Thursday 22 February 2018

Banking Inquiry: Government should have taken unpopular decisions to stop financial crash - Mary Harney

Mary Harney arriving at the Banking Enquiry on Merrion Street.
Pic Steve Humphreys
Mary Harney arriving at the Banking Enquiry on Merrion Street. Pic Steve Humphreys

Clodagh Sheehy

The government should have dug deeper, asked harder questions and taken unpopular decisions to stop the financial crash former Tanaiste Mary Harney has said.

Ms Harney has blamed an enormous explosion of cheap credit, undue confidence in the regulatory regime and allowing public spending to grow to quickly as the main reasons for the financial crash.

She told the Banking Inquiry while she was proud of economic and social achievements during her period in office, “those governments also made mistakes which I certainly regret”.

She identified three principal errors, the first of which was the “enormous explosion of cheap credit” as Ireland entered the euro.

Secondly we were very trusting of the regulatory environment.  She said more proactive monitoring with regular assessments of financial stability could have helped raise awareness of the risks.

The oversight of credit providers was “not vigorous enough.

“I believe that as a Government we had undue confidence in the new financial regulatory

regime and stood too far at arm’s length when there were serious signals to be read in the economy. That was clearly wrong.”

Finally public spending had been allowed to grow too quickly “on the back of unprecedented tax growth.

“We underestimated the multiplier effect of excessive and unsustainable construction activity and property transactions on the economy as a whole and the public finances in particular.”

The former Tanaiste said it “does nothing to ease my regret that we as Government had a heavy responsibility for not digging deeper, asking harder questions and taking (unpopular) decisions before we did from 2008 onwards”.

Spending, she added, was allowed to increase too rapidly as the economy overheated with continued growth and the exchequer finances became over-dependent on construction.

“But no one in the political arena was calling for the kind of restraint that in hindsight we can now see could have eased the later pain”.

The quality of Oireachtas oversight of banking and economic policy, she added, was very poor prior to the crisis.

“Oireachtas committees that could have had a role were low profile and in my opinion did little real analysis of economic policy and none at all on banking policy.

“There were of course debates on Budgets and on National Development Plans but these are one- off opportunities for the Oireachtas and do not provide an ongoing forum for oversight of the kind required”, she stressed.

“I may be wrong of course – but if meaningful and real oversight was being performed by the Oireachtas I was not aware of it and nor, I would suggest, was the general public.”

The Social Partnership model  also became all-embracing and “so to an extent” undermined the role of the Oireachtas.

It was true that the property sector had excessive influence. One of the reasons was that it was seen as one of the most efficient and least costly ways of generating employment growth.

“it should be noted that, even before the crisis hit, the government was taking strong measures to rein in many of the property incentives that had been in place for some time.”

Ms Harney said with hindsight the Bank Guarantee was the correct thing to do at the time “especially given the knowledge we had then”.

She remained to be convinced if the nationalisation of Anglo that night would have made much if any positivite difference.

When it was nationalised it had the benefit of allowing the government to appoint a new management team and board. “It would also buy some time, which was badly needed at the time”.

Ms Harney said if any lessons were to be learned from the economic crash it was to be more questioning, particularly of consensus.

"If you asked me could we have another crisis, I couldn't put my hand on my heart and say no" she stressed.

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