Dr. Donal Donovan:

It is useful to look directly at the Irish banking system and ask what is the nature of the problem and whether quantitative easing will have any impact. Indirectly, as Mr. Barnes pointed out, it could have a broad, euro-wide impact in terms of improving activity but in the case of the Irish banking system, at least as I understand it, the issue is not one of lack of liquidity - it is not as though the Irish banks do not have money to lend - it is that they do not wish to lend for various reasons as they are constrained. The pressures exercised by the Central Bank and the Government in strongly urging the banks to engage with their customers - households, SMEs, buy to let and so on - to address the problem of debt arrears is extremely important. This is not just a question of getting the banks to recognise the reality of their situation, use up the capital they have to make provisions, which they should have done earlier, and write their balance sheets to make them look better.

There are economic advantages. The first is huge numbers of people in the banks now are devoting themselves to looking after arrears, chasing up money from people and so on. The sooner they deal with this and get it over with, the sooner they can go back to doing their real business, which is to lend money to creditworthy people but it has become an all-consuming exercise for many of the banks. The second advantage, to which Mr. McHale referred earlier, is there is huge uncertainty among lenders and borrowers as to the true status of the borrowers financial situation because in the absence of sorting this out, which may mean write-offs or whatever, nobody quite knows whether SMEs or households are in a position to borrow. We do not know how creditworthy they are but once we sort it out, park or write down some of the debt, it will be better.

The third advantage, which is often forgotten, is foreigners who are thinking positively of coming back into Ireland and investing in Irish banks do not see the banks recognising these losses. They worry that the losses that could be out there are large - greater than have even been allowed for by the bank recapitalisation by the Government. Naturally, if they do not know, they think the worst but if the losses are crystallised and if as seems not unlikely they will turn out to be broadly consistent, though one cannot be sure, with the provisions for which there is capital, everyone can breathe a sigh of relief because we will know where we are and they can go back into profitable Irish banks and start doing business.

I see these as the key issues rather than worrying too much about the quantitative easing at European level because it is a bit academic from Ireland's direct point of view.