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