The failure of European authorities to directly recapitalise Irish banks at the height of the financial crisis represents one of the biggest "missed opportunities" of the period, outgoing Central Bank governor Patrick Honohan has said.
Not only would it have sped up Irish recovery by easing the debt burden on the State, it would have generated a profit for the European public sector, resulting in a win-win for both sides, he said.
In his final speaking engagement as governor, Prof Honohan addressed a seminar hosted by the trade union-backed Nevin Economics Research Institute.
While Ireland’s recovery represented a success by most yardsticks, he said several things could have been done better.
Chief among these was the speed of fiscal adjustment.
Ireland’s recovery could have been accelerated had the troika-imposed fiscal adjustment been implemented quicker, Prof Honohan said.
Contrary to the belief that a more gradual approach could have cushioned Ireland for the dramatic collapse in employment, he said most of the job losses had happened before the troika arrived.
“So you can’t say, ‘if the troika had eased up and let Ireland have a bigger deficit for those years, they wouldn’t have had all those job losses’. I’m sorry they had already happened.”
Equally, he said a slower adjustment would not have allowed the State return to the financial markets when the official money ran out.
“Or if it was able to return, it would have returned at much higher interest rates...and with a lower level of investor confidence.”
Prof Honohan said he was convinced that the adjustment “could have been a little faster” and that future research would bear this out.
“Instead of recovering from the middle of 2012, we might have recovered from the beginning of 2012.”
Prof Honohan said the chief regret of his seven-year tenure in charge was the slow progress made in addressing the mortgage arrears problem.
“One of things, I was very anxious to do was to have the mortgage arrears problem sorted out more quickly,” he said.
While the issue is being addressed, the length of the process has been costly to the State, he said.
There are signs that the European Central Bank’s quantitative easing is producing results but the bank needs to continue accomodative policies, outgoing Central bank governor Mr Honohan said.
“I think we can see results, not a huge bounce back to a 2 per cent inflation rate, but I think if we didn’t have it we would be looking at a worse situation,” Mr Honohan told journalists in Dublin on his last day as Central Bank Governor before retiring.
“Even though there are signs of a better recovery, inflation forecasts are still not moving up and therefore definitely they need to keep the foot on the accommodation pedal,” he said.
Mr Honohan said Honohan says employment growth may be a better measure of economic’s recovery than GDP, which is distorted by the accounts of multi- nationals operating in Ireland. Employment has been growing by about 2.5 per cent per year, he said.
