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Patrick Honohan, governor of the Central Bank of Ireland.
Patrick Honohan, governor of the Central Bank of Ireland.
Image: Niall Carson/PA Archive

Central Bank governor: The bailout programme did what it said on the tin

Honohan said, now that we have exited the programme, “the rest is up to us”.
Jan 10th 2014, 10:33 AM 7,629 62

PATRICK HONOHAN, GOVERNOR of the Central Bank of Ireland, has said that the EU-IMF programme of financial support for Ireland, “delivered what it said on the tin”.

The governor made his comments in an address to a European Commission conference this morning.

He said the bailout programme “provided a safe harbour into which Ireland was able to retreat, in order to clarify its ability and determination to deal with the severe financial problems that had so destructively erupted” in the financial crisis.

“The key to the return of marker confidence to the extend that now exists has undoubtedly been rigorous adherence to fiscal goals,” he told the conference.

My overall impression is that most of the specific measures urged on the Government by Troika staff as the programme unfolded were sensible or inevitable; few were really bad ideas.

Employment

Honohan said negotiators at the start of the bailout process were inclined to wonder why more action had not already been taken but soon realised it would take time.

“Had there been sufficient fiscal headroom, or if the damage had been limited to a segment of the banking system, instead of infecting it all, more drastic de novo approaches to establishing a well-functioning banking system might have been available options,” he explained.

Looking to the future, the governor said that perhaps the best single picture for illustrating the pattern of macroeconomic stabilisation is this chart, which shows that aggregate employment started growing again in 2012:

image

He said it suggests that this resumes a gradually slowing trend that was in place for more than a decade before interruption by a construction related surge in the mid-2000s.

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However he pointed out that the figure also “hints at how far below previous trend and medium term potential the economy remains at this point”.

“Unemployment, albeit moderated by emigration and labour market exit, stands at 12.4 per cent,” he said.

‘The rest is up to us’

The crisis will have a lasting unfavourable legacy. The accumulation of debt, public and private, will continue to weigh on growth prospects in a variety of ways. And many households are being affected by long term unemployment.

Honohan added that the damage can be fixed with measures like labour market activisation and continued improvement of fiscal policy.

“In cushioning the impact of the loss of market confidence resulting from the crisis, the programme did no more and no less than was promised on the tin,” he said. “The rest is up to us.”

Read: Why the world’s saying ‘Ireland is back’>

Read: Taxpayers will no longer pick up all of the tab for failed banks>

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Michelle Hennessy

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