Mr. John Moran:

Thank you. Mr. Chairman and members of the committee, I welcome the opportunity to be here today and hopefully the testimony will be helpful to your important job. You already have the written statement that I have distributed, so I'll only just hit some of the main points orally and we can discuss other matters later, should you wish to do so.

I'd like to, however, first just mention that it really was a great honour for me to join the Department in 2011 and to be able, with my colleagues, to play a part in putting in place the recovery we are seeing in the Irish economy and the banking system. To have been able to play a role in bringing a country back from the edge from bankruptcy to one of the fastest growing economies in Europe with unemployment now reaching below 10% and continuing to decline, is one of the greatest honours I shall ever have had. If the changes we worked to implement and the information we share today help prevent the occurrence of a similar economic disaster for Ireland, I shall be very happy.

Just pointing out a couple of things, I suppose, as we go through this, I think one of the most important things I picked out from the terms of reference, which is the context in which you're looking at the work you're doing, was that despite what is often said, our crisis was not just a banking crisis, it was very much a fiscal one. I think we see people and in a way I've said in my statement ... people, sort of, are used to watching thriller TVs and movies and they are accustomed to seeing plots with high suspense - good guys, bad guys. They wanted the drama of this crisis to be written and couched in terms of irresponsible overpaid bankers, reckless developers, the night of the bank guarantee and the burning of those faceless bondholders. It makes good TV but it's not the reality. The reality is much more mundane. A simple rhetoric has been entertained in Ireland that if we had not had the collapse of Lehman Brothers and the Irish banks had burnt the vulture funds, we would have had no issues. One thing is for certain, the property collapse led to awful widespread destruction and growths of unemployment, poverty and emigration but the sad reality is that it was the acute lack of fiscal capacity at governmental level that restricted the flexibility in how we might deal with that since 2011.

The fiscal rectitude we are now experiencing, in my view, is more accurately a result of the perilous structure of Ireland's fiscal income and expenditure. Revenues collapsed as spending continued and indeed, had to rise to protect the vulnerable.

This caused recurring deficits which had to be painfully funded by piling yet more debt onto the back of future generations. Today, we are still giving ourselves public services, wages and payments for which we ourselves are not paying enough and leaving the bill to our children and their children. People like repeating that we have put €64 billion into the banks. The reality is we'll probably recover about half of that. People talk a lot less about the fact that each year we have loaded debt onto the country to pay for ongoing annual deficits, none of which we’ll get back. And that debt is going to end up being more than three times the net bank debt. This should not be forgotten. Nor should we forget that the fact is that without austerity measures ,which have reduced the recurring overspends, the debt would be even more and would have grown even more by deferring those austerity measures.

Prior to the crisis, nobody had considered what might happen to stamp duty, capital gains and nobody provided for what might happen when stamp duty, capital gains taxes, PAYE revenues related to the property sector, employees and social welfare payments related to unemployed property sector employees or even to spend your wages in the economy and people's standards of living. What would happen when construction would resize to what we knew and could have known? It was a more sustainable quantum. It's true that it's important to understand why the Government, the Civil Service, the regulator or even the banks themselves had not done enough and not done more to restrict borrowing and the growth of the property market. It is important to know why and how the Government took decisions about the bank collapse, but, for me, it is even more important that we understand for future-proofing our State, what was it in the structure, the operation, the DNA of the organs of our State, the political system, the Civil Service, the broader public sector that allowed this precarious fiscal situation to develop? The decision-making processes related to the collapse of the banks may give you some hint, but I encourage you to look at the answer to that more general question.

Had alternative routes been followed beforehand, how much less painful would the last couple of years have been when the rug was taken out from under our fragile structure by the collapse of Lehman's and the international wholesale funding? With a better underlying fiscal situation, we might have been able to show ... shoulder the bear ... the burden of capitalising banks without austerity measures or a bailout. Where was the debate recommending these alternatives, which might not have been so politically popular? How did the decisions get made? Why did no political party manifesto contain proposals for the introduction of property taxes, for the introduction of charges for the consumption of water, more appropriate burdens of sustainable taxes to pay for the necessary public services, the reduction of public sector pay back to long-term sustainable levels? Why did windfall gains from capital gains or construction sector payroll taxes not get put aside for a rainy day fund? Because we in Ireland certainly know that no matter how long the sunny, dry spell will be, it will rain sooner or later. And when we say the Irish public played no role in this crisis, ask would we - and I am one of those - have voted for such a party making those promises in the 2007 election promise?

You asked me to talk about the role of the EIB and the EU. I am happy to say more about that later and I have laid out a lot more in my statement. But just to say that my early impressions was that they, like us, were learning what to do in a complicated troika-type scenario. This was new territory for almost everyone, bar, perhaps, the IMF. And I can remember, for example, really, very strained discussions in early 2011 trying to convince the ECB team that it was simply not possible in the markets of 2011 to sell tens of billions of mortgage loans in the UK to allow for faster repayment of the ECB without having a fire sale to the great disadvantage to the Irish banks and State. Happily, we prevailed.

But recalling what I said above, had we not also been faced with funding large fiscal deficits for 2010 and for the foreseeable future thereafter, our negotiating power during those years would have been very much stronger and the bailout much more limited in its terms. There were other issues, of course, where we held opposite views with the troika, but both sides always tried to reach a solution and I think that served us well when you compare the performance of the Irish recovery to those of others. And, of course, the evolving role of the EU, which we can talk about in more detail, now means that they have greater oversight over our affairs and we have greater oversight over other European governments.

You also asked me to talk about IBRC. Clearly, I am not able to discuss matters that are also before the commission of inquiry. So I'll talk about two other matters in ... that also relate to that .. that entity. The first one I picked was what might have happened if we had achieved more burden-sharing in 2011. In simple terms, when we look at it today, the State's direct loss from the banking collapse is likely to be the taxpayer money contributed to IBRC. There are many reasons to justify why senior, and not just junior, creditors might have borne more of the cost of the collapse witnessed in the Irish economy and the banking system. But by the time I got involved in these issues in 2011, this question was significantly less meaningful. The guarantee had already been issued. The decision to fund the repayment of the creditors of Anglo and INBS with the promissory note payments had already been taken.

So our decision was based on the following facts. Only €3.7 billion of senior, unsecured bondholders remained in what was IBRC at that time. This is still a large sum but it needs to be compared with the potential prizes we could gain by continuing to work with the troika lenders. Recall that, shortly afterwards, we negotiated a significant interest rate reduction worth some €9 billion. Unless we could have gotten the ECB on side, there were major funding implications for the banks and they were very much opposed in March 2011 and vocal about that. We would also have to consider what would be the impact for retail depositors of a withdrawal of Central Bank funding to the banks and also their refusal, perhaps, to allow for troika disbursements to a State fast running out of cash. There were implications of ... on a future funding costs of the banks, not just IBRC. Senior unsecured creditors, I think, you explained ... was explained this morning, included depositors to the banks. And banks, as we all now know, depositors were ranked pari passu with bondholders.

Capital had already been introduced into many of the banks so reducing the hole could not be done necessarily because there wasn't a hole there any more to be filled by burden-sharing and still reflect the normal distribution of creditor rights. And the six banks were six individual legal entities so we couldn't take a deficit from one to use it to ... to justify bond ... burden-sharing in another bank. In rushing to over-emphasise the impact of this decision, I would also like us not to lose sight of one simple fact much overlooked in the public debate. Burning senior bondholders, a route resisted by the troika, especially the ECB, was not going to be the solution to our problems in 2011. Yes, it would have been nice, it would have maintained social cohesion a little better and it would certainly have appeased public anger, but we needed actions with repeating annual impact to reduce the deficit on an ongoing basis. As I explained more in my statement, contrary to the perception which has been created by some, burning bondholders was not going to generate cash, income and windfalls to the State to ease austerity. If it could have been pulled off, it would have only increased the value of the banks, so, ultimately, when we would sell or liquidate them we may have gotten a bit more or given more, in fact, back to creditors, or it would have done what we did, which was to borrow some money that, thanks to the promissory note transaction, will now only need to be repaid 30 years from now. So at best we were looking at that time at a reduction of 1% or 2% of our debt number, not cash, when the debt was over already 100% of GDP.

The other thing I think we may need to talk about is IBRC and the promissory note transaction. And I think we will probably come back to that specifically so I won't dwell too long, other than to say that to me, without doubt, replacing the existing debt commitment of the State with longer dated, lower interest rate debt was certainly a very good deal for the State and a key to our exiting the bailout successfully. Remember, the annual pain that we have today from what I might call the IBRC debt, namely, the debt which replaced the promissory note, to the annual deficit is only the annual interest demand. And I would remind you, as it has been pointed out by other commentators, that all of our bank bailout debt causes only about €800 million of interest expense out of the €7.5 billion of interest payments faced by the State in 2015. I don't want you to pick me up on the exact numbers because I am quoting a, sort of, commentator on that and didn't check that with the Department, but it gives you some sense of the disproportionate magnitude of the debt related to deficits compared to the bank bailout debt. And while this transaction did not take away the burden of the pre-2011 decision, it made it a lot more affordable for the State. It provided fiscal space to increase spending in the short term for other priorities and it deferred the burden to a time where we might be in a better position to pay it.

Equally, the reputation of the country and its sovereign covenant was maintained. And I think the counter-factual of what might have happened otherwise is playing out, sadly, before our eyes in Luxembourg today in the discussions about Greece. By contrast to Greece, because of the significant release of funding pressure, we actually reduced our borrowing costs to allow us to also fund the tens of billions of debt to fund the cumulative annual deficits, which are now more affordable.

The other main area I thought I should just touch on is the appropriateness ... you asked me to talk about the appropriateness of advice to Government. And I'm not going to talk about individual pieces of advice but I thought there were some observations I had, as somebody who came to the system from the outside, that might give you, sort of, some additional insight.