubble prior to May 2008 at least, when you left the Office of the Department of the Taoiseach, but you did believe that there was a property boom in 2006 that was getting boomier; is that ... would that be correct?

Mr. Bertie Ahern:

Well, I wanted to ... Deputy, I wanted to see it slow down. I had broken my back from 1997 to try to get the supply side ... when I came in as Taoiseach, there was, in the Central Bank's terms, a bubble, or at least shortly afterwards. We had moved from building 20,000 houses in 1990 to 42,000 houses when I came into office. It was believed at that time by all the experts that we needed to get to 50,000 to take the heat out of the market. Everything we did, and the Bacon reports and all of the other efforts that were made, were all to try and get supply up and we believed that if we got supply up, we'd get an equilibrium that would balance the situation-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay, see this-----

Mr. Bertie Ahern:

-----and, you know, that was what we were trying to do.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. In relation-----

Mr. Bertie Ahern:

Unfortunately, it had got boomier when it went over that figure, which was higher than equilibrium.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. We know from evidence that house prices and construction started to decline in the first quarter of 2007. Can I just talk to you about your speech at the opening of the new headquarters of Treasury Holdings on Monday, 10 December 2007? This was an attendance, just before Christmas, with Johnny Ronan and John and Richard Barrett was there. You talked about the outlook recognises "the difficulties facing the construction sector in the light of recent and ongoing developments in both ... international and domestic economic environments" and you go on to say, "That is why last week’s Budget underscores the Government’s determination to deliver ... its housing commitments under Towards 2016". You go on to talk about how you've increased spending above 16% on the 2007 Estimates for social and affordable housing. You go on to talk about changes in stamp duty regime that were introduced that would significantly improve ... sorry, "provide a significant stimulus to the market by boosting purchasing power generally". You go on to say how you ... your Government, from 1 January, is increasing the ceiling for mortgage interest relief for first-time buyers, for married people and also increasing income tax relief for rent payment by 11% and increasing the threshold for rent-a-room scheme and so on, "and are continuing with the generous tax reliefs for landlords investing in private rented accommodation". You go on to say, "Taken together, these measures testify to the Government's commitment to the [continuing] development of the sector". Now, is this not you telling a number of developers and whoever else was there that the Government are intent in trying to reflate a property bubble that had already bust?

Mr. Bertie Ahern:

Well, what date ... Christmas 2007 did you say it was?

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Sorry?

Mr. Bertie Ahern:

Christmas 2007?

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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It was 10 December 2007.

Mr. Bertie Ahern:

Yes, well I haven't seen the document but you've quoted most of it to me. What we did in the budget of 2007 for 2008, we made a number of changes to try to help first-time buyers.

We wanted to keep economic growth going and to keep it strong. And we wanted to stimulate the economy as much as we could to keep it strong. I don't think we made too many changes that would have made too much difference to most of the developers. And, of course, at that stage we did know since August 2007, once the liquidity problems did start in the banks, that life was getting more difficult. And it did get more difficult but it was based on liquidity. At no stage in those months up to that budget was anybody saying that the bubble was going to bust. And in the discussions around the budget of 2007, or the budget of 2008 in November, October-November, nobody was talking about the bubble busting.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Yes but, Mr. Ahern, in this speech at Treasury Buildings, you yourself acknowledge the difficulties facing the construction sector. You said, "This is why in last week's budget we introduced these measures." You go on to say, "To provide a significant stimulus to the market [which is the construction market]," and you go on to say that, "These measures taken together testify to the Government's commitment to the continuing development of this sector." You're after giving evidence saying that you wanted to see a decline in the number of house price ... or houses from 2006 on and you tried to do that. But you're giving a different speech to Johnny Ronan and a number of others in December 2007, which is saying that your Government are introducing measures to actually boost demand at that time.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Question now, Deputy.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Mr. Ahern?

Mr. Bertie Ahern:

No, I don't think I was giving a different speech because unemployment ... I disagree with the first point you made that it was only in 2007 that property started easing. It was in 2006 and it was generally being talked about since probably the second quarter of 2006 that property was easing up. But unemployment was building fairly rapidly in the construction industry after the summer of 2007 and into 2008. And, you know, there were 230,000 people working in the construction industry, and that day, whoever I was talking to - I'm sure it was a well-attended function, like all other functions you'd attend as Taoiseach - it was necessary to try to keep our construction industry as strong as we could.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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In September 2000, after the publication of the third Bacon report and the adoptions of measures to cool the house price inflation, prices continued to rise. This is the year 2000. And further measures were proposed to you personally via an internal memorandum by the assistant principal in the Department of the Taoiseach to counteract this. One of the recommendations was to impose credit controls on lending. Can you remember if the proposal to impose credit controls and lending via the Central Bank was further discussed with you, or considered by you? And can you tell us why it was never introduced?

Mr. Bertie Ahern:

Well, I can't tell you why it wasn't introduced because that was a matter for the Central Bank and the regulator. But I remember the discussions around that and the official that was dealing with those issues in my Department, I think is now Ambassador O'Leary, if I recall correct. And we ... now ambassador ... we gave those views, which was the views of my officials in the Department, to the Department of Finance and the Department of the Environment.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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As ... you didn't do anything else about it?

Mr. Bertie Ahern:

Well, I ensured the views, as I always did ... because, as you know, there were meetings between Central Bank and the Department of the Environment about the housing situation on an ongoing basis. I've no doubt that those views went into it. But I did meet the Central Bank Governor on a number of times. I don't believe I raised it with him. But the process of the view of my Department would have been ... and that ... I think that ... when ... that was 2000-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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2000, yes.

Mr. Bertie Ahern:

Yes, well, I know later on ... but it was far later on when we were talking about the loan-to-value and the 100% issues came up, those same issues came up again.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. Mr. Ahern, in your statement, you didn't address the key line, 5D, which you were directed by the inquiry to do. So can you now describe the main aspects of the relationship between Fianna Fáil and the building and the construction industry, and give your view on the purposes and outcomes of a substantial number of formal and informal meetings with representatives and leading persons of this industry?

Mr. Bertie Ahern:

Well, in my capacity is ... former capacity is, as being president of Fianna Fáil, I think we endeavoured as a political party to have a good contacts with as many sectors as we could, all sectors of industry. But I had a lot of dealings through the social partnership process with all of the main trade union-employer bodies and the CIF were quite a strong lobby as part of that process, as was IBEC and as were the Chamber of Commerce of Ireland, along with all the farming bodies. So I would have had dealings with them and from time to time, and they were most of my meetings because the CIF group represented, except the House Builders Association, but I don't ... I used to have a lot of dealings with the house builders when as Minister for Finance; I don't think I had too much dealings with them when I was Taoiseach.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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You've like ... you've given interviews in the media about being backslapped by developers on the way into Croke Park and, indeed, there's many other stories. I think Mr. Quinn lent you his helicopter to go canvassing in Donegal at one stage and there's many other stories that appear in the media. And, indeed, actually, one of them if I can refer to, in 2009, as part of the promotion for your autobiography that I've already mentioned, The Irish Timeson 28 September 2009 reported on one of these interviews that you did, and it said that Mr. Ahern said:

...it was untrue that the Fianna Fáil tent at the Galway races was full of big developers. The best year for the tent was 2005 and only 19 of the 635 people in it on the main day of the races that year, he asserts, could be classified as developers or big builders. Another 30 could be considered builders “and the rest are the fellas you’d get in to do a small job on your house”.

So, now we know from the Nyberg report, Mr. Ahern that the aggregate exposure of the top 20 customers as of 31 May, as of the time you left as Taoiseach in 2008, they had 50% of the €41.7 billion loan book. And we know from Nationwide that they had 51%, 25 of them had 21% and we know that the top 25 borrowers had €25 billion between them borrowed at that time from the banks. So, when it comes to the property-State-finance nexus in the State, are we dealing with a small number of developers, less than 30 it seems? But you were quite precise in your interview, about the 19 big developers. Do you have the names of those 19 big developers that attended on that one day on the Galway tent and do you want to share it with the committee?

Mr. Bertie Ahern:

I'd say I had when I was doing that interview because I probably had the list of people who were there, but it was no secret, I mean, the Fianna Fáil tent and the Galway Races, or for that matter, for the Listowel races, because the company that you used to work for, the construction company yourself, used to sponsor that. So there was always that connection. Some of them were builders; some of them were tradespeople; some of them were farmers; some of them were other. But there was no big deal. There was literally no big deal between the connections in the Fianna Fáil tent and the construction industry. It was a social occasion and I wish I had been able to influence maybe some of those people but I don't ... I heard your questions previously about this and you seem to have a bit of an obsession with the Fianna Fáil tent, as many people have. But it wasn't any big deal and there was no big business done. And I assure you this, Deputy, I assure you this. And I wish it had been different, that I had known the extent of the exposure from some of those people, and there was some of them, that they had to the banks. Because in the last seven years, as you'd appreciate, I have had good, sensible conversations with many decent people and they believe that not alone did I know the figures but that I had the files, and that I knew exactly what every developer in this country owed and what exposure with the banks. But the fact is, as you know, Deputy, I had none of that information because I wasn't entitled to any of that. That's a matter under AK33, which is totally confidential and only the Central Bank and the regulator had it.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Can I just inform you, Mr. Ahern, you may not be aware of this? One of the terms of reference of this inquiry is to look into the nexus between property, finance, the State. And that's why you were directed under 5D2, in your statement, to address that issue.

But given, from my view, that you failed to deal with that, that's why I'm asking you-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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You have to move on. Careful.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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That's why I'm asking you that ... the questions in relation to-----

Mr. Bertie Ahern:

Well, fair enough.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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-----in your engagement with property developers-----

Mr. Bertie Ahern:

But I don't-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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-----and how that possibly could have-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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All right, just let the Deputy finish and I'll bring you in then, Mr. Ahern.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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-----that possibly influenced your decisions at a later stage. And that's what the ... some of the inquiry has to look at.

Mr. Bertie Ahern:

No, I accept ... I accept that, Deputy. But I ... can I assure you and the committee, Chairman, that I don't believe that I, personally, had much interaction with property developers. I did deal a considerable amount with the CIF. They were one of the social partners. Regularly I dealt with them in the sectoral meetings of social partnership and, as your book of evidence shows, I had a number of meetings with them, not that many, but they did come in to state their case. But in no way do I think any of the political activities of the party I was a member of in any way influenced any of the decisions that we made.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Deputy Doherty.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Mr. Ahern, in an interview in the Sunday Independentin July 2007 you stated that your main message was that people should not allow themselves to be convinced by the merchants of doom and that the Irish economy was in trouble or that the good times were over. And we also know at the ICTU conference, unfortunately you talked about sitting on the sidelines ... people sitting on the sidelines cribbing and moaning and you unfortunately said, "I don't know how people who engage in that don't commit suicide." The reason I raise this, Mr. Ahern, is how do you reconcile that with your witness statement, with the fact that as the crisis was starting to emerge, it appears that you were quite willing to confront rather than engage with alternative views, yet your witness statement talks about listening and responding to proposals and criticisms?

Mr. Bertie Ahern:

Well, you've asked me a number of questions in that. In my entire political life, I think I've ... from the time I was Lord Mayor of this city of Dublin and through being Minister for lots of things, but particularly Labour and Finance, I spent my time giving a positive message about this country. I travelled on trade missions. I spoke internationally. I did thousands of meetings talking up the benefits of our country, giving factual positions but also trying to explain all that we could do, particularly in the years ... in the bad years when ... in the late '80s and in the early ... when I was Minister for Finance when matters were very, very tight. So I was always giving a positive message, trying to give ... if the Minister ... I used to be chairman of the committee for employment back in the late '80s and early '90s and, as Finance Minister, if I was going out giving a negative message or a downbeat message, then what hope was there for the rest of us? I would always try to be positive. I would always try to keep a confident message and talk about the glass being half full. And, as you know, Deputy, in this country, an awful lot of people, even when the glass is full, want it to be half empty. So I make no apologies for always trying to be positive and sometimes when it was difficult. And if you ... you see in the papers that you had sent to me, many of the areas where the Department of Finance were advising their own Minister to keep it positive, because there were domestic issues.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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The question was about-----

Mr. Bertie Ahern:

In your last ... in-----

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay.

Mr. Bertie Ahern:

In your last ... you asked me about ten questions. In your last question you ... about can I address ... I had two very good friends who died from suicide in the '90s. I never should have said that. And three minutes after I came off the stage, I apologised for that. That was just a totally wrong thing to say. But what I was talking about that day was confidence, that yes things were getting more difficult, and was before liquidity. But I was talking to the Irish Congress of Trade Unions in Donegal and I was saying "Listen, we have to have confidence, we have to have belief, we have to work together, we have to pull together." And I'm sure you've seen that speech. And, unscripted then I, unfortunately, said that and, of course, like lots of things in life, everyone forgets what I said in the rest of that speech. But I think that speech was a speech of trying to give confidence and stability and I don't think there was anything wrong that.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Mr. Ahern, I only asked you one question and the question ... I gave you two quotes just to show a trend in this here and I asked you one question, I says your statement talks about being able to interact, to listen, to respond to views, proposals and criticism. Could it not be a fair person's viewpoint that this wasn't just you being positive but you were actually trying to close down criticism by calling them "merchants of doom" and so on?

Mr. Bertie Ahern:

No, Deputy.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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No. Okay.

Mr. Bertie Ahern:

Deputy, I spent hours on end in the Chamber that I was, and you are, honoured to be a Member of and, God, I took criticism.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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Okay. Mr. Ahern, in 2007 and 2008 there was a number of things happening. We know from 2007, the Government was investigating possible responses to the emerging credit crisis. At the same time, both commercial and residential properties had stalled. In March 2008, INBS was frozen out of the wholesale markets with no access to normal ECB funding. In March 2008, Seánie FitzPatrick was lobbying the Governor of the Central Bank for the form of ... some form of bank guarantee. In April, the Government was working on draft legislation for a systemic guarantee and we know by September what happened. Now, you were Taoiseach during all of this period. You've said to the Chairperson you believe, I think, that the fundamentals of the economy were sound when you left. Given what I'm just after saying, do you still believe that the economy was sound?

Mr. Bertie Ahern:

Yes, I do. Because in all the discussions I had between August 2007 and up until I left, which was after the collapse of the share prices on St. Patrick's Day - St. Patrick's Day massacre as you like to refer to it - it was not ... it was about liquidity. I got very concerned from August 2007 and I had discussed it with the Central Bank, discussed it with the Department of Finance, discussed it with many, many people outside of it as well, and the issue was about liquidity. At no time, and I can honestly say this to you, at no time did any of the agencies or any of the officials for that matter, say "Get ready for boom or bust." That was not what was-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Finish your question, Deputy, and then I'm moving on.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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There's a very influential journalist who writes for the Financial Times... and you mentioned about St. Patrick's Day. He was telling people not to ... to move away from the likes of Anglo at that time because of over-exposure to the property market. Were you completely unaware of the banks' over-exposure to the property market, given the fact that you believed that it was only a liquidity problem?

Mr. Bertie Ahern:

No, I said to the Chairman in reply to the very first question that he asked me, of course I was aware of the over-exposure. Anglo, I think, had ... 40% of its loan book was in property in Ireland and 40% of it in property in England and I think we had ... at 60%, we had probably the highest ... I think we had the highest ratio of lending in one sector. So they were all different points. What you asked me did I see that we ... that this was heading for bust and the answer to that "No."

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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I didn't ask that question, Mr. Ahern, just to clarify-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Quickly now, Deputy.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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-----I asked you ... I asked you did you believe that the economy was sound, given the fact that guarantee legislation was being drafted before you left the Office of the Taoiseach, given that certain banks were shut out of the market and the over-exposure of major banks in this country to the property market?

Mr. Bertie Ahern:

Well, the answer was ... is still the same. And the reason, Deputy ... I could give you many examples. I've given you a good few. But if you looked at the growth and stability programme that was just issued at Christmas to the European Union, that Christmas of 2007, from the Department of Finance which, as I said earlier, is ... always takes ... rightly takes a conservative view, that was showing that we were going to grow by 3% to 5%, so it wasn't that I thought ... the IMF, the ESRI were all saying the same - that, yes, there was a problem but not that we were going to see a collapse. And the figure that we're talking about in that Growth and Stability Pact figure was 50,000 to 60,000 houses and the Department of Finance said well, they thought under 50,000 was more likely. We were not talking about down to what happened a few months later.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Thank you, Deputy. I'll bring you in to wrap up again. Deputy Eoghan Murphy.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chairman, and thank you, Mr. Ahern, you're very welcome. I want to go back to 1998 and entry into the euro, if I may? Did Charlie McCreevy notify you in advance of his decision to decide the exchange rate at which Ireland would join the EMU? Did you discuss this prior to his decision?

Mr. Bertie Ahern:

Yes ... of Ireland joining the economic and monetary union?

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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The exchange rate, at what rate he'd fixed at?

Mr. Bertie Ahern:

Oh yes.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Was it discussed at Cabinet?

Mr. Bertie Ahern:

I can't recall if it was. I'm sure it was discussed between the Department of Finance and the Central Bank.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Was the Government aware of what fixing of the monetary exchange rate for EMU would mean for interest rates?

Mr. Bertie Ahern:

That it would ... it was considered that fairly quickly on, we should get stability in interest rate and that it would be lower. I ... at that stage, our interest rates for many years, other than the currency crisis, was 10.75%. In the currency crisis, well, it went to 13.75% and, of course, the overnight went to whatever you like ... it went to all kind of rates - 80%, 90%, 100%. But the view was, as I recall it, that we should come down to around 7%. I don't believe that it was considered back in ... we're talking about '98, you're asking me now ... would it come down to where it did? I don't think ... I think 7% was what was considered.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Immediately after that decision was taken in Europe with the Minister, commentators at the time predicted that a wall of money would hit the Irish economy immediately following that decision. And then there was immediately a push for a fall in interest rates. So what did your Government do to protect the economy and people from this wall of money that was about to hit the Irish economy?

Mr. Bertie Ahern:

The supply of cheap money?

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Yes.

Mr. Bertie Ahern:

Well, we had, at that stage, partnership agreements. I think we were endeavouring - and were - to keep wages in line and salaries in line with what we thought was a sustainable level. We were doing our utmost to generate employment. We had ... by 1998 we were on about 1.4 million people working in the economy. We believed there were opportunities to increase that. We were trying to attract new industries. At that stage, as you know ... was the area when we really focused in on trying to get in foreign direct investment from the pharmaceutical sector and from the medical and medical appliances sector. We made a huge push from '98 to 2003 to bring in as much foreign direct investment as we could to give quality jobs.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Sorry, I'm just not sure what the relationship is to my question in terms of the increase ... the cheaper money coming into the economy as a result of the lower interest rates. What did the Government do to counterbalance that? And I mean in relation to fiscal policy.

Mr. Bertie Ahern:

In relation to fiscal policy, I think all the way through we were trying to keep the, you know, should ... to keep the budget in balance and to keep a surplus when we could and to write down the debt as much as we could. And we did that.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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In 2001 - in February - the EU Council censured Ireland for its failure to use fiscal policy to ensure economic stability given that we were now in a monetary union. Do you accept that charge?

Mr. Bertie Ahern:

Yes, I do. I think it was a bit hard on us, quite frankly. Not long later I was lobbied extensively by the Germans and the French not to hammer them and we didn't, but anyway.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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In terms of the opinions, sorry, and what exactly you accept, it said that it had repeatedly urged the Irish authorities to ensure economic stability by means of fiscal policy. It regretted that this advice was not reflected in the budget for 2001, despite developments in 2000 indicating an increasing extent of overheating. So what did you do about that?

Mr. Bertie Ahern:

Well, in 2001 to 2003 we reined in public expenditure quite strongly, not because of that particular charge at European Union level but because the economy and the dotcom turned down quite severely and we had to do it. But we accepted the ... we accepted the charge. I know you've discussed this previously but we accepted that charge and I don't accept that we ignored it. I mean, we didn't ignore it.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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You say that you reined in public spending but if we look at ... and it's a graph from the Wright report, it's in the documentation - page 81 of Vol. 3. What we actually see in the years for 2000, 2001, 2002 is public expenditure increasing far beyond what was being recommended by the Department of Finance. So did you actually rein in public spending? Because what I see in this report is it increasing.

Mr. Bertie Ahern:

Well, the Department of Finance, if you look at their summer document, they come in at a low base and then you have ...

Like you can't have a situation where the economy is growing very strong, where you have unemployment, and still very high unemployment at those times ... where we have many difficulties within our economy and you just look at the budgetary position. Like it seemed to most countries from ... well, we're not talking about ... which year do you want me to .... you started in '98 now you end up to 2001 ... which year do you want me to-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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I don't want to get into a long narrative on this, Mr. Ahern, I want to stick to the actual Council censure. But also, what was also said by the Wright report, and if I'm correct, he said that you were in broad agreement with the reports conclusions.

Mr. Bertie Ahern:

Yes.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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So on page 48 of the Wright report it says that, when talking about the monetary union, the impacts on the Irish economy and what should have been done with fiscal policy, it says, "Ireland failed the test of prudent fiscal management." Do you accept that?

Mr. Bertie Ahern:

I accept it now in hindsight because we would have built up bigger balances. But can I say at the time, Deputy, we still had over 10% unemployment. We still had an inability to give jobs to the young people in this country. And it seemed to me ... and today if it weren't have been for what happened ... to be writing down debt, which we were, substantially, saving interest payments, growing the economy, creating jobs, bringing in foreign investment, spending on infrastructure, having a balanced budget and creating surpluses, you know, if that wasn't complying with what he wanted us to do, I don't know what was.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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That's not what I wanted you to do, Mr. Ahern, but does that mean that you didn't ... that you ignored the censure from the Council?

Mr. Bertie Ahern:

No, I-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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If you accept what Mr. Wright says, that we failed the test of prudent fiscal management, and Mr. Cowen accepted that as well when he was before us, does that mean you ignored the European Council?

Mr. Bertie Ahern:

If you asked me to say now, if you asked me to say now ... should we have built up more balances if we knew there was going to be a bust in 2008? Yes. If you ask me from the position where I was Taoiseach ... chairing the Cabinet in 1998, 2000, where we had unemployment and a whole lot of infrastructure which we had to deal with, and a demand to try to bring up the country to EU averages, then the answer was no at that stage. Like if hindsight was foresight, you know, I'd be a billionaire and so would you. But at the time I thought what we were doing was conservative. And in fact I was considered a conservative at that stage.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Despite the censure from the Council and despite also-----

Mr. Bertie Ahern:

The Council, can I say this, I spent a lot of my life in ECOFIN and the Council, Deputy. And you know, if you're a small country ... a few years later Germany were way over the line, way over the line. And I had the Chancellor come down to say to me, "Keep your mouth shut, Bertie.", "Come on," I said, "don't give me that."

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Yes. And the Central Bank in 1999 stated "low interest rates have simply added fuel to the Irish economy they have pushed up demand for credit and they have been a contributing factor to the excessive rises in house prices". Did you ignore that warning from the Central Bank?

Mr. Bertie Ahern:

Again?

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Sorry ... "low interest rates have simply added fuel to the Irish economy they have pushed up demand for credit and they have been a contributing factor to the excessive rises in house prices". Central Bank in 1999. Prior to the censure from the Council.

Mr. Bertie Ahern:

It ... the low interest rates gave cheap money ... and there were, it wasn't only that, in 1999 if we want to look back, Chairman, I think one of the things we did in 1999 was when we moved from giving mortgages from a gross to a net basis. When we changed it from 20-25 years to 30-35 and 40 years, I think that had a greater effect.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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I want to stick to looking at what was being warned ... the warnings from the Central Bank in relation to the budgetary policy of your Government. If we look at the Central Bank pre-budget letter ... towards the end of 2000, this is for the budget for 2001. It warned that despite the strong surplus position the case against an expansionary budget is convincing, as this would heighten the risk of a hard landing for the economy. Did you ignore that advice when agreeing the budget for 2001?

Mr. Bertie Ahern:

I don't think the Minister did, quite frankly ... I think-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Even though the next two budgets were expansionary budgets, going against the advice of the Central Bank.

Mr. Bertie Ahern:

2001 to 2003 ... after the dotcom, or during the dotcom period, were not considered expansionary budgets. You know, taking into account the fact that we had a lot of money into the system and, you know, we had a growing economy.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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I'll just cut across, Mr. Ahern, sorry ... just ... because the figures shows that in 2002 spending was 22% up on the previous year for the first six months. Is that not expansionary?

Mr. Bertie Ahern:

The ... what was the current budget deficit in 2002?

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Is that not expansionary, Mr. Ahern?

Mr. Bertie Ahern:

No, but what's the current budget deficit? Like, with the greatest respect, if you're the Minister of Finance and the Department of Finance and you're devising your budget and I've been lucky enough to be at a Cabinet table, I think, for about 20 of them, you're looking at what your current budget deficit is, you're looking what your Exchequer borrowing requirement is, you're looking at what your debt-to-GDP ratio is, you're looking at what your income is and you're taking all these things into account. I'm not disagreeing with ... but I'm just saying, Deputy, you can't take one in isolation from the others. That's all I'm saying to you.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Fair enough. Well, let's talk about the Minister for Finance then because when he was before the committee, I asked him in what way the elections in 2002 impacted upon the budget decisions in 2002 and 2001. And his reply to me was:

I'm sure that when an election is coming up, that you will be very, very conscious in the previous year to 18 months, as the same as this Government is very, very conscious, of not trying to do something which is going to antagonise the electorate. And certainly all Governments of which I have been a member and all Governments when I wasn't a member, have always borne that very much in mind. So the answer to your question is-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Which Minister is this?

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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It is Mr. McCreevy.

-----yes, of course, the upcoming election has always influenced measures which the Government do at election time. We are politicians, don't forget, and we actually like to be re-elected.

Is that a true reflection of your Government?

Mr. Bertie Ahern:

I don't think we ever did anything irresponsible on the base into a budget and, to be honest with you, I hadn't got much competition in 2002 so I wasn't that worried about whether I'd be re-elected Taoiseach or not, so ... it might have been a bit tougher in 2007, so I don't think we were involved in doing anything that I would consider near irresponsible in 2002 because I considered my job as Taoiseach, my constitutional role, is to serve the people and do things responsibly. And I think if you ask me do I have to accept or disagree with what Mr. McCreevy said there's a touch of, that you did something irresponsible, and I don't think we did.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay, well, immediately after that election in 2002 Minister McCreevy sent a memo to every Government Department demanding cutbacks in spending. Why?

Mr. Bertie Ahern:

Because ... which he said to you, the economy started growing massively in that year and ended up very low. It was 12% in January and ended up 1% in December, so there was an enormous drop in one calendar year because of the dotcom. And that was the reason then he had to go back-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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In 2002?

Mr. Bertie Ahern:

Yes.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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The dotcom bubble was in 2001.

Mr. Bertie Ahern:

Yes but the effect into the Irish economy was 2001, 2002 and 2003.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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And the forecasts didn't predict this then for 2002, the economic forecasting?

Mr. Bertie Ahern:

The economic forecasts ... I can't recall what the figure was but the economic forecasts in 2001, '02 and '03, was we were under quite a lot of pressure and quite a lot of criticism and it was a tough three-year period.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay. Moving forward then through to before 2007. In an interview with the Sunday Independentin November 2014, you said:

...competitiveness had certainly been lost for three or four years by 2007 ... Investment in residential property went to 13pc of our national output in 2006. That's about double what it should have been. The share of employment in construction was too high. But the OECD didn't pick it up at the time, and from reading their reports, which I used to do, I didn't pick it up.

The 2003 OECD report said that tax incentives that boost demand in an already overheated residential market should be cut. The 2006 report stated domestic risks were important too, of which the most prominent was the risk of overshooting housing prices, although a soft landing was considered the most likely scenario, a sharper fall could not be ruled out. Did you miss these warnings when you were reading the OECD reports?

Mr. Bertie Ahern:

No, I don't think ... I ... but, you know, Deputy, you've been reading these things massively and I ... I admire you for all you have to do in that, but you ... you can see what they do. They give the upsides and they give the downsides and they give conclusions, they give some criticism, they give some praise. But I do accept what I said in that article is true. Competitiveness, of course, is a loose term that's thrown around.

But competitiveness, when I was talking in that article and many other times that I have accepted, and this is what I do accept more so than I accept the expenditure argument, I accept that we got the competitiveness issue wrong. Competitiveness in its broadest sense, it covers a wide range of factors, it includes productivity, quality of output, innovation, sales, marketing expertise, quality of infrastructure, and I suppose, mainly salaries. That's what competitiveness is, and we did, I think from the period 2000 on ... miss out that we were losing market share and we were losing our competitiveness and, you know, if you were doing things differently, that issue, I would argue some of the other issues, but I think that issue I don't argue about, because I think that broad definition of competitiveness, we were letting, we were switching, we were switching from exports, which in most of my political career in Finance, I was always ... my paranoia was keep exports high, because that gave us more consumption, that gave us domestic demand. But then we lost on the export and we moved to domestic demand and that was the mistake that we made.

If you look at what Germany did in the same period, they went the other way, gained 10% competitiveness. We lost, and that was a mistake.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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2007 was another election year and I think, by your own admission, you were in a bit more trouble then. It's been written by Pat Leahy that Brian Cowen favoured a more prudent approach to budgetary matters than you did in the run-up to that election. He wanted to emphasise caution and restraint and avoid big tax-cutting promises. So did the election of 2007 have an impact on the budgetary decisions made in that year for 2008?

Mr. Bertie Ahern:

I think perhaps in that year, 2007, public expenditure was too high, because there were a lot of warnings around in that period, and I think, if you're certainly doing it ... if you ask me now, going through it again, you would have taken a different view.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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I'm asking about the time; in 2007, tax receipts fell €2 billion below expectations and yet for the budget for 2008, you increased current spending by 8% and capital spending by over 10%. Why?

Mr. Bertie Ahern:

Well, current expenditure, I think, might have been too high. Capital, we were being advised by all the organisations that that was the right thing to do, that we still had infrastructural deficits, so I think on the current side, we should have tightened up, on the capital side, 10% was high, because overall, we were working to a 5% on infrastructure, 5% of GNP. On the current side, it was time to be getting tighter at that stage.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Did you get the 2008 budget wrong, then?

Mr. Bertie Ahern:

2008, I think Minister Cowen has given his view and I agree with his view.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Do you feel that you ignored the views of the Oireachtas or the concerns of the Oireachtas in devising that budget?

Mr. Bertie Ahern:

Well, which end of the Oireachtas? Every day I was in the Oireachtas-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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The Opposition, in the Dáil.

Mr. Bertie Ahern:

The Opposition collectively, every day I went in, I still hear it in my ears, you know, spend more on this, that and the other. I don't remember hearing anything else than that.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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It's in your evidence book, Vol. 5, page 59, it's a series of questions, parliamentary questions, put to the Minister for Finance at the beginning of 2007 and through for the first six months, asking questions about the tax policies and opinion on growth and revenue, confidence in the mechanisms used to make Exchequer return predictions, the heavy reliance of the Exchequer on revenue from the housing sector, the over-dependence of the economy on the construction sector, dependence on insecure sources of tax revenue from property, the views of the IMF that Ireland was one of the most vulnerable countries to the ongoing international banking crisis and credit crunch and you go ahead and you increase spending for 2008. So, were you aware of those concerns being raised by Opposition TDs in the Dáil and did you pay attention to them?

Mr. Bertie Ahern:

I've read the questions, a lot of them were written questions, but I'd have to say, Deputy, first question, do I think 2008 was too high in public spending, the answer is yes. Did I listen to the Opposition in the House, I would have spent three times more if I'd listened to them.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay. Do you accept the findings of the Nyberg report on page 4, where it says "As demonstrated by the previous scoping reports, although clearly affected by external conditions as set out above, the Irish crisis was in all essential aspects home-grown."?

Mr. Bertie Ahern:

Yes, I read that. I'm not sure; I'm not sure.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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You're not sure.

Mr. Bertie Ahern:

No.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay.

Mr. Bertie Ahern:

I'm not sure.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Could you elaborate on that level of uncertainty?

Mr. Bertie Ahern:

Yes, I don't ... there were two major things happened, Chairman. The amount of taxation that was directly related to the residential ... to property was too high ... too high and, you know, I accept responsibility for that. I was head of Government ... 24%, almost 25% in the economy, you know ... you know, that was ghastly when you look back at it ... you see it. On the other side, you look at what the banks did ... you know, the Nyberg report, all that happened on the banking side. But the bit I'm not too sure of ... the international crisis that came on top of it ... talk about all the cards being played against you in one go, Chairman. I think sometimes we forget ... internationally ... just the extent of what was happening worldwide in those few months. Rightly so, we looked at what was happening in Ireland and how it was effecting us and the banks ... and ... but look at what was happening worldwide, the extent of the investment bank system ... the banking system put the world under ... to get that on top of our problems ... I'm not defending our problems. I've said the two vulnerabilities that were there - one I take for responsibility for, I take no responsibility - none - for what was happening in the Central Bank or in the Financial Regulator because I had no knowledge or control over it, despite what people think and accuse me of. But the international hit ... the international hit was just massive and I think that ... to, kind of, say that had nothing to do with it does ... I'm not ... if I was here with him, I had have an argument with him but he's not. But I just think that is too harsh a statement and I would like be able to argue that point with him.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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We just allowed a bit of time for that. Back to yourself, Deputy Murphy.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chair. Just to move on then, if I may, Mr. Ahern, to 2007 and you established the domestic standing group. Did you pay any attention to its work?

Mr. Bertie Ahern:

The domestic standing group?

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Yes.

Mr. Bertie Ahern:

No, not a lot. I knew it was there. I've said what I said in my statement about it. I was aware that they were meeting but we did not receive the reports in the Department of the Taoiseach from it. We weren't ... we didn't participate in it. None of my officials were on it and we weren't ... we were not being briefed and I cannot ever recall being briefed at the Cabinet on it either.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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So were you were aware of the increasing liquidity problem facing the banks from 2007 on?

Mr. Bertie Ahern:

Yes.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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You were aware of that problem?

Mr. Bertie Ahern:

Yes.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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And did you do anything about it?

Mr. Bertie Ahern:

I discussed it. And when I came back from holidays that year, I discussed it with the Governor and we had numerous discussions on the liquidity issue ... ongoing discussions all the way from August 2007 right until the time I left. The liquidity issue was ... I would have numerous, numerous discussions with the Minister for Finance.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Were you aware, then, that the Governor of the Central Bank and the Financial Regulator went to each of the banks in March-April 2008, in what was called "the green jersey" agenda - because one Irish bank couldn't borrow from anyone and another Irish bank couldn't get any money from the other Irish banks - to ask the banks to lend to each other? Were you aware of that initiative?

Mr. Bertie Ahern:

I wasn't.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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You weren't aware of that?

Mr. Bertie Ahern:

No.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay. Thank you. And then just moving then past your time as Taoiseach. You gave an interview in the Sunday Independentin November 2014 talking about what skills were needed in 2008 and 2010 and you said "I knew my way around all of these things", and you were referring to the NTMA, the Department of Finance, the ECB, Jean-Claude Trichet, who you knew personally, "I knew my way around all these things while Brian Cowen was only in the door. So that's the pity about that period." Are you saying that if you were still Taoiseach in 2008 and in 2010, there would be a different outcome for the country?

Mr. Bertie Ahern:

No, I'm certainly not. I don't think the outcome, unfortunately, would have been maybe no better and Brian Cowen did a very good job and Brian Lenihan, in my view. The point I was making ... but, you know, I knew these people very well and I knew the Europeans very well. I knew them personally. I think it would have been easier on my colleagues I knew ... Jean-Claude Trichet from the 1991-1992 currency crisis, when he was head of ... monetary section of the French department of finance. Jean-Claude Juncker was head of the Eurogroup. I had been Minister for Labour with him, Minister for Finance with him and Taoiseach and Prime Minister with him. So I would have been, you know, personally very, very friendly with these people.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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What difference would that have made?

Mr. Bertie Ahern:

Well, it ... I think it would have been able to put a bit of leaning on them. When they-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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That Mr. Cowen couldn't.

Mr. Bertie Ahern:

Well, they didn't help them. As you have heard time and time again here, they didn't help them very much. So maybe the outcome would have been no, absolutely no different-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Why make that point-----

Mr. Bertie Ahern:

-----but I have to say I felt it hard during that period because I was only gone a few months and you ... I would have felt I would have able to be of help. You have asked the direct question, "Would it have made any difference?", and I have said to you, no.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay, so why did you say when you left the Dáil that, "I would have loved if somebody somewhere had of told me what was going on in the banks in this country, but nobody ever did", and you just told me that you did know about the increasing liquidity problems facing the banks and you had spoken to the Central Bank Governor about it?

Mr. Bertie Ahern:

I was talking about the point which I dealt with earlier to Deputy Doherty that the extent that so few people owed so much and with very poor guarantees and very poor stress tests or checks on their ability to be able to deal with those loans. That's the point I was dealing with.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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And just-----

Mr. Bertie Ahern:

I never was given that detail.

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay and you were never given that detail. And then, just about mistakes that you think were made by your successors in government in the Department in Finance ... if you thought any mistakes were made? Because again, from that same interview in the Sunday Independentin November 2014, when you were asked about the pressure that Jean-Claude Trichet was putting on Brian Lenihan, you said:

The reality in life is when you're around a long time, maybe the mistakes you make the first time, when you do them about the sixth time [you don't do it again]. When you're doing it the first time, it's not so easy. But that's what's called, in inverted commas, experience.

Did you feel that Brian Lenihan did not have enough experience to be the Minister for Finance and if mistakes were made, what mistakes were they?

Mr. Bertie Ahern:

No, I don't think Brian Lenihan or Brian Cowen made any mistakes. I think they did their very best in the circumstances that were there. But it wasn't easy for them. You know both ... they ... I remember during the currency crisis the then Governor of the Central Bank saying to me that, "I was unlucky in one way and I was lucky in another", and I asked him what did he mean and it was Maurice Doyle, a very good Governor of the Central Bank. And he said "You are unlucky to be here when there is a currency crisis to the extent and the level that it is. But you are lucky to be here to gain the experience in this particular time" and, you know, it was that time that we had the group which afterwards, was like the domestic banking group. During that whole currency ... the Governor of the Central Bank, the Secretary of the Department of the Taoiseach, Sean Cromien, Michael Somers, who was head of NTMA, Maurice O'Connell who was, who was later Governor of the Central Bank, we met three, four times a week working and getting through that crisis. So, you do ... you do, I think, Deputy, appreciate ... you gain a lot of experience from that for me to say would it have made any difference.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I'll just venture in quickly and if I can-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chair, it's my last question. I think you said earlier that you take no responsibility for what the Central Bank, what was happening in the Financial Regulator, is that correct?

Mr. Bertie Ahern:

Well, what I said ... the ability as ... just to be clear about this, it is regular with people that say to me, you know, they say, "Bertie, listen, you must have known the extent of A, B or C of what they owed the bank, that they hadn't got guarantees. You must have seen the files." I know you people here are experts on this issue now. But the general public believe that the Taoiseach of the day and even very sophisticated people in there, believe that you had this information, that I knew what X, Y owed and what guarantees he had and that I was over coffee talking to the Governor of the Central Bank. I didn't know anything about any of that-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay----

Mr. Bertie Ahern:

-----if I did of ... if I did of, I would have lashed it out in the Dáil some day or some speech-----

Photo of Eoghan MurphyEoghan Murphy (Dublin South East, Fine Gael)
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Okay-----

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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So they didn't speak to you?

Mr. Bertie Ahern:

Well, they ... yes, I used to go ... I used to make a practice of going around and thanking people for coming, from every walk of life.

Mr. Bertie Ahern:

But it's ... it was a social occasion. I mean, I'd hate to think that political parties that look for the votes of the people bring in regulations that they can't meet people. That'd be a sad day.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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I would just like to ask you, this is a quote that I'm specifically saying was in The Irish Timesbut I think you've made it before. You said,"If I'd cut spending, they would've crucified me." Is that ... is that .. would you accept that? I mean I appreciate this is in an interview in The Irish Times. The reason I'm asking you is they ... you're saying there "they would've crucified me". I would argue that, perhaps if you had cut spending, the nation wouldn't have been crucified.

Mr. Bertie Ahern:

Well ... you know ... listen, when I was Minister of Finance because they were far tougher times and the debt-GDP ratio was 110%, I was cutting expenditure all of the time. But ... and I think I spent my life saying "No", as Minister of Finance and as Taoiseach as well because there are always ... unfortunately, and I suppose it's always the same worldwide, I don't think it's unique to Ireland, the demand-led schemes and the demands are always more than the available resources. So, you know, you're always trying to say "No" and even if we show on the chart today expenditure is going up, you can take it that if the ... if line Departments got their way, it would go up three times more. There's always the pressure for more spend-----

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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You did make the point to Senator MacSharry that, you know, that there was nobody that didn't ask you not to spend more. I mean isn't the difference between being in government and being either in opposition or outside the political system is that you are always asking and the privilege, if you like, and the responsibility of government is that you can see the books and you know where the money is or isn't, and that you are the one elected to make the decision whether that money should be spent or not. And yet there's a suggestion here that, "Well, everyone was asking me to spend so I spent."

Mr. Bertie Ahern:

I-----

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Surely you should have made the decision?

Mr. Bertie Ahern:

No, well, a decision was made as it is in most cases not to spend. No, but remember in this case ... I don't want to forget the position that in ten of the 11 years, there was a surplus. That the effectively the net position of the GDP ratio, as the IMF liked to say, was 12%.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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But how is that something to be proud of when we've seen what happened next?

Mr. Bertie Ahern:

No, no-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Deputy, I-----

Mr. Bertie Ahern:

Very proud-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Sorry, excuse ... just Mr. Ahern, just give me a moment. Senator, I would ask you not to be leading in your questions.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Okay, I'm sorry.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Put the question please ... remove any value from it.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Mr. Ahern, please.

Mr. Bertie Ahern:

I'm saying, Senator, that when you are trying to responsibly do your job and carry out your functions, you want to have within the budget year that you're dealing with, that your ... you stick as to what the rules of European Economic Monetary Union were, and the Growth and Stability Pact; that your budgets were either in surplus or close to surplus; that your debt-GDP ratio was low; that your current budget deficit was low; and that you could use resources enough to deal with the demands that were there.

As I said earlier on today ... so that was the position. I think we were very responsible. You asked me, in hindsight, if I knew that when there was a hole in the budget would we, as Germany did ... built up a surplus that you would deal with that difficulty. Of course, in hindsight, you would do that. But each year I, and Ministers, and I think the country ... economic analysis of Ireland ... remember we were held up as the model worldwide for a long time, that we were doing the right thing.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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In relation to the various warnings that were proffered by people like the OECD, the IMF, the ESRI, and Deputy Murphy went through some of those, and I know you've acknowledged here that you read many of those, did you actually discuss those with officials, either in your own Department or the Department of Finance? Did you make any plans to deal with the, "Well, what if some of those do come to pass?" Or, did you read them and make a decision to keep going?

Mr. Bertie Ahern:

No, I'd have to say the ... I was always concerned that, as we chased supply ... and all our efforts were to try to deal and build enough houses to deal with the demand that was there, that was the right thing to be doing ... supply. When it went over that figure, I was concerned. Like, when we went to 65,000 - whatever it went, 65,000, 77,000, and 88,000; I think they were the three years - I was very concerned about that because I couldn't understand why the sustainable level that all these reports had been telling me for years would have been between 50,000 and 60,000. Now, I did discuss that and I remember being told that I didn't factor in the supply side correctly, because between 2004 and 2006 the population went up 300,000. So if you factored in that, the 55,000 would go up. And that was a credible enough answer, in fairness.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Mr. Ahern, when you were leaving and, obviously, there was briefings given, obviously, to Mr. Cowen and Mr. Lenihan coming in behind you ... I think you have these documents, DOF03151. This was a briefing document ... so I'm assuming that these would have been briefing documents you would have known about. The Department was saying, "We are now factoring a €2 billion shortfall in taxes but have not publicised this as yet." [this is May 2008] "This represents a significant worsening of the position for this year, with serious consequential impacts for next year." And then it goes on to say in relation to the banks:

There's a virtual cessation of normal wholesale lending activity. There is general negative international sentiment against Ireland. The concerns that initially led to credit markets seizing up last August are persisting. Major financial institutions continue to disclose major write-downs.

So these were the briefing notes passed between Departments at this point. What does that tell you about the state of the economy as you closed the door and left?

Mr. Bertie Ahern:

Well, from the year earlier, I mean, the housing ... from second ... I think the entire second half, maybe even the three quarters of 2007, houses ... the number of houses, and, thereby, the revenues, were going down. It was showing that we were going to be stretched in 2008 and all the reports show that. But equally, as I said earlier on, even in the growth and stability pact of December 2007, the Department of Finance, which would have been going to Brussels in January 2008, the Department of Finance were indicating that we would grow 3% in 2008 and 3% in 2009.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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But these were the confidential documents that you would have seen, I'm ... you would have known the content of this as you left ... pretty much as you left, this is what you were leaving behind you.

Mr. Bertie Ahern:

Yes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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So what was going through your head as you left? Were you satisfied that the place was in good order? Were you worried? Were you ashamed that things were about to ... what were you thinking?

Mr. Bertie Ahern:

I certainly wasn't ashamed. I believed that the place was in good order but that we had problems and the problems were the liquidity. We had that ... while houses were coming down, that didn't upset me, but we were still going to grow by 3% and 5%, and, as I said before, in 2008, even though we lost 28,000 jobs in construction, which was because of the houses coming down ... sorry, 20,000 jobs ... we were able to take all of those up in financial services. So we were still managing to deal effectively with what was the turn down in houses. And that was my view maybe until the summer.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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At that same time, part of the information that was coming through and, I think, somebody referred to it earlier the ... the St. Patrick's Day massacre. What was your knowledge in relation to the contracts for difference, in relation to Seán Quinn and Anglo Irish Bank? What did you know? What had the Minister for Finance told you at that time? What had you had ... had you had any discussions with the Central Bank, with the Financial Regulator about that particular problem, which was noted here as having the potential for a very serious problem and that the auditors - the company auditors - were deferring-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Final question now, Senator.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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-----signing off on the audited accounts and that money had been taken from the insurance part of Quinn?

Mr. Bertie Ahern:

Well, you know, I have no recollection, I mean, I discussed ... of that particular issue. I had-----

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Of the contracts for difference?

Mr. Bertie Ahern:

Yes. I've no-----

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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You've no recollection?

Mr. Bertie Ahern:

I'd no knowledge of it. And I think I would have had, to be quite honest, because, I think, if it had been raised with me or if I had read it, I would have known. I did know about the difficulties in Anglo because ... when the share price went down and in ... the Minister of Finance, as soon as we returned from the St. Patrick's Day - I was in the United States, he was in ... wherever he was - he came straight to me, he came to my home. He had been briefed and he had been on the phone and I think he came straight from the airport to my home to brief me on that situation because he and I were both concerned about it ... what was going on.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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And in that briefing at your home what-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source

Could you ask a final question now?

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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In fairness, Chair. What was the nature of that, what was the level of his concern and what did you both, or either of you, do at that point in relation to the problem you had now just been appraised of?

Mr. Bertie Ahern:

Well, I know when he went back he was deeply involved with his officials about it and ... but he had been on the phone, I think, fairly regularly over the St. Patrick's Day period with them. But, obviously, market sentiment to Anglo, in particular, internationally was growing. And that was a big concern.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Mr. Cowen wouldn't normally have come to your home, I take it, you know, just to brief you about something like that, would he?

Mr. Bertie Ahern:

No, but I think he was coming back from the airport and came in to me. But we wouldn't normally ... again, I mean, he was concerned about the issue and I was concerned about the issue. We'd all been away for St. Patrick's Day and he updated me on it.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Did you keep an eye on it, then, through the-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source

Sorry, I'm going to have to go on now, Senator.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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-----that would have been, let's say, 20 March? Just bear with me, Chair.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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No, you're to conclude your question now.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Well, this is my last question.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Yes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
Link to this: Individually | In context | Oireachtas source

That was around 20 March, we'll say-----

Mr. Bertie Ahern:

Yes.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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-----so you still had, whatever, eight weeks or so. So what did you do yourself in that period of time in relation to this?

Mr. Bertie Ahern:

Well, I didn't take any action, it was the Minister of Finance who was taking the action but he ... I knew that he was ... had been deeply and more deeply involved with his officials at that period about what was going on in Anglo. None of the other banks were being mentioned at that stage.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Okay. Thank you. I now invite Deputy Joe Higgins. Deputy Higgins, ten minutes.