patrick honohan : making ireland ’ s public finances sustainable again opening address by mr patrick honohan, governor of the central bank and financial services authority of ireland, at the esri / foundation for fiscal studies budget perspectives conference, dublin, 13 october 2009. * * * thanks to the institute and the foundation – both organisations with which i have had a long association – for giving me the opportunity to open this year ’ s budget perspectives conference. always an important event in the calendar, the potential usefulness of this year ’ s pre - budget conference, at which options and strategies can be discussed among experts in a very practical way, hardly needs emphasis. so i am glad that it is here that i can make my first public address as governor of the central bank. naturally, my theme today is adapted to the focus of the conference. thus today i want to talk mainly about bringing the public finances back to a sustainable position. i will also touch on two central tasks of my new role, namely price developments and the reform of the banking system, though mainly insofar as they interact with the budgetary situation. actually, it is banking that chiefly preoccupies me at present, but this is not the place for a detailed discussion of it. for the moment, let me just briefly remind you that our banking situation has called for clear and decisive action on a number of fronts. these include restoration of the liquidity of the system to robust levels, dealing directly with the problem property loans, replenishing the cushion of risk capital that allows banks to expand lending again, and renewing bank senior management ( ensuring that the lending decisions are better in the future ). strengthening the regulatory capacity to detect and forestall any recurrence of imprudent banking is also crucial, and this has both international and domestic dimensions. of course, the ongoing investigations into certain alleged wrongdoings are also important. current and recent policy measures are addressing all of these issues ( and others besides ). optimising the design and implementation of each of these measures is a key priority and one on which i will speak further over the coming weeks. for today, though, i want to concentrate on how we can help bring the public finances back to a sustainable position. this can be done, and it does not require reinventing the economy. instead, the goal of policy should be to regain, as far as possible, many of the structures and relativities of just a short number of

accumulated debt, for example by sticking to the announced convergence path. the recapitalisation of the banking system is also now sure to be a costly exercise, adding to net debt and impeding the possibility of getting back to 2000. for the same reason of avoiding the drag imposed by heavy debt in the long - run, this argues for a recapitalisation strategy that minimises the state ’ s net long - term financial outlay. at the same time, though, it is crucial for sustaining the growth that will generate tax revenues in the long run that the banks move forward with adequate capital. therefore it is not wise to skimp on the restructuring. in conclusion, although i cannot strike quite as optimistic a tone as i offered last year, it remains true that the irish economy is a productive one capable of delivering both high living standards and financing a good level of public services on a sustainable basis. correcting some of the drift in wage competitiveness ( notably by recognizing the implications of falling prices and the strength of the currency ) will help ensure that employment can pick up again on a medium - term basis on the back of the global recovery. the sooner we can correct the structural elements of the budget deficit, the less public debt will be accumulated during the adjustment and hence the closer we will be able to return to the healthy and achievable living standards of just a few years ago. that perspective should help put what may seem to be large needed adjustments in context.