Mr. John Gormley:

Chairman, committee members, I would like to thank you for giving me the opportunity to address the banking inquiry committee on these important issues. I hope that your valuable work will add to the store of knowledge on this subject contained in the Regling and Nyberg reports and that lessons can be learned. Chairman, I became leader of the Green Party in 2007 following the resignation of Trevor Sargent. While we were the only party that based our 2007 election manifesto on a forecast of reduced growth, I don't think anybody in the party could have predicted that our term in government would coincide with the worst economic crisis that this country has ever had to endure. The Green Party did not create the housing bubble but, in government, we had a duty to extricate our country from the crisis. This involved making the most difficult political decisions that any small party in this State has ever had to make. It is a fact that two thirds of what is known euphemistically as the "fiscal adjustment", which led to the recovery, was made by the Green Party in government. The Green Party TDs and Senators voted for these cutbacks and tax increases, convinced that this was the correct course of action, while also knowing that it would lead inevitably to electoral annihilation. I’m proud of the dignified way that the Greens conducted themselves during this time of adversity. I’m also proud of the fact that the Green Party insisted that every one of those austerity budgets was progressive. In other words, each budget hit the wealthier members of our community proportionately harder than the less well-off. This has been confirmed by subsequent studies of the various budgets by the ESRI. This is not to imply that the cutbacks were painless; they were not. Large sections of the Irish people suffered hugely because of the austerity measures and I regret that we were forced to make these decisions. I believe our economic and financial problems were caused by a combination of factors, which include banking deregulation and poor oversight of the financial institutions, a property bubble fuelled by reckless lending practices and irresponsible land rezoning, huge increases in public spending, over-reliance on property and construction-related taxation, alongside inappropriate reductions in some taxes. The globalisation of banking and interbank lending also led to a global domino effect.

I’d like now to concentrate on one of the above subjects and one which is close to my own heart: the role of poor planning in our economic crisis. Some of the inquiry members may be aware of the report published in July 2010 by NUI Maynooth titled, A Haunted Landscape: Housing and Ghost Estates in Post-Celtic Tiger Ireland. It is a report that deserves the full attention of this committee. Let me quote from the executive summary:

Government has two principle levers through which it can ... regulate property development. The first is through fiscal policy with respect to regulating access to credit and determining taxation rates. The second is through planning policy and the zoning of land and the granting of planning permissions. Explanations of the Irish property bubble have focused almost exclusively on the former, and the role of the banks, tax incentive schemes, and the failures of financial regulators. To date, the role of the planning system in creating the property bubble has [not been] considered.

The fact is, Chairman, that corrupt and irresponsible zoning practices did play a significant role in our economic crisis. The above report asked that a commission of inquiry would look specifically at this matter. That may not happen but you have the opportunity to examine it as part of your own inquiry. During the so-called boom years, the Green Party representatives on local councils and in the Dáil tried at every turn to highlight the problems of poor planning. On entering Government, we resolved to introduce a more evidence-based and sustainable planning system. As Minister, I enacted new planning legislation and intervened at local level in a number of cases of poor planning practice. I also initiated a number of reviews of local planning following complaints and allegations by members of the public. The Green Party also insisted on a windfall tax on the unearned benefit to landowners of rezoning land. All of these measures were designed to counteract the poor practices which had led to the crisis and I am convinced that had they been in place earlier, the property bubble would not have inflated to such an extent and the severity of the economic crisis would have been much reduced.

On the question of banking, the Green Party was to the fore in directly criticising the lending practices of the banks. Our then Finance spokesperson, Dan Boyle, recalls in a book he published on our time in government, a meeting with the Irish Banking Federation in 2006. He attended this meeting, along with the current leader of the party, Eamon Ryan and I'd like to quote directly:

We brought up the question of the efficacy and economic sanity of issuing 110% mortgages, and the general lack of sustainability that seemed to exist in [the] property market; a market the banks seemed intent on inflating further. The response to our concerns was both arrogant and condescending. We didn’t understand banking, we were told, besides which the market would correct itself in a relatively painless manner.

Early in our term in government, I recall, at a pre-Cabinet meeting in the Taoiseach’s office at the time of the Northern Rock collapse, asking the Finance Minister, Brian Cowen, if our banks were sound. He told me that there was no problem with our banks and that they well capitalised. I had no hard evidence to suggest otherwise but a nagging doubt did persist. It was clear that the Lehman's collapse would have knock-on effects and I asked Minister Lenihan if there were contingency plans here. He told me that matters were in hand. I got the impression that Finance were working on a plan but I had no idea that they had been working on it for an extensive period of time, as indicated in the evidence of Kevin Cardiff.

I became aware that week from a comment made to me by Minister Lenihan that he had also been in contact with David McWilliams. I did not know the extent of that contact until David McWilliams published details in a subsequent book. I phoned David McWilliams on his mobile, while I was in Brussels on 26 September. We had a long and detailed conversation on what could and should be done on the banking crisis. In his evidence, David McWilliams seemed to indicate that we had no further contact on the matter. In fact, there was an important exchange of e-mails, which are included in the appendix, at the request of the Chairman. When I raised the possibility of nationalisation of the banks during our telephone conversation, he dismissed the idea out of hand. He did so again in his subsequent e-mail to me. I told him that I would raise the matter with the Taoiseach and the Minister at a pre-Cabinet meeting on the Sunday, that was 28 September. I met the Taoiseach and Minister Lenihan in the ante-room opposite the Cabinet room. I passed Mr. Lenihan the article written by David McWilliams and mentioned his proposals. There was a cursory acknowledgement of the points but neither of them indicated that there was to be a meeting with bankers the next day.

The first indication I had of such a meeting was when I got a phone call from Minister Lenihan at about two o'clock on the morning of the 30th. I had a brief conversation with Minister Lenihan. He explained to me the urgency of the situation. He said that this was an incorporeal Cabinet meeting but that I was welcome to come into Government Buildings, if I wished. I told him that it would not be necessary if we were going with the "David McWilliams option". He confirmed that that what was being proposed. As this had been the basis of our previous discussions, I was satisfied to give my consent to a Government decision to publish legislation to give effect to the guarantee. Early that morning, I e-mailed David McWilliams with the news. When he replied later on that day, he was particularly pleased that the markets had reacted so positively to the guarantee. Chairman, I would like it noted that I was grateful for David McWilliams's input. He did not know, nor did I, that we were dealing with an insolvency problem. Even on the day of 30 September, Minister Lenihan told us that the guarantee was the best way to deal with the liquidity problem.

Following the guarantee decision of September 2008, the Green Party maintained a close involvement in the Government banking and budget strategy. Responsibility for dealing with these matters in government was assumed by my colleague, Eamon Ryan. That part of my official statement is based on contemporaneous notes taken by Eamon Ryan and I believe it would be in the interest of the committee to interview him separately, as he had a more direct involvement in these matters.

Before concluding, Chairman, I'd like to draw your attention to three small corrections to my official statement. I already notified the inquiry team that I was attending a meeting of the European Environment Bureau on 26 September 2008 in Brussels and not a European Council meeting. Secondly, the sentence relating to the National Economic and Social Council should read as follows: "In answering their question as to whether we were more Northern or Southern European in our current circumstances, it was clear that the former was the case", and I emphasise "the former" there; I think it read "the latter". Also in the official statement, references made to the level of emergency liquidity coming from the European Central Bank and it states that it "had reached some €130 million". That should, of course, read "€130 billion". Finally, Chairman, I have noticed in preparing for this hearing that the record-keeping in the Oireachtas and the various Departments needs to be improved. I'm referring now to Ministers' diary records, phone and text and e-mail and visiting records. All of this, I believe, should be in digital format, searchable and readily available and, right now, it isn't. I'd like to thank the inquiry team and the staff for their unfailing courtesy and I'd like to wish you, Chairman, and the members of the committee every success in completing this important report.