Stephen Donnelly (Wicklow, Independent) | Oireachtas source

I thank the witnesses for their time. There are some obvious advantages to CMU. Transaction costs are reduced, competition is increased - in theory, anyway - and the end consumers, be they SMEs, large organisations or citizens, should see the advantages of that through lower prices and lower costs of financing. There is also an obvious danger, however. I do not know if the committee is doing a report on the Green Paper but I believe it is weak and written as if the last 15 years had not happened. It lists all the advantages, which are real, yet there is not a single word about the fact that it was the free movement of capital that caused the bubble and subsequent collapse. It is a very intellectually and technically weak piece of work, which is what I want to ask the witnesses' opinions on.

Obviously, it is not in BPFI's or its members' interests for us to repeat the mistakes of the past. When the euro was set up we had a massive jump in how easy it was for European money to move across borders. We were into a single currency, there was all manner of lining up of regulations. It became much easier to move money and capital between eurozone borders. In Ireland this tsunami of hot money came in. There was a massive asset price bubble, the money got pulled back out again, the bubble collapsed, the banking sector was destroyed, the economy was destroyed and so on. The single trigger of that event, although there were failings across the country in banking, politics, regulation and all of that, was the creation of the eurozone and the substantial increase in ease of capital moving around.

There is now famous Reinhart and Rogoff book, This Time is Different: Eight Centuries of Financial Folly, which tracks 800 years of financial crashes. It is a big book with a very simple basic message that capital has been swishing around the world for centuries and leaving an awful lot of destruction in its wake. This has not been the case all the time, as capital has obviously been useful and a lot of good things have been built because investors could move money around so that supply could meet demand. Nonetheless, what we are seeing now?

McKinsey released a report, "Debt and (not much) deleveraging" in February, which looked around the world at what has happened in terms of corporate, financial sector and government debt. Contrary to what everyone thought was going to happen, namely that debt would go down and governments, households and everybody would deleverage, actually debt has just gone up and up. It is pump primed by a few things such as the Chinese central bank, the Fed, and now of course the European Central Bank with quantitative easing, QE. Trillions of euro are being made available basically for free on a weekly basis to banks and other institutions around Europe. They are buying sovereign paper with it and government yields are going down, which is a useful thing, but we are also seeing another asset price bubble. House prices have shot up 50% in the last two years and we are going to see that spilling over into equities and so on. Bond yields have fallen and we are back in another cycle of debt-fuelled growth.

The real economy is growing at a fraction of the pace at which the capital markets are growing. We are all being lulled into this sense that we are back, while in fact we are not. Central banks around the world are printing money and we are simply continuing debt-fuelled consumption. Engineers, scientists, shopkeepers and people in the real world are not becoming more productive as quickly as the amount of capital and balancing debt is.

Can I ask each of the witnesses, in the context of what has happened with money being able to flow around and in and out of the eurozone much more easily and given that there are obvious advantages which the Green Paper has laid out, if they are worried there is an unintended consequence in the form of another repeat of hot money destroying the economy or parts of it? Is there anything that should be done as part of CMU to try to stop some of the damage that global capital markets can cause?