Mr. Marco Buti:

As I indicated, this was the paradigm at the time. It was shared by the EU institutions, the IMF, the OECD and so forth. The international organisations thought the focus was essentially on fiscal policy and on stable inflation. It does not mean that there were not others who looked at different matters. We looked at the house prices. We were not ignorant of this. I do not know these particular studies, but the idea was that we had a model of development. We had the Celtic tiger which was very much export-led in the 1990s. We had a convergence of prices, both the general consumer price index as well as housing prices, towards a higher level commensurate to the increase in income. The issue at the time was whether the property and house prices were an equilibrium phenomenon or a bubble.

In retrospect, we know that at a certain point in the mid-2000s the situation got out of hand and house prices clearly grew exponentially. However, at the time there were a number of analyses and commentators that considered the increase in house prices as part of this adjustment of the Irish economy and an equilibrium phenomenon. The hope at the time was that one could deflate the house price boom gently and have a soft landing. Prudent fiscal policy, sound monetary policy and low inflation were considered to be sufficient to deflate the bubble, together with appropriate supervisory practices. This was the model at the time.