Ms Mary Harney:

Chairman, members of the committee, I'm very pleased to be here this afternoon to help you in the important task you've set for yourselves which is to hopefully provide valuable lessons for the future management of our economy. And your report will build on the analysis we've had already from Honohan, Regling-Watson, Peter Nyberg and so on. I have submitted a detailed statement to the committee in response to the lines of inquiry sought of me and I am assuming that that statement has been read so I, therefore, am not intending to read that statement this afternoon. But I just do want to highlight a small number of issues.

You have asked me to deal with the policies in the 28th, 29th and 30th Dáil. And, broadly, the macroeconomic policy was consistent - the strategic focus of the Government was to stimulate employment, to increase competitiveness so that we could reduce unemployment, and particularly long-term unemployment. I am particularly proud of the achievements during those Governments. We brought unemployment down from double digit to 4% or 5%, which was effectively full employment and, in particular, we made a very serious dent on what was long-term unemployment. In the mid-'90s to 2000, there was reference made to reclassifying the unemployed ... the long-term unemployed as unemployable. We proved that through activation policies that what could have been a long-term unemployment for ever, those people became employed and I am very proud of that. We introduced a national minimum wage, we reversed emigration with immigration, we significantly grew take home pay and we greatly advanced the national infrastructure, as manifested most particularly by the motorway ... motorways we see in the country today. But I'd like to highlight the investment we made in science, research and technology and now two thirds of the IDA jobs are very much dependant on the investments we made around 2000 in basic research in this country. Ireland is now third in the world in nanotechnology, fifth in material science, first in immunology and so on. These are major achievements for a country of our size. We also increased social spending on education, health and pensions, and particularly welfare payments. We had budget surpluses every year between 1988 ... 1998 and 2007, with the exception of one year. We reduced, as I said, the burden of taxes and we grew spending. We established a National Pensions Reserve Fund and 1% of GNP was put into that fund for a rainy day.

However, notwithstanding the successes that I am proud of, we made mistakes. We did not foresee the enormous explosion of credit with entry into the euro. Prior to entering into the euro, we put an extraordinary amount of effort into what I would call the "changeover process''. We were very focused on the rate with which we enter, on competitiveness issues, particularly vis-à-vis our nearest trading partner, the UK, and the effect on inflation. In hindsight, we should have put a process in place that would have allowed us to look at the risks and the potential and the benefits of low interest rates on this economy. I think if we had done that, it might have helped to arrest the more serious, negative effects of a low interest rate and cheap credit on the economy and we could have put mitigating measures in place.

Secondly, we were very trusting of the regulatory environment. We probably should have been more proactive in monitoring and reporting, particularly the Government but also, I think, the Oireachtas. We should have had regular assessment of the financial stability and that could have helped. We could have had more critical analysis of the financial stability report. And I think we placed undue confidence on the process and the procedure that we put in place. And whilst it's not the job of Government to micro-manage regulation, if it goes wrong, Government must accept the political consequences of that. And I believe we have to.

And, thirdly, I think we allowed public spending to grow too quickly on the back of what I would call ''transient taxes''. We had recurrent expenditure on the basis ... or recurring expenditure on the basis of transient taxes mainly from the unsustainable construction activity. It's understandable why these mistakes were made. The general commentary in the ... in the country was benign and that helps to explain some of the mistakes. Even the ESRI in their mid-term report, 2008-2015, forecast a growth rate of 4% and even in their worst-case scenario, the expectation was that the resilience and flexibility of the economy, with appropriate management, would see us return to reasonable growth in 2010. I mention that simply to say that well-respected and credible organisations - even with the best forecasters - can get it wrong. We need to learn lessons from that and the lesson is that we need to challenge the consensus. I think consensus is part of our gene as a nation. We didn't challenge the consensus and, in particular, the Government should have challenged the consensus and, therefore, we failed to pursue the hard remedies that might have avoided some of the pain that our citizens had to endure. For those mistakes, of course, I, as a member of the Government, have to share responsibility and I deeply regret all of those mistakes. I regret, in particular, that we did not dig deeper and ask harder questions.

I want to deal now with the issue of regulation and my role and relation to that. In 1997, when I became Minister for Enterprise, Trade and Employment, I had responsibility for the regulation of the insurance industry and credit unions. I was conscious that in 1985 an insurance company ICI almost brought a bank down, owing as they did I think it was £400 million at the time. I was anxious that the Department which didn't have the expertise - we had, effectively, half an actuary - to continue to regulate insurance. But I was also aware that banks were getting into pensions and life assurance and I believed that one ... eyes should look at an organisation and not separate regulators - one in the Department of Enterprise, Trade and Employment and the other in the Central Bank. The Government agreed to the establishment of a single Financial Regulator. And we subsequently put a process in place to look at how that Financial Regulator would be put in place, whether it would be greenfield option, whether it would be part of the Central Bank or whether it would be what became subsequently known as the "two-pillar approach". In the context of those discussions, it was pointed out that the Governor of the Central Bank would have to have the authority to issue binding instructions to the regulator. This was pointed out both through ECB intervention, through the Department of Finance and though the Central Bank itself. When the report came, I was happy to go along with that. We are, after all, a small country and there was no point establishing an organisation for the sake of it and we had to be mindful of the Governor's wider responsibilities as part of a single monetary union.

I was also conscious during that time that the role of the consumer was ignored in regulations. Banks were, quite honestly, in some cases ripping off consumers. There were hidden costs. They were helping consumers establish bogus non-resident accounts for the purpose of avoiding tax. There were many hidden charges and there was a lack of confidence in regulation, as we knew it, and even a State bank was involved in DIRT. I was involved, too, in a number of inquiries as Minister for Enterprise, Trade and Employment into banks - Guinness Mahon, Irish Intercontinental, National Irish Bank and so on. And the combination of all these things brought me to the conclusion that all was not well in the manner in which we regulated the financial services and that is why I was so proactive in seeking to ensure that we had a new regime. The mistake, I suppose, was after the new regimen was put in place, not being more proactive in ensuring that appropriate resources were devolved to the regulation of the financial institutions. And, in fact, it wasn't until this ... until the Honohan report, I think it was, that I realised that the big institutions only had two individuals responsible for their regulation. I think that was a serious error and the Government certainly wasn't aware of that. And I think it's a pity that we weren't aware of the lack of resources that were being applied to regulation.

Chairman, I end there for the purposes of time. I'm happy to take questions on my statement, or even things that aren't in my statement. But above all else can I say if there's any lesson I have learned from my time in government, as a result of what happened, it is that we need to be more questioning, particularly of consensus. And we did have a national consensus in relation to a soft landing in the property market that was not correct. And it is the responsibility of Government and maybe, secondly, the Oireachtas to be more questioning of consensus of that kind. And perhaps if we were, it may not have avoided all the problems, or any of them, but certainly I think it's a responsibility we all bear and as we go forward I think it's a lesson that we should learn. Thank you.