The Tanaiste yesterday acknowledged the decision to nominate Mr Hugh O'Flaherty for the European Investment Bank position was wrong, and expressed her sorrow "for all the people involved in the controversy".
In an interview with The Irish Times in Beijing during an official visit to China, Ms Harney said the controversy had caused other Government issues to be neglected and suggested cross-party consultation in future for international appointments.
Acknowledging people felt disillusioned and angry about the O'Flaherty affair, Ms Harney said: "I'm sorry about a number of things. I'm sorry obviously for the Ryan family, we brought their private personal tragedy into the public domain, for them it's an issue they will never recover from; I'm sorry for all of the people involved in the controversy, it's been a very unhappy experience.
"We got it wrong. I think the reason we made the wrong decision was the procedures we used. We never actually discussed it. I didn't have a meeting with the Minister for Finance, it was all done on the telephone. We didn't give the nomination sufficient consideration.
"I suppose we weren't as sensitive as we should have been to the background to the O'Flaherty issue. I think that was a mistake, and probably we put the give a second chance element too high up on the agenda too soon. The choice of person was obviously a mistake, as any decision which leads to such public controversy, that is so unacceptable to such a large number of people, when it's a nominee to an international body representing the country, is not a good thing."
She said she believed the Minister for Finance, Mr McCreevy, was the only person who initiated the O'Flaherty nomination. He was the only person who had mentioned it to her before the nomination was agreed.
Asked about criticisms of her handling of the suggestion that Fine Gael TD Mr Jim Mitchell be nominated, she said: "The idea of being involved in a controversy where no nomination was made and where a person wasn't interested was I think just bringing the whole matter to ridiculous levels.
"If somebody telephones you and in the course of a private conversation a discussion emerges, I think you would be very foolish as a member of the Government if you didn't ask would that person be interested."
Ms Harney was referring to a telephone call from Mr Ulick McEvaddy, who suggested Mr Mitchell as a possible candidate. Looking back, she said: "We've got to look at the positives. I think in Ireland we only look at the downside. This is a decision that we got wrong, a mistake we made, but in the context of the overall performance of the Government, it is one issue, albeit a very important one, but I think that those who don't make mistakes never do anything. We are not infallible."
The worse thing that could happen was if the Government became paralysed as a result. "There's no doubt in the run-up to the summer break the issue had dominated the agenda to such an extent that I believe other issues were being neglected."
In relation to international appointments of an executive kind she thought there was merit "in examining the question of the government of the day consulting broadly with the Opposition". This was because firstly the person represented the State; secondly it was not good to have political controversy about such an appointment, and thirdly governments come and go but have to work with individuals. The procedure for appointment of an ombudsman, where the Opposition must be consulted, was a possible model, she said.
On appointments to State boards, Ms Harney said she might favour a form of independent scrutiny rather than scrutiny by the Oireachtas, as "a certain calibre of person" might not make themselves available if they thought their nomination would become politicised.
It was already very difficult to get very high-calibre individuals to give their time, such as Mr Martin Naughton, who agreed to chair the North-South trade body, or Mr Pat Molloy, who chairs Enterprise Ireland, she said. If nominees were subjected to political scrutiny, "I think you might end up with only partisan types being prepared to do that. And probably public companies, their institutional investors, wouldn't allow their chief executive or senior executives to get involved in what could be regarded as political scrutiny."
She did not agree that there was a public perception of a rotten system of political patronage. "I'd like somebody to analyse the appointments made by this Government or certainly the appointments I've made in this Government - all of the chairpersons I've appointed. None of them are party activists of mine or any other party to the best of my knowledge."
Ms Harney said combating inflation was the number one priority for the next Budget. "But tax rates are still very high, particularly in lower middle income people. We have now introduced a national minimum wage in Ireland which is £4.40 an hour. I believe we should move as quickly as possible to take that out of the tax net. Because if that's the minimum an individual should earn, it doesn't make any sense that we should take tax from it and we are quite a long way off from removing that."
"We have to continue with what we started last year, to encourage working spouses, to encourage more women into the workforce, at a time when we are bringing the standard rate of corporation tax down to 12 1/2 per cent. I don't believe it's fair that workers should pay 44 per cent tax on their earnings. When that finally emerges on the first of January 2003 we'll have the corporations paying 12 1/2 per cent on the profits they're making and the workers in those corporations paying tax as high as 44 per cent. Clearly whatever tax changes are made have to be done in the context of minimising any impact on inflation. But I don't believe that it is taking less tax that has caused the inflationary pressures. I think that has to do with the buoyancy in the economy, rising house prices, skill shortages, issues like that are putting pressure on wage levels and eating their way into the domestically generated inflation levels."