Political reasons for banking collapse must be uncovered, says Bruton

The forthcoming Oireachtas banking enquiry needs to establish the political reasons for the property bubble and banking bust as well as establish an appropriate framework for the future, according to former taoiseach, John Bruton.

Speaking at the Irish Banking Federation European Banking Union conference, Mr Bruton said that the Oireachtas enquiry needed to ask a number of key questions. “What actions should have been taken in 2002 or 2003 to prevent the property bubble? Would this have included a property tax, restricting mortgage tax relief, or banning 100% mortgages or other questionable lending?

“How would that have been received by the employment intensive construction industry? How would measures to slow price increases have been received by recent house purchasers who had bought at high prices?

“What should have been done in the 2002 to 2006 period to cool down the economy and close the balance of payment deficit by fiscal policy, in other words, by running large budget surpluses and thereby deliberately taking money out of the economy?”

“It is very difficult when the economy is growing and there are very low levels of public debt to apply the brakes. However, if the situation repeats itself in the future, the committee needs to establish the best ways of cooling down the economy.

“How would the measures, in the midst of a boom, that might have been taken to impose a credit squeeze and slow down house price increases, and/or to close the balance of payments deficit, have been received by the electorate?

The committee will also have to establish what are the appropriate early warning mechanisms that will clearly flag the looming economic risks, said Mr Bruton.