Brian Cowen (Laois-Offaly, Fianna Fail)

The Central Bank's recently published Financial Stability Report concludes that a range of fundamental factors, such as growing employment and incomes, falling inflation and low interest rates, have supported the pattern of mortgage growth and associated debt levels in the economy. The report, however, emphasises the importance of responsible behaviour by both borrowers and lenders to factor into their financial decision-making the prospective impact of potential changes in any future economic environment. I share the Central Bank's assessment of the importance of maintaining financial and economic stability. In that regard, I intend to continue a responsible approach to maintaining stability in our public finances, which will ensure that the strategic direction of our economy will focus on sustainable real improvements in public services, social provision and infrastructure.

It is important that individual borrowers act sensibly. I agree with the Central Bank which recently reiterated the importance of prudent behaviour by borrowers and lenders. The possibility that interest rates may rise in the medium term, with obvious implications for the burden of repayments, should be kept firmly in mind. In so far as the banking sector is concerned, the Central Bank in its recent financial stability review concluded that the Irish banking system is in a good state of health and is reasonably well placed to cope with any adverse short or medium-term developments.

The functionality of credit growth relates to demographics, including employment and population growth. For example, our population includes 1.3 million people aged from 15 to 34. On the supply side, we see mortgage growth being met by an expanded capacity in the construction sector of over 7,000 houses this year. The decrease in house price inflation is occurring because supply and demand are coming back into sync.

People are borrowing more, but one must also examine the savings ratio which is high in Ireland. In addition, it is a function of the domestic demand in a growing economy to meet construction requirements. Those factors are all part of the dynamics of the economy. At individual level, borrowers and lenders must act sensibly, which is what they are doing. It is in the interests of banks and building societies to have good mortgage books. Nationally, we have a low debt to GDP ratio and we are in a responsible, stable position. We could have a recession with no growth in credit, but that would not be a good thing. Therefore, one must see the situation in the context of where demand is coming from, while recognising that people need to be sensible in exercising judgments. In a competitive market economy, however, people make these decisions based on a variety of products from which to choose.

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