Property bubble was allowed to explode despite warnings

THE Taoiseach was deeply implicated in the collapse of the economy, the banking reports conclude.

Though he is not named directly, the thrust of fiscal policy while Mr Cowen was in charge of the economy from 2004 comes in for withering attack.

The reputational and political implications for the Taoiseach are likely to be severe as his judgment while Finance Minister is criticised again and again in both probes.

Instead of a steering prudent course and greatly lessening the risk of a slump, Mr Cowen poured “fuel onto the flames” according to the Klaus Regling and Max Watson study. “There was scope to mitigate the risks of a boom/bust cycle through prudent fiscal and supervisory polices. But official policies added fuel to the fire. Fiscal policy left the economy vulnerable to a deep crisis, with costly and extended social fallout,” it concludes.

Both reports emphasis the strong “home made” elements of what is described as the economic “debacle”.

Mr Cowen’s budgets as Finance Minister come in for particular attention as they are attacked for pumping more money into a clearly overheating economy rather than running “counter-cyclical” and attempting to head-off a crash.

Mr Cowen’s policies “left revenues increasingly fragile, with extravagant and distortive subsidies for commercial real estate development”.

The dangerously out-of-kilter elements of the economy were flagged up by the OECD and the EU, but ignored. A property bubble was allowed to explode and burst, despite “alarm bells ringing”.

Official policies “seriously exacerbated Ireland’s credit and property boom, and depleted its fiscal and banking buffers when the crisis struck”, Regling and Watson state.

They add in “crucial ways” the crisis was home made and question why the slump was not identified earlier and “headed-off”.

Central Bank governor Patrick Honohan was equally scathing of Mr Cowen’s policies.

“Macro-economic and budgetary policies contributed significantly to the economic overheating, relying to a clearly unsustainable extent on the construction sector,” he declares.

In one damning passage he states the Government ignored warnings and decided on an attitude of “triumph of hope over reality” a soft landing could be achieved.

There was support in the reports for the Government’s controversial bank guarantee scheme and decisions over Anglo, but as these fell outside the time frame of the probes, the paper trail evidence regarding them is minimal.