THE EARLY 1990S WAS A TIME OF PROFOUND change for the Irish and European economies, as member states began dismantling state monopolies in the telecoms, energy and aviation sectors. Ireland’s economy had been highly protectionist from the inception of the state until the early 1990s. Like other countries, it faced challenges in ensuring that former monopolies were replaced with fair competition. As a result, it began opening up to outside investment. When Peter Sutherland returned to Ireland after his four-year stint as European commissioner to join AIB, he also took on presidential roles at the Institute of Bankers and Ibec, the employers’ representative group.
Brian Cowen, Minister for Transport in the Fianna Fáil government at the time, observes of the privatisation era: ‘It was a great opportunity for Ireland to get capital in. We had sectors that needed huge investment – aviation and telecoms in particular. The question was, how would you bring investment in while competition remained fair? It was important not to let companies cherry pick aspects that were profitable and leave the state with the rest. I got to know Sutherland during this period. He made himself available in terms of advice. He never crossed any lines. He made sure Ireland was au fait with the trends at the time. He made sure Ireland had the best policies that avoided the ravages of excessive capitalism.’
Sutherland has always been closely associated with Fine Gael, but when it came to matters of national importance, he was never afraid to cross the floor. The early 1990s was another difficult period for the Irish economy. While the structural reforms that would give birth to the rapid expansion of the economy from the mid-nineties onwards, known as the Celtic Tiger, had begun, Ireland’s membership of the Exchange Rate Mechanism was fraught with risks. After the UK was famously forced to abandon the ERM on 16 September 1992, there was an immediate run on the Irish punt. It was the early days of the IIEA, and director Brendan Halligan decided something had to be done. When the staunch Labour Party man began putting together relevant information for the market, Sutherland was the only one who helped him. ‘He rolled up his sleeves and spent days in the office. In the end we had to throw our hands in the air because the punt was devalued.’ Sutherland went on Morning Ireland to argue that Ireland had to be at the core of Europe, and that meant joining the embryonic single currency.
When Sutherland joined GATT, Maruja and the family remained in Dublin while Sutherland made the weekly commute to Geneva. Sutherland kept a relatively low profile in Ireland for the next decade. There was the occasional interview or conference speech, but his business career was all-consuming. He briefly became embroiled in the tribunal into one of Ireland’s biggest scandals.
In 1997, Michael Moriarty, who had devilled with Sutherland and who at that stage was a High Court judge, was appointed to oversee a tribunal of inquiry into alleged payments made to politicians. The long-running Moriarty Tribunal delivered the finding in March 2011 that Michael Lowry, the Minister for Communications, had secured the winning of the state’s second mobile phone licence for the businessman Denis O’Brien’s consortium, Esat Digifone, in 1995. O’Brien and Lowry have both denied any wrongdoing, and have rejected the findings. The tribunal was extensive and forensically looked under the bonnet of Irish public life over the previous few decades. Sutherland was dragged into its remit in January 2000 when the inquiry was looking at the activities of Guinness & Mahon, a bank that had an extensive network of offshore accounts, known as Ansbacher accounts, that had been a vital cog in a number of tax avoidance strategies. It emerged that when Sutherland had bought his house in Blackrock in 1976, the loan was secured by an account held in Guinness & Mahon’s Guernsey branch. The beneficial owner of the account was Sutherland’s Spanish father-in-law. Sutherland proved to the inquiry that he never had any improper offshore accounts. The tribunal never made any findings against him.
It was only at the time of the Lisbon Treaty referendum in 2008 that Sutherland again took a prominent role in his home country. A firm believer that Ireland’s prosperity hinged on being a core member of the EU, he was horrified that the Irish electorate had voted down the first Nice Treaty in 2001, although the result had been overturned in a subsequent referendum in 2002.
Ireland’s relationship with the EU changed in the 2000s. For most of the period from accession in 1973 onwards, the Irish people had been enthusiastic members of the bloc. Now, the Celtic Tiger imbued Ireland with a confidence that quickly morphed into arrogance. The Irish economic model of the mid-1990s onwards was based on a business-friendly environment with a corporate tax rate of 12.5 per cent. There was also a plentiful supply of well-educated young people, and Ireland was still a relatively low-cost location.
As a result the country became a magnet for US investment. The economy, which had been largely moribund since the foundation of the state, suddenly began to grow at double-digit rates. Unemployment, which had stood at 17 per cent in the early 1990s, was on its way to low single digits. No longer a country that exported people, Ireland was now a net recipient of inward migration. The Economist in the 1980s had described Ireland as the ‘sick man of Europe’; it was considered the poorest of the rich countries. By the 2000s, the journal was feting the Celtic Tiger as an economic miracle and imploring other EU member states to follow Ireland’s lead. The usual apologetic tone adopted by Irish ministers in Brussels was replaced by a swagger.
Mary Harney, the former Tánaiste and leader of the Progressive Democrats, summed it up with the pithy observation: ‘Ireland has always spiritually been closer to Boston than Berlin.’ It is safe to assume Sutherland would not have agreed with her assessment of Ireland’s self-interest.
In an interview with the Irish Times in 2010, Sutherland said that Ireland had been a failed state in economic terms apart from a brief period between 1994 and 2002. ‘This sent a signal to multinational investors that they didn’t have to locate in France to sell in France. A low corporation tax rate of 12.5 per cent gave the country a dynamic boost. Then we reduced our competitive advantage by eating it up with waste and wage increases beyond what was possible for us to handle.’ Ireland received ‘incredible largesse’ from the EU through the 1980s and 1990s, yet ‘delivered virtually nothing in terms of improvement of the State. We never looked back and examined where the wastage happened.’[1]
Sutherland believed that a business-friendly taxation system delivered the economic dividends that governments could then use to improve a country’s social infrastructure. He argued that this should be the pattern that should be adopted by the entire EU.
‘He was intensely integrationist,’ says Brian Cowen, who went on to be Minister for Foreign Affairs between 2000 and 2004. Cowen had a number of dealings with Sutherland over this period. ‘He was very much of the [European] Commission view that there should be full-blown integration. He didn’t believe in a European super state, but he was probably more integrationist than the Irish civil service would have been.’ In an ongoing battle, the Irish government has remained opposed to ceding full autonomy in sensitive areas such as taxation. European integration has meanwhile become a political minefield for the governments of member states. The raison d’être of the EU is to raise the living standards of the citizens living within its borders, and the argument for integration is that by pooling sovereignty, the bloc is able to wield much more influence than the sum of its parts. But the trade-off between the pooling of sovereignty and the resultant economic dividends has become freighted with risks. Over the past decade the EU has been increasingly depicted as suffering from a democratic deficit that has become remote from the issues affecting member states; ‘Taking back control’ was the hugely emotive and effective campaign slogan of the leave side in the UK’s Brexit referendum.
‘Peter understood the national position,’ says Brian Cowen, ‘but his argument was that the benefits of integration would outweigh any downside. You could argue that point. There is no doubt that if you look at the banking collapse, the treaty kept states isolated. We didn’t have banking union. It was a point in favour of integration. The nature of capital flows means you need cross-border oversight. Looking back now we were over-cautious on that one. We would have been better off being more integrationist.’
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When the Lisbon Treaty referendum was called for June 2008, the mood had turned against the government. But it was the EU that would feel the brunt of simmering discontent at the ballot box. The country was coming to the end of a decade-long credit bubble and the backdrop had become increasingly uncertain. There was growing evidence that house prices were defying gravity. Fianna Fáil had been in power for eleven years and there was a sense of voter fatigue. All the main political parties ran very bad campaigns, having seemingly taken the result for granted. After all, according to all Eurobarometer polls, Irish people were still overwhelmingly well disposed to the EU.
Declan Ganley, a businessman and founder of Libertas, spearheaded the opposition to the referendum alongside Sinn Féin. It was a very effective, if somewhat dishonest campaign. There were claims that if Ireland ratified the Lisbon Treaty, then the government would lose autonomy over crucial and sensitive issues such as taxation and neutrality. The spectre of a European army was raised with dizzying frequency. Even the pro-life movement weighed in, claiming that a vote for Lisbon would pave the way for the introduction of abortion.
Sutherland took to the campaign trail with his trademark intensity. His profile in Ireland had never been particularly high; it was twenty-five years since he had been attorney general and his main achievements over the intervening period had been on an international stage. As a result, the No side in the campaign declared open season on his background. Mary Lou McDonald, a Sinn Féin MEP who had failed the previous year to be elected as a TD in the general election, was looking to relaunch her national profile, and the treaty referendum was the perfect platform. At a referendum forum in Dublin Castle she referred in withering terms to Sutherland’s background at Goldman Sachs and BP. Incoherent, unconvincing and toothless in the face of the No campaign’s sophistry, the Yes side narrowly lost.
Lisbon went down because of the yawning chasm between the EU and ordinary people, says Cowen. ‘In Lisbon there was a disconnect. It had been going on for a while. There was a big constitutional debate going on in Europe which was esoteric and irrelevant.’ Jacques Delors had been able to emphasise the economic benefits of membership, such as the structural funds, reform of the common agricultural policy, and so on. ‘It was seen as relevant to people’s lives. If you asked people what was in the Lisbon Treaty, nobody really knew or cared. By that stage, the UK right-wing press were having a field day on Europe and it was having an effect. What we found the second time is that we needed to do a lot more research.’
According to Cowen, a lot of the general political commentary in 2008 was ‘lazy puerile analysis. They demonised Sutherland because he worked at Goldman Sachs. It is nothing more than name calling but it is effective.’
In October 2009, a second Lisbon Treaty referendum was called. This time 67 per cent of voters ticked the Yes box. But it was a campaign that Sutherland had to sit out. Earlier that year he had been diagnosed with throat cancer.
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By the second time the Irish people went to the polls, the economic landscape had changed considerably. Ireland was on its way to experiencing one of the worst downturns any developed economy had ever experienced. House prices would collapse by just under 60 per cent from their 2007 peak to a trough in 2011. By 2008, the Irish banking system had become highly leveraged; by the time the global financial system became paralysed following the collapse of Lehman Brothers, the sector had become heavily reliant on wholesale money markets to fund its lending requirements. The problem was that Irish banks were borrowing in the short-term money markets while lending to the property sector, either in the form of mortgages or development loans, which are by nature long-term transactions. Any disruption to the wholesale money markets and Irish banks would be dangerously exposed.
The first portents of the looming banking crisis happened in March 2008. At the start of that month US investment bank Bear Stearns collapsed because of its exposure to the US sub-prime market. Over most of the 2000s, US banks had bundled together US mortgages and sold them as collateralised debt obligations (CDOs). Investors snapped them up, which increased the demand for these complex and opaque products. CDOs were cited as an example of how financial innovation was reducing risk for investors. The problem was that these CDOs had been stitched together with mortgages with different credit ratings, ranged from A grade high quality down to sub-investment grade. When the US sub-prime market hit the buffers at the end of 2007, investors didn’t know which CDOs were carrying toxic assets. Irish businessman Ulick McEvaddy summed it up rather colourfully on RTÉ radio at the time as ‘like going to a swingers’ party. Everybody puts their car keys into a bowl and then you find out two people have Aids. You don’t know which two. That’s it, the party is over for everybody.’ In the space of a few months, CDOs went from being an essential part of an investment portfolio to kryptonite.
Investment banks were carrying billions of dollars’ worth of these products on their balance sheets, and Bear Stearns was merely the first to buckle under the strain. On what is now infamously known as the St Patrick’s Day massacre, Irish banking stocks plummeted as investors looked suspiciously at the make-up of their balance sheets. Between March and September, the pressure on the banking system increased. The Irish government blamed hedge funds for adding to the instability by shorting banking stocks – in other words, their investors were taking a bet that stocks were set to fall in value. With the collapse of Lehman Brothers on 14 September, international money markets went into a tailspin. Irish banks lost access to the funding needed to cover day-to-day operations. The government took the highly controversial decision on 29 September to introduce a blanket guarantee of the domestic banks.
The decision to give the banks a backstop put the government on the hook for €64 billion of liabilities. That would have been a manageable strain on the national coffers if done in isolation, but the fiscal position was simultaneously deteriorating. The government had ramped up spending during the 2000s based on surging receipts from the property market, particularly via stamp duty. When the market crashed, an important source of revenue dried up. Brian Lenihan, who became Minister for Finance in June 2008 – or, in his own memorable words, ‘It was just my luck to take over when the economy came to a shuddering halt’[2] – had to preside over one of the most savage periods of austerity in the history of the state. In 2009 the budget deficit ballooned to 14.3 per cent of GDP, the highest in the EU. By 2011, following the rescue of the banking system, it had climbed to over 30 per cent.
Sutherland developed a close relationship with Lenihan over this period. Both men had similar backgrounds: they were Jesuit-educated and had both trained as barristers. ‘Peter was very supportive from 2008 onwards when we had to make massive cutbacks. We took the view that the sort of decisions we have to make are going to make us unre-electable, but it had to be done. It was a very adversarial time,’ says Brian Cowen.
Sutherland’s advice to Lenihan, continues Cowen, was to stick with the strategy they had embarked upon. ‘There was no other choice. Then he was quite laudatory when we did do it. In that sort of a way he was very straightforward and patriotic and mindful of the country’s future. He was of the view it had to be done right. If there was a delay or prevarication, then the country would end up like Greece. He made some public pronouncements, but mostly in private. Bankers were not exactly flavour of the month.’
From the end of 2008, and over the next two years, there was a steady flow of bankers and financiers into government buildings offering their services. Some of these were legitimate, others were snake-oil salesmen. Lenihan leaned heavily on Sutherland during this period. With his extensive network of contacts in the financial markets, Sutherland carried out background checks on several people and reported back to Lenihan as to who was worth talking to and who was a mere opportunist.
For much of this period Sutherland was recuperating from his treatment for throat cancer. ‘I knew by looking at him he clearly wasn’t well. But we never discussed his illness. Peter was an intensely private man,’ says Cowen.
Lenihan was himself diagnosed with pancreatic cancer in December 2010. According to the Irish Times, he phoned Sutherland two days before Christmas to tell him about his diagnosis. ‘Do the best you can to maintain your lifestyle,’ Sutherland told Lenihan. ‘If he is told to cut back,’ he said, ‘then that is what he should do – what he has to do is get better. There is a long way to go but I think there is a sort of national understanding that was reflected in the attitude to the appalling news about Brian Lenihan. We have limited talent in this country and we have to apply it.’[3]
During the same interview Sutherland lauded the approach Lenihan had taken to restoring fiscal rectitude. He described it as ‘a crucial moment in Irish history’ as the country fought to bridge the substantial gap between high public expenditure and low tax revenues. He pointed out that the country had only had the first of four austere budgets that this very difficult correction would require. ‘We are very different, but if the Greek problem were to spiral out of control – and I hope it doesn’t – the question is, have we done enough to dig a moat around the Irish problem in a way that distinguishes us quite clearly? There will be moments over the next twelve months when we will have to stand up domestically and be counted.’
Throughout 2010 the Irish government was effectively swimming against the tide. A debt crisis was sweeping through the periphery of the Eurozone. Greece was the first member state to lose its economic sovereignty, and it was a matter of time before Ireland would have to apply for an EU–IMF bailout package. When that happened, at the end of November 2010, it was a national humiliation unparalleled in the history of the state. The taxpayer-funded rescue of the banking system pushed the budget deficit to 32 per cent of GDP in 2011. Never in peacetime has a developed country had to contend with finances that were in such a parlous state. A senior Fine Gael source says that around this time, some senior members of the party became resentful of the relationship between Sutherland and Lenihan. ‘There was a feeling he should get off the pitch and let Fine Gael have a clear run at Fianna Fáil,’ according to one person familiar with the situation.
‘To be critical of him was not to realise he was in a different sphere of influence,’ Cowen says. ‘He had a very strong international reputation. He had a reputation as a straight shooter, he was very influential and had a great contact list. He had contacts with people in the financial world that the government did not have access to. He was a man of the highest integrity. He was never a partisan politician. He was never really the same stock as the rest of us. He would be the first to say if he had a conflict of interest. He was a very ethical guy. He had a huge commitment to public service. A lot of these guys never get credit for it, they are of a different mentality. He could have put his own career first, but he didn’t. He wanted to make a contribution.’
The political backlash was unforgiving and immediate. When the Fianna Fáil government collapsed shortly after Christmas 2010, Cowen became the focus of the backlash. ‘From 2008 onwards, the atmosphere was toxic. People were being fed a very pessimistic picture. At the time, there was an easy narrative to blame a few people – Ahern, Cowen, throw Sutherland into the mix.’ What would have happened, asks Cowen, if they had ducked the decision to guarantee the banks? What if a company went to pay its employees’ wages and its bank had run out of money? ‘There was no easy way out. We brought our debt way down. If we didn’t have that cushion we would have been shagged. I was criticised for going to the IMF, but if I hadn’t done that where would I have got the money?’
When Michael Noonan took over as Minister for Finance in March 2011, Ireland had just started a three-year bailout programme, and the prospects of the country exiting the bailout at the scheduled date looked bleak. Noonan had been very close to Sutherland when they were justice minister and attorney general respectively. Now the circumstances were different, but the two men took up where they had left off thirty years previously.
‘I found him very helpful. He had access to parts of the decision-making world which no other Irish person had – not even the civil service.’ Sutherland organised dinners and other meetings on Noonan’s behalf. ‘I was fortunate,’ says Noonan. ‘Tim Geithner was one of the people who stopped Brian Lenihan burning bondholders. I had him on the phone. Larry Summers was another. He became a friend and contact. I would have Peter in that group. I would get different views from different people. The civil service had low morale. There was a lot of blame going around. It was important for them and important for me that I could have these people. The difference was that Larry Summers would give me advice but Peter would put me in touch with serious people.’
There have been a number of official reports on the cause of Ireland’s economic downfall. The broad conclusions are that the banking system grew too quickly, lending standards were too lax, and eventually the size of the sector came to pose an existential threat to the overall economy. Since the crisis a number of reforms have taken place in the direction favoured by Sutherland. The most important of these is EU banking union. The Single Supervisory Mechanism (SSM) based in Frankfurt is now responsible for the supervision of the Irish banking system. The pro-cyclical policy operated by the government during the period leading up to the crash in 2008 stoked inflationary pressures to unsustainable levels. There is a lot of wisdom in hindsight, says Cowen, who admits that much of the advice he was getting at the time did not raise any red flags. He also points to the opposition parties and media commentators who spent most of the 2000s calling on him to ramp up spending. The reality is that there was a system-wide failure.
Sutherland was responsible for bringing the Trilateral Commission’s annual meeting to Dublin in May 2010. The Commission was founded in 1973 by David Rockefeller, scion of the Rockefeller dynasty, to promote dialogue between the US, Japan and Europe. Its membership included some of the most prominent industrialists, financiers and politicians from these countries. Sutherland was the European Chairman of the Trilateral Commission for over a decade. Henry Kissinger, the controversial US statesman, was among the attendees at the Dublin meeting. Sutherland was also a member of the Bilderberg Group, which was founded in 1954 to foster closer economic ties between the US and Europe. It is understood Sutherland started attending the Bilderberg meetings from the later 1980s onwards. Much like the Trilateral Commission, the annual Bilderberg gathering includes some of the most powerful people from the worlds of business, finance and politics. According to one Irish attendee, even in these rarefied surroundings, Sutherland was one of the most sought-after participants. The semi-secretive nature of both organisations has energised generations of conspiracy theorists. Bilderberg in particular is often depicted as a private cabal influencing world events without any accountability.
Alongside Noonan, Sutherland also developed close ties to Simon Coveney, currently Tánaiste and Minister for Foreign Affairs but in 2011 the Minister for Agriculture. Indeed, there is a video on social media – shared extensively by conspiracy theorists – of Sutherland and Coveney going for a walk during a Bilderberg meeting in Copenhagen in 2014. Sutherland’s relationship with Taoiseach Enda Kenny was less close; he confided to a number of associates his disappointment that Kenny had not taken up his offer of help.
Sutherland did have one foray into domestic politics in 2011. Suzanne Kelly, the daughter of Captain James Kelly, met Sutherland at a theatre in London in 2014, they chatted about events over forty years previously. Sutherland told her that the Public Accounts Committee’s ‘lies and treachery’ had motivated him in 2011 to campaign against a referendum to amend the constitution to give the Oireachtas special powers of investigation. His argument was that widening the remit of Oireachtas committees had the potential to limit civil liberties. Sutherland persuaded seven other former attorneys general – Patrick Connolly, John Rogers, Dermot Gleeson, Harry Whelehan, David Byrne, Michael McDowell and Paul Gallagher – to sign a letter calling for a no vote. The motion was unexpectedly defeated and the Oireachtas committees did not receive any extra powers.
In the years before 2008, Sutherland had not featured prominently in the Irish media, but when he did it was generally favourable. That changed around the time of the financial crisis. His ties with Goldman Sachs made him an obvious target, and there were a number of unflattering profiles; the most excoriating, penned by Fintan O’Toole in May 2010, was titled ‘Sutherland could have led by example’. The piece focused on Sutherland’s chairmanship of AIB and how his alleged failure of leadership in the DIRT scandal had helped foment a rotten culture that eventually led to the entire sector’s demise.
‘It hurt him deeply,’ Brendan Halligan says. ‘It wasn’t just the O’Toole attack. There were a number of them around that time. He took it very badly. He said he psychologically and physically withdrew from Ireland as a consequence. He felt he had become an impediment to the pro-European cause. I tried to tell him that he was loved dearly. He was very hurt by what happened. His friends tried to tell him it wasn’t as bad as he thought, but he wouldn’t believe them. If, as I have, you have been on the receiving end of a nasty campaign, then you do develop a siege mentality.’ Sutherland made only fleeting appearances in Ireland after the crisis.
He nevertheless convened a Sunday morning breakfast briefing every time he was in Dublin. At these gatherings a group of self-styled ‘grumpy old men’ met in Donnybrook Fair to discuss the challenges facing the country. Its members included Garrett Sheehan, Dáithí Ó Ceallaigh, Patrick Masterson, the former president of UCD, Dermot Gleeson, the former attorney general and chairman of AIB, businessmen Declan McCourt, and Lochlann Quinn, accountant John Blake Dillon, former attorney general Paul Gallagher, Eoin McConagle, a senior counsel, and in the early years Derry Hussey. The meeting still takes place once a month in Sutherland’s honour.
Among Sutherland’s sparing appearances in Ireland in the aftermath of the crisis was to give the Barrett Family Lecture at the Nanovic Institute for European Studies in Dublin in March 2015. Choosing a subject that would generate few favourable headlines, he took aim at Ireland’s position on neutrality. He believed, he said, that Ireland needed to take part in the defence of Europe, even though the Irish political consensus was very much moving in the opposite direction:
It is hard to see the situation changing here because there is little evidence that anyone wishes to discuss it politically. Our situation on this subject stands as something of a contradiction [to] our ostensible belief in an integrated European Union. Ireland, which has made a disproportionately significant contribution to UN peacekeeping operations, has demonstrated a capacity that will enable it to play an openly active role in developing the European defence policy and should not be afraid to be seen to do so. Then, our ministers and Taoiseach made it clear that Irish neutrality would not inhibit us, in due course, from participating in the development of European defence policy when the time came.[4]
Article 42.7 of the Treaty of Lisbon, he said, provided that ‘“if a member state is the victim of armed aggression on its territory, the other member states shall have towards it an obligation of aid and assistance within Article 51 of the United Nations Charter. This shall not prejudice the specific character of the security and defence policy of certain states.” Other neutral states within the Union have not been slow to consider their positions following this treaty. They have made domestic declarations of solidarity to other member states in clear and unambiguous terms. They were not bound to do so but they have seen it as their duty to express their responsibilities to other member states as they see them.’
Neutrality remains a divisive and emotive issue in Ireland, but overall sentiment towards the EU is moving in a direction that Sutherland would have approved. Britain’s vote to leave the bloc has pushed Ireland’s enthusiasm for EU membership to record levels.