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Government errors and greed caused crisis -- Mansergh

Successive Irish Governments made serious mistakes during the celtic tiger years and the upper echelons of society, both in the public and private sector, were guilty of greed, Minister of State Dr Martin Mansergh told a gathering of some of Britain's leading economists in London.

And he predicted that there would be a cull of quangos on both sides of the Irish Sea during the drive to cut budgetary deficits.

He told the the Politeia economic forum in London that there is certainly an anger in Ireland at those held responsible for the devastating impact of the downturn, including the Government, for allowing such a critical situation, in which deep cuts would be needed, to develop.

"There is also a realisation, however, that uncontrolled anger could easily make matters worse," he said.

Dr Mansergh, who as Minister of State at the Department of Finance has responsibility for the Office of Public Works, said there is also a public determination to try to control -- as far as we can -- our affairs and to avoid outside dictation on expenditure or taxation.

"There is a confidence that we will come through, and that we will be able to keep many of the worthwhile gains of better years," he said.

"There is no doubt that the Government will continue to have to take difficult measures in order to bring our budgetary position back on track. Nonetheless, we are still very well aware that it is vital for us continue to invest in our key infrastructure, so that we can best position ourselves to take full advantage of the recovery," Dr Mansergh said.

"Markets need to believe that individual countries have the capacity to meet their commitments and obligations. All the main Irish parties, in other words the Government and the alternative government, have committed to reducing the deficit to three per cent of GDP by 2014," he said.

He added that in Ireland it has been largely accepted, way before now, that fiscal stimulus is largely ineffective, as so much of it leaks outside the country. While targeted sectional measures can work -- for example the car scrappage scheme last year -- a net stimulus involving increased borrowing is not feasible in our situation.

He said that opting for a longer timeframe, as the trade unions urge, is not a realistic option.

In a wide-ranging review of the last three decades of the Irish economy, he pointed out that in the late Nineties, public spending controls were eased with the number of public employees rising by 50 per cent and the salaries for those in higher ranks by 80 to 100 per cent -- "sometimes even more".

"I think there is an argument for saying that Irish society, or certainly the upper echelons -- whether involved in the public or private sector -- did become somewhat greedy.

"Pay in the middle to upper echelons of the public sector went up a lot more than was justifiable," said Mr Mansergh.

He admitted there was public anger and some fear in Ireland.

"National hubris [has been] replaced by a sentiment sometimes expressed as 'call in the IMF', or even 'hand the place back to Her Majesty' or, worst of all, 'put the celebrity economists in charge'.

"The effect of the crisis, where domestic and international factors compounded each other, came as a large shock to a country that was convinced not only that it was doing brilliantly, but that it had been operating well within the margins of safety."

Many now claim to have foretold the crisis, he said, but the record does not bear them out.

Dr Mansergh said that former finance minister Charlie McCreevy's declaration that "when we have it, we spend it" would "not win economic prizes".

"Very fortunately he did not entirely act on it" since he created the National Pension Reserve Fund.

Sunday Independent