Prof Axel Weber, President of the Deutsche Bundesbank.

Financial Services Ireland (FSI), the IBEC group that represents the financial services industry, today said it supported current government economic strategy and urged greater focus on Ireland’s international financial sector. The comments were made at the group's annual lunch, which also included an address about the role of capital requirements in financial regulation from Prof Axel Weber, President of the Deutsche Bundesbank.

Prof. Weber who has been tipped to succeed Jean-Claude Trichet as president of the European Central Bank in 2011 said: "The most comprehensive proposal to reduce the likelihood of individual bank failures is the reform of capital requirements within the Basel II framework. This is based on the assumption that, for the individual institution, capital requirements constitute the central buffer against losses. However, the crisis revealed that the overall level of capital that banks were required to hold was insufficient compared with the magnitude of the losses. At the same time, it became apparent that the loss-absorbing capacity of the capital held was too low."

Weber said alternative proposals such as a European Stabilisation Fund and the Volcker Rule, which was was proposed by President Obama in mid-January had several drawbacks. The Volcker Rule is aimed at barring banks completely from certain forms of risk-taking: they would not be allowed to invest in or sponsor hedge funds or private equity funds. One shortcoming of the Volcker Rule, however, is that it most likely would not apply to investment vehicles, such as hedge funds or investment banks. And a failure of these could also lead to systemic distortions. However, Weber said the most fundamental problem of the Volcker Rule lies in the fact that a complete prohibition of certain activities - - activities that are perhaps more risky but not necessarily economically inefficient - - is a very far-reaching market intervention. The reformed Basel II framework and the Stabilisation Fund also try to restrict possibly destabilising activities but, unlike the Volcker rule, the penalty they impose on these activities is finite.

The Bundesbank president said the Volcker Rule could have undesirable effects on the transmission of monetary policy.

Speaking at the event, Fergus Murphy chairman of FSI and chief executive of EBS said: “Recent economic indicators suggest that the Government has succeeded in stabilising the Irish economy. The key question now facing Ireland is whether we use this stabilisation as a platform for renewed growth or allow our country to stagnate for years.

"The number employed in the IFSC has grown from around 5,000 in 1998 to more than 30,000 today. Ireland can achieve similar growth over the next ten years if we have the right government supports and focus our efforts on sectors of the economy in which we have a track record of success.

"The potential dividend for the economy could be enormous. Early indications of an FSI-commissioned report are that more than 20% of all Irish corporation tax stems from the IFSC, as does 7.5% of GDP. The total contribution to the exchequer in terms of corporate and payroll taxes is in excess of €2bn.

“The recent Budget and the appointment of a world-class regulator are important steps, but we need a renewed focus on competitiveness and a determined effort to market Ireland abroad in order to grow the industry.”

The poor UK manufacturing data is mostly due to bad weather, Peter Westaway from Nomura said Wednesday. He said he sees the UK economy in a fragile recovery. Andy Hartwill from Quasar added that the UK Prime Minister Brown's comment of there being a bumpy road ahead for the economy as an understatement: