Tuesday, October 18, 2016


Kenneth Clarke
Click on any image for a larger version

I tuned in to one of my favourite broadcasters this morning and there he was, chatting away to Kenneth Clarke, who has just published a memoir called Kind of Blue. The title is presumably aimed at telling us he is not "true blue", coming as he did from working class origins and leaning towards the left within the conservative party. No doubt he also wished to distance himself from Red Ken (Livingstone).

As Seán O'Rourke encouraged Ken in his very perceptive and amusing recollections, I was reminded of my own encounter with him in the latter half of 1996.

Ireland held the rotating EU Presidency at the time. Clarke was the UK Chancellor of the Exchequer (Finance Minister) and Ruairí Quinn held the corresponding position in the Irish Government.

Ruairí Quinn

It was on the day of an ECOFIN Council meeting and Ruairí, as President (chairman) of the Council, was hearing "confessions" in the run up to the meeting. That is a term used to describe the process whereby supplicant ministers have individual meetings with the chairman in an effort to bend his ear towards the views they will be advancing during the meeting itself.

I was in on the meeting as one of the items on the agenda was European Investment Bank projects in developing countries and I was on the EIB desk in Dublin.

This was a period when Margaret Thatcher's push for privatisation and entrepreneurship still suffused the UK administration, though she had gone by then and John Major was Prime Minister.

Normally, if the EIB was lending at effectively subsidised rates of interest or to high risk ventures where it was not appropriate for it to lean on its own capital, there would be an EU subsidy to cover the discretionary excess. In keeping the excessive risk off the EIB's own books, the Bank would be able to continue to borrow at competitive rates in international financial markets and pass the benefit on to its normal clients. It also reduced the risk of markets losing confidence in the Bank and possibly ultimately refusing to lend to it. Unlike the World Bank or the EBRD, the EIB could lend up to two and a half times its own capital and so was much more exposed to market perceptions than these other institutions, which were effectively 100% guaranteed by their member states.

Nigel Wicks

Clarke, no doubt under some political pressure, but also advised by the Treasury in the person of Nigel Wicks, was pushing for EIB to take far more risks in third countries than I considered prudent. I had been dealing with the EIB for a decade at that stage and was acutely aware of its potential financial vulnerability. This seemed to have escaped Clarke who, no doubt, was pushing an ideological line and also contemplating savings on the EU budget to which the UK was a net contributor.

I intervened and explained the EIB's leverage to Clarke and pointed out that one had to be very careful how far one pushed the risk-taking as it could ultimately backfire on the institution.

I think Ruairí Quinn was a wee bit taken aback at my intervention but he had seen it once before on a different occasion and he figured I knew what I was at. I got the impression that Clarke was also a bit surprised but seemed to be taking some of it in at least. I suspect that Nigel Wicks was not at all amused as I figure I was advising his minister along lines directly opposed to what he probably had.

As it was clear that there was going to be some pressure on EIB to up the ante anyway, I have no idea whether my intervention made the slightest bit of difference to the outcome. It did, however, mean that I didn't forget Ken Clarke in a hurry.

Don't think I got a mention in his book though.

No comments: