Following are excerpts from a CNBC interview with Ireland's Finance Minister, Paschal Donohoe, and CNBC's Steve Sedgwick.
SS: I've got a fantastic guest, actually, who's going to pick up on one or two of those themes for us now, Paschal Donohoe is the Finance Minister of Ireland, and I'm delighted to welcome him to the CNBC set. Paschal, fantastic to see you. Look, before we talk about mundane matters, that B word, let's talk about the state of the Irish economy, in repairing itself from the boom, the dreadful bust, which I think hit its-, its most extreme levels in 2011, to the situation now, and I'm loath to say it, because last time I said it, it was to Mr Kenny, and then he got voted out, but you're a poster child for how to recover your country, as well, you've got a huge growth rate, somewhere, depending on which measure you look at, between 6 and 7% this year, maybe even slightly lower than that, as well, but you've got your debts under control, your employment situation has improved, as well. How prepared, though, is Ireland for the next financial crisis? Good morning, sir.
PD: Good morning, and thanks very much for having me on, Steve. I mean, we are as prepared as we can be, if I look at the different questions you've put to me there, every country's and every economy's journey to recovery is different, our journey to recovery now sees us at a place in which we delivered a fully balanced books last year, indeed, we delivered a small surplus, this comes from a journey of being in an external aid programme with the IMF, a number of years ago. We expect, in a non-Brexit scenario, or a Brexit scenario where a transitionary period is agreed, to see unemployment begin to move to 5%-,
SS: Mm.
PD: We were moving to 16%, a number of years ago. So, then to lead to your direct question, then, regarding how we-, how prepared are we, we have national finances that are balanced, we have a far more diverse economy, and we have an independent and very well-resourced central bank, that has made huge progress, in making our banks more resilient. But we're under no illusion regarding the challenge that, for example, Brexit could bring, but anything we can influence, in relation to it, to protect our economy, we will, and we'll do that through our membership of the European Union.
SS: If I recap on the histories of the Celtic Tiger, and the mistakes that were made, it was a lot made in the banking sector, a banking sector that was light on regulation, long on liquidity, as well, long on getting involved in a housing market, that went from boom to bust, very quickly, as well, the banks, the housing sector, would you say that those two key areas, which were grave concerns, at one point, do you think they're completely under control, and-, and that we're not gonna see the same bad times, despite the booms we've seen in places like Dublin?
PD: I'm more than satisfied with the level of regulatory control that we have in those different areas, and the policies that we have. If I look at where we are, from a banking point of view, at the moment, we have seen credit levels-, uh, credit availability, that's very carefully monitored, that's very, very carefully regulated, we see no signs at all of any form of credit surge or boom developing, that led to the kind of great difficulties that you mentioned-,
SS: People said the same in 2007, Paschal.
PD: They did indeed, but we now have an independent regulator, that has a legal framework that is far more advanced than it was then, and we also have levels of credit in our economy that are significantly lower than we were between the '08-4 and the '08 period.
SS: Mm.
PD: If I look at where we are, from a housing point of view, I expect, as we close out last year, we'll see around 20,000 houses being built in our country, I believe, across this year, that will move to around 23 to 25,000 homes. What's very different now, is if we look at the outlook that we have on house price movement for this year, many independent forecasters are predicting it could be around 4 to 5%, which, again, is way below where we were at this point a decade ago. But, that being said, there's no reason for complacency, many ministers, and many central bank regulators, will always say, you know, it's different this time-,
SS: Sure.
PD: And we have to keep on challenging ourselves, to be confident that we're doing the right thing-,
SS: But-, but-,
PD: And I do, every day.
SS: But one of the problems, last time round, was the mispricing of capital, as well, and we know, at the peak of the crisis, you mentioned 16% unemployment, I'll mention 14% ten-year bond yield, as well. Now we know the bond yield, I mean, I haven't seen the latest figure, but significantly under 1%, I think it was, the last time I looked, as well. Do you-, is a-, an interest rate, which is negative, at the Central Bank of Europe, the ECB, is that appropriate, for an economy growing 5 to 7%? Surely that creates a huge risk for the Irish economy.
PD: So, our bond yields, at the moment, have levelled off at just under 0.9% now, over the last number of weeks, and I think you make a very, very fair point, that, in the past, we had an injection of capital in to our economy, because we had a domestic economy that was eager to consume capital, and a huge amount of capital abroad. But one of the key changes that we've now made, is the implementation of macroprudential rules within our economy, which really restrains our banks from being able to make use of that capital for domestic consumption and house purchase reasons. So, yes, there is a risk, I mean, I noticed, with interest, what you said earlier on, about the availability of capital globally, which I'll be aware of. The way in which we're dealing with that, though, is by macroprudential rules-,
SS: Mm-hm.
PD: That are rigorously implemented, and have the full support of the government in so doing.
SS: Which are offsetting too easy monetary policy for your country.
PD: And that's a key difference of where we were in the past. That being said, we do have investment needs within our economy, that being said, if I look at the small and medium-sized economic sector that we would have in our country, they have credit and lending needs that we still need to work harder to meet, which we are working to meet.
SS: We haven't mentioned Brexit yet, and so let's get straight on to it, as well. Why doesn't Mr Varadkar, why doesn't Mr Coveney, why don't you, offer the British something more, in terms of a time limit on backstop, get the Europeans behind it, as well, it seems a logical and elegant way out of this utter mess.
PD: Because an insurance policy with a date on it isn't an insurance policy at all.
SS: It-, it-, absolutely it is, it-, it-,
PD: And we-,
SS: And then it can be revisited, at a later date, potentially.
PD: And we have learnt, if you look at the kind of change that is underway in British politics, if you look at the uncertainty that could develop, regarding what the future trading relationship is, what we just need is a very solid, robust legal structure, to ensure our island doesn't get in to great difficulty in the future. And in great fairness to Prime Minister May, and many of her members of cabinet, they recognise that, they understand this, and, in fact, this is an agreement that the European Union reached with the British government-,
SS: Mm.
PD: But this is an issue, Steve, that, as important as economics is, as important as trade is, it's about the stability of our island, it's about the huge progress that the British and the Irish governments have made, in an enormous political project, and the stakes in protecting that progress are so high-,
SS: Are absolutely enormous, so why not throw Mrs May a bone, to get her deal over the line? Because we know, whether it's the DUP, and I was speaking to them last week, whether it's the hard Brexiteers, and again, I-, I had a similar conversation with them, as well-,
PD: Mm-hm.
SS: If you were offering a time limit on this, as well, I've got a feeling that we could actually get over the line on this one, as well, and save the months, if not years, of soul searching, which could follow, a second referendum, and I know many people in Europe are much in favour of that, but constitutionally, in the UK, and you know this, as well as anyone, it-, it will be a score draw, it makes a real problem for people, going forward. Why not have a third? Why not have a fourth?
PD: So, what's crucial, when we're looking to maintain the political order that we have in our island, is an atmosphere of certainty on key things-,
SS: Mm-hm.
PD: And the immediate question both governments would get asked is, if a backstop is triggered, that has a-, a-, a timeline on it, what will happen in the period after that backstop? And the uncertainty that would generate would have a momentous effect on our island. We have seen the freedom of movement of people, we have seen the absence of hard infrastructure on our island-,
SS: Mm-hm.
PD: Enable amazing progress in the stability of the island, and that is the very reason why both governments have acknowledged a backstop is needed, that's why we have got to this point.
SS: Look, you and I are not ignorant of the-, of the amazing progress that's been-, in fact, you've alluded to it many times, and the-, and the Good Friday Agreement was-, was a-, a-, a pivotal moment-,
PD: It was, yeah.
SS: In-, in the island of Ireland's history, as well-,
PD: Yeah.
SS: But-, but there are borderless, frictionless trade between Switzerland-, this country, and France, between Norway, which is outside of the EU, and Sweden, as well. It is feasible, and it is possible, to have something between Northern Ireland and the Republic, isn't it?
PD: Indeed, but many of the countries that you're referring to have entered in to economic models and trading relationships with the European Union that the British government, at the moment, have indicated they're not willing to do-,
SS: You're talking about a customs union.
PD: Well, it's obvious that in some of the early statements that Prime Minister May made, she laid down a number of red lines that she was not willing to cross, one of which was a customs union. So, in each of the other economic models you've pointed to, they have made trade-offs with the European Union, to then facilitate a trading relationship. The-, Prime Minister May, in looking to adhere to the Brexit outcome, has said there are certain things she's not willing to do. If you accept that, if you also accept the goodwill and commitment of all, to no hard infrastructure on our island, and then if you also understand the need of the Commission-,
SS: Mm.
PD: To be able to protect the integrity of the single market, the inexorable outcome of all of this is a backstop.
SS: You're a pragmatist. You have family on both sides of the divide, on this story, as well, and, you were just telling me, of course, family, in parts of England, that are pretty much for a clean Brexit, as well. What's the pragmatic way out of this? Give us something-, give us something to our viewers today, that Ireland can put forward, and say, 'This is a way through this,' rather than worrying about the British soul searching in parliament, because we know that's gonna go on ad infinitum, unless someone can break this deadlock.
PD: Well, we've already compromised significantly, through our membership of the European Union, in looking to put an agreement on the table that was accepted by the British government. In fairness, we've gone through a very, very big journey, in relation to this, because of our commitment to try to find an agreement that works for all, but it is now up to those in the House of Commons, and the engagement that Prime Minister May will be having with them, to see what is an outcome, uh, that they are willing to stand by and deliver. We know what needs to be in that outcome, we need to have a backstop, we need to have a very clear appreciation of legal certainty, regarding not delivering a hard border, and that's why the backstop is crucial. That debate is underway now in the House of Commons, and, you know, we will not be found wanting in our attitude to engage with this matter-,
SS: Yeah.
PD: And we've demonstrated that over the last couple of years.
SS: Alright, well, we know how important the relationship for the Republic, and-, and indeed for the United Kingdom is, the-, the-, the strong strides that have been made, so we hope we'll-,
PD: Yeah-,
SS: We'll see some progress very soon.
PD: And-, and it's important to emphasise the-, how strong the relationship is, between Ireland and the UK-,
SS: Mm.
PD: And though we're members of the European Union, the single market is our market, but the British government and the Irish government have made such progress, on things that looked impossible in the past, and through the EU, and through Michel Barnier, and his taskforce, we-, we all need to find a way of getting an outcome that works here.
SS: You do realise, one day, I won't talk to you about Brexit, don't you?
PD: Well, I have a feeling-,
SS: [Laughs].
PD: That we're gonna be having discussions like this for a while to come.
SS: Always a pleasure seeing you-,
PD: Thanks, Steven-,
SS: Lovely to see you-,
PD: Thank you very much.
SS: Thank you so much indeed for your time, Paschal Donohoe-,
PD: Thank you.
SS: Who is the Finance Minister of Ireland.
ENDS