the irish government was paying lenders over the odds to compensate them for currency risks on a scale which never materialized and which the government knew would not materialize. my estimate is that in those days we paid 2½ percentage points extra as a result of this unfounded pessimism over a decade. over the past year and more it has been a similar story. markets have been demanding a premium for risks which the government knows are unfounded. this morning the spread of irish government 10 year bonds above the german benchmark was still more than 1½ percentage points, despite a sharp narrowing following the measures announced over the weekend. one way or another, commercial bank lending rates also come to embody the risk premia being paid by the national government. this is something that cannot be avoided. and that – in broad terms – is why bank lending rates have been creeping up again in ireland. ( i won ’ t speak today about important details such as the cross - subsidization between tracker mortgages and other lending. ) given how intimately dependent bank lending rates are on the rates at which the government can borrow, let me say a word about the government ’ s borrowing costs and how those have been affected by market sentiment in recent weeks. right across europe, for the past several weeks, the fiscal pressures in the greek economy have been heightening investor concerns. this resulted in greek debt being traded in secondary markets at record yields. despite the negotiation of a large financing package sufficient to deal with the greek government ’ s borrowing needs for three years, and assurances that greek government debt would remain eligible to back commercial bank access to liquidity at the ecb, market concerns remained high. indeed, they tended to spill over into the markets for the debt of other countries with high borrowing needs. the functioning of interbank and other short - term markets was also hampered. irish government debt did not escape this pressure, though it was not the most affected. the symptoms intensified during last week to the point where some financial markets seem to have become quite dysfunctional. it was clear that decisive action was needed. the action decided upon on monday morning had three main goals : – first, the path of fiscal adjustment right across the european union needed to be confirmed and for many countries reinforced. – second, there had to be confirmation that sufficient financial resources would be available to enable countries taking convincing and sufficient fiscal adjustment measures to accomplish this adjustment in a smooth manner. – third, to address the malfunctioning

. the recapitalization and restructuring of the banks will be accomplished by end year. they will be stable and secure, capable of resuming their role in providing financial services to the economy. just two of the banks losses go so deep as to burn through not only the whole of their capital reserves but billions of the depositors and other lenders ’ money. as you know, these two are irish nationwide building society ( inbs ) and anglo irish bank. there ’ s no point in my wasting purple prose in condemning the conduct and results of these banks. the taxpayer – and those in need of better public services – will be picking up the sizable tab for their deficiencies. what i do want to emphasize is that – huge though it is – the net deficiency of these two banks does not impose a burden on the government ’ s budget that could justify recent interest rate yield spreads on irish government bonds. inbs accounts for about €2½ billion in net budgetary costs. with the nama purchases not yet completed, i can ’ t quite narrow the anglo figure down precisely. however, rounding up recent estimates to be on the safe side, it would be a pessimist who would put the taxpayer ’ s net cost above €25 billion. that is a huge sum, and it ’ s unconscionable that it could have arisen. ( i will have more to say about this in my report to the minister for finance at the end of the month ). the main point today, then, is to stress that the cost is manageable. shocking, if you want, but manageable. i make no excuse for using that word. it is important that everyone, at home and abroad, recognizes that this is a sum that is not a game - changer in terms of the public finances. it represents about one year ’ s borrowing requirement at current rates. it is not destabilizing. the plan is that, when this has been accomplished later in the year, the markets will come more to realize that the banks ’ losses no longer represent any threat to the public finances, and that this is no longer a factor that should cause them concerns about investing in irish government paper. this will be good both for the banks ’ ability to mobilize loanable funds, and for the government ’ s ability to fund its continuing, though steadily contracting, borrowing requirement. after all, it is the underlying gap between tax revenue and government spending that represents the main