Professor John McHale:

In respect of the Deputy's general point about the importance of investment to Ireland's recovery both in the short term, in terms of boosting demand given that investment is a key component of demand, and in terms of longer term growth driven by an increasing productive capital stock, investment is key. To improve the investment climate, one thing we certainly need is credit growth but credit being channelled to people who will make these productive investments. The Deputy makes an important and very relevant distinction between people who are just interested in investing in assets that are already there and those who wish to invest in new productive assets that will create more activity in the economy and support long-run growth. There needs to be a focus on investment and what the obstacles to it are. The most important thing at the moment is probably the credit system which requires that we have a well-functioning banking system which needs to be adequately capitalised.

It may be a little unpopular to say this but Japan made a huge mistake when it went through a similar crisis. In an early phase of the crisis, the state had to put capital into banks and there was a huge public backlash as one would expect and which certainly occurred here. In the later stages of the crisis, the banks again got into a lot of trouble. They were severely under-capitalised which was having a very adverse effect on their credit system and, ultimately, on levels of investment in the economy but because there was such a huge backlash to the earlier capital injections, it left the banking system severely under-capitalised. The hope would be the banks do not need more capital but we must see what happens when the ECB's comprehensive assessment takes place next year. We certainly hope that whatever capital needs there are would come from the private sector and failing that, from the ESM. Due to the fact it is so critical to have a well-functioning banking system and because a properly and adequately capitalised banking system is so central to that functioning, it is something that will have to be looked at carefully and not left under-capitalised because of the very bad hangover from the huge amounts of capital that went in before. The Deputy's general point about focusing on investment and what might be holding it back is very important.