Brian Cowen (Laois-Offaly, Fianna Fail)

While current levels of credit growth could become a cause for concern were they to continue, I do not believe current levels of indebtedness represent a danger to the economy. In fact, it is to be expected that consumers would seek to make use of historically low interest rate levels. It is also a fact that Ireland has traditionally had low levels of personal debt in comparison to other EU countries. I should also point out that credit has an essential role to play in any functioning economy, allowing households to smooth consumption over time if disposable income is subject to shocks.

It is important to remember that while personal liabilities have increased these are backed by real assets. In this context a major element of outstanding indebtedness is accounted for by residential mortgages. Demand for residential mortgages is underpinned by a number of factors, including strong new housing output, growth in the economy, the accompanying pick-up in employment creation, the increase in household formation, significant net immigration, lower public sector indebtedness which facilitated easier fiscal conditions, and the decline in average inflation over several years.

At an individual level, it is important that borrowers act sensibly. I agree with the Central Bank which recently reiterated the importance of prudent behaviour both by borrowers and lenders. The possibility that interest rates may rise over the medium term with obvious implications for the burden of repayments, should be kept firmly in mind. Insofar 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.

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