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Don't get too excited over the bank chief's latest predictions

Central Bank governor John Hurley's promise of a "gradual" economic recovery from next year, while welcome, needs to be treated with scepticism in the light of his previous mixed record on these matters.

According to Hurley, after a "very difficult" 2009 there will be an "extended and gradual recovery" from next year. Well alleluia, folks. With signs that we are finally going to get a decent summer. We can also take comfort from the fact that the economy is on the mend.

Excuse me for spoiling the party but I wouldn't be in any hurry to call time on the recession just yet.

Slashed

For a start, there is the fact that Hurley's bout of optimism came on the same day that the European Central Bank, on whose governing council he sits, slashed its economic forecasts for 2009.

The ECB now expects the Eurozone economy as a whole to shrink by between 4.1pc and 5.1pc this year.

Now, call me cynical but one of the oldest tricks in the book for any organisation forced to reveal disappointing results in the short-term is to seek to distract attention by promising better times in the medium-term.

Couldn't happen, could it?

However, it was what Hurley had to say on house prices that fairly took my breath away. The fall in house prices, Hurley now tells us, was "inevitable".

Well, if that was the case, why didn't the Central Bank, of which Hurley has been the boss since 2002, do something about it?

Truly hindsight, of which Hurley possesses the 20:20 variety, is a wonderful thing.

Instead, Hurley and his underling, former Financial Regulator Pat (never "Paddy") Neary, sat on their hands while the credit-fuelled property boom drove house prices to ridiculous heights.

First, this made purchasing a home unaffordable for an ever larger proportion of the population and now, when the bubble has burst, it has resulted in a banking crisis which will cost the taxpayer tens of billions of euro to fix.

The human cost of this fiasco is that hundreds of thousands of homeowners now face the double whammy of being unable to repay their mortgages and being stuck in negative equity, where the amount outstanding on their mortgage exceeds the value of their home.

Failures

And what consolation does Hurley have for these unfortunate people, whose plight is at least partially due to the repeated failures of the Central Bank and the Financial Regulator?

According to Hurley, house price falls have further to fall.

Unfortunately, that is the one prediction from Hurley that I have no difficulty believing.

However, by far the most curious aspect of Hurley's thoughts, given in an interview with RTE radio, was the timing. Today, the country goes to the polls in European and local elections as well as the two Dublin by-elections.

The broadcast media, including RTE, are barred from reporting on election-related matters on the day before an election. The political parties have traditionally defined what constitutes "election-related" widely.

Even as I was writing this piece, Fianna Fail was taking RTE to task for last night's Prime Time item on Anglo Irish Bank.

Given these sensitivities, surely Hurley -- who prior to moving over to the Central Bank had been a senior civil servant for almost 15 years, including a spell as head of the Department of Finance -- would have been careful about what he had to say on the day before polling?

But no. Hurley, who was reappointed to a second seven-year term as Central Bank governor last January, was unusually garrulous.

Chimed

The fact that his theme of hard times this year followed by a recovery from next year chimed almost perfectly with the line being taken by the Government on the economy was, no doubt, pure coincidence.

In truth, Hurley's views on the economy are irrelevant. Having allowed the banking system to go to hell in a handbasket, his credibility is shot. We need a new Central Bank governor, and the sooner the better.


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