Ireland and Europe risk destroying economic recovery by “our enthusiasm to undo the mistakes of the bubble economy”, claims former taoiseach John Bruton.
He said the country is making the “exact same mistakes again, except in reverse” because banks, which had operated under light regulation in the Celtic Tiger years, have become far too conservative.
In a speech at the weekend to a gathering of Irish people with special connections to the US, he criticised the “virtuous politicians” who “reflect rather than lead the public mood, saying we need to slam down the doors on excessive credit”.
If it was not for lending, the US would never have been discovered because Columbus would never have set sail, said Mr Bruton.
Restricting credit, in turn, restricts employment and economic recovery “and that’s what we are doing, all in the name of virtue. Virtue that is 10 years too late,” said Mr Bruton. “And I think that credit squeeze should be reversed.”
Mr Bruton said that the boom occurred because of light-touch regulation, when everyone trusted the markets, and regulators added to the bubble in a pro-cyclical way.
“Now we are repeating the exact same mistake except in reverse,” he said. “We are piling on the regulation; increasing capital ratios; slowing down the decision-making process; ensuring that banks are extremely conservative; that banks contract credit; that banks lend less and save more, which is precisely what we don’t need when we are trying to fuel a recovery,
“In other words, we are making a big show of slamming the stable door when the horse is in the next field, when what we should be doing is buying two more horses, on credit, to try and get our economy growing.”
Mr Bruton was speaking at the annual congress of the Ireland United States Alumni Association.
© Irish Examiner Ltd. All rights reserved