:01:17. > :01:22.emergency is over. Is it? You know, it is a funny thing about
:01:23. > :01:29.economic developments and the way they impact people. When things are
:01:30. > :01:34.looking up and there is growth instead of decline, there is an
:01:35. > :01:38.enormous amount of positivity. That is the position. There has been
:01:39. > :01:42.positive growth in the past year, year-and-a-half.
:01:43. > :01:46.Employment is growing. Unemployment has fallen. Not just
:01:47. > :01:51.because of the high levels of emigration. Definitely the corner
:01:52. > :01:56.has been turned and we are moving back in the right direction. That's
:01:57. > :02:09.not to say there isn't a lot of debris lying around from this really
:02:10. > :02:12.severe recession. There's debris over indebtedness, indebtedness of
:02:13. > :02:18.the household level. There is unemployment. There is a lot of leg
:02:19. > :02:26.gisy that has to be -- legacy that has to be sorted and fixed. Part to
:02:27. > :02:31.be a position of whether Ireland has recovered its ability to act for
:02:32. > :02:35.itself. This is what the Finance Minister, Michael Noonan, said when
:02:36. > :02:40.the bail-out programme officially ended. He said, we are exiting the
:02:41. > :02:44.programme. Ireland will have been handed her purse back. That sense of
:02:45. > :02:51.restored independence isn't really true, is it? By putting less in it
:02:52. > :02:55.is what I suppose cynics would say. I don't actually see it in the same
:02:56. > :02:58.terms of gaining and losing independence relative to the
:02:59. > :03:05.assistance that we got from the international agencies, from the
:03:06. > :03:09.IMF, from the European institutions. Most Irish people, you for a while
:03:10. > :03:15.were having your economy run from Brussels, from the European Central
:03:16. > :03:19.Bank and from the IMF. The independent freedom of action was
:03:20. > :03:23.Lost when we were so indebted and lost the confidence of the markets.
:03:24. > :03:29.What we needed to do then was to regain the confidence of the
:03:30. > :03:33.markets, which we did, I would say in co-operation with the lenders. Of
:03:34. > :03:40.course it was a nuisance having them come around every couple of months
:03:41. > :03:49.and poke in and out. In fact, what they were urging the Government to
:03:50. > :03:50.do was, in almost wholly the programme that was,
:03:51. > :03:54.do was, in almost wholly the programme the majority programme of
:03:55. > :03:58.not only the politicians, but I would say the administrative system
:03:59. > :04:03.in Ireland. We knew what needed to be done. We actually laid out a plan
:04:04. > :04:08.which was substantially implemented. It was a nuisance having them
:04:09. > :04:13.around. They were giving the credibility to... And your point is
:04:14. > :04:16.in the debts of the crisis the policy prescription that the
:04:17. > :04:21.outsiders were coming up with is what the insiders knew had to be
:04:22. > :04:24.done too. Seems to me that is no longer the case. We are at a real
:04:25. > :04:30.interesting moment in Ireland right now, where the IMF and the European
:04:31. > :04:35.Commission, for example, are still insisting that austerity has to
:04:36. > :04:41.continue - the squeeze on the public budget has to be maintained, and
:04:42. > :04:45.there are politicians just a mile or so from here, who are saying, you
:04:46. > :04:49.know what, we can be flexible about austerity. It is time to loosen the
:04:50. > :04:56.belt a little bit. Where do you sit on that? Well, I think that the
:04:57. > :04:57.view, first of all we have a fully national,
:04:58. > :05:00.on that? Well, I think that the view, first of all we have a fiscal
:05:01. > :05:03.advisory council, set up of experts, representative of, broadly of
:05:04. > :05:12.opinion, of expert opinion, if you like, in the country, who also agree
:05:13. > :05:17.with what has to be done, which is to get 2 to 3% deficit next year and
:05:18. > :05:22.this would be my position and that of the Central Bank. The commission
:05:23. > :05:26.and the IMF, their message is clear - you is to keep going with the
:05:27. > :05:32.austerity and the politicians are no longer saying that. I... Well I want
:05:33. > :05:42.to choose which part of that to unpick. First of all, keep going
:05:43. > :05:45.with the austerity. Austerity is not that per se. It is what we are
:05:46. > :05:50.trying to achieve on the financial side, is to ensure that the draw,
:05:51. > :05:55.the additional borrowing which has to be a year on year, by the
:05:56. > :05:59.Government is something that the financial markets are prepared to
:06:00. > :06:03.do. Otherwise the Government cannot continue with its spending programme
:06:04. > :06:08.at all. That's why we have found this, I think reasonably cautiously
:06:09. > :06:12.and moderately the reductions of course in the Government spending
:06:13. > :06:19.and the increases in taxes have been massive and that is because of the
:06:20. > :06:23.over-spending and the over-indebtedness which occurred
:06:24. > :06:26.before the crisis. We have adjusted that down more slowly than other
:06:27. > :06:31.countries. We have been able to do that because of the international
:06:32. > :06:35.assistance and because of a broad consensus on how fast things need to
:06:36. > :06:41.be done. Since the crisis unfolded we now have this EU fiscal pact
:06:42. > :06:45.which now is much stricter about the way that Governments run the
:06:46. > :06:49.deficits and their national debts. Ireland right now, today, as a
:06:50. > :06:55.nation -- has a national debt which I believe is 120% of GDP. It's got
:06:56. > :07:02.to, got to, get that figure down to 60%, to fit with the EU's new
:07:03. > :07:04.strikures. Do you think that the Irish people actually understand
:07:05. > :07:09.what that means over the next decade? I think the Irish people do
:07:10. > :07:15.understand adjustment. They have been through it before n the 1980s.
:07:16. > :07:20.A very severe adjustment and they know that when you get that
:07:21. > :07:27.adjustment correct, the growth of the economy can respond very rapidly
:07:28. > :07:33.and reduce the effort needed to keep that debt on an adjustment track.
:07:34. > :07:37.The former Taoiseach, when he says that national debt burden and what
:07:38. > :07:43.we have to do to get it down, means that we, if we are honest with
:07:44. > :07:48.ourselves, are facing another ten years of austerity - is he right? I
:07:49. > :07:53.don't know what austerity means if it doesn't mean making sure that
:07:54. > :07:56.your finances are in a viable position. Nobody is going to hand
:07:57. > :08:01.you a gift. If they hand you a gift of course you accept them. If nobody
:08:02. > :08:06.is going to hand you a gift, you have to organise your affairs, so
:08:07. > :08:10.you achief the growth rate which generates the tax revenue that
:08:11. > :08:13.ensures that you are able to deliver on the public expenditure that is
:08:14. > :08:17.needed. That is not just needed for ten years, but all time. You need to
:08:18. > :08:24.manage your affairs so that you are growing the economy and generating
:08:25. > :08:29.the revenue to keep the debt in a manageable space. Let's bring it
:08:30. > :08:33.then to the sort of nitty-gritty of the workings of the Irish economy
:08:34. > :08:38.and where it goes from here. I came to this country, obviously over many
:08:39. > :08:45.years and I saw it boom through the tiger years and the early 2000s. You
:08:46. > :08:49.warned it was unsustainable and sure enough the crash was profound. You
:08:50. > :08:55.have talked about growth. I think it is 2% right now. Consumer confidence
:08:56. > :09:01.seems very fragile. I wonder how confident you are that Ireland can
:09:02. > :09:06.once again become one of the fastest growing, most dynamic corners of the
:09:07. > :09:13.European economy? I would say three things about that. First of all, the
:09:14. > :09:18.Celtic tiger phase, the strong productive phase of growth which
:09:19. > :09:23.lasted up until about 2000, that is what brought us up to the production
:09:24. > :09:28.frontier, where we can get to in Europe in terms of using modern
:09:29. > :09:33.techniques, efficient organisations and everybody at work. That was a
:09:34. > :09:38.one-off. Irish people shouldn't assume the tiger will ever return?
:09:39. > :09:43.We cannot get the 10% growth rates that were bringing us up to there.
:09:44. > :09:46.That was the horizon we reached. We should have acknowledged that and
:09:47. > :09:50.recognised we would have slower growth rates. Then we had the boom
:09:51. > :09:57.and bust bubble, which has severely damaged us, but has not undermined
:09:58. > :10:05.the economic model that generated that up at the frontier level. We
:10:06. > :10:11.still have that di nap mism to see that for investment. We are relying
:10:12. > :10:18.on that to keep us in a rapid growth. There'll be a bounce-back
:10:19. > :10:22.and we already had a rapid rate of employment growth last year. We hope
:10:23. > :10:27.it will continue in the short to medium-term. In the longer-term we
:10:28. > :10:34.should be on a strong, but nothing like the 1990s growth rate. You call
:10:35. > :10:40.it "a bounss back." You say -- a "bounce back" and you say you think
:10:41. > :10:46.it has travelled a corner. You travel in rarefied circles. I wonder
:10:47. > :10:50.how much time you spend talking to ordinary people trying to make a
:10:51. > :10:56.living? It is an interesting point you make. There is a danger that
:10:57. > :11:00.policy makers can get isolated and I do try to walk the streets. I try to
:11:01. > :11:06.see what's going on. I certainly know from the other side of it the
:11:07. > :11:13.number of meetings that I attend with a very interesting and cerebral
:11:14. > :11:18.group of people in banking circles, but you only get a part view. I have
:11:19. > :11:24.no doubt there is extreme distress and in the economy, I think I
:11:25. > :11:29.mentioned early on, the levels of unemployment, 11.8%, it was over
:11:30. > :11:35.15%. It is only as low as that, and I use that word in inverted commas,
:11:36. > :11:40.because so many young Irish people have left this country despairing of
:11:41. > :11:45.finding a decent job. Of course the migration has always been there as a
:11:46. > :11:55.safety valve. Migration in the last two or three years... Not unique.
:11:56. > :11:59.You can go back to the potato famine if you want. It is a rapid
:12:00. > :12:04.immigration and it has been an important part of our society. It
:12:05. > :12:09.has reflected, as you suggest a very, very weak labour market. With
:12:10. > :12:13.respect, when you talk to me about the consensus around realistic
:12:14. > :12:20.economic policy measures and you are talking about taxation... The reason
:12:21. > :12:24.the recovery has happened is we have applied realistic policies... It is
:12:25. > :12:29.not realistic to many people out there - property taxes, new water
:12:30. > :12:33.rates, a squeeze on a personal budget... Increased employment. I
:12:34. > :12:38.want to see results, we are seeing results. If we did not have sensible
:12:39. > :12:42.policies we would have high interest rates that would not be able to pay
:12:43. > :12:45.and have to squeeze public services more. We would not have an
:12:46. > :12:50.employment growth. We have to see the system in the round. I know that
:12:51. > :12:55.people are hurting. How much more hurt can they take? They are taking
:12:56. > :13:00.a lot of hurt now in this so-called recovery? There is an upturn. It is
:13:01. > :13:05.clear. It does not affect everybody. It is clear, we can see the jobs.
:13:06. > :13:10.There is a question of how deep the structural reform has been. I am
:13:11. > :13:16.thinking, for example, of streamlining, making more efficient
:13:17. > :13:22.Irish Government, privatisation programmes as well. Not only
:13:23. > :13:29.austerity, but privatisation. What I want to know from you is what you
:13:30. > :13:31.want. OK. Crisis is always an opportunity to
:13:32. > :13:36.make big changes. Perhaps we have not in the economy. There may be
:13:37. > :13:40.things that a lot of people want and I want. I don't sit here in the role
:13:41. > :13:45.of private citizen and I would have liked to have seen more done. Would
:13:46. > :13:51.you? What would you have liked to have seen more of? We could turn off
:13:52. > :13:56.and turn into a private citizen. We could have a nice chat about it. I
:13:57. > :14:00.should not invade a Government territory. I think there are plenty
:14:01. > :14:06.of opportunities for Government now and in years to come to make
:14:07. > :14:13.improvements. Already there's some truth in the fact, in the
:14:14. > :14:18.observation often made that Ireland has improved the efficiency of its
:14:19. > :14:22.structures in the 1990s and the 2000s and relative to some other
:14:23. > :14:28.countries. That is true. That may be why there has not been such huge
:14:29. > :14:36.press vur from the -- pressure from the troika. I think there are plenty
:14:37. > :14:40.of improvements. I am not just talking about liberal changes, there
:14:41. > :14:44.are lots of ways in which the Irish people's vision of their society
:14:45. > :14:48.could be more embedded. Well, this isn't politics - this is
:14:49. > :14:54.reality. One of the ways in which Ireland has, you know, the last
:14:55. > :14:59.couple of years to a certain extent to use your phase, "bounce back" is
:15:00. > :15:04.by attracting significant foreign investment into this country. It has
:15:05. > :15:08.always been good at that. It seems to me a lot of foreign companies
:15:09. > :15:17.come here because Ireland is something of a low-tax environment,
:15:18. > :15:20.a tax haven. I was speaking to someone yesterday, apparently
:15:21. > :15:23.Ireland is one of the biggest aviation leasing in the world. You
:15:24. > :15:28.have some individuals who have been successful at it. More and more
:15:29. > :15:33.comes have -- companies have come in because your tax system is... How is
:15:34. > :15:38.that, to attract foreign companies in because of a low-tax environment.
:15:39. > :15:42.They can come in, they don't necessarily do that much for the
:15:43. > :15:46.local economy. A lot of their profits are not based in this
:15:47. > :15:52.country. In the end they can easily leave, can't they? You know, as a
:15:53. > :15:59.young economist, 40 years ago, we used to have discussions about how
:16:00. > :16:02.dependant is Ireland going to become on No-tax environment and foreign
:16:03. > :16:07.companies that would be Footloose and a lot of people, including
:16:08. > :16:11.myself sceptical that this could last. It has lasted for a long time.
:16:12. > :16:15.We must be offering something more and of course we are.
:16:16. > :16:20.Than low tax. Another thing that was talked about many years ago Saying
:16:21. > :16:27.it will be an enclave economy, there'll be no link ages from the
:16:28. > :16:30.multinational corporations into locally-controlled companies. For a
:16:31. > :16:36.long time that was largely true. Then in the mid-1990s that sort of
:16:37. > :16:40.changed and locally-owned companies, in similar sectors and spin-offs
:16:41. > :16:47.became strong as well. This mould actually, OK, we may have -- this
:16:48. > :16:51.model, actually, OK we may have got hooked on it, because it worked
:16:52. > :16:56.well. If one thing was responsible for Ireland's meltdown it was the
:16:57. > :17:02.massive speculative property bubble, the way the banks irresponsibly lent
:17:03. > :17:07.into it and it came crashing down. This was the big thing. You said a
:17:08. > :17:14.short time ago, there is no way we are going to let things get out of
:17:15. > :17:21.hand again. Yes. In terms of that kind of bubble. It is a
:17:22. > :17:26.dysfunctional market. Some prices have gone up 70-80% in a year. You
:17:27. > :17:33.have parts of the country where ghost estates exist. You have the
:17:34. > :17:37.national bail out agency sitting on thousands of repossessed properties
:17:38. > :17:41.which it fears to put back on the market because it fears it will lead
:17:42. > :17:47.to another property crash. How will you fix it? The property price
:17:48. > :17:55.recovery, bounce back, has not been solely in Dublin. The other big
:17:56. > :18:00.cities have seen price increases. Where you don't see price increases,
:18:01. > :18:05.all around the rural areas, where the overbuilding was even greater,
:18:06. > :18:09.relative to demand. That is not all that surprising.
:18:10. > :18:15.Experts on the property market, housing which I am not, have
:18:16. > :18:20.calculated there is a need for a restart of building in Dublin and
:18:21. > :18:25.building is starting in Dublin because just the growth of the
:18:26. > :18:34.recovery, we are talking about and that supply response will in itself,
:18:35. > :18:44.even without any administrative action, the supply response will
:18:45. > :18:49.dampen down the price bounce back. Do you worry about complacency? I
:18:50. > :18:52.do. I will take action when it is needed. Talking about
:18:53. > :18:59.accountability, you are a very interesting figure in this country
:19:00. > :19:03.because you perhaps as much as anybody was a sort of whistle-blower
:19:04. > :19:07.before your time. You saw the crash coming. People maybe didn't listen
:19:08. > :19:11.to you closely at the time. You warned both the politicians and the
:19:12. > :19:25.leaders of the banks and the property businesses that what was
:19:26. > :19:30.happening in 05, '06, '07. I was working on the World Bank. I was not
:19:31. > :19:37.actually really focussing much on the Irish economy. My thought is
:19:38. > :19:42.this, you could see the terrible decisions, irresponsible decisions,
:19:43. > :19:48.some would say criminally insane decisions were being taken, in the
:19:49. > :19:52.Irish property market and Irish economy, nobody has ever, it seems
:19:53. > :19:57.in the political field, or arguably in the banks as well and the
:19:58. > :20:00.property business been properly held to account for what happened. A
:20:01. > :20:07.parliamentary committee is about to look again at what happened in 2008.
:20:08. > :20:13.Do you feel it is important to get to the bottom of it and hold people
:20:14. > :20:20.properly to account? Well, I think that the idea of a public inquiry
:20:21. > :20:25.which is now in preparation in which the main players, both in the
:20:26. > :20:31.private and public sector, come forward and speak their own words,
:20:32. > :20:40.is very important for the general public to understand in a deeper
:20:41. > :20:43.way, in a personal way the crisis. We know most of the elements. I
:20:44. > :20:48.don't think there are any great secrets to be undercovered. I would
:20:49. > :20:52.be very surprised. I don't know any great secrets which have not been
:20:53. > :20:58.revealed. Do you know exactly... Well, it seems to me one of the key
:20:59. > :21:03.questions in September 2008 is, why this blanket guarantee was given by
:21:04. > :21:08.the Government to cover, not just the depositors, but also the bond
:21:09. > :21:12.holders, in the banks, to ensure that the Government would take
:21:13. > :21:19.responsibility for all the debt. Why was that decision taken? I think we
:21:20. > :21:23.could go on at some length. This is something the Irish people want to
:21:24. > :21:27.know today. And I have gone on at length about it. For the next
:21:28. > :21:31.generation. No, no, it is important, but it is important to get it right.
:21:32. > :21:36.I just say a couple of things about it, I think it was based on poor
:21:37. > :21:41.information, as the risks that were being taken. I think it was poorly
:21:42. > :21:46.designed in, since that it could have been designed to exclude old
:21:47. > :21:50.debtholdings that were not going to run because they couldn't run. The
:21:51. > :21:55.risks could have been reduced and, so I think the big mistake, the
:21:56. > :22:01.failure in Ireland was not to realise the scale of the losses, the
:22:02. > :22:07.hidden losses embedded in the banks. And not to design the guarantee in
:22:08. > :22:12.such a way that if the worst thing happened, it would not be as
:22:13. > :22:16.damaging, so the guarantee was very blanket and the costs were enormous,
:22:17. > :22:20.although the servicing of those costs has been kept down. Do you
:22:21. > :22:27.think people have been properly punished? Those who made the biggest
:22:28. > :22:34.errors and in some cases it seems were not just operating based on
:22:35. > :22:40.mistaken ideas, but were actually... If people had been doing it for
:22:41. > :22:46.gain, that would be unquestionable. I don't see that it was people doing
:22:47. > :22:49.it for personal gain. The policy maker, the advisers were doing it
:22:50. > :22:51.because that was their perception of the best way forward.
:22:52. > :22:54.because that was their perception of the It was a mistaken perception. I
:22:55. > :22:57.don't think they were doing it in order to get some payoff. That's
:22:58. > :23:03.never been suggested. The question question. Do you think -- the final
:23:04. > :23:07.question. Do you think Ireland has truly learnt the lessons of the
:23:08. > :23:11.meltdown? Yes. Will it happen again? Well, I would
:23:12. > :23:18.have thought that our fiscal crisis of the 1980s would have cured us of
:23:19. > :23:26.excesses of any type for 100 years because that was very pain. And we
:23:27. > :23:30.got into a problem again. That is why it is important for people to
:23:31. > :23:33.have a deep understanding of the sort of decision-making processes
:23:34. > :23:39.that lead to error. It was not silly people, it was people who were
:23:40. > :23:43.hailed - I know of them as excellent and clever people, running the
:23:44. > :23:48.banks. They too made horrendous mistakes.
:23:49. > :23:53.And the processes that lead ordinary people and even super ordinary
:23:54. > :24:01.people, better than that to make catastrophic mistakes, that needs to
:24:02. > :24:05.be burnt into people so, they don't make that mistake again. Thank you
:24:06. > :24:35.very much for being on HARDtalk. Thank you very much indeed.
:24:36. > :24:36.and the truthfulness of establishments.
:24:37. > :24:39.When Barbara and I started the Review,
:24:40. > :24:42.we were seeking to examine the workings
:24:43. > :24:47.and the truthfulness of establishments.