Ahearne predicts growth

“I think It’s fair to say that our economy has been hit by a perfect storm, we’ve been hit by a banking crisis, a public finances crisis and an economic crisis,” stated finance advisor Alan Ahearne. Speaking at the third Paddy Ryan Memorial Lecture at NUI, Galway Dr Ahearne, who is special advisor to Finance Minister Brian Lenihan, highlighted the link between these three crises, where a bad housing boom and bust led to a banking crisis and economic crisis. Dr Ahearne is a lecturer in NUI, Galway and currently on leave of absence.

New home building got out of hand, soaring up to 13% of the Irish economy in 2002. As he pointed out there was a bubble in terms of prices and a bubble in terms of activity. Public finances became dependent on this bubble activity to allow stamp duties and capital gain. However tax revenues collapsed when this went away, leading to a public finances crisis.

Alan Ahearne in full flight

“When you get a crisis in the economy and financial sector, the economy shrinks, that makes the banking system worse, businesses lose confidence, economic opportunity shrinks further and that causes the financial sector to get worse and worse,” said Ahearne.

However, he highlighted some glimmer of hope for the coming year: “If 2009 was the year of stabilisation then I think 2010 will be the year of new growth,” he stated. According to Dr Ahearne export-led growth would be key to recovery but that its full impact would probably not be felt until 2011.

As he emphasised, there is an ongoing reform of the financial system, which is repairing the banking system. As he stated, around €19 billion will be transferred into NAMA next month. He disputed the view that the government was pouring money into the banking system without getting anything in return, stating that the money was needed to ensure a properly functioning banking system. “A modern economy can’t work without a banking system. You leave your banking system fail and your economy is going to collapse.” He said that when the ‘risky’ loans were gone off the balance sheet the banking sector would be able to meet the needs of the economy.

By Vicki McKenna