IT'S regarded as Brian Cowen's Achilles Heel. The time he spent at the Department of Finance between September 2004 and May 2008 keeps coming back to haunt the Taoiseach. During this time, the banks' reckless lending to developers reached its peak and the economy went from boom to the beginnings of the bust we have experienced over the past 20 months. While Cowen can claim with some vindication that his government is taking the tough decisions to put the economy and the banking system back in order, the opposition parties continue to accuse the Taoiseach of being a major part of what caused the problems in the first place through his inactivity as finance minister. But how justified are these claims? Is it political pointscoring from an opposition that would have done little differently had it been in government, or did Brian Cowen make a hames of it during his time on Merrion Street? On the eve of his second anniversary as Taoiseach, we put the case for the prosecution and the defence and ask you, the reader – and come election time the ultimate judge and jury – to decide.

'Cowen was finance minister. That job brings with it ultimate responsibility'

The case for the prosecution

Ladies and gentlemen of the jury. The facts before us are clear. It is not our contention that Brian Cowen is solely responsible for the dramatic collapse in the public finances or the crisis in the banking system – his predecessor Charlie McCreevy and his former boss Bertie Ahern, along with others in the banking sector and those responsible for regulation, must share the blame. But as the key minister during a time when the Irish economy, housing and banking sectors were clearly overheating, he failed to see the warning signals and failed to take the necessary action that could have, if not headed off the economic and financial collapse, at least alleviated the chronic extent of the problem.

Let us deal with the economy first of all. And for this we present to the jury exhibit A – the copies of the four budgets Mr Cowen presented during his time as Minister for Finance. We won't detain the court by going through each budget in detail. But what is remarkable from the budgets is the utter absence of any measure that would be unpopular with the electorate or would draw some heat from the economy. Quite the contrary. In his first budget in December 2004, Mr Cowen gave major tax concessions to workers by increasing tax credits and bands – which had been held steady for the previous two years – and gave social welfare increases which were not only far ahead of inflation, but exactly matched those demanded by Cori. The aim of this and subsequent budgets was not to do what was best for the economy, but to rebrand what was then an unpopular government as caring and compassionate and win the next general election. In that first budget, Cowen also reduced stamp duty on second-hand houses, hardly a wise move in a runaway housing market, but certainly a populist one.

The following year's budget and estimates process oversaw a €4.4bn increase in spending. This represented a wholly unsustainable increase of 11% that would be unheard of in other European democracies. Although consumer spending was already rampant, this was further fuelled by measures like the €1,000 childcare supplement given to parents of children aged under six. The standard rate band was increased by 9%. Social welfare payments were increased by 11%.

But it was his budget of December 2006 that was the most reckless – hardly surprising given a general election was six months away. €1.25bn was given away in tax cuts, including a wholly unnecessary and unwise decision to cut the top rate of tax by a percentage point. The social welfare package at €1.4bn was even bigger, with the basic weekly rate rising by €20 and the old age pension increasing by €16. Within the space of 18 months, it would become clear none of this was affordable.

By this stage, the housing market had started to enter its slump. But ignoring past lessons and the fact that houses were clearly overpriced, Mr Cowen sought to give the market fresh impetus by doubling interest relief for first-time buyers. There was a further attempt to meddle in the market 12 months later in his final budget when the stamp duty regime was revamped. And despite clear warning signs in the international economy, Mr Cowen still brought in a tax cutting and social welfare increase package of almost €1.6bn.

It is true that Mr Cowen ran budget surpluses during his time as Minister for Finance. But it was clear even at the time that these surpluses were being propped up by huge tax receipts from the construction sector that simply could not last indefinitely.

It is also our contention that Mr Cowen was far too slow in bringing an end to the myriad property-based tax incentives that were introduced by his predecessor. It was clear these incentives were not required at a time of unprecedented construction industry boom. But Mr Cowen prevaricated, announcing a 'review' of such measures in his first budget and only opting to phase some of them out in the following year's budget – 15 months after becoming minister.

We now wish to put forward Exhibit B – the annual reports of the Central Bank for the period 2004-2007. These reports consistently raised concerns about the extent of over-heating in the housing market. In the 2004 report, the Governor of the Central Bank, John Hurley, warned that a continuation of the 25%-plus increase in both mortgage credit and non-mortgage credit "would give rise to serious problems before too long". A year later, Hurley warned: "The construction sector now accounts for nearly 13% of total employment, an exceptionally high fraction by international standards". He said that with the economy "growing at a rate close to its potential, there is little need for fiscal policy to impart a stimulus to demand".

Mr Hurley went on to warn that the "acceleration in house price inflation has increased the risk of an overvaluation in house prices and, as a consequence, has clearly increased the probability of a sharp correction".

These clear warnings went unheeded.

As did some obvious signals emerging from the banking sector. A casual perusal of the property sections of the newspapers would have indicated that Irish banks were bankrolling massive property investments across the globe. Irish investors were consistently winning such bidding wars. Should this not have caused alarm bells to ring somewhere in the Department of Finance? How was this being funded? What kind of guarantees and collateral were being put up? Should the activities of Irish Nationwide – supposedly a building society – in the property sector not have at least prompted questions to be asked? The same question holds for what was going on at the other basket case that was Anglo Irish Bank. Which brings us neatly to exhibit C – a statement from Labour finance spokeswoman Joan Burton from 10 April 2006. In this statement, deputy Burton criticised the then finance minister Brian Cowen for his decision to "capitulate to pressure from stockbroker and financial institutions" and overrule the Revenue Commissioners and exempt contracts for difference – effectively a form of spread betting on the stock markets – from stamp duty that applies to normal purchases of shares. This decision is symptomatic of the light-touch approach to regulation that was being taken at that time – the financial institutions effectively set the rules. The decision rewarded speculative share dealing and put longer term investors such as pension funds at a disadvantage. But this decision, we suggest, also helped Seán Quinn build up, under the radar, his massive and disastrous exposure to Anglo Irish Bank through the use of contracts for difference, which ultimately would cost the taxpayer dearly.

In summary, ladies and gentlemen of the jury, we don't dispute that a myriad of factors caused the implosion in the Irish economy and the banking sector. There were many failures. But ultimately, Mr Cowen was minister for finance. That job brings with it the ultimate responsibility for safeguarding the economy. And it is clear beyond reasonable doubt that in what he did – and perhaps more importantly – what he didn't do, Mr Cowen failed in that responsibility. The prosecution rests.

'Cowen did all that could reasonably have been expected of any finance minister'

The case for the defence

Ladies and gentlemen of the jury. You have just been subjected to a case against my client that is based on half-truths and selective information and which falls into the classic trap of judging decisions and actions with the benefit of hindsight. Hindsight as you all know is 20-20 vision. There is no doubt that if Brian Cowen knew in 2004 what he and we all know now, he would have done things differently. If he had known about the crisis in the US subprime sector, the global credit crunch, the collapse of Lehman Brothers and the impact this would have on the Irish economy and Irish banking system, he would have made different decisions. But the fact is nobody in Irish politics – and very few anywhere in Irish life – predicted these events.

My learned friend, the prosecuting counsel, has treated you to a run-through of the budgets introduced between 2004 and 2007. But, of course, there are serious omissions in his presentation. In his first budget, Mr Cowen did introduce tax cuts, but they were specifically targeted at the lower paid, producing an 8.8% increase in disposable income for those less well-off and taking workers on minimum wage out of the tax net. Who even now would dispute the merit of this move? And in 2004, the opposition parties certainly were not. The only criticism coming from his opposite numbers in Fine Gael and Labour were that the minister had not cut tax or increased spending enough. These were the same criticisms that would be made by the opposition against every single one of Mr Cowen's budgets. As late as December, 2007, the opposition parties were deriding his "cautious approach".

There are no examples from the period 2004-2007 of opposition politicians saying 'You are spending too much on social welfare, education or health', or 'It's time that taxes were increased'. Quite the contrary, as a glance at the give-away Fine Gael, Labour or Green election manifestos for 2002 and 2007 will tell.

Mr Cowen consistently ran large budget surpluses during his tenure. The argument has been made that he should have run bigger surpluses of 10%-plus. Let us suppose that Mr Cowen had done so. This would have meant health spending being reduced by far less than the standard €1bn-a-year increase of the time; social welfare increases of around the rate of inflation or less; higher taxes for the lower paid because that it is where the real money is raised; public sector pay increases of far less than was awarded; less money for the disabled.

I can go on with similar examples. But imagine the reaction from the opposition, the media and, indeed, the electorate, if Mr Cowen had done so, while at the same time running surpluses of billions of euro. There would have been a massive public outcry. Liveline would have run for weeks with complaints about Scrooge Cowen. He would have been hounded from the job. No, repeat, NO politician – not Richard Bruton, Joan Burton or George Lee – would have done this.

Mr Cowen actually did see the danger signals in the international economy sooner than his party colleagues and opposition rivals. While the opposition parties produced give-away election manifestos in 2007 with tax cuts and huge spending promises, the then Minister for Finance fought a pitched battle behind the scenes with his leader Bertie Ahern, arguing the Fianna Fáil manifesto should emphasise caution and eschew a giveaway approach. Unfortunately, he was over-ruled.

During this time, Mr Cowen also stood firm against strong pressure from within his own government, the opposition and the media to reduce or abolish stamp duty, arguing that this would undermine the tax base and have a dangerous impact on the housing market. When he did make modest changes in late 2007, by which point the housing market was in a slump, Richard Bruton slammed it as "six months too late".

Mr Cowen also capped tax reliefs that high earners could avail of and introduced a de-facto minimum tax rate of 20%, at a stroke ending the possibility of the mega-rich being able to legitimately avoid all tax. He also moved to cut off the ability of the very wealthy to avail of tax loopholes by establishing a tax strategy group to review the multitude of property reliefs. The impact of these property reliefs on the overall market – with the possible exception of the hotel sector – has been exaggerated. The property market was a bubble, with or without such reliefs. But either way, Mr Cowen's actions in this regard were not found wanting. In the budget following the report of the tax group, he acted by announcing the end of those reliefs on a phased basis.

There was to be no soft landing, of course, for the housing market as anticipated by the vast majority of economists at the time.

But even with the benefit of hindsight, ask yourself – with the European Central Bank controlling interest rates – what action could any politician have taken to deflate the property bubble without causing the whole thing to pop?

Recall the enormous pressure Mr Cowen faced to reduce stamp duty and imagine the public and political reaction if he had attempted to abolish mortgage interest relief or introduce a property tax. Given the irrational exuberance in the housing market, such measures would probably have had zero effect on house prices anyway. The reality is there was a headlong rush for people to get on the property gravy train and woe betide anyone who got in the way.

Mr Cowen, if my learned friend is to be believed, was also responsible for the actions of Sean FitzPatrick at Anglo and Michael Fingleton at Irish Nationwide. As well as being a full-time politician, running the most demanding government department of all, he should also have been running the rule over the balance sheets of all the banks and personally examining the lending procedures that they were using for property loans. That was the job of the regulatory authorities – a job quite clearly that was not done well enough. The warnings from the Central Bank the prosecution has referred to were hardly of a stark nature, particularly when the full reports are read.

It is true that a small number of economists – Morgan Kelly at UCD, Alan Ahearne at NUI Galway – did warn about what was coming down the tracks. But they were in a tiny minority. Who in the opposition – with the exception of the Green party – was warning about a property bubble? Right up to the 2007 General Election, all the parties held the same view about the country's economic prospects. And absolutely nobody foresaw the scale of the collapse in the global financial system. The problems with the Irish banking system, while horrendous, are not unique. Banks across the world – including the UK and the US – have had to be recapitalised.

The truth, ladies and gentlemen of the jury, is that during his tenure as finance minister, Mr Cowen adopted a much more prudent approach to the public finances than the opposition and the media – who are now denigrating his record – demanded at the time. Those same forces believe he should also have performed the role of crystal ball gazer and financial regulator as well as ensuring that Ireland was the only country in the western world to have been unaffected by the global liquidity crisis.

That is patently ludicrous. Brian Cowen did all that could reasonably have been expected of any finance minister during his tenure. Based on their own utterances during this period, there is no TD currently in the Oireachtas who would have performed any better – most indeed would have done considerably worse. The defence rests.