Martin Mansergh (Tipperary South, Fianna Fail)

For a long time, property and banks were advocated and thought of as the safest and most profitable forms of investment. Undoubtedly, low taxes for higher earners fuelled the property bubble and led people to spend money on all sorts of inessentials. To the extent that there were warnings, and I suppose most Members would have been aware of them in the background over the years, in the main they were qualified by predictions of a soft landing. The overwhelming consensus among economists, including the ESRI, was that for demographic and other reasons, we were heading for a soft landing, whereas we have experienced not just a hard landing but a crash landing.

I can recall being a member of the Oireachtas Joint Committee on Finance and the Public Service, which dealt quite a lot with banking. During the middle of the last decade, the main issue was greater competition in banking. There always was some concern about the very high level of bank profits and on the whole, we welcomed in competitors and so on. However, as Members again know now with the benefit of hindsight, this in some ways exacerbated the situation, in that it led to a mad scramble for market share, to corners being cut and to safeguards being thrown to the wind. In addition, as the Taoiseach certainly has implicitly acknowledged, the moves to phase out the property reliefs were much too gradual.

I remember there was much concern at the beginning of the decade regarding the very steep rises in house prices and various measures were attempted on foot of the Bacon reports and so on to try to control and regulate that. Ultimately, however, those attempts were largely abandoned and the policy was simply to increase supply, which did not anticipate that getting production up to approximately 91,000 houses being constructed in a year would result in a crash. There were one or two economists who predicted that there would be a property crash and not a soft landing, certainly from 2006 if not earlier. However, I believe even they did not anticipate the double whammy of the international crisis interacting with what has been called the homegrown one.

Among the jobs of central bankers and regulators is the maintenance of financial confidence. While they often have concerns, they are unlikely to vent them in public except in careful ways. Many times over the decades in different countries, one has seen central bankers saying something that then is taken up in a certain way by markets with short-term dramatic financial consequences. Consequently, it must be understood that central bankers are cautious in spreading alarm, other than in the fairly typical and unsurprising tones that they always strike in respect of financial caution.

Unfortunately, markets, particularly when there is much uncertainty and volatility, are not rational. This was to be seen clearly in 2008 in particular. One could make all sorts of arguments, had they been acting rationally, as to the reason they should have done this or that. That may be true but when one faces something close to market hysteria, one must consider very carefully how one will react to it. Small countries - by which I mean small in terms of population - such as Ireland and peripheral countries undoubtedly were judged to have done exceptionally well in the earlier part of the decade and to have done better than bigger countries such as Germany, France, Britain and so on. However, in a situation such as that faced by Ireland in September 2008, a small economy out of balance was much more vulnerable than a larger country.

Opposition and media, which I am not criticising as they are doing their job, can discuss and put forward alternative courses of action, as is their duty. However, only Government and related State authorities are answerable for the consequences of their decisions. There is little doubt that the action taken by the Government at the end of September 2008 did prevent a widespread banking collapse with disastrous and disruptive consequences.

The argument about whether subordinated debt should have been included is a sideshow because, although it was covered - it is covered no longer - it has not cost the taxpayer. This has been illustrated by quotations at various points along the line but I am sure similar quotations could be found in quarters other than those of the Government. The full dimensions of the hole the banks were in has only gradually become evident. There is no doubt that banks tended to want to hide their problems or put up a front of confidence to show they could sort them. The Minister has stated this.

The Government has put in place successive measures, up to and including today, to deal with the fallout from the situation, including recapitalisation, NAMA etc. I do not want to cover ground that has been well covered. We had to do what was necessary. The reliability and creditworthiness of this country is terribly important to maintain. It could be argued that it has been somewhat battered in the past couple of years. However, I heard Madam Christine Lagarde, the greatly respected French Finance Minister, state today she trusts Ireland. It is also clear from the Commission's comments that it trusts us.

One can argue about a partial default - it is perfectly legitimate to do so - but the argument is profoundly mistaken. I refer to today as opposed to September 2008.

Ireland has been up-front about its problems. I am not certain that can be said of all euro zone countries. I was deputising for the Minister at an ECOFIN euro zone meeting in the middle of July. One of my duties was to disclose to colleagues the figures that were valid at the time. I disclosed that the budget deficit for this year was to be 20%. It is now to be 32%. There is no doubt my disclosure caused a distinct frisson in the room. Obviously I explained the reasons, which pertain to EUROSTAT. As we know, the deficit is once off, but obviously what we do as a euro zone member is of profound interest to other euro zone countries because, no matter how small our economy is as a proportion of the total euro zone, it is clear that even the smallest country can affect the euro zone as a whole. Our economy comprises 1% of the euro zone and 2% of the economy of the European Union as a whole. This and future Governments will have to operate within very tight constraints.

The cost of the banking crisis, certainly that of Anglo Irish Bank, is rather less than the deficit for this year and last year. It is clear that the real challenge we now face, having dealt with the banking crisis, is to formulate a budget and budgetary strategy for the next four years.

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