THE GOVERNOR OF the Central Bank believes Ireland has learnt lessons from the economic crisis but said he can’t rule out the same thing happening again.
Speaking on BBC’s HARDtalk, Patrick Honohan said that “the processes that led ordinary people … to make catastrophic mistakes … need to be burnt into people’s psyches so that they won’t take risks like that again”.
“Will it happen again? Well I would have thought that our fiscal crisis of the 1980s would have cured us of excesses of any type for 100 years because that was very painful. And it didn’t, we got into a problem again.
I think that’s why it’s very important for people to have a deep understanding of the sorts of decision-making processes that lead to error. And it wasn’t just silly people. It was people who were hailed – and I know of them – as intelligent and clever people running the banks. They too made horrendous mistakes.
Honohan noted that while unemployment remained a major issue, it was down from 15% to 11.8% – something he denied was largely due to emigration.
He said that “the corner has been turned”.
“That’s not to say there isn’t a lot of debris hanging around from this really severe recession.” Some of this debris includes household and government debt, he said.
When presenter Stephen Sackur suggested Honohan mixes ”in fairly rarefied circles”, the governor said: “I do try to walk the streets and see what’s going on”.
When pressed by Sackur on whether having our spending monitored by the Troika was the equivalent to losing our independence, he denied this was the case.
“[Ireland] regained the confidence of the markets … in cooperation with the lenders. Of course if was a nuisance having them come around every couple of months and poke in and out.”
Sackur quoted Finance Minister Michael Noonan’s comments about the country exiting the bailout programme meaning Ireland will “have been handed back her purse”.
To which Honohan replied: “There’s less in the purse now, is I suppose what cynics would say.”
The Governor added that “austerity means … making sure that your finances are in a viable situation” and, in that sense, would always be necessary.
“Nobody is going to hand you a gift. If they hand you a gift, of course you accept it. But if nobody’s going to hand you a gift you have to organise your affairs so you achieve a growth rate that generates the tax revenue that ensure that you’re able to deliver on the public expenditure that’s needed. That is what’s needed not just for ten years, but for all time.”
Honohan added that while we were on the road to recovery, the Irish economy “will never get the 10% growth rates that were bringing us up to [the Celtic Tiger].”
He stressed that he didn’t want to “invade government territory” but said: “There are lots of ways in which the Irish people’s vision of society could be more embedded in policy.”
Honohan added that the Central Bank remained committed to getting the State deficit down to 3% next year.
When Sackur noted that the Irish tax regime is “very helpful” to multinationals, Honohan said that it wasn’t the only reason we attracted foreign investment.
We must be offering something more than low tax and we are. OK, we may have got hooked on this particular model but it really has worked well.
Honohan, who had warned about the potential economic collapse while working for the World Bank, told Sackur: “I don’t want to set myself up as a great prophet that was ignored.”
He said that bank guarantee in September was a mistake “based on poor information of the risks that were being taken”.
The risks could have been reduced and I think big mistakes were made. The real failure in Ireland was not to realise the scale of the losses, the hidden losses embedded in the bank’s books because the property prices were overvalued.
He said that the Oireachtas banking inquiry is “very important for the general public to understand in a deeper way, in a personal way, the ‘why’ of the crisis” but doubts “any great secrets to be uncovered”.