Minister for Finance Brian Lenihan said he “deeply regrets” what happened during the banking crisis and admitted that some decisions made by the government of the time were “wrong”.
He said: “We did spend too much money and yes we did neglect our tax base - they were mistakes.
“But let’s be clear about it, they weren’t mistakes that were highlighted by very many at the time and indeed many of those who predicted the collapse of the property bubble did so at a very late stage.”
Speaking today on RTÉ's Morning Ireland after the first official reports into the causes of the banking crisis were released the Minister acknowledged there were flaws in both regulation and policy.
And while he insisted that up to the beginning of this decade the economic boom was “healthy”, with export-led growth and job creation, the construction-led element became “far too dominant”, he said.
“I didn’t see in the political system generally any appetite for introducing a property tax during that whole era.
“Of course the government has to take primary responsibility, but the report does point out the general what they describe as the socio-political context, and the socio-political context was that more and more money was demanded to be spent all the time, and less and less tax all the time."
The hard-hitting reports by the new Central Bank governor Patrick Honohan and international banking experts Klaus Regling and Max Watson published yesterday heavily criticised misguided government economic policies, a weak system of financial regulation and poor bank lending.
“There’s nothing in Mr Regling’s report that surprises me. I’ve had to live with these problems since I became Minister for Finance,” he said.
“I’ve had to accept the analysis of this report for over two years now, and I think the Opposition parties should accept it at this stage as well rather than simply oppose everything the Government does, which has been their policies.”
Earlier Taoiseach Brian Cowen accepted that policies introduced while he was minister for finance had led to a “deeply challenging” situation for the Irish people and he regretted that. He agreed that a more restrictive fiscal policy would have helped in slowing the economy.
“Hindsight is always clear and obviously we would not have taken such a course if we had known of the scale of the property collapse which was facing the country,” he said.
“I deeply regret that.”
According to the reports, major failures in banking regulation and the maintenance of the financial stability of the country – coupled with excessive and high-risk lending by the banks – led to the crisis.
The Government’s budgets during the boom years “contributed significantly to the economic overheating”, Dr Honohan said, as they relied to an “unsustainable extent” on the construction sector and encouraged the property boom through tax breaks.
“This helped create a climate of public opinion which was led to believe that the party could last forever,” he said.
Dr Honohan found that the Financial Regulator was “excessively deferential and accommodating” to the banks, while the Central Bank, led by his predecessor John Hurley, had not been alert to warnings signs of an imminent crash.
There was insufficient awareness or willingness to accept “how close the system was to the edge” and that it was the responsibility of the Central Bank and the regulator to pull it back from the edge, he said.
“Rocking the boat and swimming against the tide of public opinion would have required a particularly strong sense of the independent role of a central bank in being prepared to ‘spoil the party’ and withstand possible strong adverse public reaction,” Dr Honohan said.
Pat Neary, the former chief executive of the regulator, said he had no comment. Mr Neary’s predecessor, Liam O’Reilly, and Mr Hurley could not be reached for comment.
Dr Honohan said there was “a comprehensive failure of bank management” to maintain “safe and sound banking practices”.
The weakness of the Irish banks was not caused by the collapse of US bank Lehman Brothers in September 2008 but by an over-exposure to property driven by excessive overseas borrowing “to support a creditfuelled property market and construction frenzy”.
Anglo Irish Bank and Irish Nationwide Building Society were “well on the road towards insolvency” at that stage, he said, while the two biggest banks, Allied Irish Banks and Bank of Ireland, could only have survived without a State bailout if the international financial markets had calmed.
The scale of the Government guarantee raised the cost of the bailout to the State, narrowing options available to fix failing institutions, he said.
The Regling-Watson report said regulation was not “hands-on or pre-emptive” and was “insufficiently intrusive” and “forceful”, while resources were “seriously inadequate for the more hands-on approach” required.
Regulators under-estimated the funding risks linked to the banks’ over-exposure to property.
“The fact is that supervisors, right to the end, clung on to the hope of a soft landing for the economy and the property market,” they said.
The Regling-Watson report found that the Government failed to rein in bank lending and that policies “even fuelled the fire”.
Mr Cowen said the Government had taken action to reduce the vulnerability of the banks to the property market but he accepted that this was insufficient.
The Taoiseach maintained that Dr Honohan had strongly vindicated the Government’s handling of the crisis.
The reports will be referred to the Oireachtas Finance Committee which will meet tomorrow to consider draft terms of reference of a six-month commission of investigation into the crisis.
The Government has published draft terms of reference to look at the causes of the crisis but they do not include a review of budgetary policies.
Opposition parties will table a motion of no confidence in the Taoiseach in the Dáil and are expected to call for the terms of reference of the banking inquiry to be widened to include the Government’s fiscal policy leading up to the crisis and the bank guarantee scheme of September 2008.
Mr Regling and Mr Watson are to appear before the Oireachtas Joint Committee on Finance and the Public Service Committee tomorrow from 10am to discuss their report.
Committee chairman Michael Ahern said: "This meeting will provide members of the committee with an opportunity to raise any issues they have in relation to preliminary enquiry into the banking crisis.
"It is clear that there are lessons to be learned from mistakes made in the past and these reports will add to our understanding of what happened with our banking system and will help frame the debate and form a starting point for an in-depth investigation into the causes of the banking crisis."