Research has found that the costs of public debt are low when a country’s economic growth rate is higher than the inflation-adjusted interest rate on its public debt.14 It’s just arithmetic. In this situation, growth will keep debt as a percentage of GDP on a stable or declining path, even if a country is running a limited budget deficit.
And it was not only the banks or the Regulator that were caught up in the exuberance of those years and failed to recognise the extent to which the character of the boom had changed from the Celtic Tiger era of the 1990s and the extent of the risks which were being assumed (especially from about 2003).