Dr. Donal Donovan:

The difficulty is that Irish banks are frozen out of the markets to a large extent. That is one of the reasons there is a domestic constraint in lending because banks are also under pressure to deleverage, sell their assets and use the proceeds to bring down the large outstanding debt to the European Central Bank. Since they have a difficulty in attracting new funds in terms of new deposits from abroad, that is a constraint. However, again referring to the work of my former employer, the IMF, there is a very interesting analysis of whether it is restrictive credit conditions or a lack of demand that has caused bank lending in Ireland to be weak in recent years. The conclusion is that while there is some evidence of more stringent lending criteria, in that the banks are super cautious, most of it is due to a lack of demand. That is not necessarily a conclusion that would fit with everyone’s prior beliefs, but that is what the IMF has concluded, having analysed the situation and done a lot of statistical work.