Economic problems 'homegrown'

CREDIT CRUNCH SEMINAR:THE PROBLEMS being experienced by the economy here are "homegrown", Prof John FitzGerald of the Economic and Social Research Institute (ESRI) has told a public seminar in Dublin.

He said that as far back as 2001 the Government had been told it needed to manage the property market. "What you have here is a problem created by Irish governments and the Irish political system," he said.

Prof FitzGerald was speaking yesterday at a seminar at the European Commission offices in Dublin that was also addressed by economists Marie Sherlock of Siptu and Jim Power of Friends First.

The seminar was called The Credit Crunch: Europe's Role in Changing Economic Circumstances.

In a contribution from the floor, Fianna Fáil TD Noel Treacy said the problem needed to be seen in the context of recent Irish demographics. The rapid rise in the population had created a demand for housing and the market had responded.

"We can't be immune to a global crisis," he added

Seemingly annoyed, Prof FitzGerald responded that when he and others had warned that the property market needed to be taken in hand, then minister for finance Charlie McCreevy had called them "pinkos".

Other economists working for financial institutions had acted as "hurray Harrys" for the property sector. "No one in the political system wanted to cry halt."

He said the Government should not buy "toxic debt" from Irish banks. "The banks made a mess of it; the banks' shareholders should pay," he said.

If Ireland was going to help to recapitalise banks, then it should get equity stakes in return.

He described as "very worrying" comments made last week by the chief executive of the Financial Regulator, Patrick Neary. The regulator needed to make it clear that he understood there was a problem with Irish banks and the property market, he said.

Prof FitzGerald said it was well known at European Commission level that the absence of a European regulatory system was a "major hole" in the European system, but it had been impossible to get any political momentum behind dealing with the issue.

He said a more co-ordinated response to recapitalising European banks was needed and, as part of this, the problems within Irish banks had to be identified.

"Governments will probably need to act on their own, but the taxpayer needs to know the Government is not throwing good money after bad."

He said the US response to the banking crisis had been the worst from the point of view of the taxpayer. The British response had been better, with Ireland in between. "I don't know anybody who has the answers."

Prof FitzGerald said monetary union had been a good development but had been mismanaged by Irish governments.