There is a golden thread running through the Oireachtas banking inquiry report: the failure to identify risks and prepare for them. Risks, by their nature, are things which could emerge, but might not. Nobody in Ireland could have foreseen the collapse of Lehman Brothers or the scale of crisis it would unleash. But someone in bank boardrooms or the financial regulator’s office should have spotted the exposure from the extraordinary inflation of bank balance sheets.
Meanwhile, government policy was going for broke, prolonging property incentives, cutting taxes and increasing spending. In short, nobody could have predicted the full scale of the international crisis, but we should not have left ourselves so exposed when it happened.
It is a lesson which, let’s hope, we have learned. Indeed, EU-imposed policy now restricts us in a range of ways. The broad parameters of our budget policy are now set in Brussels, while our banks are regulated in Frankfurt. We may not have the troika telling us what to do, but oversight is still a key factor and this is designed, in part, to lower risks of something similar happening again.
However, domestic policy also has a key role to play. There is an argument that our economic fortunes are now largely determined by what happens elsewhere. This is not true. Of course, the world economy has a vital impact, but so too do domestic policy choices. And here we come back to lowering future risks.
Central Bank governor Philip Lane was correct when he said this week that economic forecasts were often not worth the paper they were written on (he didn’t quite put it like that . . . ) Reducing risks has to be a vital part of Irish government policy. This involves stabilising the public finances and having some kind of financial “nest-egg” if things go wrong.
Where is our “rainy day” money to come from now? And how will we leave sufficient room in the annual budgetary sums in case international conditions turn down?
These may not be vote-winning topics, but they deserve a place in the election debate.
