SARAH BARDON Fianna Fáil paid a heavy price for the banking crash and subsequent austerity but it was the right thing to do, the former taoiseach Brian Cowen told the Oireachtas banking inquiry yesterday.

“I am glad the government I led took whatever decisions [were] necessary, regardless of what was going to be the outcome politically but that wasn’t the issue,” he said.

“Things were so serious that the right thing had to be done even if it meant a heavy price had to be paid.”

Mr Cowen added Ireland would have paid a higher price had it not introduced various tough measures to curb public spending and get the country's finances back in order from 2008 onwards.

“Thankfully, people despite the hardship could see the bigger picture,” he said. “If you delayed making these decisions the adjustments you would be making would be even greater and might be even more difficult to manage.”

Mr Cowen is the inquiry’s star witness and spent more than 10 hours with the committee yesterday. He said the bank guarantee was the most “decisive step” the government could have taken in September 2008 to rescue the banking sector.

“It was clear that we were on our own,” he said. “We had one shot at it. If we did not get it right, Ireland, we were told, would be set back 25 years. We had to go with the best information available to us at the time.”

Senior bondholders

Mr Cowen also told the committee

it was made clear to the government in late 2010 that it would not be able to access a bailout programme if it burned senior bondholders.

“We were left in no doubt that burning bondholders would have meant no EU-IMF programme: it was one or the other,” he said. “We assessed that there was a far greater financial and economic benefit to the country entering the programme at the time than to burn remaining bondholders.”

In addition, nationalising Anglo Irish Bank would not have been a "simple solution".

“It is now becoming increasingly clear to people that there are, or were, no cost-free or risk-free solutions,” he said. “No option looked good: it was a case of taking the least worst option available.”

In a 40-minute opening statement, Mr Cowen accepted “full and complete responsibility” for his role in the government’s response to the financial crisis.

“I am sorry that the policies we felt necessary to put in place in responding to the financial crisis brought with it hardship and distress to many people,” he said.

Responsibility

While accepting responsibility for mistakes made around the time of the crash in late 2008, Mr Cowen was defiant in relation to his management of the economy.

“No pre-crisis budgetary strategy survived this crash,” he said. “I don’t accept there was a mismanagement of the economy by us. Certainly, there were challenges to the system and there were issues we had to deal with. People can have their criticisms of it if they wish.”

Mr Cowen will return to the inquiry next Wednesday to answer questions about his time as taoiseach from May 2008 to February 2011.