ECB Council banks on Trinity lecturer

Professor Patrick Honohan of the Economics Department has been appointed Governor of the Central Banks and Financial Services Authority, as announced by the Minister for Finance Brian Lenihan this September.

Mr. Lenihan says “throughout this financial crisis I have sought (Prof. Honohan’s) views and he has consistently provided valuable advice. I look forward to working with him in his new role”. Honohan will succeed the present Governor, John Hurley, who will retire at the end of this month. Other candidates for the role reportedly included former finance minister Alan Dukes and Department of Finance Secretary General David Doyle. Honohan’s appointment marks the first time a non-civil servant has been appointed to the position.

Honohan will head the proposed new Central Bank Commission, which will integrate regulatory functions for the financial sector with the traditional macroeconomic functions of the Central Bank. At present the two bodies operate autonomously. He will also sit on the 22-member governing council of the European Central Bank, which sets monetary policy for the Eurozone including interest rates. Professor Karl Whelan of UCD said the appointment would increase Ireland’s influence on the council.

“There’s some incredibly impressive people on the ECB council, and if you want to have your voice heard, it helps to have a resume like Patrick’s”, says Prof. Whelan. “He’s not just an Irish expert on banking, he’s an expert of international renown”.

Prof. Honohan worked at the Central Bank from 1976-84 before moving to the World Bank in 1987.  He remained there until 1990 and returned again in 1998 where he provided policy advice on the financial sector to governments and central banks in developing countries. He moved to Trinity in 2007, taking the post of Professor of International Financial Economics and Development. He has also worked at the ESRI, the Central Bank, International Monetary Fund and for Taoiseach Garret Fitzgerald as an advisor. Honohan’s research has focused on finance and financial crises, and government policy in the financial sector. He co-authored the chapter “Banking Crises” in the forthcoming Oxford Handbook of Banking and is considered an expert in his field.  

His appointment was broadly welcomed, with many praising the choice of an independent academic to the position. Opposition finance spokesman Richard Bruton said the move could weald a new era of regulation for the Irish financial sector. “I welcome the fact that this appointment involved a broader search for an appropriate office holder. The tradition of automatically appointing a former secretary general from the Department of Finance has not always been the best option. Professor Honohan is eminently well qualified and will bring considerable experience to this important post – particularly in relation to the difficult problems facing the banking sector.”

Honohan has been critical of Irish economic policy in the past. He said that membership of the Euro and consequent low interest rates are not solely to blame for Ireland’s credit-fuelled economic boom of the last decade. Irish policies were “not retuned to take account of the fact that, following Euro membership, financial markets were no longer offering an early warning system,” he said.

In a recent paper for the World Bank entitled What went wrong in Ireland? he summarises why the Irish problem:
“Until about 2000, the growth had been on a secure export-led basis, underpinned by wage restraint.  However, from about 2000 the character of the growth changed: a property price and construction bubble took hold.  This boom sustained employment and output growth until 2007 despite a loss of wage competitiveness.  The banks fuelled the boom, especially from 2003, exposing themselves both to funding and solvency pressures.”

Speaking of his own appointment, Prof. Honohan commented briefly, saying he was both “honoured and delighted” to have been asked to “help stabilize” the economy.