Ireland’s chief banker today warned that the Government may have to implement even more savage cutbacks than already hinted at for the upcoming Budget.
Urging an “explicit reprogramming” of the public finances over the coming years, Central Bank Governor Patrick Honohan said international lenders still need convincing the country is on the right path to recovery.
“It is important now to re-set the fiscal path to ensure a virtuous cycle of lower borrowing rates... and a lower overall cost of the adjustment to society at large,” he said.
Last week Finance Minister Brian Lenihan said December’s Budget would slash at least €3bn from spending on public services.
The cuts are expected to hit social welfare, education, health and other departments.
But Mr Honohan, speaking at a banking conference in Dublin, appeared to suggest even harsher cost-cutting was needed.
The Central Bank chief said recent jumps in the cost of Government borrowing show international lenders must be convinced Ireland is committed to reducing its debts.
Rejecting arguments for more spending to boost the economy, he said there was no question that cuts were the only option for a small country like Ireland.
Mr Honohan said the cost of the banking bailouts would continue to be a heavy burden on taxpayers and public service users for several years to come.
However, he insisted the measures were “manageable” in terms of the public finances and a lot less alarmist than some commentators have suggested.
Urging people not to be surprised by a further jump in the national debt, Mr Honohan said the state coffers are being drained during the bust at the same scale as they swelled during the boom.
Mr Honohan also described as a “welcome relief” the Government’s splitting of Anglo Irish Bank into two separate institutions.
The Central Bank is carrying out a stress assessment of potential future losses at the nationalised lender, he said.