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John FitzGerald |
EU Credit Crunch Seminar: The economic challenges facing the Irish economy are "homegrown", Professor John FitzGerald of the Economic and Social Research Institute (ESRI) told a public seminar on Thursday, which was organised by the European Commission's office in Dublin.
FitzGerald 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.
The seminar was called
The Credit Crunch: Europe's Role in Changing Economic Circumstances and held at the European Commission offices in Dublin, It was also addressed by economists Marie Sherlock of Siptu and Jim Power of Friends First.
John FitzGerald, who is a son of former Taoiseach Garret FitzGerald and brother of Mark FitzGerald, Chief Executive of property firm Sherry FitzGerald, said: “The current responses to the crisis in Ireland and elsewhere in the EU are only sticking plaster. The experience to date indicates the underlying problems will not be solved with piece-meal national responses. However, because it will take some time to put together a sensible and effective EU measure, the EU will have to proceed with such individual country measures.
“Financial regulators across Europe will now need to identify problem areas in banks assets and, in the longer term, we will need to address the issue of recapaitalising the European financial system. This will involve upfront costs for EU taxpayers, but failure to do this will prevent an economic recovery.”
Commenting on this public debate, Martin Territt, Head of the European Commission Representation in Ireland, stated: “Today's debate is a timely one. The credit crunch is an international crisis which is seriously affecting domestic, European and global markets. Governments across the world have acted to prevent catastrophic banking collapses within their markets, but there is still no immediate end in sight to the crisis.
“The current situation is the greatest threat in decades to the financial stability of Ireland, the European Union and the international community. It is imperative, for Ireland and the EU as a whole, that we find a way forward to stability.”
Marie Sherlock, SIPTU, commented: “It is obvious that it would be most appropriate at EU level to institute a much needed licensing system of all financial instruments operating in the financial markets and to bring institutions such as hedge funds and investment banks within the regulated banking sector.
“While the jury is still out as to how effectively a Pan European regulator might operate, it does not make sense that with such an internationalised financial market that the bulk of the regulatory responsibility falls to individual member states.”
Jim Power, Friends First, commented: “The credit crisis is spreading across the global financial system with incredible ferocity. It threatens to do serious damage to the global economy and financial system and it is clear that a strong coordinated response is now required at a European level. National governments will be forced to recapitalise their financial systems, sick institutions will have to be allowed to disappear and the ECB will have to play its part with aggressive monetary easing.
“The Japanese approach to their banking crisis in the 1990s was a big mistake. In Ireland and Europe in general, the cause of the problem will need to be tackled and not the symptoms. The Irish government will be forced to recapitalise and allow the sick banks be swallowed up.”
Pat Leahy, Political Editor of the Sunday Business Post, chaired the public debate and Fianna Fáil TD Noel Treacy said Irish economic problems 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
Prof. FitzGerald said that when he and others had warned that the property market needed to be taken in hand, then Finance Minister 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."
FitzGerald 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 termed 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.
Neary appeared on RTÉ's Prime Time television programme last Thursday, and in a bizarre performance, likely left viewers utterly confused by his attempt to compartmentalize the banks' potential huge bad debts problems from the general European inter-bank liquidity situation.
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," he said.
Prof FitzGerald said monetary union had been a good development but had been mismanaged by Irish governments.
