IRISH PEOPLE HAD a ‘national obsession’ with the acquisition of property during the boom years according to ECB economist Klaus Regling.
Speaking before the banking inquiry this morning, Regling spread the blame for the banking crisis quite widely and suggested that while Irish fiscal practices made the property bubble difficult to recover from, the fault for the problems could not be attributed to one group alone.
Regling, now CEO of the European Financial Stability Facility, co-wrote a 2010 paper for Brian Cowen detailing the evolution of the banking crisis, a paper for which he acknowledged today he had declined to interview the then Taoiseach.
“It was surprising to have heard so many personal anecdotes from ordinary people about property investment,” he said.
Property acquisition as a topic was almost a national obsession.You couldn’t even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession.Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college.
Under questioning from Socialist Party TD Joe Higgins, Regling acknowledged that the Euro as a currency had ‘significant design flaws’ that did not anticipate the extent of such a large crisis.
He further acknowledged that while various national and international institutions had missed the warning signs indicating the beginning of the crisis, as a result there are many new institutions in place to ensure the crisis can not repeat itself.
I didn’t see it coming. As an institution we didn’t see it coming. And so we were not able to issue the warnings that needed to be issued. As a result the ECB has an entirely new wing dedicated to ensuring stability.
In response to Higgins’ assertion that ordinary people had been punished for other people’s mistakes Regling remarked that during the boom wages and living standards went up while taxes decreased and that people who may have not played an active part in the property bubble still probably benefitted from it.
The inquiry also heard from Philip Lane, Professor of International Macroeconomics at Trinity College Dublin, who suggested that if Ireland had not been in the Euro the crisis would have been worse but the recovery would have been quicker.
“The initial crisis would have been deeper as we would have had to face up to a lot of bankruptcies happening quite quickly,” he said.
Living standards would have dropped however as one of the consequences of devaluation is that imports become very expensive.
Lane further said that the government of the time should have built up a ‘rainy day fund’ to guard against such economic calamities.
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