Mistake will haunt ex-ESRI chief ‘until he dies’
The ESRI’s former lead researcher said its declaration in May 2008 that the economy was fundamentally sound is a mistake that will stay with him until the day he dies.
Speaking at the Oireachtas banking inquiry, Professor John FitzGerald said that in the absence of in-house expertise on the banking sector his organisation relied upon data from international bodies, none of which were predicting a global financial crash.
On this basis and despite being conscious a problem existed, the ESRI made a call that Ireland would escape a ruinous collapse which Mr FitzGerald repeatedly admitted was a huge mistake and entirely wrong.
Relying solely on data provided by the likes of the IMF and OECD was a “cop-out” on his behalf though. Had he looked at the bank’s balance sheets, it would have been obvious that a problem existed and would not have taken much expertise to come to that conclusion, he said.
“We should have seen the problem. We were conscious of the fact that there was a problem out there but we made a call that Ireland would probably escape it and we were totally wrong,” Mr Fitzgerald said.
The economist who retired from the institute late last year said “the mistake was 2008, for six weeks”, in reference to his claim that the publication of the Medium Term Review in May of hat year which failed to diagnose the economic ills of the country was an aberration after years of warnings.
Having made strong remarks highlighting the pitfalls associated with a construction sector crash in an RTÉ documentary aired in 2007, Mr FitzGerald was asked why he didn’t repeat the warnings a year later.
He said that after years of warnings, he felt the institute was campaigning on the topic which went against its independent nature and as such drew back from the issue. Mr FitzGerald said he felt isolated and frustrated by the apparent disinterest of those in political circles to heed the warnings.
Refuting any suggestion that political interference may have resulted in the ESRI censoring its report, Mr Fitzgerald replied: “It was my choice and I made a mistake”. He added that he felt house prices had turned a corner.
He admitted however, that in 1999 while he was in Warsaw and “a nervous Nelly” in the Department of Finance “had been jumping up and down” over the ESRI’s medium-term review, an employee amended the report against his instructions.
It was only after returning from Warsaw that Mr Fitzgerald realised his contention that the comments he deemed to be “political” had been ignored and the report changed. He described the event as highly unusual.
The former ESRI head also said he was furious when a senior official in a public body other than the Department of Finance sent a letter on a separate occasion saying the institute had “committed treason” for suggesting corporation tax should be increased, and called on the official to withdraw it.
Mr Fitzgerald said he didn’t consider stepping down in the wake of the 2008 report as he felt he had done a reasonably good job in his career and had not seen anyone do better in the run-up to to the crisis.
He said concerns raised in 2006 over Irish banks’ potential exposure as a result of investors seeking to buy Polish property met with an unsatisfactory response from the regulator.
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