Professor Philip Lane:

I am going to return to this, so today will not be my last word on this. I intend to take this up in a speech or a paper in the coming weeks. This is a very important issue. It is a separate issue from the risk of recession. The world can slow down and so on and for that reason, as I indicated in my opening statement, we turned on this extra capital buffer called the countercyclical capital buffer. That is to recognise when the economy has advanced to where we have unemployment of around 5% now, that is much more cyclically advanced than it was when unemployment was 15%. There is that cyclical risk, which is normal up-and-down economics.

The big issue, which the Senator referred to, is that Ireland also faces structural risk. The structure of the economy, with this dependence on multinationals, which in many ways has delivered a lot, is risky. There is a structural risk there. With the interest rate environment, there is a cyclical component to interest rates, but there is also a big long-term issue, where if one opens any economics journal, the discussion is how interest rates have come down on a long-term basis. The question then is whether those corporation tax revenues will remain high for a long time and whether interest rates will remain low for a long time, regardless of what is happening with the short-term business cycle. When one has those structural risks - my deputy, Ms Sharon Donnery, made a speech a number of weeks ago along the same lines - that is why we believe the system needs high capital buffers. We believe we need these robust mortgage rules and we say all the time that if the Government wants the ability to run a relaxed fiscal policy during the next downturn, which is important, it needs to build up the surpluses, going to above zero. Getting to zero is much better than not getting to zero, but going into significant surplus, if conditions are good, will give the Government more room in the next downturn to avoid austerity, and to increase spending and maintain it in a downturn, which is very important.