THE EUROPEAN Commission did not do enough to criticise the unsustainable growth of the Irish economy during the boom and the government here did not use the tools that could have slowed bank lending, according to Klaus Regling, the boss of the EU’s new bailout fund.
Mr Regling is the first chief executive of the European Financial Stabilisation Fund (EFSF), which was set up in mid-2010 to provide funds to bail out out euro area countries. Ireland became the first country to be provided with funds by the EFSF.
The German national was in Dublin to give a wide-ranging presentation entitled Ireland and the euro. Most of the talk was devoted to the euro area’s response to its sovereign debt crisis.
In his presentation, given at the Institute of International and European Affairs in Dublin, he said that the bailout structures “buy time” for weak countries, but ultimately it will be up to those countries to make the adjustments their economies need.
During the boom he said that there had been “a lack of budgetary discipline” in Ireland. External agencies, including the European Commission, failed to criticise this sufficiently.
Mr Regling was the head of the European Commission’s directorate general for economic affairs from 2001-08.
When he took up that position he inherited the commission’s formal censure of Ireland’s budgetary stance.
At the time, the commission considered the very large increases in expenditure to be an excessive stimulus. This was presided over by the then minister for finance Charlie McCreevy and implemented in the run-up to the 2002 general election.
Facing resistance from the Irish government of the time and with a lack of support from other EU member states, the commission backed down and Mr Regling halted the censure motion. He said yesterday, “we failed”.
Mr Regling stressed during his presentation that new structures put in place since the debt crisis erupted would give the commission greater clout in implementing budgetary rules in the future.
In relation to Ireland’s property bubble, Mr Regling attributed the inflating of the bubble to no single factor but included “weak governance in the country”.
He said instruments were available to authorities to cool the property frenzy, but these were not used in countries including Ireland, Britain and the US.
He concluded by saying that deeper European integration would be needed for monetary union to function better.
Mr Regling is familiar with Ireland for reasons other than its tapping of bailout funds. Shortly before his appointment last year he co-authored one of two reports on the Irish banking crisis.
He has held a number of other senior international policy-making positions and, more recently, has been mentioned as a possible future head of the European Central Bank.
Brendan Halligan, the president of the IIEA, concluded the talk by congratulating Mr Regling in advance of his daughter’s wedding on Saturday, when she will marry an Irishman.
