Through the 1980s and into the 1990s Irish interest rates were kept far too high as a result of market pessimism. In effect, 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.