Professor John FitzGerald:

It was something which we did not anticipate or talk about. It is clear from the literature before monetary union, people were barking up the wrong tree about the problems of monetary union, not just in Ireland but elsewhere, that one needs to use fiscal policy to manage housing market bubbles. I published the paper in 2001 and the Treasury came over to discuss the issue with us because at the time there appeared to be an outside possibility that they might join. They published a paper in 2003 saying one may need to use fiscal policy to manage the housing market in particular. Yes, it is a new feature of monetary union. In terms of speaking with my German colleagues at a number of conferences in Germany people were jumping up and down saying their monetary policy was too lax and they could have a housing market bubble in Germany. My answer was that it need not have a bubble if it did the right thing on fiscal policy. I said they could control this in Germany and not to worry about the fact that there were low interest rates. I think we have learned. I am trying to pass on this understanding to my German colleagues and elsewhere that under monetary union there are different rules but one can manage an economy and one does not have to run into a crisis.