been better placed to absorb what was coming. ireland would have been hit by the global recession, of course, but our recovery would not have been held back by the implosion of a bloated construction sector, by the collapse in tax revenue and by excessive debt. and the government would not have lost the confidence of the financial markets. without these burdens, it is plausible that ireland would have done at least as well as the euro area ’ s lack - lustre post - 2008 performance. if so, by 2013, living standards would have been about 15 per cent above their actual level, and employment about 8 per cent higher. and this development would have continued into the years ahead, remaining well above what our damaged ( albeit recovering ) actual economy will deliver. the gap between actual and counterfactual is illustrated in the accompanying diagram. the boom and the bust both damaged our economy. the boom, and the decisions that were taken during it, meant that ireland had to adjust down from living standards that could never have been sustained, with sizeable and capricious shifts in the distribution of wealth. despite the path of recovery, the economy still markedly underperforms relative to what could have been achieved had we curtailed the property bubble. the irish banking crisis, like so many others throughout history, illustrates why it is vital to act pre - emptively ( as with the mortgage measures announced by the central bank this week ), to ensure that we don ’ t face such intractable challenges again. with rising employment and a steady, albeit slow, working through of household and firm over - indebtedness, a gradual narrowing of the gap between what is and what might have been is in prospect, as long as we do not let borrowing – public or private – get out of hand again. bis central bankers ’ speeches bis central bankers ’ speeches

beginning to weigh on demand 1 / 5 bis - central bankers'speeches conditions both in ireland and abroad. third, the growth outlook for the world economy remains subdued. ireland, as a small open economy, is very exposed to developments in the rest of the world. while the continued expansion of economic activity and employment levels have been positive developments – not least in the context of the extraordinary shocks that hit the global economy in recent years – inflation has been, and remains, a considerable economic challenge. when everyone pays more and gets less for it, it can have serious consequences on the economy and the welfare of the people as a whole. we know that inflation hits some – particularly the less well - off – harder than others, but everyone in society will be affected if high inflation persists. despite the recent easing of inflation in the euro area, to 5. 2 per cent as per yesterday's eurostat flash estimate for august, it remains too high. the outlook is for a decline in euro area inflation to 3. 2 and 2. 1 per cent in 2024 and 2025, as energy, food and industrial goods price growth slows, offsetting more persistent upward pressure from services. in order to reinforce progress towards its target, we have decided to raise the three key ecb interest rates by 25 basis points. accordingly, the deposit facility rate has been increased to 4 per cent and the rates on main refinancing operations and the marginal lending facility have been increased to 4. 5 per cent and 4. 75 per cent respectively. we consider that the key ecb interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target. ireland's consumer price inflation also remains high but declining, and it is anticipated to reach 2. 3 per cent by 2025 in the central outlook. the monetary policy actions taken by the ecb for the euro area as a whole will also make a substantial contribution towards bringing inflation back to 2 per cent in ireland. in line with normal practice, i wrote to the minister for finance in june outlining the key points that i believe he should take into consideration in his budget. since then, the summer economic statement signalled a budgetary package that is significantly more expansionary than was outlined previously. such revisions can amplify demand in an economy already operating at capacity and shift the stance of fiscal policy in a procyclical direction. the governing council of the