Ireland’s financial crisis was “three-quarters” home-grown, the Governor of the Central Bank Patrick Honohan said this morning.
Addressing a conference on international finance at Trinity College Dublin, Professor Honohan said that Ireland's property and construction bubble was also precipitated by the sharp fall in nominal real interest rates that Ireland experienced in the run-up to joining the euro.
Prof Honohan told delegates that Ireland was the world's most globalised economy, with the ratio of exports to GDP approaching parity, which meant that Ireland's was also heavily exposed to developments internationally.
The over-dependence on "transient kinds of taxes" such as stamp-duty and capital gains tax during the property boom gave rise to a "hidden vulnerability" in Ireland's fiscal situation he said.
Prof Honohan also expressed confidence in the National Asset Management Agency, describing it as a "viable solution" which is "being handled pretty well."
One of the main advantages was that it has crystallised losses in the banks' books and gave a "fairly good picture about the scale of the losses" with the result that there isn't a "cloud over the fiscal picture" as has been the case in other countries.
Prof Honohan also addressed the issue of taxing financial intermediaries, and said the concept of financial transaction tax was back on the agenda.
"It is possible to use tax as a gradual form of regulation" he said, suggesting that a form of "Tobin tax" could be seen as an alternative to an outright ban of practices or the principle of regulation through ratios that has informed regulation over the last 20 to 30 years.
