UNEMPLOYMENT numbers will break 250,000 by the end of the year as Ireland faces a recession worse than the rest of the world, Finance Minister Brian Lenihan told reporters in London yesterday.
Mr Lenihan reiterated comments by Taoiseach Brian Cowan that the Irish economy will contract 6%-6.5% in 2009, and added that unemployment would rise to about 12% by the end of 2009. The EU forecasts a 5% contraction of the Irish economy.
Mr Lenihan said there has been a "sizeable increase" in unemployment and the Government’s "best guess" is that the rate may reach 12% by the end of 2009.
Ireland was having a tougher time grappling with the recession, he said, adding that the effects of a domestic housing crisis had fed into its banking system.
"Ireland is facing a very difficult recession, somewhat worse than the rest of the world," he told reporters in London.
Looking ahead to the mini-budget scheduled for April 7, Mr Lenihan said: "We will have to make expenditure reductions and the government is determined to do that."
"I do accept that the state finances are under considerable stress" though the Government "has reacted very speedily and taken the necessary adjustments and we will continue to do so to bring matters under control".
The minster took a swipe at those who are trading credit-default swaps on Ireland, betting that there is as much as a one in four chance Ireland will go bankrupt at some stage over the next five years. These traders have pushed the cost of insuring against Ireland defaulting on the national debt of €52.5 billion to record levels in recent weeks.
"The credit default swaps are in our view the bookmakers of the financial system and the amounts involved suggest that funds are taking a bet on Ireland.
"But I think there’s a misconception here. The eurozone is not going to break up and for Ireland to leave the euro would be like for Texas to leave the dollar area. I think there’s a misconception that states can opt out of the system, it’s not possible," he said.
"Our assessments are that the bets are misconceived and they will have to bet on another horse because the euro is not going to break up."
On the impact of sterling’s decline against the euro, Mr Lenihan said: "Our competitiveness is reduced by the sterling devaluation."
Ireland’s fiscal position has prompted Standard & Poor’s and Moody’s Investors Service to downgrade the outlook on Ireland’s credit rating to "negative" from "stable" this year. Fitch Ratings on March 6 put Ireland’s top credit classification on "watch negative".
Credit-default swaps on Irish government debt fell to 287 basis points yesterday from 303 points on March 13, according to prices from CMA Datavision.
They reached a record 396 basis points on February 17. This means it costs €287,000 per year to insure an exposure of €10m in Irish Government bonds.
a d v e r t i s e m e n t
This appeared in the printed version of the Irish Examiner Tuesday, March 17, 2009
